The economic expansion following the 2008 recession has been the weakest of the post–World War II era and remains an outlier among postwar recoveries along several dimensions. House prices rose in the second half of 2012 but remain 7 percent lower than they were at the start of the recovery. Household debt also remains below its June 2009 level, although it rose in the fourth quarter of 2012. The federal budget deficit is larger than in any other post–World War II era recovery, but it is shrinking rapidly, from over 8 percent of gross domestic product (GDP) in March 2012 to less than 6 percent of GDP in March 2013.

• The current recovery was initially stronger than the recovery from the 1980 recession, which was interrupted by another recession in 1981.
• However, at this point, the current expansion is the weakest in the post–World War II era.
• Forty-five months after the start of the economic recovery, GDP is only 8 percent higher than it was when the recovery officially began.
• In the average post–World War II recovery, GDP is 16 percent higher at this point.

• The Federal Housing Finance Agency's all-transactions home price index, which is used in the accompanying graph, showed two consecutive increases in the third and fourth quarters of 2012.
• However, the index remains 7 percent below its June 2009 level.
• Soft home prices have been central to the weakness of the recovery.

• Household debt increased in the fourth quarter of 2012, but remains 3 percent below its June 2009 level.
• In every previous postwar recovery, the stock of household debt has risen as the recovery has begun.
• In the current recovery, the collapse in home prices has severely damaged household balance sheets. As a result, consumers have avoided taking on new debt.
• The result is weak consumer demand and a slow recovery.

• Job losses continued throughout the first eight months of the recovery.
• Payrolls have increased for the past thirty-one consecutive months, adding 5.5 million jobs to the economy.
• However, there are still 2.6 million fewer Americans on nonfarm payrolls than there were at the start of 2008.

• Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production.
• Despite the predicted snapback, the increase in industrial production during this recovery has been fairly typical of postwar recoveries.

• Capacity in manufacturing, mining, and electric and gas utilities usually grows steadily from the start of a recovery; however, during the current recovery, investment was initially so slow that capacity declined.
• Since the start of 2011, this trend has reversed itself and industrial capacity has steadily risen.
• Capacity is now 1.3 percent higher than it was at the start of the recovery.

• The federal deficit was much larger at the start of this recovery than it was in any other post–World War II era recovery.
• The deficit remains higher than in any other recovery in the post–World War II era, but it is declining rapidly.
• The deficit has declined from over 9 percent of GDP at the start of the recovery to less than 6 percent of GDP as of March.

Explore our other Chart Books:

Foreign Ownership of U.S. Assets

Foreign Exchange Reserves in the BRICs

Trends in U.S. Military Spending

Economic Downturn

Things to look for in these graphs:

• Since 2002, the increase in foreign ownership of Treasury bonds has been driven almost entirely by government buyers.
• Until the crisis, government buyers were also driving the increase in foreign holdings of bonds issued by government-sponsored enterprises (agencies). However, since the start of the financial crisis, foreign official holdings of bonds issued by government-sponsored enterprises have steadily declined, while private foreign holdings have risen after an initial dip.
• The U.S. portfolio of foreign assets is relatively risky, with a significant share of holdings in equities that generate gains during a boom but suffer losses in economic downturns. By contrast, the value of foreign holdings of U.S. assets is less volatile because of the concentration in treasuries.
• Following a sharp decline in 2008, the U.S. net international investment position recovered in 2009 because of strong equity market performance. The net international investment position deteriorated markedly in 2011 and further in 2012. External financial liabilities now exceed external financial assets by over $4.4 trillion.

• Cross-border investment has grown as the world has become increasingly globalized.
• Since 1985, foreigners have consistently owned more U.S. assets than Americans own foreign assets.
• In the fourth quarter of 2012, U.S. ownership of foreign assets declined nearly 9 percent, while foreign ownership of U.S. assets remained essentially flat.

• If the Federal Reserve's holdings are excluded, foreigners own nearly 60 percent of outstanding marketable treasuries.
• Foreigners own less significant portions of other asset markets.
• Their holdings of equities, while large in dollar terms, are small relative to the size of the equity market.

• Foreign ownership of U.S. treasuries has risen considerably since the middle of the 1990s but has been declining slowly as a share of the market since mid-2011.
• Before 2008, foreign ownership of the agency market was growing at a relatively rapid pace.
• Since 2008, foreign holdings of agencies have declined gradually.

• The growth in foreign ownership of treasuries has come from official buyers (i.e., foreign central banks and sovereign wealth funds).
• Foreign private holdings have not grown as a share of the market over the past ten years.
• The much discussed "flight to safety," which is presumed to underpin the dollar, largely reflects the huge policy-driven demand for dollar reserves from emerging-market central banks, rather than the preferences of private sector investors.

• As with treasuries, a significant portion of growth in foreign ownership of agencies has come from official buyers.
• Foreign official holdings of agencies continue to decline, while private holdings have stabilized and risen since 2008.

