Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Seoul the New Capital of Capitalism

Economics / Economic Theory Apr 12, 2013 - 12:29 PM GMT

By: Christopher_Westley


Picture a mono-racial New York metropolitan area with a fraction of the murders, if you can. Add in unreadable signs and buildings and infrastructure completed in 1960 or later. Then you might have a picture of Seoul, the capital of the Republic of Korea and, quite possibly, the new center of global capitalism. At least, that is my conclusion after spending several days there on academic and professional pursuits.

Seoul lacks the boroughs and neighborhoods of the Northeast in favor of apartment living, and one gasps at the many hundreds of high rises spread throughout the city. Living in a house with a garage to clean and lawn to care for is as foreign to the average Korean as it is for the average Manhattan-ite. In Seoul’s case, this reflects cultural and historical choices similar to the reasons why people clustered together in Italian city-states in an earlier time. There is safety in numbers, and Seoul-ians—who have been the target of expanding empires for centuries—prefer urban closeness to suburban expanse.

From this perspective, there is something downright libertarian about Seoul and Korea in general. For centuries Korea held isolation from the world a virtue considering the various attempts at invasion and colonization by outsiders, particularly the Japanese and the Manchurians. Like Italy, Korea has preserved a culture and language that is unique and maintained a decentralized political system that made its becoming a colonizer practically unthinkable, while producing a military culture historically defensive in a “Don’t Tread On Me” sense. Korea has been called the Hermit Kingdom, content to be closed to the world and hard to find on a map.

By the late 19th century, it became obvious that this isolation couldn’t last and would bring suffering to the people. Thus the Joseon Dynasty (1392-1897) opened Korea up to the world with full-fledged trade and diplomatic relations.

It didn’t go well. Korea was the victim of a brutal occupation by Japan that lasted until 1945, after which the country became a Cold War pawn, and was divided into North and South. The Korean War itself resulted in almost 375,000 civilians killed in the South alone, which would be equivalent to losing about 10 million Americans today. The war didn’t end until President-elect Eisenhower visited Korea in December 1952, decided the conflict would not be won without resorting to nuclear weapons, and pushed for a ceasefire that persists to this day.

The role of the United States in repelling the communists is not lost on the South Koreans. Many Americans today wonder if it wouldn’t have been wiser to have stayed out of the conflict. The issue is not just the 45,000 dead or missing Americans. By involving America in an unpopular war without seeking permission of Congress, as required by the Constitution, President Truman was incredibly unpopular and worthy of impeachment. By orchestrating a ceasefire, Eisenhower was primarily concerned with thwarting a popular revolt against an American empire that would prove to be the death of an American republic.

Some wonder whether the military-industrial complex has run U.S. foreign policy ever since.

Regardless, South Korea’s progress in the second half of the 20th century is nothing less than astonishing. Seoul was devastated and starving and had to be almost completely rebuilt following the Armistice, as was most of the rest of the country. In 1960, per capita GDP in South Korea stood at $79, ranking it among the poorest countries in the world. In 1970, vast areas of Seoul had yet to be electrified. Yet, from the 1960s through the 1980s, the South Korean economy grew at an average rate of 8 percent a year, and today per capita GDP is about $32,400. What did it do right that persistently struggling economies do wrong?

The short answer is it saved. Korea is part of a broader Asian culture that encourages saving, resulting in low Asian time preferences developed over centuries in order to survive on rice-based diets and fluctuating fresh water sources. Furthermore, the generation that emerged from post-war South Korea is similar to the generation that emerged from the Great Depression in the United States in that both survived by valuing thrift and an efficient use of resources. Institutional development over this time rewarded saving that would be transformed into the capital structure necessary for wealth creation in the future. The resulting low interest rates brought about sustainable economic growth marked by output that individuals had saved to purchase.

Notwithstanding the persistent threat of war with the North, which hindered investment (and still does), South Korea protected property rights in ways both purposefully and by accident. Since capital always flows, over time, to those regions of the world in which it is most secure, capital flows into South Korea financed economic development that even Koreans today call a miracle. But the creation of future wealth from saving and the protection of property is hardly surprising. Economically stagnant regions in Latin America, Greece, and even Illinois and California can learn from South Korea’s example of better long-term living through low taxation and regulation and the protection of property rights institutions.

