[Pleasant FTA] The FTA–Polarization–Jobs Triangle

Polarization is a phenomenon in which the rich become richer and the poor become poorer, creating an unbridgeable gap between them. To state the conclusion first, there is no evidence that free trade through FTAs worsens polarization. On the contrary, FTAs are more likely to reduce polarization by increasing jobs.

It is more accurate to view the cause of the polarization that emerged after the Participatory Government not as free trade agreements, but as sluggish investment. Because investment was weak, jobs were not created, and as a result, unemployment increased, leaving many people unable to escape poverty. The reason university students have found it harder to get jobs after graduation should also be seen as a shortage of jobs caused by weak investment.

From that perspective, FTAs are in fact likely to reduce polarization that was created by other causes. That is because FTAs are expected to increase investment. FTAs will attract substantial foreign investment. The American company GM acquired Daewoo Motors, which might otherwise have disappeared in bankruptcy, and revived it. Thanks to that, workers who might have lost their jobs were able to keep them, and even laid-off workers who had been dismissed during difficult times were reportedly reinstated. GM’s acquisition of Daewoo Motors was not related to an FTA, but it is a good example of the benefits our workers can gain from foreign investment.

If FTAs improve the environment for foreign investment, more foreign capital will be invested in this country, and our poor workers will benefit as a result. To that extent, the divide of polarization will also narrow.

In addition, because FTAs expand markets, domestic investment will also increase. Increased investment means more jobs. There is no better way to address poverty than to increase jobs through vigorous investment. In the end, FTAs can very well serve as a solution to polarization.

This phenomenon has already appeared in countries that embraced free trade. Take Mexico, which signed an FTA with the United States and Canada in 1994. Because the economies of the United States and Canada were far stronger than Mexico’s, many people predicted that Mexico’s industries would collapse and polarization would worsen as a result of the free trade agreement. But the outcome was the exact opposite. This can be seen in the Gini coefficient, where a lower number indicates more equal income distribution. The Gini coefficient, which had been around 0.52 in the mid-1990s, fell to 0.48 in 2000, six years after the FTA took effect. This figure shows that income distribution became more equal after the FTA. Korea will not be much different. FTAs will bring more and better jobs to low-income people as well.

Original title: [유쾌한 FTA ] FTA와 양극화, 일자리의 삼각관계

Author: Center for Free Enterprise (CFE)

Date: 2007-06-20

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=19&idx=10696