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In the world of Robinson Crusoe, there are not many things to worry about in terms of economics. His was a self-sufficient, closed economy. Does he need to open his economy to the rest of the world? The answer may depend on the personality of Robinson.
Here is an interesting open market story about Yap Island located between Midway and Hawaii. It used to be a completely closed, self-sufficient economy before the islanders met American fishermen. In this primitive economy, the currency was a stone or a rock with a hole in the middle. The island of 6,300 now has a prime minister and a ministry of finance, a governmental structure.
Why did it move from a closed economy to an open economy? One day, an American fishing ship stopped at the island for supplies. They purchased supplies with U.S. dollars which are lighter and fancier than stones with holes. Sometimes American fishermen exchanged chocolate, gum and other Western products for crops, drinking waters, etc.
Did the market opening improve people’s lives? Well, the definition of ``improvement’’ is first of all very unclear. Economics has several different approaches to trade issues, for example, Milton Friedman’s liberalism versus Keynesian governmental involvement.
The core of the debate over the Korea-U.S. free trade agreement (FTA) is focused on three myths of globalization and five myths of free trade, illustrated by Graham Dunkley in 2004.
First, the three myths of the globalization are: 1. Globalization is already well advanced; 2. It is inevitable; 3. It is overwhelmingly good for everyone.
The five myths of free trade are: 1. Trading is integral to human nature; 2. Free trade, free markets and private initiative are best for most exchange; 3. ``Comparative advantage’’ is the best basis for all trade; 4. Trading and free trade create overwhelmingly net positive benefits for all concerned; 5. Trading has gradually increased over time, indicating inevitable globalization. One can hardly disagree with these ``Smithian Propensities.’’
An emblematic open market policy is about to blossom in Korea's economy. The export-driven development strategies over the past 50 years have recorded substantial successes, overcoming poverty and reaching most parts of the world. Having said that, the presence of mutual gains to producers vis-a-vis consumers is a keen issue.
While beef and autos are the most sensitive issues in the U.S. Congress, these are quite elusive should Korea's political economy focus on them heavily. Detailed statistics on possible gross and net effects of the FTA can be provided by many institutes before agreement is reached. However, these results could also be erratic.
The projected growth of the GDP in each country is explanatory rather than concrete. If so, what are, or should be, the targets of the Korea-U.S. FTA? Indeed, a real breakthrough should be a geopolitical target on how Korea can establish a strong position in the East Asian region, economically and politically.
The FTA will be a cornerstone of Korea’s economy moving toward an innovative global position in the 21st century. At the same time we face the risk of falling into a mid-level economy if we fall into illusion-traps and fail to prepare for immediate and strong challenges from expected or unexpected.
It is about time to watch the classic movie ``Dora Dora Dora’’ on a cozy sofa and build up a more constructive global design in order to understand Korea's economy. All things considered, our FTA goal should overcome the myths of globalization and free trade.
Kwak Soo-jong is a research fellow at the Samsung Economic Research Institute.
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