None of this is meant to paint South Korea as a capitalist paradise. Its post-war governments have a record of corruption and dictatorship that threatened its economic success. Certain sectors of the economy have been protected from competition and otherwise benefited from government favor. This form of crony capitalism has resulted in an economy dominated by few large conglomerates such as Samsung, Hyundai, and LG—firms that were targeted as being too big to fail decades before the term was known in the United States.

If the Korean cultural bias for saving thwarted the ability of Korean governments to pursue Keynesian policies favored in the West, the Bank of Korea has surely compensated by inflating the won such that the dollar-won exchange rate is well beyond a one-to-one relationship and ranges to one-to-one thousand today. This is a remarkable accomplishment given massive dollar inflation since 1971. As in the United States today, and as predicted by Austrian School theory, the new money favors those parties that receive it first, meaning those economic interests most closely associated with the government.

While its inflation surely causes malinvestments, Korea has thus far avoided the excesses of China, preferring to direct funds to infrastructure and education as opposed to shopping malls and skyscrapers. Korean banks avoided exposure to collateralized securities backed by the sub-prime mortgage securities issued by U.S. banks, nor did it have a substantial shadow banking sector of its own offering pooled and tranched securities to investors, indicating that crony-like relationships that exist in the West with the financial industry have not yet materialized. In other words, one suspects Goldman Sachs yields less influence at the Bank of Korea than it does at the Bank of Japan.

Notwithstanding the Bank of Korea’s inflation, South Korea experienced only a small housing bubble due to cultural differences in how Koreans access their apartments (they often put down a single large payment and allow the apartment owner to earn interest off it in lieu of rent), as well as a capital gains tax on housing that, no doubt inadvertently, placed downward pressures on housing demand. Therefore, the Korean economy was not fueled by credit expansions as in the West in which homeowners were encouraged to borrow and spend based on the inflated values of the homes.

The end result is a protection of property rights complemented by lower taxes (the highest marginal rate in Korea is 34 percent and unlike the U.S. today, there is no effort to raise it) and less costly regulations—both based in the context of a cultural homogeneity that often results in less crime and more trust pervading the society. Its murder rate is less than half of New York’s, and while I have been told Seoul’s violent crime rate is high compared to that of U.S. cities, most would agree that a “CSI Seoul” would be a pretty boring show.

Summing it all together while walking Seoul’s Teheran Road, one gets the impression that this is the place to be. Like New York in happier times, Seoul is a capital magnet, and as the traditional western economies implode and become less free, capital flows to East Asia will only increase. Its Gangnam shopping district, though not terribly large, combines the aura of Times Square and Fifth Avenue. Ubiquitous taxis offer telephone interpreters in English so that drivers and their fares can converse—a service some wish New York cabbies would offer. Upscale Paris-themed bakeries compete for business clientele with local restaurants featuring buckwheat noodles, while the pop music genius PSY’s picture is everywhere, testing the limits of overexposure while selling Korean beer and hipness to visitors who did not know Korea had both.

Meanwhile, multinationals and entrepreneurial startups wanting access to the Asian market are finding Korea a safe and friendly environment to base their operations. While previous generations of Korea’s college graduates flocked for job opportunities in the West, many of today’s best and brightest are finding that their best job opportunities are now found in Seoul itself.

Someone told me before my trip that Koreans are more American than America, and its economic success sure looks like an America of some decades past. Nonetheless, there is a sense that it might not last—that the North Koreans may finally decide to follow up on their bluster, or that the global demand for Korean exports may decline. However, my sense, as well as that of most of the educated Koreans I met, is that the fundamental institutions characterizing Korean society are strong, and that notwithstanding what the future may bring, the country will persevere, and prosper.

Seoul provides evidence of how protecting property and expanding access to the division of labor is the key to ending poverty as we know it. Governments restrict it at our own expense.

Christopher Westley is an adjunct scholar at the Ludwig von Mises Institute. He teaches in the College of Commerce and Business Administration at Jacksonville State University. Send him mail. See Christopher Westley's article archives. Comment on the blog.

© 2013 Copyright Ludwig von Mises - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules