The Economist reports that a blogger in South Korea is in jail for posting effectively accurate predictions of financial-market developments on the Internet. Inevitably, a number of these predictions have been predictions of government actions (in reality the chief source of instability, of course).
My previous post in this vein (December 5) concerned Latvia. Now South Korea. Where next?
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Such blasphemies must not be tolerated.
I have been waiting for someone in one of these large banks to leak the actual individual cash flows of their pool of toxic assets. If someone did this, we would know with a higher degree of certainty just how insolvent these firms really are. However, one can predict with a high level of confidence, this person would be arrested and charged with financial terrorism.
I live in South Korea. Officially, South Korea never has really had a free market, at least not in terms as we in the west would define it. The big companies, Hyundai, LG, Samsung, Hanwha, and others are still run by the families which started them. They benefited much from their closeness to former dictator Park Chung-hee. And it was under his patronage that they really started to grow. Granted, there is a stock market and there are a lot of smaller businesses doing innovative things. But the big companies dominate just about everything. As I look around my house, I see that my cell phone, gas range, stove, and boiler were all made by Samsung. My toothpaste, TV, land line telephone,
and a few others things were all made by LG. And not terribly far away is a huge apartment complex built and owned by Hyundai. Samsung and LG also have a big part in the fashion industry of all things, seeing as they sport some of the nation’s favourite brands in clothing. It is difficult for a smaller company to compete against the huge conglomerates.
Rather than the noble practice of positive noninterventionism which characterised the British administration of Hong Kong, the Korean government does tend to interfere in the economy quite a bit. Perhaps they picked it up whilst under the influence of American Keynesians.
While Korea is currently pursuing a number of FTAs which will level the playing field considerably, the government still loves to slap tarriffs on just about everything they can that is imported. A Korean businessman who imports some marvelous beer from Canada once told me of the exorbitant duties he pays customs. They are about 140%. Some wines have tarriffs of 350%. A meal at Outback Steakhouse will set you back a bit more here than back in the states because of 20% in luxury and other taxes. This despite the fact that majority of beef consumed here is imported from Australia. The tax is not on the beef itself, but on the food, namely steak.
Speaking of blasphemy, Gordon Chang in his book The Coming Collapse of China, predicts that China is for a major financial collapse, owing to the fact that the banks there have all sorts of toxic assets in the form of unpaid and unpayable bank loans made to state owned enterprises.
If you haven’t read the book, it is worth reading.
Robt. Badger:
I think many of the big companies had been already prominent even before Pak Jung Hee and follow (in form) the Japanese “zaibatsu.” But, of course, Pak’s seizure of power predated the international prominence of any of them (and the consequent industrial development of the country. Previously, all the industrial concentration had been centered aroung Pyongyang in N. Korea). In those days, there weren’t even many paved roads as far out as 20 miles from Seoul and, when I first became aware of Dae Woo, it dealt primarily in soft goods made in cottage-industry fashion for the domestic market.
Gene Berman,
Many thanks for the post. Yes, the chaebols did get a huge boost once Park Chung-hee was in power. But it is also interesting to note exactly which provinces benefited the most from his development programs. The Gyeongsang provinces benefited the most and he was from Gyeongsangbuk-do.
In reading about Hyundai’s founder, Chung Ju Yung, Chung had generally positive things to say about former President Park. However, in interviews, he depicted former presidents Chun Doo-hwan and Roh Tae-woo as meddlers of the worst order. And Kim Young-sam didn’t forget Chung once he defeated him in the presidential elections of 1992. Chung found himself on trial for tax evasion.
Korea has come a long way indeed. And government interference may lessen given the new economic team that current president Lee Myeong-bak put in office, some of whom are American trained and are more positive towards free market. We’ll see.
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