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Archive for the ‘South Korea’ Category

When I give speeches on the importance of public policy, I frequently share data showing that pro-market nations are relatively prosperous when compared to countries with statist policies.

One of the most dramatic examples is South Korean prosperity versus North Korean deprivation.

It’s not that South Korea is perfect. After all, it only ranks #35 according to Economic Freedom of the World.

But that’s enough economic liberty to be in the “most free” category. And this helps to explain why South Korean living standards have climbed dramatically compared to the economic hellhole of North Korea (and you see something similar if you compare Venezuela and South Korea).

I’m definitely not the only person to notice the difference between the two Koreas. Here are some excerpts from one of Richard Rahn’s columns in 2017.

In 1960, South Korea and North Korea were similar in their poverty. Now, 50-plus years later, South Korea has a per-capita income more than 20 times that of North Korea, at approximately $38,000 per year, which is higher than that of Spain or Italy. South Koreans have gone from a per-capita income in 1970 that was about 10 percent of the average American to almost 70 percent today. …Koreans in both the North and South come from the same genetic stock, speak the same language, and occupy adjoining pieces of land with much of the same topography and limited natural resources. North Korea is the ultimate consequence of socialism, which always contains the seeds of its own destruction. Socialism goes against human nature, requiring its government to become increasingly authoritarian — North Korea being Exhibit A.

But Richard also warned that South Korea can’t rest on its laurels.

While economic growth per year averaged more than 9 percent from 1963 to 1990, it has now slowed down and last year was only 2.8 percent…a sharp drop from earlier decades. There is too much unneeded and counterproductive regulation, including the lack of ease of creating new businesses, barriers to imports and inward foreign investment. By any measure, South Korea has been a great success, but probably not as much as it could have been or can be if it followed more of a classic free trade and more limited-government model as practiced by Hong Kong and others. The country is increasingly exhibiting the disease of most other rich, developed democracies by allowing itself to be slowly seduced into the promise of more government services and attendant regulation, rather than the tougher and more competitive policies that created the wealth. Will South Korea avoid the stagnation of Japan and much of Europe? The jury is still out.

The jury may still be out, but there is growing evidence that South Korea is heading in the wrong direction because the nation’s relatively new President in increasing the burden of government.

Here are some passages from a report in the Japan Times.

Moon Jae-in began his second full year as South Korea’s president with a reminder of what didn’t work in the first — namely his economic policies. …The self-styled “jobs president” has seen his once sky-high poll numbers tumble… Moon, a progressive, was swept into office in 2017 promising a reversal from the conglomerate-focused economic agenda of ousted President Park Geun-hye. But his plan to raise the minimum wage 11 percent disappointed… More than three-quarters of the 30 experts surveyed by Bloomberg News last month predicted that employment growth would slow this year, in part because of the wage hike. …In a speech at his news conference Thursday, Moon…pledged to improve the safety net…and fix what he described as “the worst forms of polarized wealth and economic inequality in the world.” …More than half of South Koreans surveyed in another Gallup poll last month said that the administration needed “to focus on economic growth, rather than income distribution.”

By the way, the article doesn’t even mention that South Korea faces a major demographic challenge.

It has a catastrophically low fertility rate, which means that the tax-and-transfer welfare state will become increasingly unaffordable as the ratio of workers to recipients shifts in the wrong direction.

Entitlement reform is the sensible answer to this problem (see Hong Kong, for example).

But that’s obviously not happening under President Moon. Indeed, he wants to make matters worse by expanding the welfare state.

Some people in South Korea realize that demographics are a problem for their nation.

The U.K.-based Express looks at their attempted solution.

Seoul’s Dongguk and Kyung Hee universities say the courses on dating, sex, love and relationships target a generation which is shunning traditional family lives. …as part of the course, students have to date three classmates for a month each. …The course has expanded to Kyong Hee university, which offers “Love and Marriage” classes and Inha university in Incheon, a specialist engineering college, where students can now sign up to lessons on prioritising success and love. In 2016 the number of marriages hit its lowest since 1977, according to data from the government agency Statistics Korea. …The crude marriage rate – the annual number of marriages per 1,000 people – was 5.5 last year, compared with 295.1 when statistics began in 1970. Seoul has spent about £50 billion trying to boost the birth rate.

I’m skeptical of this approach, regardless of how much money the government spends.

Policy makers should focus instead on things they can control, such as fiscal policy and regulatory policy.

And this is why South Korea’s lurch to the left is so disappointing. Politicians are making things worse rather than better.

Even the New York Times is reporting that Moon’s statist agenda isn’t working.