• Foreign ownership of corporate bonds as a percentage of the total market has grown significantly since 1945. Although growth has been modest over the past two decades, foreign holdings are now at levels not seen since the late 1980s.
• Foreign ownership of U.S. equities has grown slowly but steadily since the 1970s.

• The foreign preference for Treasury ownership had been waning over the past forty years but has returned since the crisis.
• Since the crisis, foreigners have allocated a declining share of their U.S. portfolios to corporate bonds and agencies.
• Their allocation to equities and mutual funds has rebounded since 2008 and has returned to precrisis levels.

• The United States invests more directly into foreign enterprises abroad than foreigners do into the United States.
• The sharpest contrast is in Latin America.

• The United States tends to hold riskier assets abroad (equities) than foreigners hold in the United States.

• Because of persistent U.S. current account deficits and corresponding capital inflows, foreigners buy more U.S. assets than vice versa. But because U.S. holdings abroad have usually yielded higher returns than foreign holdings in the United States have, the U.S. net international investment position has deteriorated less—although there was a sharp decline in 2011.
• The net international investment position deteriorated further in 2012.

Although new South Korean president Park Geun-hye campaigned with positive overtures toward Pyongyang, North Korea's missile and nuclear tests have limited the scope of her administration's policy options. Park's ability to respond punitively is also restricted by the fact that precision-guided surgical air strikes, considered by Washington in 1994, are no longer feasible or desirable for South Korea. The only remaining option is to use sanctions to hit at Pyongyang's "palace economy," which would undermine the regime's ability to buy elite loyalty and would likely lead to the former's collapse.

China is against the collapse of the Kim regime, believing it would cause regional instability and inhibit Chinese plans for a peaceful rise. Consequently, despite North Korea's brazen provocations, Beijing continues to provide assistance to Pyongyang. In addition to the calculation that punishing its neighbor is likely to cost China more than it would gain, three perceptual and structural obstacles make a change in Beijing's policy improbable, if not impossible. First, Beijing predicts a difficult future for Sino-U.S. relations. Second, Beijing views U.S. alliances with South Korea and Japan as part of a U.S. strategy to contain China's rise. Third, the Korean peninsula lacks a stable mechanism for peace. Since none of these obstacles is likely to be addressed in the near term, China's modus operandi regarding North Korea is likely to remain unchanged, rendering the regional situation similar to that of the past.

Seoul's entanglements with China extend beyond the North Korean problem. China is unhappy with the current state of relations with South Korea, which it describes as "carrying 'dark currents' that can swamp the relationship at any time" and as "coming near a strategic crossroads." The two countries also face a wide range of complex bilateral issues—differing perspectives regarding history, norms, values, and the ROK-U.S. alliance, as well as growing trade dependency—none of which has an easy or straightforward solution. Mismanagement of these pending issues could cause rising ROK and Chinese expectations for their two heads of state and improved bilateral relations to backfire. Although it may help that Park is the first South Korean president to speak Chinese, what is really needed is a better contextual understanding of China.

The new South Korean administration's Japan policy may also face difficulties, Park's good intentions toward a "grand reconciliation" notwithstanding. It has become increasingly difficult in recent years to distinguish a "realist Japan" from a "revisionist Japan," and there is an emerging South Korean perception that Japan's rightist drift is not merely the mishap of isolated and select politicians but rather a consistent trend of growing significance.

In regard to South Korea's relations with the United States, with North Korea's asymmetrical threat deemed more grave than ever, another debate over the planned 2015 transfer of wartime operational control from U.S. Forces Korea to the ROK military is likely. Furthermore, in light of North Korea's growing nuclear capabilities, domestic pressures will also mount for a better deal on South Korea's 1-2-3 nuclear cooperation agreement with Washington. South Koreans will want Park to secure an agreement with provisions at least on par with what has been agreed on by Washington and Japan. More important, though uncertain, is how the Park administration will respond to the U.S. rebalance in the context of consolidated ties between China and North Korea. Furthermore, since this U.S. strategy is geared more toward Southeast than Northeast Asia (from which Washington has never departed), the Park administration may have to broaden the country's diplomatic focus to encompass this other subregion and to set foreign policy agendas for the entire East Asian region. Again one is reminded of the varied scopes and visions of previous administrations: Kim Dae-jung's East Asia, Roh Moo-hyun's Northeast Asia, and Lee Myung-bak's "New Asia."

Fortunately, the Park administration appears ready and willing to be flexible and practical. When a country is more of a dependent than an independent variable of international politics, as is the case with South Korea, pragmatism derives from action rather than statements. Thus, the Park administration's diplomatic initiatives within South Korea's regional security and political environment will be more important than past announcements about what she hoped she could do. In particular, Park should avoid an obsession with "trust," a term repeated during her campaign as the foundation of her foreign policy. Building trust is important, especially in South Korean domestic politics, but trust alone is insufficient to resolve many interstate matters. In fact, maintaining some strategic suspicion is healthy in this cruel world of international politics. Thus, what South Korea needs is pragmatism and flexibility rather than dogmatism stuck on abstract concepts.

