Korea: _____!

Dokdo Is Ours has some bang-up ideas for the latest iteration of Korea's everchanging tourism promotion slogans. One sample:

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Protecting Consumers from Lower Prices

Here's a letter that I sent to the JoongAng Daily newspaper today:

In a recent "News in Focus" feature, you reported that a pair of Korean agencies charged with consumer protection are looking with suspicion upon the falling prices at local discount chains such as a E-Mart and HomePlus. Supposedly, any price fluctuations are confusing to consumers who, the thinking goes, are too simple-minded to know a good deal from a bad one ("How Low Can the Mega Mart Prices Go," 9 February, 2010).

Yet, contrary to the claims of the Korea Consumer Agency (KCA), the role of mega marts is not to "stabilize prices," but rather to meet the demands of their customers. To the degree that the store succeeds in doing this, it earns greater profits. Given the reported surge in sales since the recent price-slashing began, it's fair to say that these stores are providing exactly what customers want: lower prices.

Could it be that individual consumers are better positioned than the KCA or the Fair Trade Commission to know what is in each person's best interest? These agencies would do well to look at the sales figures and have a bit more trust in the public's judgement.

Sincerely,
Aaron McKenzie

Update: The JoongAng published this letter on 11 February, 2010.

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Uniquely Privileged Institutions

“We have now reached a state where [unions] have become uniquely privileged institutions to which the general rules of law do not apply”

-Friedrich Hayek ¹

The degree to which people are willing to suspend their notions of right and wrong - and of the legal and the illegal - when labor unions are involved never ceases to fascinate me. All you arsonists and vandals take note: a union membership card is the best ticket to leniency a person could ask for in South Korea, so get yours today. Hell, it worked for the 55 members of the Ssangyong Motors labor union who have recently been given, at most, suspended sentences after being convicted for their parts in last year's violent occupation of the Pyongtaek-based company's factory (see photo above). From today's JoongAng Ilbo:

The 77-day seizure of the automaker’s factory in Pyeongtaek, Gyeonggi cost Korea’s fourth largest automaker 316 billion won ($269 million) lost in production. Occupiers also injured riot police sent to control the situation. Protesters used slingshots, Molotov cocktails and burning tires to repel officers.

While intelligent people may disagree on the extent to which a government should be involved in the lives of its citizens and in the economy as a whole, there is at least one core function of the state that prompts almost universal agreement: protection against violence (be it foreign or domestic), a protection that extends beyond a person's physical being to cover their private property. Despite what some may believe, private property rights do not exist merely as a creature comfort for the wealthiest classes, but rather as a fundamental protection against the power of the government and other citizens to seize the the belongings of other individuals. Such protections against arbitrary seizure are not, however, desirable only for their individual results. Private property rights are at the heart of the social processes that create a free society and a high standard of living.

The most ardent supporters of labor unions, however, see property rights merely as obstacles to achieving their particular goals for society. Yet, it's not clear why a company's property should be treated any differently than, say, a family's home where the protection of that property is concerned. A just system of laws does discriminate based on assets or income, such that Ssangyong's factory deserves the same protections under the law as my rat-trap hovel, and vice-versa.

The idea behind the sympathy toward unions seems to be that bending the rules on property rights will somehow help the less fortunate. This, however, has never proven true. It's illogical to think that anything which decreases output (or stops production altogether) and destroys resources could ever be a road to wealth - for anyone, rich or poor. Furthermore, most private sector companies that have a unionized labor force are also publicly-traded entities, meaning that other citizens - many, if not most, of whom are far from rich - own shares in that company, often via pension plans, and are thus hurt when a labor union sets about trashing an entire facility. Finally, the $269 million in lost production cited in the JoongAng article accounts only for the losses at Ssangyong. What were the effects on Ssangyong's suppliers and their workers? How exactly do they benefit from such work stoppages?