Under President Moon Jae-in, South Korea has raised taxes and the minimum wage in the name of economic growth. So far, it hasn’t worked out as planned. Growth has slowed, unemployment has risen and small-business owners…are complaining. …With his progressive policies, President Moon is trying to tackle some of the same economic problems that plague the United States and much of the developed world. They include a widening wealth gap, slower growth and stagnant wages. …South Korea’s troubles suggest the limits of the state in solving economic problems, especially without addressing the underlying structural issues. …After his election in May 2017, Mr. Moon undertook a sharp shift in economic policy. He supported higher wages, tighter restrictions on working hours and greater welfare spending, funded by tax increases on companies and high-income earners. …Mr. Moon has paid a steep political price for his agenda. His approval rating has plummeted from 84 percent in mid-2017 to 45 percent in the most recent Gallup poll. …The 2019 budget represents the sharpest increase in spending in a decade… The minimum wage has also gone up again for 2019, by 11 percent.

More taxes, more spending, more regulation, and more intervention. Who does Moon think he is, Barack Obama or Richard Nixon?

On a serious note, it surely says something that even the New York Times is forced to acknowledge that statist policies backfire.

Let’s close by looking at how South Korea’s economic freedom score has evolved over time. As you can see, there was a lot of economic liberalization between 1975-2005. That’s the good news.

The bad news is that economic liberty has declined since the mid-2000s.

The drop is modest, at least in absolute terms. But it’s also important (as I explained when looking at Italy) to look at relative competitiveness.

South Korea’s current score of 7.53 isn’t that much lower than its 7.67 score in 2006. But that slight drop, along with pro-reforms steps that other nations have taken, means that South Korea is now ranked #35 instead of #20.

And the current scores are based on policy in 2016, before Moon moved South Korea in the direction of more statism. This doesn’t bode well.

P.S. I’m not expecting South Korea to become another Hong Kong or Singapore, but it should at least seek incremental progress rather than incremental deterioration. Taiwan is a good example of that approach.

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I don’t care whether it’s called socialism, fascism, or communism, statism is evil and destructive. And going partway down that path with “democratic socialism” may avoid brutality, but the end result is still economic misery.

In hopes of getting this point across, I utilize everything from humor to theoretical analysis.

But my favorite approach, based on decades of experience with one-on-one meetings, public speeches, and private briefings, is to share cross-country comparisons. Such real-world evidence seems to be most persuasive.

So it’s time to add to that collection.

Let’s go back to 2011, when Catherine Rampell was with the New York Times and she wrote a column about a book by World Bank economist Branko Milanovic. She focuses on a powerful visual.

My favorite part of the book was this graph…on the vertical axis, you can see where any given ventile from any country falls when compared to the entire population of the world. …take a look at America. Notice how the entire line for the United States resides in the top portion of the graph? That’s because the entire country is relatively rich. In fact, America’s bottom ventile is still richer than most of the world: That is, the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants. …America’s poorest are, as a group, about as rich as India’s richest.

Here’s the graph that grabbed her attention.

I agree with everything Ms. Rampell wrote about that graph, but let me expand the focus by explaining why this is yet another piece of evidence for the proposition that policy makers should focus on growth rather than (in)equality.

From a leftist perspective, the ideal line for such a graph is horizontal because that represents complete income equality. And they naturally think that statist policies are more likely to produce an outcome closer to that redistributionist ideal (hence, their support for politicians such as Obama, Clinton, and Sanders).

But the graph shows why they are so wrong to support ever-larger government.

For instance, ponder the question of which nation produces better outcomes for poor people? Obviously, per-capita output for all income levels is higher in the United States, but the gap is especially huge for those with low incomes.

There doubtlessly are many reasons for the output gap in the chart, but one logical explanation is that the overall burden of government is much lower in the United States (#16 in the economic freedom rankings) than in China (#111), India (#114), and Brazil (#118).

By the way, some people may say it’s unfair to compare the United States with nations from the developing world. But the entire point of this comparison is that these other countries aren’t part of the “first world” in part because their economic policies are characterized by statism rather than capitalism.

But for those who want comparisons among developed nations, I’ve reviewed evidence from the United States and Europe on many occasions and the results always show that the relatively more market-friendly policies in the United States produce higher levels of prosperity than the more statist policies of Europe.

And if you want a more apples-to-apples comparison involving one of the most successful European nations, consider this chart showing the relative prosperity of different income levels in the United States and Sweden.

The bottom line is that it’s very difficult to find any evidence to suggest that any group of people enjoys more prosperity in a nation with a larger burden of government.

Which is why I’m still waiting for a leftist to successfully respond to my two-question challenge (and they actually only need to give an answer to one of the questions).