On February 25, 2013, Park was inaugurated as the Republic of Korea's (ROK) eighteenth president. Park is the first female South Korean president and the first president to be elected by a majority of the country's voters. She is also the daughter of the late authoritarian leader and president Park Chung-hee.

Park is likely to pursue a foreign policy that emphasizes continued cooperation with the United States. She is relatively empowered to do so, having the support of her majority party in the parliament, but her efforts may be obstructed by an increasingly influential minority party and civil society.

Most newly elected South Korean presidents begin their tenure evaluating and criticizing their predecessor's diplomatic policies. Former ROK president Lee Myung-bak, however, is credited with successfully consolidating the U.S.-ROK alliance. Park is likely to continue many of Lee's policies toward the United States and pursue a strengthened bilateral relationship.

In particular, she is expected to facilitate the administration of the current South Korea-U.S. Free Trade Agreement (KORUS FTA). Whereas the opposition candidate Moon Jae-in called for renegotiating the agreement with regard to its investor-state dispute (ISD) provision, Park has argued that this issue can be resolved through the agreement's existing coordination mechanism.

Park will also sustain close military cooperation with the United States and support the 2015 planned transfer of wartime operational control (OPCON) from United States Forces Korea (USFK) to the ROK military. While emphasizing that the transfer take place without weakening South Korea's defense posture, Park has stated that all steps should be taken to ensure that the transfer is effectuated in a systematic and swift manner without another delay.

Park has also shown firm support for U.S. leadership on key global issues such as fighting climate change, countering international terrorism, and helping to shape a new economic world order in the aftermath of the 2008 global financial crisis. Consequently, Park's administration is likely to continue building robust ties with the Obama administration. She is likely to take advantage of U.S. support for South Korea's growing global role, as Lee did to host the 2010 Group of Twenty and 2012 Nuclear Security summits.

Park will also, however, confront U.S.-ROK issues over which the two countries are likely to disagree, such as the ROK burden-sharing budget for host-nation support of USFK and the renegotiation of the U.S.-ROK nuclear cooperation agreement. Though Park will continue to stress the importance of sustaining the bilateral alliance, she will emphasize South Korea's economic interests on these contentious issues during negotiations.

Although the aforementioned aspects of Park's policies will be similar to those of Lee, her administration will try to differentiate itself through its initiatives toward China and North Korea. In South Korea there is significant concern about the worsening of ROK-China relations during the Lee administration. As the Obama administration stresses a U.S. rebalance to Asia, it continues to emphasize U.S. ties with close allies in the region, including South Korea. In the context of the U.S.-China relationship and their respective roles and influences in Asia, Park has maintained a very clear stance; she plans to sustain the already existing comprehensive strategic alliance with the United States while upgrading Seoul's cooperative partnership with China. In this way, Park believes that South Korea should enjoy cooperative ties with both great powers, and that the ROK need not choose one over the other.

With regard to North Korea, Park enters office amidst debate. Although consistent, her predecessor's hardline position was as unsuccessful in bringing about change in North Korea as the engagement policy of his predecessors. In South Korea this failure is juxtaposed with the alarming perception that North Korea is increasingly more likely to merge economically with China than unify with South Korea. Consequently, Park suggests an "alignment policy" that incorporates the strongest elements of both the hardline and engagement policies to deal with North Korea and bring about peace. Since any South Korean policy toward North Korea will be closely related to U.S.-ROK and U.S.-North Korea relations, maintaining a strong U.S.-ROK alliance will be an important precondition for Park to ensure peace on the peninsula. Focus, however, will be on cooperating not only with the United States, but with China as well.

As South Korea's president, Park will lead in managing relations with the United States. Her ability to do so is strengthened domestically because of the critical role she played in securing her party's majority in the current National Assembly. Remaking the party's policies and programs, leadership, and electoral strategy, Park led the Saenuri Party to victory in the April 2012 parliamentary elections. With relative ideological coherence in the Saenuri membership, especially in support of the U.S.-ROK alliance, the position of many in the legislative body should align with Park's policies toward the United States. This is supported by a Korean Party Studies Association and Joongang Ilbo survey in June 2012, which found that 90 percent of Saenuri Party assembly representatives believed that South Korea's alliance with the United States should continue as the "backbone" of South Korea's foreign relations.

Despite this support from the Saenuri Party and the majority of the National Assembly, Park may still face political challenges. First, the ROK National Assembly adopted some significant changes in legislative procedures in early 2012 that fortified the opposition party's veto power. Once governing and opposition parties at the subcommittee level agree to define a bill as "contentious," a super-majority vote of two-thirds is now required for the subcommittee to pass the bill and put it to plenary voting. Another enhanced mechanism that provides greater leverage to the minority party comes from a new legislative procedure that requires three fifths of a super-majority to end any filibustering. As the opposition—the Democratic United, United Progressive, and Progressive Justice parties—hold 147 out of 300 seats in the National Assembly, they may be able to thwart, delay, or veto significant foreign policy bills proposed by the Park administration. (Unlike the United States, the ROK president may propose a legislative bill to the National Assembly.) Thus, if Park proposes a North Korean human rights bill to the National Assembly as she has stated in her policy manifesto, opposition parties may be able to delay or veto the bill with their large minority vote in the parliament.

Second, political activism among liberal nongovernmental organizations (NGOs) in South Korean society could organize resistance to Park's foreign policy initiatives, although such moves would be highly situation specific and subject to numerous factors. Over the past several years, liberal NGOs have risen to be significant actors in South Korea's foreign policy making process. Their power to mobilize civic participation and to frame political issues toward liberal perspectives has become influential. In the spring of 2008 when the Lee government was just a few months in office, liberal NGOs showcased their ability to mobilize the population against the government's decision to re-allow the import of U.S. beef and stymie the initiative. Thus, Park will have to deal with the opposition party and powerful NGOs when she launches new initiatives on foreign relations like the North Korean human rights bill. Her administration will have to combine her formal foreign policy making authority as invested in the power of the presidency with adroit political skills for negotiating with and persuading the political opposition.

As Park begins her tenure as head of state, it seems likely that her administration will continue strengthening South Korea's relationship with the United States. Her policy positions should sustain relative stability in bilateral relations. However, serving as president of a vibrant democracy, the success of her initiatives will depend on the skill of her administration to overcome domestic political challenges.

Middle powers are medium-size states with the capability and willingness to employ proactive diplomacy with global visions. Their policies fulfill their respective interests but also benefit the world. Middle powers promote new visions and creative ideas that are acceptable to both their domestic constituencies and other states. They are also willing to make the necessary contributions to materialize such visions.

Through various initiatives, such as its programs in green growth and development cooperation, South Korea has demonstrated the influence middle powers may have on global governance. In the Group of Twenty (G20), where factionalism is becoming increasingly prevalent, middle powers such as South Korea may be best suited to facilitate consensus building and revitalize momentum for cooperation.

Global Governance: The G20 and Middle Powers

Collective management over many world issues has yet to be established. However, one area that has enjoyed successful coordination is economic governance, with the G20 becoming the premier forum for such international cooperation. In the aftermath of the 2008 financial crisis, members of the G20 implemented economic stimulus packages in their respective countries and agreed on the principle of freezing economic protectionism, such as import restrictions and "buy national" policies. These efforts contributed to curbing the spread of the financial crisis.

The G20, which consists of both advanced and emerging economies, is gradually taking the leadership place of the Group of Eight (G8) and becoming a steering committee for the global economy. Nevertheless, there is growing concern that even with the recent limited economic recovery, the momentum of G20 cooperation is weakening. This is partly attributable to the divergent positions of developed and developing countries on specific G20 issues such as climate change, trade, and reform of the International Monetary Fund (IMF).

The ongoing global economic recession indicates that greater international cooperation should be fostered to generate more robust growth. The G20 is an appropriate body to execute this task, but doing so will require it to address its bifurcation. Middle-power countries may play a critical role in this process by helping mediate the aforementioned differences between developed and emerging economies.

South Korea's Middle-Power Diplomacy

South Korea is actively practicing middle-power diplomacy. Its "green growth" initiative seeks to develop green technology and industries, with the aim of strengthening the South Korean economy and protecting the environment. These are goals that serve South Korean interests, but they also promote a green growth paradigm that benefits the world. To materialize this global vision, South Korea renders assistance to developing countries for the application of green technology. South Korea contributed $200 million to the East Asia Climate Partnership to help developing countries cope with climate change; supported green growth projects in Brazil, Indonesia, and Ethiopia through its contribution of $10 million to the Global Green Growth Institute; and, together with new donors including Norway and Qatar, committed $50 million in 2013 for assistance projects in eighteen countries.

South Korea has also demonstrated enhanced leadership in development cooperation. Helping countries achieve economic development facilitates the continued growth of the world economy, as it strengthens developing countries that are critical to North-South cooperation. Development cooperation sought by middle powers means not only increasing material aid, but presenting new visions that involve collaboration with nontraditional development agents, including emerging economies and civil society.

South Korea has thereby aimed to harmonize its own interests with those of its counterpart countries and the world community, as well as to undertake various efforts to address global issues. Its two recent incarnations—as a developing nation and now as a developed country with an advanced economy—will inform South Korea as it takes on a greater role in global affairs. As South Korea executes its middle-power diplomacy, it does so within the framework of the G20. The South Korea–initiated development agenda is now one of the most appreciated priorities of the G20 and also one of the few with unanimous support from all G20 members. Inclusive green growth is another issue on the G20 agenda that has produced tangible outcomes and that still has the avid support of many G20 members.

Likewise, outside the G20 framework, South Korea has exercised diplomatic leadership that befits its middle-power status. It took the initiative in establishing a "global development cooperation partnership" by successfully hosting the Busan High-Level Forum on Aid Effectiveness in 2011. South Korea also hosted the Nuclear Security Summit in March 2012, is a nonpermanent member of the United Nations Security Council until 2014, and will host an international conference on cyberspace in October 2013 to contribute to global consensus building on norms in cyberspace.

