North Korea’s announcement that it successfully tested an intercontinental ballistic missile (ICBM) on July 4, America’s Independence Day, has pivoted the world’s attention to the Korean peninsula. The events that will determine the safety of 50 million citizens of the South and the possible liberation of 25 million in the North may be approaching fast.
However, at the very time when South Korea most needs its technological and economic strength, it is distracted with internal politics and slowing growth.
The impeachment of President Park Geung-hye over improper connections to the nation’s most important company threatens to erode support for internal pro-growth economic reforms.
Flagging support for free trade in the U.S., meanwhile, could weaken the South as a central link of the global information technology supply chain.
As Michael Breen points out in his book "The New Koreans," South Korea is one of only two nations to achieve economic growth of more than 5 percent for more than 50 years (Taiwan is the other).
South Korea now produces many of the world’s Smartphones and most of the world’s memory chips. It’s a leader in shipbuilding, heavy machinery, automobiles, steel, transportation, and increasingly in the biotech industry, too.
The South is now the second richest nation in Asia, just behind Japan, and leads much of Europe.
The nighttime satellite photograph of the Korean peninsula is ubiquitous for good reason. It is a map of progress, showing the 38th parallel in even more stark relief than a cartographer could draw it. To the south is the glow of technology and wealth, to north an empty void, displaying the results of history’s best natural experiment, a test between socialism and capitalism, darkness and light.
We all know how we’d like this story to end, with the North relenting and copying the South. In fact, commerce and technology in South Korea and Taiwan have already played a meaningful role in bringing about the peaceful transformation of China. The reforms begun in 1978 by Deng Xiaoping and continued through the 1990s by Jiang Zemin were an explicit reaction to, and imitation of, the technology-based booms in Taiwan, South Korea, Hong Kong, and Japan.
The success of these economies had a three-fold effect. First, they exposed the failure of the Chinese communist model and offered an example of a much better way.
Second, these nation’s economic success also built a foundation of military and diplomatic strength that helped turn most of the Asian-Pacific sphere toward democratic capitalism.
Third, China’s boom in international trade fostered links and shared interests with other nations, which are tested from time to time but remain far better than during its days of isolation.
North Korea is one of the last, and most backward, holdouts. China isn’t perfect, but the mostly peaceful economic modernization of the world’s largest nation is a historically momentous event. It may even be a miracle, but it was no accident.
South Korea is a leader in some of the world’s most competitive markets. The speed of innovation in microchips, Smartphones, and automobiles, however, means competitors can’t take their eye off the ball for even a minute.
The nation’s distractions stemming from the political scandals will likely create openings for opportunistic competitors particularly in the electronics industry. Because it operates at the frontier of innovation in several fast moving markets, Samsung may be particularly vulnerable given its current leadership void and the unsettled political climate that could complicate its ability to innovate. The new president, Moon Jae-in, should bear this in mind and resist the pressure to hurt companies to appease public sentiment for political reasons.
A slowing economy and internal divisions in the South can only embolden the North. Likewise is a potential lack of support from allies, such as the U.S., whose newfound skepticism of free trade threatens not only its own economy but the growth of many of its longstanding allies.
The U.S. won World War II and successfully resolved the Cold War largely on the back of its economic strength and steadfast partnerships around the world. Whether the North is rational or not, weakness in the South helps no one.
The American show of military force, with its demonstration of anti-ballistic missile technology and a massive naval presence, is one way to help strengthen the South. The U.S. should not underestimate, however, the importance of the South’s economic performance. Here's one idea: revive the Trans-Pacific Partnership, under a different name, of course, and include South Korea. The show of support would not only encourage South Korean confidence, it would be good for the U.S., too.
A faster growing economy will help unify the South politically and strengthen it militarily. The very technological success that exposed the shortcomings of the North will be crucial to resolving the matter peacefully.
Bret Swanson is president of Entropy Economics LLC in Washington, D.C., and visiting fellow at American Enterprise Institute.