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| You Know Better Than This, Bob Zoellick |
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Friday, November 16th, 2001
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If we are to believe Bush administration trade chief Robert Zoellick, South Korea has prospered because of its openness to imports. In reality South Korea is one of the most mercantilist nations on earth. By Eamonn Fingleton.
From the start the Bush administration has promoted a particularly extreme form of free trade dogma. And few members of the administration have been more prominent in this effort than U.S. Trade Representative Robert Zoellick. So why is Zoellick such an enthusiastic free trader? Conveniently Zoellick has expounded at length on his thinking in a speech he gave on trade recently to the Council on Foreign Relations.
What a stunning exercise in vacuity his case is. In arguing that nations prosper by opening their markets to utopian free trade, Zoellick builds his case on � get this � the success of South Korea. On Zoellick�s figures, South Korea started out with a per-capita income less than Ghana in 1967 but has prospered to such an extent that its per-capita income now exceeds Ghana�s nearly thirty-fold. To Zoellick, this is a morality play in which South Korea prospered because it opened up to trade whereas Ghana stagnated
because it failed to do so.
There are however a few problems with this analysis. Setting aside for a moment the idea that South Korea is an exemplar of free trade, there is the question of what role other factors may have played in the relative performances of the two nations. There are an awful lot of factors to take account of � several of them so obvious and important that even the most superficial polemicist should be aware of them. It is an interesting insight into Zoellick�s concern for intellectual honesty that he makes no mention of any of them.
In the case of Ghana�s economic trajectory in recent decades, just the most obvious factor is politics. Thanks to rich gold and diamond mines and well run cocoa plantations, Ghana had been Britain�s richest sub-Saharan African colony before independence in 1957. A decade later it was still living off an enormous legacy of British investment in its productive resources. Moreover heavy foreign borrowing in the 1960s enabled the country to paper over emerging economic weaknesses and thus to maintain for a while longer a greatly overvalued currency (hence the fact that on paper still in 1967 its
per-capita income exceeded that of South Korea). In subsequent years, as Ghana was wracked by ever more intractable political difficulties, the economy entered an abyss from which it has yet to emerge. The output of its mines and plantations slumped as inept managers failed to keep vital machinery in running order. Exports dried up, the exchange rate collapsed, and the government�s access to foreign borrowing was all but shut off. Then followed chronic inflation, massive labor stoppages, and a litany of other Third World woes.
South Korea�s mercantilist restraints on
consumption
Now for South Korea. Its progress has certainly been impressive but hardly for the reason Zoellick would like us to believe. As in the case of Ghana, any honest attempt to understand South Korea�s progress must begin with a glance at the history books. Viewed in proper perspective South Korea in 1967 was a strong nation� that was merely temporarily down on its luck. After all the Korean peninsula had had a tradition of careful administration and refined culture going back millennia. It suffered colonization in the era of Japanese military expansionism and then was badly weakened by two wars in quick succession � World War II in the 1940s followed almost immediately by the Korean War in the early 1950s. Moreover South Korea
suffered disproportionately from the partition of the country because it suddenly found itself cut off from heavy industries in the north that in pre-partition times had been the main economic dynamo of the Korea Peninsula.
One thing is clear: Zoellick�s portrayal of South Korea as an open,
free-market economy is about as shameless an untruth as has ever been
uttered in the Washington trade debate. South Korea ranks with China, Japan, and Taiwan as one of the most assiduously mercantilist nations on earth. Perhaps the most flagrant example of its approach to free trade is its rice market. This was reportedly opened in 1993 as part of a major round of trade negotiations but the reality is that even today imports account for only a few percentage points of South Korea�s rice consumption.
A measure of the depth of South Korea�s mercantilism is that until 1988 South Korean citizens were banned by law from taking foreign vacations. Since then they continue to be hampered by deliberate capacity constraints at the nation�s airports. The government uses a variety of Orwellian techniques to suppress the citizenry�s purchases of foreign goods. One example: citizens are discouraged from buying foreign cars by the threat of rigorous tax audits. Vigilante committees of �concerned citizens� are encouraged to organize boycotts of department stores selling foreign goods. Such committees also indulge in Maoist-style denunciations of consumers who buy foreign goods.
Even if few of� Zoellick�s listeners in Washington were aware of just how sharply South Korea deviates from the free-market norm, Zoellick surely is in full possession of the facts.
This sort of propagandizing has no place in any administration, least of all in an administration that is so self-consciously trying to set a high moral tone as the Bush administration.
Eamonn Fingleton is the author most recently of� In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Houghton Mifflin, 1999).
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Contact Eamonn Fingleton |
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