Informal Networking With Like-Minded Countries

Building upon these achievements, South Korea is well poised to take the initiative in middle-power diplomacy with several other like-minded countries. The South Korean government is now contemplating how middle-power diplomacy can be envisaged in the G20 framework. The G20 has been criticized for the divide between its Group of Seven (G7) members and Brazil, Russia, India, and China (the BRIC countries), observed in the confrontation of the United States and the European Union against China and other emerging economies regarding IMF reform, as well as in Brazil and Argentina's opposition to the extension of the freezing principle on trade protectionism.

One means of promoting middle-power diplomacy within the G20 is to create an issue-driven, informal, and flexible dialogue mechanism among members who are interested in such middle-power initiatives. This mechanism would aim primarily to narrow the opinion gap on G20 issues and drive coordinated actions and the implementation of G20 commitments. These middle-power consultations could also yield creative ideas and recommend new issues for the G20 agenda. Such new ideas should provide an intellectual impetus for the strong, sustainable growth of the world economy.

The current international landscape requires such an initiative and an increasing role of middle powers. The world now works not hierarchically, but in a networked fashion. In this world, no one can dictate what others have to do. In a networked world, a group of like-minded countries can lead a meaningful change in the world. They do so not by power, but through creative ideas, a smart and flexible strategy, and moral leadership. Middle-power countries are well positioned to lead this inter-connected world. And South Korea stands ready and willing to do so.

A series of bilateral conflicts and entanglements has served to increase South Korean discontent with China. These include:

• tariff disputes arising from Chinese flooding of South Korean garlic markets in 2000

• China's controversial claim to the ancient Korean kingdom of Koguryo in 2004

• Chinese violence during the torch relay for the Beijing Olympic Games in 2008
• the sinking of the Cheonan and the Yeonpyeong Island bombardment in 2010
• Chinese fishermen's illegal fishing and the murder of a Korean coast guard in 2011
• Chinese repatriation of North Korean defectors
• potential disputes over Socotra Rock in 2012

East Asia Institute-Asia Research Institute (EAI-ARI) polls reveal that in the context of these developments in bilateral relations, South Korea's public perceptions of China have been ambivalent. On the one hand, South Korea recognizes the growing importance of China for its future economic prosperity and potential unification with North Korea. Given that South Korea's lopsided economic dependency on China has intensified (a quarter of Korea's 2011 total exports went to China), and that Beijing has consolidated its political, economic, diplomatic, and cultural influence over Pyongyang, South Koreans clearly acknowledge the significance of building and maintaining positive relations with China.

On the other hand, South Koreans feel apprehensive about China's growing influence. South Koreans are increasingly concerned that China's rise will be a source of instability. Along with North Korean security threats stemming from nuclear weapons and potential provocations, South Koreans rank the issues of China's continued rise, China's military modernization, and South Korea's increasing dependency on China's economy high on the list of potential security threats to South Korea in the mid- to long term.

In particular, South Korean negative perceptions of China have been most conspicuously reflected in North Korea–related security issues. China's attitude in the wake of the Cheonan sinking and the Yeonpyeong Island bombardment in 2010 disappointed the South Korean public. In contrast to South Korean expectations, the Chinese government has consistently defended North Korea from the inception of these two provocations, seemingly without regard for the growing multidimensional exchanges between China and South Korea.

EAI-ARI joint survey data released in October 2011 reflects South Korean concerns regarding China's support for North Korea. According to the survey, the majority of South Koreans believe that China has invariably been closer to North Korea than to South Korea in terms of security on the Korean peninsula. As a corollary to that, 64.3 percent of South Koreans negatively evaluated the likely impact of China's intervention in the case of a serious internal crisis in North Korea. China's position in the event of inter-Korea military conflict drew similar responses: 69.2 percent of the South Korean public thought China would support North Korea, while 25.8 percent speculated that China would remain neutral. Only 4.2 percent thought China would support South Korea.

In the same vein, the survey found that a majority of South Koreans see the strengthened relationship between China and North Korea as inimical to South Korean interests. Over two-thirds (68.1 percent) of South Koreans hold negative views toward the China-North Korea relationship, while 19.8 percent expressed positive views. The majority of South Koreans suspect China eventually plans to dominate North Korea, even though they simultaneously view China's apparent support for North Korean economic reform as beneficial. Given that unification is a core element of South Korea's national interest, closer ties between China and North Korea have been considered an obstacle to a South Korea–led unification process. On the issue of unification, 59.1 percent of South Koreans believe China holds a negative attitude toward its realization. South Koreans tend to identify China's support for the status quo as the rationale for its continued support of North Korea's regime survival. From a South Korean perspective, therefore, China has been perceived as an obstacle to unification.