Another good way of determining whether markets work better than statism is to see how fast nations grow over time.

James Pethokoukis of the American Enterprise Institute shares a chart from Max Roser showing long-run changes in per-capita economic output for South Korea and Venezuela.

The amazing takeaway is that Venezuela was about three times richer than South Korea about fifty years ago, but now that ratio is almost reversed.

This is an amazing ratification of the all-important principle that sustained differences in growth have an enormous impact on a nation’s long-run prosperity.

And it shows that nations from the developing world can experience “convergence” and join the first world if they adopt good policies.

They don’t even need great policies. The key is simply to keep the burden of government at modest levels so the private sector has room to grow.

P.S. For those wondering about my juvenile title, I probably watched Homeward Bound: The Incredible Journey over 100 times when my kids were young and I’m borrowing a very appropriate line from that film.

P.P.S. For those who want more information about South Korean growth, check out this comparison of that country with its northern neighbor.

P.P.P.S. And for those who want to learn more about Venezuela’s lack of growth, see how that country compares to Chile and Argentina.

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One of my goals is to convince people that even small differences in long-run growth can have a powerful impact on living standards and societal prosperity.

In other words, the economy is not a fixed pie. The right policies, such as free markets and small government, can create a better life for everybody.

And bad policy, needless to say, can have the opposite impact.

Very few people realize, for instance, that Argentina was one of the world’s 10-richest nations at the end of World War II, but interventionist policies have weakened growth and caused the country to plummet in the rankings.

Hong Kong, by contrast, had a relatively poor economy at the end of the war, but now is one of the globe’s most prosperous jurisdictions.

If you want more examples, check out this chart showing how North Korea and South Korea have diverged over time.

Or how about the chart showing how Chile has out-performed other major Latin American economies.

This comparison of living standards in the United States and Europe also is very compelling.

Here’s a simple guide to highlight the difference between weak growth and strong growth. It shows how long it takes a nation to double economic output depending on annual growth.

As you can see, a nation with 1 percent growth (think Italy) will have to wait 70 years before the economic pie doubles in size.

But a nation that grows 4 percent or faster each year (think Singapore) will double GDP in less than 20 years.

Years to Double GDP

So why am I plowing through all this material?

My answer is simple, but depressing. I’m worried that the United States is becoming more like Europe. During the Bush-Obama years, we’ve seen big increases in the size and scope of government, and it’s no surprise that we’re now suffering from anemic economic performance.

That’s the first point I made in this interview with Michelle Fields of PJTV.

Much of the material in the interview will be familiar to regular readers, but a few points deserve some emphasis.

I say that America becoming more like Europe isn’t the end of the world, but I should elaborate. What I meant is that we can survive 2 percent growth instead of 3 percent growth. We could even survive 1 percent growth.

But if we continue on the current path of ever-growing government and combine that with an aging population and poorly designed entitlement programs, then we will see the end of the world. At least in the sense of fiscal crisis and economic collapse.

All the points I make about jobs, employment, labor force participation, unemployment insurance and disability are simply different ways of saying that it’s not good for the economy when politicians continuously make dependency more attractive than work.

If you want to know more about why the so-called stimulus was a failure, my article in The Federalist is a nice place to start.

The libertarian fantasy world of a small central government is a very good goal, but it’s still possible to make significant progress if politicians follow Mitchell’s Golden Rule.

P.S. You may recognize the host because she narrated a very good video for the Center for Freedom and Prosperity. Michelle explained how the big-government policies of Hoover and Roosevelt deepened and extended the Great Depression.

She also exposed rich leftists as complete hypocrites in this interview.

P.P.S. Since I mentioned above that South Korea has far surpassed North Korea, I should share this powerful nighttime picture of the Korean peninsula.

North Korea v South Korea

Gee, maybe capitalism is better than statism after all.

Unless, of course, you think there’s something really nice about North Korea to offset South Korea’s economic advantages.

Such as malnutrition or enslavement. Or a small carbon footprint, which led some nutjobs to rank Cuba far above America.

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One hopes that the dictator of North Korea suffered greatly before he died. After all, his totalitarian and communist (pardon the redundancy) policies caused untold death and misery.

But let’s try to learn an economics lesson. In a previous post, I compared  long-term growth in Hong Kong and Argentina to show the difference between capitalism and cronyism.

But for a much more dramatic comparison, look at the difference between North Korea and South Korea. Hmmm…, I wonder if we can conclude that markets are better than statism?

And if you like these types of comparisons, here’s a post showing how Singapore has caught up with the United States. And here’s another comparing what’s happened in the past 30 years in Chile, Argentina, and Venezuela.

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