As in the case of Ssangyong, labor unions are remarkably self-assured in their belief that they know better than the company's management how the firm should be run. And maybe they do. Maybe the workers are underpaid. Maybe the union leadership does know best where a factory should be located. Maybe the union has a particularly keen insight as to which cars consumers want to buy. It's possible.

And so, a suggestion for these large unions:

Take those large sums of money you've raised from union dues and start a company of your own. Given your vast managerial knowledge, I have no doubt it will be a first-rate success. You can pay your workers a higher salary and, since you're offering such "socially just" benefits, you'll no doubt be able to lure the best workers away from those other, less-humane car companies, thus enabling you to build a top-flight product. You can get out from under the Fat Cats, build a better car, and, if you're lucky, some sanctimonious hipster musician might even write a romantic folk song about you. Go ahead, make it happen. If nothing else, such a venture will keep you busy for a while and give you less time to destroy other people's property.

___________
¹ Friedrich Hayek, The Constitution of Liberty (1960)

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Nuclear Energy Defends Dokdo

It seems there's now a third claimant in the Dokdo/Takeshima squabble: the Pacific Ocean. Some folks in Korea might see this as a threat to their entire national identity, but the folks over at the Korea Hydro and Nuclear Power Company (KHNP) figure that if Poseidon throws you the proverbial lemon, you might as well use it as an excuse to peddle nuclear power:

(click to enlarge)

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Newsweek Cover Boy: Lee Myung-bak

My latest issue of Newsweek has South Korean President Lee Myung-bak staring back at me from the cover. The Bulldozer, as Lee is known in these parts, is the subject of an adoring piece on the Korean economy, its ongoing recovery admidst the current turmoil, and Lee's goal of turning South Korea into a "respected global soft power." The piece is certainly correct in its portrayal of South Korean aspirations, but I am suspicious that it may have been written by the government's public relations people, so full of blandishments is it.

The story begins by noting that in the third quarter of 2009 South Korea became the first member of the OECD to post positive economic growth and is expected to have the highest growth of any member of that organization in 2010. Of course, South Korea has painfully ample experience in dealing with financial panic:

"...unlike most other rich nations, South Korea had recent experience with a major financial meltdown. Many of its current leaders are veterans of the Asian crisis that crippled the country's economy in 1998, and they knew how to manage a free fall. Lee's team immediately moved to save threatened banks and companies by setting up $200 billion in various funds to guarantee payment of their debts and for other forms of emergency aid. They struck currency-swap deals with major economies such as the U.S. to secure dwindling reserves of foreign currency and front-loaded public spending so that 65 percent of the country's $250 billion budget was spent during the first half of 2009, ensuring that the money got into the economy rapidly—but without adding new debts. A government focus on protecting jobs kept consumer sentiment relatively high, and the Bank of Korea cut interest rates by 3.25 percentage points to 2 percent, a historic low."

To what degree each of those individual measures contributed to stabilizing the Korean economy will likely remain a subject of some dispute in the years to come, and I won't be surprised if some of them prove to have had either no significant effect on the recovery or even a negative impact. At all events, there will no doubt eventually be a regression model to confirm whatever it was you wanted to believe from the outset.

Furthermore, while I'd rather have knowledgeable people than not have them, I'm skeptical of the notion that an expert on past economic/financial crises will necessarily be the Moses figure to lead a nation out of its current predicament. Ben Bernanke, after all, was well-known for his work on the Great Depression before becoming chairmen of the United States Federal Reserve. Yet, if the only thing necessary to get through such a pickle were to put an expert in charge at the top, the US economy would be crackerjack marvelous right now.

The claim that South Korea has weathered the current crises so well due to the people in charge, while plausible, is ultimately little more than an untestable counterfactual. We can't go back and rerun this crisis and see what would have happened had someone else been in charge, just as we'll never know if the 1987 stock market crash in the US would have played out any differently had Ronald Reagan and Allen Greenspan not been in their positions at the time.

As I said, I'm happy to have the experienced folks in their respective offices right now - god knows you wouldn't want me pulling the levers over at the Ministry of Finance - but I'm inclined to believe that the systemic reforms undertaken in the wake of the 1997-98 debacle (which, to be fair, the article briefly mentions) have had as much or more of an impact. At least, I sure hope so. Implementing proper incentives for, and restraints on, government officials seems like a far more prudent way to prepare for future crises than simply hoping that we'll have the "right people" in place when the time comes.

* * *

And as a brief aside, the writer of this article needs to take another look at Lee's resume:

At Hyundai [Lee] led a company known for fearless forays into foreign markets, whether it was building huge bridges in Malaysia or selling cars with stunning success in the crowded U.S. market.

Prior to becoming the mayor of Seoul, Lee was indeed the CEO and chairman of Hyundai Engineering and Construction, but to my knowledge he never ran - or officially worked at - Hyundai Motors.

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A Peculiar Brand of Change

As you know, I've long been skeptical about Barack Obama and his supposed "change" agenda (see here), which makes it odd that I missed this one. The following two quotes come from Obama's 2008 campaign website. Apparently, a main prerequisite for being elected to political office is a complete obliviousness to irony.

The website's header quote:

"I'm asking you to believe. Not just in my ability to bring about real change in Washington...I'm asking you to believe in yours."

And in the main article:

"...we need to stand up to the special interests, bring Republicans and Democrats together, and pass the Farm Bill immediately.

Talk about audacity.

As Jacob Sullum at Reason Magazine wrote in 2008, said Farm Bill "includes tax breaks for racehorse owners, 'marketing aid' for fruit and vegetable growers, research funding for organic farmers, enhanced price supports for domestic sugar producers, increased subsidies for dairy farmers, a $170 million earmark for the salmon industry, and billions of dollars in automatic payments and 'permanent disaster assistance' for corn, wheat, cotton, rice, and soybean growers. Take that, special interests!"


(Via Megan McCardle)

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All My Friends are Gonna Be Strangers

If you're in the market for a "stranger than fiction" documentary, look no further than Friends of Kim (2006), a travelogue chronicling a trip through North Korea with the Korean Friendship Association. The KFA is headed by a Spanish fellow named Alejandro Cao de Benos - a member of the Catalan aristocracy and the only the Westerner in the North Korean government - who is disturbingly devoted to the idea that North Korea is the world's last remaining paradise for workers. Fortunately, the video seems to be available in its entirety on Youtube. I've posted the first part above and you can watch the other sections here.

In a recent interview (posted in English at One Free Korea), Cao explains how he came to have the hots for the DPRK:

I was 15 years old. I was looking for a system that represented my ideals of egalitarian society. It was the time of the disappearance of the Soviet Union, everybody turned his eyes towards social democracy and no longer wanted to call himself “communist”. Principles were on sale. I studied the patterns of Vietnam, China and Cuba. But North Korea was taboo even for the most radical left. It was in Madrid that I got in touch for the first time with three North Korean families who represented the country in the World Tourism Organization. I obtained material about North Korea and began to cultivate my interest.

I wrecked my parents' car when I was fifteen. Actually, I wrecked my parents cars. I backed the Honda into the Toyota and the Jeep. At the same time. Oh, and in that same year I also provoked an investigation by the FBI when I tried to extort $10,000 out of my uncle by posing as the Oregon Zoo and threatening to send a hippopotamus to his house in Idaho. Point is, I did some asinine things when I was fifteen, but good lord, at least I never fell in love with North Korea.

The most fascinating part of the video is watching as the travelers' attitudes toward North Korea change as the trip progresses. At the outset, many of them are certain that capitalism has failed and that by coming to North Korea they will finally be able to see socialism that works. Gradually, they come to realize that not only has the North Korean government enslaved and impoverished its people, but it's also damn near impossible to get a decent drink or have an ounce of fun in the country.

