The question whether Korea is a free market economy is debatable. While statistics from the free market rankings reveals that the region is on the 31st position among the free market economies, economic models that determine fiscal, financial, and labor freedom may highlight a different scenario. According to Karl Max, the freedom in every market stems from capital movement. A market is free when labor can reproduce factors that promote its growth and development. Capital acquires the freedom of movement, which, in turn, influences the accumulation of wealth, commercial competition, transformation of the work environment, volatility of profits, and performance in the banking system. In an open market economy, there is a free movement of capital. The interest rate depends on the money supply that is subject to the exchange rate system and capital mobility . In my view, determination of a free market should not only rely on capital mobility. The evaluation should take into account measures taken by the government to protect particular aspects of trade. For instance, Korea gives incentives for electronic exporters but discourages imports of the same goods from other countries.
Korea falls under an open market economy because of the existence of a dynamic and vibrant private sector and the existence of an educated labor force. The country enjoys high capacity of innovation and openness to world trade and investment. South Korea’s long-term progress depends on a proper scope of governance and the existence of free market policies. The multinational corporations in the country meet the trade conditions in both domestic and global market. For instance, Samsung is present in every market of the modern society. Karl Polanyi argues that the development of a free market must conform to the changes in the modern society. The position taken by the theorists clearly defines the development of Korea after the financial and economic crisis in Asia. The theorist contends that transformations in the modern country influence the human nature and allow for competition in a capitalist economy. In my opinion, development of a free market economy entirely depends on the pace of competition. Competitive markets allow a free movement of factors production. The key elements of the change are factors of production such as land and labor. The ability of humans to sell the factors according to the market requirements would determine the market prices . Transformation enables the modern free market economy to influence the price of capital according to market forces rather than distribution, traditional allocation, and reciprocity.
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Arguments raised by Karl Marx and Polanyi provide a proper understanding of the free market economy and reveal the how capital mobility influences economic conditions in Korea. Mobility aspect as discussed by the two theorists also relates to the liberal imperialism that affects the development of free trade. Under the system, governments and trade authorities implement rules and regulations that govern all forms of commercial activities. Governments have sovereign authority over investment, transportation, trade, diffusion of knowledge, and exercises dominion over other states . The conditions do not exist in Korea as the country experiences free movement of goods and technology across the world. However, I strongly believe that there is an absolutely free market, because liberal imperialism allows the government to protect certain sectors of the economy. While the two theorists explain the development of capitalism in relation to the free market economy, Polanyi tends to promote the principles of social protectionism, which is a reaction that stems from the uncontrolled free market. According to the theorist, the development of a self-regulating market necessitates the separation between political and economic realms.
Social protectionism is a natural response of the society to guard itself against social dislocation. In the light of the argument, it is evident that Polanyi contends with the stance taken by Adam Smith who relates liberal imperialism with the mercantilism. The principle states that economies enact national laws to promote their economic interests at the expense of the rival states. However, Adam Smith and Karl Polanyi do not accurately relate the free market development in Korea to the advancement in classical political economy that influences the movement of capital and goods in the country and the world market. Korea’s political system strives to improve international relations with its trade partners. The trade laws in the country promote the development of exports and ensure a stable balance of payment. South Korea is the world’s largest trade partner that exports agricultural products to the United States and import raw materials from the Asian countries. The principle of capital mobility in a well-organized political economy as discussed by Karl Max, therefore, describes the economic conditions in the country . In my view, a free market economy must ensure a stable balance of payment through exports and imports. No country that participates in the global trade can make it without involvement in the two dimensions of trade.
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As the basis of comparison, open market operations in the United States in the 1930s could influence the world interest rate because of the volumes of trade in the country. Khan and Farhad posit that Korea is a free market economy that can experience economic and financial crisis when there is no free movement of capital. For instance, the analysis of the Asian financial crisis in the 1980s and 1990s reveals that a collapse in the foreign exchange rate and poor credit performance in the open market can result in serious economic problems . The suppositions confirm the requirements of the macroeconomic policy supported by the Krugman model. It reveals that the free market economy is subject to financial and economic failures when the there is a collapse in the balance of payments, and the internal credit expansion is inconsistent with the foreign exchange rate. Under the macroeconomic policy crisis, the foreign exchange reserves decline to the level at which the central bank cannot contain the floating rate in the economy . However, in my opinion, the model should also embrace the internal interest rates and inflation in an economy that affects the domestic performance of the currency.