Korea in Transition
Why is the IMF pressuring Korea to cut growth when it seems like economic good news is in short supply? The answer, as usual, is inflation. While Korea was posting 6 percent growth, 5 percent inflation was fine. However, while the economic crisis will cut Korea's growth, it will not be so kind as to cut inflation as well. Nations developing at rapid rates can afford the 5 percent inflation that Korea currently endures. Matured economies cannot. Most major economies listed by The Economist as being "industrialized" nations enjoy growth of less than 4 percent per year, which is normal for a so-called matured economy. But the "developing" economies have, on average, much higher growth rates. Part of this difference is mere mathematical reasoning: going from one dollar to two is only growth of one dollar, but 100 percent. Going from 1 trillion to 1.002 trillion is growth of 200 billion dollars, but 2 percent. Thus, countries with a long way to go have an easier time growing rapidly, at least in terms of percentages.
However, the rest of the difference may be composed of the nature of a developing nation's economy and the higher-risks that nations with little to lose can afford. While many critics cite Korea's crisis as just one more example of the so-called "myth of the East Asian miracle," arguing that the "miracle" was no more than rapid development by underdeveloped countries, they may be missing the more pressing point. The Korean crisis is not the collapse of an economy, but the collapse of a system that can only work with developing nations. Korea could long afford the corruption that necessarily accompanies a high degree of collusion and cronyism. It can no longer do so. The Korean crisis is a series of growing pains, which will necessarily accompany any nation making a rapid transition from developing economy to developed economy.
The Japanese "bubble" of the late 1980s might have warned Asian nations using the "Japanese model" that they were setting themselves up for a bursting of their own. This economic model, in the words of Richard Hornik (former Hong Kong bureau chief for Time Magazine) was a "top-down" model, which bred "complacency, cronyism, and corruption." Whether this description is accurate is debatable, but the key idea here is a given nation's model of democracy. Japan's post-bubble economic woes led to a non-Liberal Democratic Party government for the first time
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