Lunch and Lecture with Subir Lall!

Thoughts after having lunch with Subir Lall, an expert on Korea at the IMF...

From Rice to Riches. (Like the rice pudding place in Soho!)
After the division of the Korean peninsula at the 38th parallel in 1945, the economy of South Korea was comparable to those of Cameroon, Ghana, and Malaysia. However, it effectively utilized foreign aid and pursued measures that would boost exports. Thus, South Korea established itself as the 16th largest economy by GDP by pursuing export-led growth. It has improved human welfare through what Robert Barro calls "capitalism without apology." As GDP per capita increased for Koreans, so too did domestic demand. This increased domestic demand may help Korea get through the financial crisis as it mitigates the sharp decrease in global demand. However, it is not enough to maintain medium to long term growth. Some issues that need to be addressed: rigid labor market, economic diversification, low savings rate.

The Labor Market
Although flexible labor markets can cause unemployment to be higher in countries like the U.S. than in countries like Korea (b/c it is much more difficult to fire people in Korea), in the long run, flexible labor markets promote long term growth through quicker and more efficient redistribution of resources. Dr. Lall commented that although the U.S. has done well in promoting flexible labor markets, it has not provided an adequate social safety net for times like these when the flexible market can cause unemployment to reach very high rates. Historically, the U.S. has relied on credit to serve as a social safety net. People would borrow against future earnings to get through times of frictional unemployment, etc. However, credit is not a guaranteed social safety net, as we discovered during the "credit crunch." Like the U.S., Korea also needs to expand and improve its existing social safety net. While doing so, it also needs to promote more flexible labor markets that will be necessary in order to allocate resources efficiently and promote long term growth.

The Government
One thing Korea has done well in the face of the crisis is execution. In the U.S., the passing of a fiscal stimulus bill does not immediately lead to a distribution of funds. However, when a fiscal stimulus bill is passed in Korea, they are quick to get funds where they are most needed.

Economic Diversification
Because Korea has depended on export-led growth for so long, its government is accustomed to providing incentives for export industries. However, these industries no longer need government support, and Korea might get more bang for the buck, or wham for the won?? if it were to provide incentives for entrepreneurs. Korea has an abundant supply of human capital and needs to find more outlets for its educated workers. Dr. Lall suggested that Korea pursue Silicon Valley type projects.

Korea also needs to expand its labor market and work its women! Korea isn't all that into gender equality, and I always tell my mom that I can't marry a Korean guy because I find them to be chauvinistic. I say this because I think it's kind of true, and also because it annoys her to no end that I don't date Korean guys. Haha.
Anyway, back to economics...productivity in non-tradable sectors stands at about 2%, while that of the manufacturing sector stands at about 4.6%. In order to compensate for the low productivity in the services sector, Korea needs to expand its labor market. It needs to include young people, old people, women...you get the idea.

Save, save, save!
If you go to outlet malls in New York or Boston, I promise, you will run into a group of Korean tourists. That's right. Outlet malls are a Korean tourist attraction. Why? Because Koreans are obsessed with designer clothes, bags, shoes, napkins...everything.

The Washington Post recently had an article about this phenomenon. At lunch, Dr. Lall mentioned the article, and I opened my bag and was like, "oh yeah! This article!" Haha. What a dork I am.
Anyway, low savings is dangerous in countries like Korea because the population is aging. Well, all populations age of course, but the birth rate is not high enough for the ratio of workers to old people to remain constant.

Wow! I'm amazed by how much I learned just by having lunch with Dr. Lall. I told him I felt like I was back at Wellesley sitting in a lecture. [a great thing for someone who is homesick for college!]

Singapore and Tajikistan

One of the most efficient health care systems that we studied in Advanced Health Econ was that of Singapore. Bryan Caplan blogs about it here.

The Embassy has been rather busy this week...the IMF will be releasing a forecast of the Korean economy in the next few weeks. (Details on Korea's economic recovery coming soon!) Apparently, the IMF gets calls from other countries asking how Korea plans to recover from the financial crisis because Korea has been rather resilient in dealing with economic crises...

In other news: One of my housemates just returned from Tajikistan! He's in the army and was studying Farsi.

He told us so many stories about Tajikistan! Apparently, they have a lot of natural resources, but none of it is really tapped because it's as if the country is being run by the mafia. He pointed out that Tajiks are somewhat lazy in that most businesses are owned by Russians or Chinese immigrants. Of course, I argued that if property rights are non-existent and Tajiks are constantly afraid of expropriation, they would not be motivated to start businesses, etc. He agreed that Tajikistan's property rights are somewhat antediluvian. (GRE word, Jenn!) Apparently, if a man builds a business on a piece of land and gets killed, whoever gets there first (I'm assuming it would be the killer) could claim that piece of land. (To which I say, WTF?!) Jonny Steinberg mentioned that in Africa, there was a man who had a really successful store in the neighborhood and he told his neighbors that the store was owned by a white man because he was afraid of backlash from the neighbors, etc. Jonny said the man lived in constant fear that people would kill him out of jealousy. Maybe Tajiks have the same fear?

J bought a Russian fur hat in a store whose owner was on the losing side of the civil war. He had a whole bunch of fur hats of Russians that he had killed with pictures of their corpses...J bought the hat, but left the picture of the corpse at the store...

Also, if an American is shot by a Tajik policeman, the Tajik gov't shoots that policeman and calls it even stevens...

In another adventure, he was being driven up a path that had a rising cliff on its right side and a cliff edge on its left side. And if you looked over the cliff edge on the left side, you could see cars that had fallen off in the past. There were many...
Upon seeing these car-wrecks, his friend said, "why are we driving so close to the left?! I like the right side so much better!" Haha.

In Tajikistan, they eat something called "osh." Apparently it's served on a rug on the floor. It's a pile of rice and oil and onions. Everyone sits around the rug, sits on their left hand, and eats with their right. When J tried to wash his hands before eating, he was told that it was an insult because he was implying that the woman's rug was not clean. He got sick later that night.

Currently, J is enjoying his first real shower in 6 weeks. Apparently, the running water in Tajikistan is muddy, and he said he felt as if he were trading sweat for filth...

I hope he doesn't fall asleep in the shower!

DONE WITH COLLEGE!

This summer:
Professor Nabar, or DJ Nabs as we like to call him, will be at the IMF working on Asia, and his wife will be at the World Bank. What a badass couple they are. I'm totally going to visit.

I'll be living with Toby in D.C.! [Stuy kids, visit us please] We will be learning how to cook/survive. We will also be studying for GREs. We, or at least I, will be going to Teaism all the time b/c I LOVE IT.


Probably won't be blogging again for a while since I'll be heading to NY tomorrow, coming back for senior week/graduation, and transitioning into the real world.
Okay, time to pack!