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Be cautious about foreign capital

The Korea Times


Be Cautious About Foreign Capital

By Lee Hae-young
Professor of International Relations, Hanshin University

It would be great if all the foreign capital in Korea, including foreign private equity funds, played a role as productive capital.

Almost every mainstream economists here used to say that most foreign capital contributes to the Korean economy enormously by accelerating economic growth, easing unemployment and so on.

Many economists think even today that the government can control the inflow and outflow of foreign capital without problems. They assume further that through the policies of the government, foreign capital can be distributed in favor of the national economy as they choose.

But this assumption has proved to be baseless. They thoroughly underestimate the recent evolution of neo-liberalism.

Nobody can deny that foreign capital has played an enormous role in the development of the Korean economy whether it be as foreign aid or direct investment.

It is true that a few academicians and activists have blamed the negative effects of foreign capital on the domestic problems since the 1997 financial crisis.

I myself was one of them. But the bureaucrats would not listen at all to the growing anxiety of some critics. They never gave up the hopeless assumption that foreign capital could save the Korean economy from hell.

They believed that the Korea-U.S. Bilateral Investment Treaty (BIT) would accelerate the investment of foreign capital in Korea. Finally in 2002 the nation signed the Korea-Japan BIT. And they failed to differentiate the investment from ``speculation.’’

As a result, Korean bourses, such as the Korea Stock Exchange and Kosdaq market, opened almost without exception.

The results were fatal. Everybody should now realize that it was not an inevitable result of economic development but a ``state failure’’ in which an investor can escape if he wants to or withdraw after reaping huge gains.

In my view, the Korean state has been transformed since the 1997 turmoil into a so-called neo-liberal ``competition state’’ as the German social scientist J. Hirsch aptly formulated.

All the policies and functions of the Korean government must serve the purpose of competition in the world market. Competitiveness is the highest goal of the state. Other purposes are only residual and peripheral.

Ubiquitous neo-liberalism has dominated Korean society and has substituted the previous economic doctrine. It seems to be hegemonies now and forever.

The BITs could be a byproduct of this policy. It is not possible here to consider the BITs as a ``Trojan Horse’’ for the Korean economy. Policymakers never wanted to hear that the BITs were full of poisonous clauses.

Among those clauses are ``the prohibition of requirements as a precondition of foreign investment.’’

The kind of absurd clauses have favored only international speculative capital, such as Newbridge Capital, Carlyle Group and the Lone Star Funds.

American enterprises played the Korean economic crisis at that time like a master to extract maximum benefits.

But the political logic of the Kim Dae-jung administration prevailed like granite. It was invincible. The Korean economy paid more than $100 billion to speculative capital to get the economy to recover from its illness. Was it cheap?

Today’s fever for Free Trade Agreements (FTAs) resembles the enthusiasm for BITs. A German philosopher once said that the great historical events are repeated, once as a comedy and once as a tragedy.

I don’t know that the result of the recent FTAs’ will be a tragedy because the end is quite open. But we should not deny the new version of the Korea-U.S. BIT. The 2004 BIT is included unchanged in the American FTA text.

Korean laborers, peasants and - last but not least - the citizens protest against it.

When the Financial Times described the anti-foreign speculative capital sentiment as ``nationalism,’’ I had deep sympathy for it insofar as this so-called nationalism may be in favor of the chaebol, Korea’s family-owned conglomerates.

 source: Korea Times