Wednesday, June 11, 2014

The Korean Wave and the Broken Window Fallacy

They are beautiful and relatively clean looking. Though they often push the envelope in regards to what might be considered too risque to be shown on television (as has been written about expertly in this article in The Grand Narrative), for the most part, they appear non-threatening and they try their hardest to be as inoffensive as humanly possible. And occasionally, some of them will actually be talented.

That is K-Pop and K-Drama in a nutshell. In all fairness, this description probably fits almost every mainstream entertainer from all around the world.

With the occasional oddity that slips through the cracks once in a while (read, Psy), these are the criteria that wannabe superstars have to meet in order to be part of the Korean Wave. When I say “Korean Wave,” however, I am referring to it as the marketing tool that the government uses in order to sell a sugarcoated image of Korea to the rest of the world to either attract tourists or other kind of Foreign Direct Investments (FDIs).

Image Source

However, it is important to clarify that I do not mean to say that those entertainers would not be successful at all without government support. It should be noted that companies like YG, JYP, and SM Entertainment are for-profit private entities, albeit in bed with the government. With or without government assitance, however, they will continue to produce what sells. And if there were no demand for K-Pop or K-Dramas in their current form, you can bet your mother’s pension that they would stop producing it.

The Korean government’s financial aiding of the K-Entertainment industry, however, is not for domestic consumption. It is without question that government regulation of the industry in the past was for the specific purpose of weeding out “subversive” elements, aka censorship. Although vestiges of that era still remains to this day, government meddling in the entertainment industry today is mostly geared towards the goal of exporting it.

And, according to this article in Soompi, business is booming!

Image Source

So has the government’s involvement in the industry paid off? It would be difficult to disagree. After all, US$106 million in the first three months of the fiscal year is no small change. Those earnings are very real. On top of that, considering the fact that the financial successes of the entertainment industry also means that it was (partially) successful at selling its goods overseas, that means that the number of tourists visiting Korea will likely increase as well. And there will certainly be shop owners, big and small, who will never complain about that. If nothing else, it has at the very least succeeded in increasing people’s awareness of Korea. There isn’t even a shadow of a doubt that all of this was the government’s end goal all along.

More business, more tourists, and more profits! How could anyone complain about that? It appears that I may have to swallow my pride and accept that government interference in the private sector has produced marvelous results.

Image Source

But has it really?

In 1850, a French economist named Frédéric Bastiat (pronounced Bas-tee-aa) wrote an essay titled That Which Is Seen, and That Which Is Not Seen.” In this essay, Bastiat wrote what he was going to be best known for – The Parable of the Broken Window, which later began to be referred to as the Broken Window Fallacy.

Basically, this is how the parable goes:

A young boy in a village breaks a window pane in his father’s shop. A crowd gathers around and they try to look at the bright side of things. They say that now that the window has been broken, the shopkeeper will have to spend money to pay a glazier to replace the broken window. That glazier will then be able to use that money to buy himself a loaf of bread from the baker. The baker then can use that money to buy a pair of shoes from the shoemaker. And it goes on and on.

So the crowd takes pleasure at the thought of this. As far as they are concerned, this young boy who broke his father’s window has helped to stimulate business in the village.

But the shopkeeper who had his window broken is not happy. He chastises them and says that they are all being silly. If his window had not been broken, he would have been able to use his money to buy a new suit from the tailor. The tailor would have then used that money to buy meat from the butcher. And it would have gone on and on.

In other words, had the window not been broken, the local economy would have gained a new suit. But now that the window has been broken, the local economy has gained nothing. It has merely had a window replaced.

The problem was that the crowd was only able to see what was visible – actual costs and benefits. They could not see the unseen, the what-might-have-been, aka opportunity costs.

So what does this 164-year-old essay have to do with the Korean government’s financing of the entertainment industry? Everything!

Firstly, the only money that a government has is the money that it collects from the people via taxes. Therefore, when the goverment collates all that tax monies that it has scraped from the people, all the way from Seoul to Jejudo, it should not surprise anyone that there is a significant amount of money. And when a chunk of that significant amount of money is given to one particular person or group, such as the entertainment industry, it should also come as no surpise if the recipients of that money become quite rich all of a sudden.

But what are the hidden costs? The what-might-have-been? Do those benefits cost nothing? It has to be remembered that the taxpayers, from whom that money came from in the first place, are now poorer by exactly that much money. Can you picture the billions or even trillions of interconnected economic activity that would have occurred had millions of taxpayers not been deprived of their money to fund this special interest group the entertainment industry?

To get a small glimpse of what billions of economic interconnections look like, watch this video.

If you actually can picture it, you’re on drugs. Unless we develop a way to look into parallel universes, there is no real way to calculate the economic costs and benefits of things that never occurred.

Yes, YG, JYP, and SM Entertainment have certainly benefited. The singers and performers have gained fame, notoriety, and riches. The executives have gained massive wealth. Yes, some shopkeepers have certainly benefited from the arrival of tourists. But at what cost?

Does it make sense to deprive so many people of their money in order to finance an already highly profitable industry? Is it just?

I know what I think. What about you?

That Which Is Seen, and That Which Is Not Seen
Image Source


  1. Alas, not too many libertarians in Korea.

    1. Well, I'm not a libertarian either, Craig. I'm an Objectivist. But I get it. Anyway, baby steps, right?

  2. On this point you and I do agree. Let's not even talk about how much taxpayer money in my country goes to subsidize highly profitable businesses using pretty much the same tired excuse. Damn nothing to discuss this time. Oh yeah and I'd watch Korean movies even if they weren't government subsidized because so many Korean actors are hotties. Maybe you can get a couple of them to be waiting at the airport shirtless as well.

  3. Thanks for the lesson on the broken window fallacy. It really fits this situation. The biggest concern I have is the censorship or self-censorship that goes on when big government money is involved. Who knows how good Korean music could have been if subversive and alternative forms were left to compete on a fair playing field with kpop without government favoring kpop. Then maybe I wouldnt be so annoyed with the music. Its like the car industry. We would all be driving solar powered cars by now if it werent for government rigging the industry. Thanks... You gave me something to think about and made me appreciate Korea more. I thought Koreans were nuts for liking kpop so much but it also has to do with government propaganda a bit too.

    1. Thanks for the comment, Malachi. I will try to continue to write more that will get you and other readers to keep coming back.