China's rise puts South Korea in a strategic dilemma between the United States and China. Traditionally, South Korea has been a close U.S. ally. The ROK-U.S. alliance has been a major factor in South Korea's peace and political and economic success. Due to China's consistent rise, market growth, and size, however, South Korea is increasingly dependent on China's economy. Consequently, South Korea has to dually manage its security, which is grounded in the ROK-U.S. alliance, and its economic well-being, which is dependent on the ROK-China strategic cooperative partnership. The South Korean public tends to favor the diplomatic strategy of managing both bilateral relationships harmoniously. South Koreans believe that it is against their national interest to promote one relationship at the expense of the other. The last two South Korean administrations have attempted to follow this diplomatic strategy by managing the two interactions cooperatively but independently.

However, sustaining friendly relations with both powers has proven difficult. Former president Roh Moo-hyun and current president Lee Myung-bak struggled to manage these two bilateral relationships and failed in their search for an ideal balance. President Roh, recognizing China's growing power, accommodated China and maintained some diplomatic distance from the United States. For most of Roh's tenure, South Korea enjoyed intimate bilateral interactions with China, but it suffered severely from the resulting complications in its security cooperation with the United States.

In contrast, the Lee administration made strengthening the ROK-U.S. alliance its diplomatic priority and advanced South Korea's relationship with the United States into a more comprehensive, multidimensional "strategic alliance." China has not responded positively to the Lee government's seemingly pro-American diplomacy. Although President Lee has consistently attempted to cultivate South Korea's relationship with China, the latter does not seem to recognize these efforts to build an entente cordiale.

Lee's handling of the ROK-U.S. alliance has weakened ties between South Korea and China. At the beginning of his term, in 2008, Lee unveiled his diplomatic guidelines to consolidate the ROK-U.S. alliance. While this gesture was meant to merely address the damage in the relationship incurred during the Roh administration, China's response was extremely critical. When Lee made his first visit to China that same year, the Chinese foreign ministry spokesperson described the ROK-U.S. alliance as a "historical relic" and treated it as a remnant of the Cold War system. A number of China's Korea specialists have challenged the Lee administration's description of the U.S.-ROK relationship as a "value alliance" based on shared political, economic, and cultural principles.

In 2010, China reacted strongly to the ROK-U.S. joint military exercises in the wake of North Korea's two provocations, and even identified the ROK-U.S. alliance as a regional security threat. Unhappy with South Korea's emphasis on its relationship with the United States, China has often questioned whether the South Korean government can possibly manage the incompatibility between the South Korean-Chinese "strategic partnership" and the ROK-U.S. "strategic alliance."

China's growing criticism of South Korea's relationship with the United States has triggered debates in the ROK about the future of the ROK-U.S. alliance in light of Chinese security concerns and about whether the foundation of the relationship with the United States lies in common democratic values or is simply a reflection of a temporary convergence of strategic interests. Advocates of the ROK-U.S. alliance argue that the bilateral relationship is based on shared beliefs in democracy and human rights and should not be viewed as a threat to China, while critics argue that strategic cooperation with the United States need not entail efforts to export values, which China may perceive as threatening.

As the South Korean election approaches, the country's presidential candidates—Park Geun-hye, Moon Jae-in, and Ahn Chul-soo—will have to unveil their respective policies on how to coordinate the ROK-U.S. alliance and the South Korea-China partnership.

The conservative Park is likely to emphasize the necessity of the alliance with the United States and partnership with China in order to achieve South Korea's national interests. Recognizing that Seoul does not want to choose between Washington and Beijing, she is committed to concurrently promoting the ROK-U.S. strategic alliance and the ROK-China cooperative partnership.

The progressive Moon will underscore a policy favoring Beijing, which will entail a greater diplomatic investment in relations with China than with the United States. Having declared his intent to continue former president Roh's legacies, Moon is likely to modify the ROK-U.S. alliance to alleviate China's chronic security concerns.

As a political novice, Ahn's foreign policy direction is still ambiguous. But given the ongoing discussion for him and Moon to agree on a single progressive candidacy, Ahn's stance seems likely to lean closer toward that of Moon than that of Park.

Although the South Korean public's general view of China has deteriorated in light of that country's recent assertiveness, most in the ROK still recognize the need for China's cooperation in dealing with North Korea. Thus, it is certain that the three South Korean presidential candidates will emphasize the importance of China for the ROK. But it is also true that no candidate will refute the pivotal role of the ROK-U.S. alliance for South Korea's peace and security. Still, only Park seems to be navigating toward balancing relations with China in a way that will not impose limits on the ROK-U.S. strategic alliance.

