Korea and the International Business Community

 

Paper for a meeting sponsored by Financial Times, September 8, 1977.

 

               The formal title of this conference might well have been "Korea in the International Business Community," for it is a community that is not external to us but of which we are very much a part; one that influences us and upon which we in turn exert a proportionate influence, as buyer, as seller, as trading and investment partner. It is a natural and very necessary relationship, and the very fact of your gathering here, at a meeting sponsored by an international economic journal of worldwide repute, is a measure not only of Korea's increasing significance, but of the increasing interdependence of the international business community of which we all are members.

Because Korea is your subject on this occasion, I would like first to summarize some of the major aspects of Korea's recent and projected development, and then relate that development to an issue that is of importance not only to Korea but the international economic community as a whole: the vital need for the continuing maintenance of free trade.

Korea's development to date-and that which it projects in the future-is not inward-looking but outward-looking. Obviously, however, for a nation to be able to adopt and effectively implement an outward-looking orientation, there must be something out there for it to orient itself to and integrate with. That essential something is a free trade environment. Free trade is essential for the healthy growth of the less-developed countries of the world. Insofar as we are sellers, we must have a healthy and growing market for our goods; insofar as we are buyers, we must earn the wherewithal to purchase what we need-and this we can do only in a world market that is receptive to our own products. "Have-not" nations may not offer inconvenient competition in the domestic markets of the developed countries, but they make very poor customers.

While this interdependence of interests is generally acknowledged, national economic practice on the part of many of the developed countries in recent years is quite another matter.

We are at a critical stage in world history. The countries of the world have passed beyond the point where each can pursue its short-range national interests without consideration of the long-range consequences to itself and to its neighbors, but they do not yet truly constitute a mutually supportive community. Since the onset of the recent recession, the terms of trade of many of the developing countries have become increasingly unfavorable as the market value of the products of their labor-intensive industries remain unstable or decline, while the prices of the capital goods they require for development steadily inflate. At the same time, protectionist curbs on imports and other trade-restrictive measures have increasingly impaired the flow of goods, services, and capital essential for the economic health not only of the industrially developing nations but of the international community as a whole.

This is not to say that the recession has not had negative effects upon the economies of the developed nations, or that there are not considerations of considerable domestic weight that incline many of these countries to take such protective measures. But in broader international and human terms, the negative effects of such a restrictive tendency far outweigh the short-term local gains; and already the prospects for the minimal necessary growth of the less-developed nations are becoming uncertain, the living conditions of the billions of people in the least-developed countries remain unimproved or degenerate still further, and the distance between the "have" and "have-not" nations of the world grows ominously wider.

International aid and professional assistance might ameliorate the grosser effects of this gap if they constituted a significant share of the wealth of the OECD nations, but at present they stand at only half the Official Development Assistance target of 0.7 percent of their GNP set by the OECD nations at the beginning of this decade. Furthermore, aid and assistance alone cannot fundamentally close this gap. That can only be accomplished in a climate of trade-based international growth in which the developed nations of the world recognize that their own long-range self-interest is best served by the evolution of an international division of labor that provides the opportunity for the developing nations to participate in and contribute to that international growth.

This is not an impossible goal. There has been unprecedented growth and a marked increase in living standards in many parts of the world during the three decades since the Second World War. North America, Western Europe, and Japan have made especially rapid advances, but many of the developing countries such as Brazil, Taiwan, and Korea have also made progess that, proportionately, is equally impressive.

This improvement would not have been possible without the expansion of world commerce that resulted from the postwar multinational liberalization of trade, investment, and transfer of technology. Under this stimulus the OECD countries rapidly integrated their already advanced industrial structures, and thus have gained most from the lowering of the trade barriers that had stultified international development in the 1930s. But the more advanced developing countries, which during the past 15 years or so have integrated their economic structures into the mainstream of world trade, have also experienced a gratifying degree of economic and social progress.

