From the Editor
The Price To Be Paid
The financial travails in Korea and throughout much of Asia are the result not so much of a financial breakdown as the bankruptcy of an idea. In fact, looked at as part of the history of ideas, the Korean imbroglio is best seen as the logical successor to the collapse of communism. The commonality is that the failure of communism, as in the failure of the Korean system, is testimony to the utter lack of viability of command-and-control economies – those in which the government tries to direct economic activity in specific directions.
The causes of the failure of this type of system are many and ancient; corruption is prime among them. Whatever theoretical advantage one might claim for a government-directed economy, inevitable such concentration of power leads to deep and pervasive corruption. When politicians and bureaucrats aren’t corrupted by actual bribes, they are corrupted by the possibility of political advantage. This means that the decision to fund a new auto company is determined not solely by the issue on its merits but by, at best, whether doing so will win political support and, at worst, by whether the bribe was big enough.
Even theoretically, though, the command-and-control economic model fails simply because of the sheer complexity of modern economic systems. To properly allocate capital involves processing enormous amounts of information. In a capitalist model, millions of people, acting independently, process information and allocate capital based on their areas of expertise. In effect, the big decisions made by government under a command-and-control model are broken up into millions of smaller decisions, each one being made by those closer to the actual situation.
In this sense what is happening in Korea is a profoundly positive event. This may seem counterintuitive in a situation in which there has been much suffering and there will be more to come. Yet, great changes tend to occur only under severe stress. The Koreans are an industrious and thrifty people; visit New York City and you will see the cornucopia they have wrought as Koreans opened thousands of produce stands throughout the city. These stands, open 24 hours a day, are a vivid testimony to the ability of the Korean people when placed in a free enterprise environment.
Korea, itself, also has thrived, but the burden of the inefficiencies of the system have finally come to the fore. If things go well, this crisis can be used as a moment to reduce government intervention in the economy and the endemic corruption associated with this concentration of power. This moment also can be used to break up the giant Korean conglomerates that function as much as personal fiefdoms as ongoing business entities. Indeed, the business culture in Korea, with a slavish attention to seniority, can be swept aside now, in favor of more attention to merit.
Of course, all these things could happen…but may not. This is the great danger of the international bailout surrounding the Korean crisis. A financial collapse causes pain, and no human being with a smite of empathy can help but want to rush in and prevent the horrible pain of bankruptcy and unemployment.
Yet, the short-term bailout may just provide the margin of comfort that allows existing institutions to survive. If so, this horrible crisis shall have served no purpose. Indeed, worse than that, much of this crisis could have been avoided had foreign banks refused to fund the Korean institutions that were wallowing in corruption and deceptive or incomplete accounting. A bailout, if it has the effect of indemnifying these banks against the consequences of their decisions to lend money, may have the long-term effect on convincing banks they can lend money without regard to the capacity for repayment. If this happens, all over the world weak, corrupt, and inefficient systems that should collapse of their own weight will, instead, be propped up by foreign capital.
This means that precious capital will be used inefficiently and thus we will all be poorer than need be. Perhaps even worse it means that people all over the world will toil under oppressive and corrupt systems – propped up by foreign banks.
The readers of this magazine are the leaders in international trade. It is easy, indeed natural, to focus on our own day-to-day problems, not the least of which is the collapse in Korean orders for American food and agricultural products. It is important to remember that our long-term interest is tied to a prosperous and free trading world, which means one built on a non-corrupt system. Corruption has been around as long as there have been people to be corrupted. It is not surprising that real pain and sacrifice will be needed if we are to rid our contemporary economic systems of corruption’s corroding effects. EXP