On October 23, 2012, a new international organization dedicated to changing the way countries grow economically made its official debut on the world stage. The eighteen member countries of the Global Green Growth Institute (GGGI) convened for the first time as an international body in Seoul during a ministerial meeting just a month in advance of the United Nations (UN) climate talks in Qatar.¹ Three years ago, the GGGI was only an idea championed by South Korean president Lee Myung-bak, who has made green growth a centerpiece of his administration's policy agenda. Since the institute's launch in June 2010, it has evolved from a small South Korean nonprofit into an organization that has built the necessary foundation for conversion to an international organization.² It currently has sixty-two staff members and three regional offices in Abu Dhabi, Copenhagen, and London, in addition to its Seoul headquarters.³ The GGGI has an estimated 2012 budget of more than $35 million.⁴

The GGGI reflects President Lee's "me first" approach to climate change, which he has described as the idea that countries should take initiative and execute policies appropriate to their respective circumstances without waiting for others to act first.⁵ The GGGI is already at work on the ground in ten countries. The institute focuses on developing and emerging economies that want technical and policy advice on how to pursue more sustainable economic growth. It is intended to be an economic counterpart to the global bodies that focus on the scientific aspects of climate change.⁶ Generally, green growth refers to the idea that economic growth and environmental protection are not at odds, but can be mutually reinforcing. Though green growth is now widely discussed, it remains an aspiration.

The GGGI has staked its future on its ability to prove that green growth is possible. It is a grand experiment. While other international organizations have been formed in order to address collective challenges, the GGGI is organized around the pursuit of a solution that is not yet proven. Can developing countries achieve broad-based economic growth while avoiding environmental damage? And can avoiding environmental damage in itself present new opportunities for growth? The GGGI will test these ideas in countries that want to integrate green growth into their core economic development agendas and use those experiences to advance the body of knowledge.

If it is successful, the GGGI's work could revolutionize international economic development efforts. However, the institute will face obstacles related to maintaining international political support, recruiting staff, and securing funding. Ultimately, the GGGI's success depends on its ability to effectively address developing countries' institutional and technical shortcomings over the long term. Maintaining continuity of political support for green growth plans inside South Korea will also need attention. In this way, it faces the same challenges that have dogged traditional development efforts for decades.

Economics First

The Rio+20 UN Conference on Sustainable Development held in June 2012 generated a slew of epithets. A news release from CARE International claimed the conference was "nothing more than a political charade."⁷ Greenpeace International executive director Kumi Naidoo said it was "a failure of epic proportions."⁸ Rio+20 secretary-general Sha Zukang's verdict: "An outcome that makes nobody happy."⁹ Over the past several years, many observers have expressed frustration with the inability of environmental talks that include thousands of participants to produce concrete action or meaningful results. However, Rio+20 did produce numerous side agreements on a variety of sustainable development actions. These were negotiated on the margins of the conference between communities, countries, and corporations.¹⁰ In a sense, this do-it-yourself spirit reflects the ethos of the GGGI, which seeks to combine coherence and technical capacity with local desires for action on green growth initiatives.

There are two important premises to the GGGI's approach. The first is that environmental challenges, such as water stress, biodiversity loss, and climate change, are economic policy challenges.¹¹ Though the GGGI expects that its work will make positive contributions to climate change mitigation and poverty reduction, it operates by looking through a wider lens that assesses how countries can use resources more efficiently. The first step is to take an economic view of the situation. "We view ourselves as an economic institution, not an environmental institution," GGGI executive director Richard Samans said of the institute.¹² By acknowledging that economic growth and rising living standards are crucial for developing countries, and by accounting for the incentives that have led to stress on natural resources, this view is a welcome complement to the global climate bodies that tend not to emphasize these points as first principles.

The second premise is that years of intense focus on global, top-down, legalistic solutions to climate change have come at the expense of a "how-to" focus on the ground.¹³ The result is severe underinvestment in the economic framework necessary for countries to attract private and public capital to achieve economic development goals that can produce both economic and environmental payoffs, such as projects that can simultaneously produce new jobs and access to clean energy sources. The GGGI seeks to fill this economic gap by developing an "enabling economic architecture," or frameworks for integrating economic and environmental goals that include plans to attract investment to fulfill them.¹⁴ In this way, the GGGI's country-by-country (or in some cases, province-by-province), bottom-up approach is the right supplement to top-down, global negotiations. In short, global discussions advance ideas about what to do. The GGGI focuses on how to do it.

A core activity of the GGGI is advising countries on forming what it calls a Green Growth Plan (GGP). This begins with assessing the country's own goals for economic development. The GGGI then helps make a thorough evaluation of where economic performance targets can overlap with potential environmental benefits. It also helps identify policy options, taking into consideration the trade-offs inherent in policy choices. "Green growth is not a free lunch in most cases," Samans argues.¹⁵

The GGGI also assists with the crucial step of investment analysis—building quantifiable investment cases that can help attract public and private sector resources—to help countries fulfill their plans. Reducing information and policy barriers to investment through rigorous analysis is seen as a critical part of the GGGI's work. In effect, the GGGI diagnoses an economy's green growth potential and then helps to craft investment cases to translate policy into reality. This is a distinguishing feature of the GGGI: a whole-of-government approach that seeks to integrate green growth into a country's economic development agenda, rather than produce disparate, one-off environmental projects. This is ambitious but necessary: uncoordinated, small-scale projects are unlikely to be enough to achieve the paradigm shift to a green economy that the GGGI seeks.

Building a Green Growth Model

The idea that there is no one-size-fits-all solution to economic development has become something of a mantra in the development community. Consideration of political, environmental, and economic conditions on the ground is an imperative often mentioned in discussions about development. This is as true when striving for green growth as it is for traditional growth. How then can the GGGI achieve its mission of building a green growth model that is widely applicable?