In the years ahead this process of integration should include an increasing number of the developing countries, and all developing countries that are desirous of making progress as open economies should be encouraged to carry out the internal policy reforms requisite to an effective, outward-looking growth process that can take the fullest possible advantage of expanded trade, international investment, and the transfer of advanced technology. The external requisite, however, is that the developed countries continue to leave their markets open to the labor-intensive manufactured goods of the newly industrializing countries.

I mentioned earlier that development for the newly industrializing nations of the world was largely a transfer process-a "brain-picking" process, if you will. This is not a reflection on the innate abilities of the scientists and technicians of the developing world-a good number of expatriate Korean scientists, as well as those from other developing countries of Asia, Latin America, and elsewhere, have made significant contributions to fundamental research and development in the more advanced technical environments of Europe and America.

What it reflects is the fundamental division of labor that inevitably exists in the international community at this stage of world development. The "cutting edge" of scientific and industrial advance, and the funds to develop these advances in commercially and socially useful terms, lies with the developed nations of the world. On the other hand, however, the ability to continue to efficiently perform many of the still-useful, traditional labor-intensive industries lies with the industrializing nations of the developing world that-other things being equal-have the advantage of low unit-cost of labor.

The restraints on free trade that are now threatening to intensify and to seriously impede international growth and development reflect a fear in some quarters of the already industrialized world that international industrial growth has somehow reached a limit, and that the industries and the markets that are "lost" to the "competition" of the developing world represent an irreplaceable loss to the already developed economies. Aside from the depressive effect that protectionist measures taken as a result of this fear can have upon their own trading income-for the developing countries have become an increasingly important market for the commodities of the already industrialized countries-such measures have the further and perhaps even more debilitating effect of reducing the incentive of the developed countries to pursue technological development. The fulfillment of this industrially creative role is essential for the sustained advancement of human society in the developed as well as the developing world; and it is a role that the developing nations will not-under even the best conditions of continued growth-be able to effectively perform for many years to come.

The fear that international growth has reached a barrier or limit that requires the immobilization of the international division of labor in the pattern of the present moment is contradicted by two hundred years of the world's developmental experience since the start of the Industrial Revolution. During this time there have been numerous shifts of industrial location and specialization within the Western world, in accordance with evolving need, technical development, and changing comparative advantage. Certainly this process is not without its dislocations, and it entails very real problems that cannot be ignored or brushed aside. The nations of the developing world are very much aware that their emergence upon the international industrial scene has affected employment and traditional trading patterns in a number of industries in the advanced countries, and they realize that the reciprocal interests of international harmony require that they "go slow" at times in their expansion into new industries and markets.

But the answer does not lie in the abnegation, by the developing nations, of their right to seek their necessary development through the economically sound and equitable exercise of their comparative advantage. There are a number of measures that the developed nations can take that would not be merely ameliorative of present problems but, in fact, creative and expansive. Among these would be measures to increase total private investment in housing, plants, and equipment, to support the development of new industries that are now on the frontiers of technological feasibility, and to stimulate growth and employment in industries that do not need protection. Other measures would be retention and relocation assistance geared to affected regions rather than to particular depressed industries that have already lost their rationale in the international market.

These few suggestions do not constitute a blueprint for the solution of the problems of the developed nations. But the long-range solution to these problems clearly does not lie in a retreat into industrial isolationism.

If protectionism were to become the rule of world commerce, then there could be no international trade as we know it-and need it-at this critical period of world development. There could only be a narrowing of mankind's economic and social horizons, with an introverted servicing of limited national and regional needs on the part of the advanced nations, and an appalling condition of stagnated development, increasing poverty, and accelerating decline on the part of the less-developed nations of the world.

This is a scenario that need not come to pass, and I sincerely believe it is one that will not come to pass as long as enlightened self-interest continues to guide the affairs of the world community as a whole. But it is nonetheless a danger that must be recognized and spoken out against; and I hope that the international business community, with the full force of its wisdom, experience, and conviction, will exercise its countervailing advice and counsel for the establishment of informed and forward-looking national policies in the vital area of international trade.