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Tuesday, January 1, 2013

About Korea

Last year we bought a Hyundai car. My sons have Samsung phones, and yesterday I bought a Samsung TV. Although South Korea is the same physical size as Indiana and has only 50 million people -- tiny compared to the PRC and India, and just a fraction of Japan -- the country has the 5th largest economy in Asia. Their Human Development Index ranks 15th in the world, ahead of France and the United Kingdom. It's a remarkable story, given that South Korea was a battleground just 50 years ago and did not enjoy a U.S.-sponsored rebuilding campaign as did Japan and Western Europe after World War II or, more recently, Iraq.

When we think of Asian economies, our first thoughts are Japan, the PRC, and India. Led by consumer electronics (Sony, Matsushita/National/Panasonic) and automobiles (Toyota, Nissan), Japan took most of the westward attention of the U.S. in the 1970s. In recent years the PRC and India have been highlighted for general manufacturing and outsourcing, respectively. But South Korea has been quietly becoming an economic powerhouse.

Consequently the U.S. still has a rationale to protect South Korea even though the previous rationale (the Domino Theory) is long gone. The U.S. keeps 28,000 military personnel in South Korea to avert hostility from the North. The U.S. has another 35,000 military personnel in Japan, virtually all of whom would be tasked to defend South Korea in case of war. A significant part of the DoD's budget pays for these personnel, their armaments and supplies. How likely is conflict? North Korea is so erratic that no one can say. The impact on the global economy of a second Korean war would be substantial -- as would be the impact of a war over Taiwan. Fortunately, the PRC recognizes the economic value of Taiwan and is therefore unlikely to engage in a scorched-earth war to seize Taiwan despite the fact that Taiwan is essentially indefensible. One would hope that if the North Korean leadership is undeterred by the horror of war and the likelihood of defeat, they would at least not start a war that will destroy the very prosperity and economic influence they crave.