Ashby

Dr. David Ashby is a Certified Financial Planner and the retired Peoples Bank Professor of Finance at Southern Arkansas University. He holds degrees in accounting and business administration and a doctorate in finance from Louisiana Tech.

If you want to buy a car here in the U.S. that is made in Korea, you can. Korea makes Hyundai and Kia, brands that have gone from relative obscurity some years back to now capturing roughly six percent of the U.S. car market. Korea also makes toasters, vacuum cleaners, hard drives and smartphones, all freely available here in the U.S.

Maybe I should clarify a bit. You can buy any of these products here that were made in South Korea, not North Korea. The two countries are geographically adjacent to each other and have similar heritage and climate. One of them exports shiploads of product to the U.S. and the other sends us nothing. That’s due in part to trade sanctions but it’s also due to differing forms of government.

If you look at Gross Domestic Product (GDP), a commonly accepted measure of productivity, you see dramatic differences in the two countries. The GDP of North Korea was recently estimated at $40 billion. That’s for a country of 25 million.

The GDP of South Korea is estimated to be $1.9 trillion for the same period. What’s the difference? It is due in part to population differences. South Korea has twice the population at 51 million. But per capital GDP figures, or GDP per person, are significantly different. Per capita GDP of North Korea is $1,800. Stated another way, the average output of goods and services is $1,800 per person. Meanwhile, per capita GDP for South Korea is $37,600, 20 times greater!

How do you explain this difference? Former Ohio Congressman Bob McEwen says it boils down to freedom. In South Korea, people have the freedom to pursue what they want to do. In North Korea, people are told what they will do by that chubby leader with the bad haircut (no, I don’t mean Trump!).

While South Korea is creating a middle class by selling products all over the world, North Korea is having trouble feeding their people. It seems ironic that the ultimate in big government, a Communist state, would have trouble taking care of their citizens. After all, adding government programs and increasing control over the population is normally done under the guise of benefitting the people. Yet in North Korea, the people have a standard of living well below those of South Korea.

The U.S. contains about four percent of the world’s population but we produce 18 percent of the world’s GDP. We have an abundance of natural resources in the U.S. which partially accounts for our productivity. But McEwen attributes the main factor to individuals being able to pursue their dreams. World Bank reports that half of the world lives on the equivalent of less than $6 a day. Half of those, or a fourth of the world’s population live on $3 a day. Even the poorest of families in the U.S. are still likely to have a phone, cable TV, an automobile and air conditioning.

When the U.S. Coast Guard picks up a boatload of defectors in the Caribbean, the boat is headed from Cuba to Miami, not vice-versa. People fleeing government control in hopes of a better life. And from time to time I hear of North Koreans defecting to South Korea. But I never hear of any South Koreans defecting over to North Korea. Reckon we could learn anything from all of this?

Dr. David Ashby is a Certified Financial Planner and the retired Peoples Bank Professor of Finance at Southern Arkansas University. He holds degrees in accounting and business administration and a doctorate in finance from Louisiana Tech.

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