And since we're on the topic of North Korea, Ask a Korean! posted a collection of North Korean jokes last month. One commenter points out that they may simply be recycled versions of old Soviet jokes, but I suspect they apply with some of the same bitter force to North Korea. A sample:

An Englishman, a Frenchman and a North Korean are standing in an art gallery, looking at a painting of Adam and Eve holding an apple.

The Englishman says, "They are English, because the man shares delicious food with a woman."

The Frenchman disagrees: "No, they're French, because they are walking in the nude."

Finally, the North Korean speaks up, "They are North Korean. They have no clothes and little food, but they think they are in heaven."

Tell that one to Mr. Cao next time you see him.

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If You Build It...

PJ O'Rourke once quipped that the reason politicians have such a love affair with trains is that they get to decide where the tracks go. For much the same reason, politicians adore planned cities.

Since the 2002 presidential campaign, South Korea has toyed with the idea of moving its capital city out of Seoul and down to South Chungcheong province, near Daejon. This was an idea chiefly pushed by Roh Moo-hyun, the now-deceased victor of the 2002 election, on the premise that Seoul had become too crowded and too much the center of wealth and power in the country. Of course, such a proposal didn't hurt Roh's political fortunes in the Chungcheong provinces, either. And so, in July, 2007, ground was broken for the Sejong Special Autonomous City, named for Korea's most famous king. Even now, though, more than two years since the project began, the national government still cannot figure out what to do with the city. In fact, as the Joong Ang Ilbo reported last week, the administration of President Lee Myung-bak has just released the latest iteration of the government's plan for the city.

I had the opportunity to visit the construction site of Sejong City in early November as part of a KDI event. There is, as yet, little in the way of construction, though the land has been cleared and a visitor's center stands ready to show the obligatory "Korea: Harmony and Dynamism for the 21st Century!" video - complete with stentorian narration - to anyone willing to sit through it. The purpose of this video is to convince skeptical citizens that this project is a good idea and to entice investment from companies and universities. Unfortunately, the city's slogan, "A Multifunctional Administrative City," evokes nothing so much as images of standing in line to get a driver's license or register your dog - not exactly the high-tech, uber-modern theme the planners have been pushing. And thus far, the reaction to this marketing slogan has been pretty much what you'd expect: a few memorandums of understanding from universities, noncommittal curiosity from some companies, and sniffs of outright derision from many who doubt the government's ability to build a viable city where none existed in the 3,000 year history of Korea.

Coincidentally, my visit to Sejong City came only a few weeks before the news of Dubai World's debt problems broke. The middle eastern emirate came to prominence over the last decade or so by seeking to build an economy less dependent on its ever-shrinking oil revenues. The city was overtaken by a construction boom that included such questionable projects as the Palm Islands and the Burj Dubai. Although managed by ostensibly private companies, these projects and most others in Dubai were blessed and orchestrated by the government, and in particular the prime minister, Sheikh Mohammed bin Rashid Al Maktoum. Having watched Field of Dreams one too many times, Sheikh Mo, as he's known, evidently believed that a flashy city in the desert would prove irresistible to one and all. Of course, a crisis hit world financial markets and people proved less willing than expected to pony up millions of dollars just to live on an island shaped like a palm tree.

Friedrich Hayek once wrote (in The Fatal Conceit) that "the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." Cities are complex organisms that evolve naturally for a whole host of reasons, many of which are imperceptible to the humans who inhabit them. A city rests as much, or more, on a foundation of invisible social and cultural interactions as it does on the roads, sewers, or buildings that we see. They are for the most part, as Adam Ferguson put it, the result of human action but not of human design. Of course it's possible for the governments of Dubai or Korea to pour almost unlimited resources into the construction of roads, buildings, and other infrastructure to create a city, but just because something can be done does not mean that it should be done. After all, to what other use could those same resources have been put?

Dubai World's troubles are exhibit 1A of this reality. Let's hope Sejong City does not become exhibit 1B.

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