The GGGI aims to do this by focusing intensively on a small number of countries that vary by region, income level, and type of economy in order to test green growth in diverse locations.¹⁶ The goal is to produce successful examples that show green growth is possible in a variety of settings and that there are best practices that can be adapted to different situations. These on-the-ground experiences will also feed into the GGGI's own research, including through two multilateral initiatives for which it is acting as the secretariat: the Green Growth Knowledge Platform and the Green Growth Best Practice Initiative.¹⁷ According to Samans, the GGGI plans to work with ten to twenty countries over the next several years "that are serious about driving green growth into their economic development plans."¹⁸

How to judge whether a country is serious about green growth? The GGGI pursues projects only in countries from which it has received a high-level request, usually at the ministerial level, and also consults widely with interested parties and ministries.¹⁹ This ensures buy-in at the highest levels, though this may last only as long as the current government is in place. What happens when administrations change, and along with them, the political dynamics that initially favored green growth? The GGGI hopes that successful cases of green growth will eventually inspire other countries to adapt green growth models to their own situations.²⁰ However, changes in political support or opposition from domestic interest groups will be potential risks to successful implementation of green growth plans.

Even where political conditions are supportive of green growth, underlying problems can stymie the best of green growth intentions. A recent World Bank report cautions, "[Green growth] is not a panacea to a country's economic ills: if economic growth is insufficient because of institutional or policy problems, green growth will not boost it in the absence of other structural changes."²¹ Buy-in without strong institutions and technical knowledge is not enough. The GGGI tries to address such deficiencies head-on from the beginning by integrating a strategy to strengthen institutional and technical capacity into its plans. Although such foresight is commendable, the task of fortifying institutions so that they can absorb and retain technical know-how for the long term remains a tall order for broader international development efforts.

As a young organization, the GGGI is still building a pipeline of projects. Ethiopia is one of the first countries in which the GGGI began its work, and it offers one of the most complete cases so far to illustrate the GGGI's approach. In 2010, the government of Ethiopia announced an ambitious Growth and Transformation Plan (GTP) that set a goal of achieving middle-income status and a climate-resilient economy through low-emissions growth.²² The country's contribution to global carbon emissions is minimal and it already generates the bulk of its power from renewable sources, mostly hydropower.²³ Ethiopia's interests are avoiding future increases in emissions, using resources more efficiently, and reducing its vulnerability to changes in the climate.²⁴

Working within the context of the GTP, the GGGI assisted the Ethiopian government with developing a green growth plan called the Climate Resilient Green Economy (CRGE) strategy. To build domestic support, the GGGI helped create a cross-ministerial committee to coordinate actions for shepherding the process along. The institute invested in local technical capacity from the start by forming technical committees to develop sectoral strategies and to serve as a repository for transferring technical knowledge to teams from relevant ministries.²⁵ The CRGE includes over sixty projects in multiple sectors for low-emissions growth. The GGGI is currently working with the Ethiopian government on an implementation and investment plan, called the "iPlan," to achieve these and other green growth objectives.²⁶

A country's decision to commit to sustainable development through green growth can offer an attractive benefit: access to financing. Economic development plans that can be sold as "green" can attract new sources of financing dedicated explicitly to green initiatives. Last month, the Ethiopian government launched the Climate Resilient Green Economy Facility, a tool for mobilizing public and private sources of funding to support projects in line with the CRGE. So far, the fund has received pledges of $60 million from the Norwegian government and $24.3 million from the government of the United Kingdom.²⁷ This is far short of the estimated $150 billion that the Ethiopian government is seeking to support the iPlan.²⁸ Current economic conditions may make it difficult for governments to follow through on funding pledges for new financing vehicles.

The GGGI acknowledges that bringing Ethiopia's plan into action will require strong commitment from the government and others.²⁹ A look at some of its proposed projects for low-emissions growth is instructive.³⁰ For example, some could require significant investment, such as building a light rail transit system. Some may require serious expertise and introduce competing demands for a resource, such as bringing non-forest land into agricultural production through new irrigation projects. Still others may require political action and enforcement mechanisms, such as enacting fuel efficiency standards. Culture matters, too. For example, Ethiopia's CRGE cites "cultural reasons" as a barrier to the adoption of efficient cooking stove technologies, a strategy for reducing forest degradation.³¹ The "enabling economic architecture" that the GGGI seeks to build requires complementary institutional strength and political support in order to translate these priorities into reality.

This will be the real test for the GGGI. Building institutional capacity is a long-term project and political dynamics can be unpredictable and difficult to maneuver. The best green growth plan will not help a country achieve a true paradigm shift to green economic development if it stays on the shelf because the capacity to implement it is lacking or political support is weak. Recognizing this, the GGGI addresses these challenges from the time it begins working in a country. Whether it can manage them over the long term and leave in place something that will endure when its time in a country is over is an open question.

Becoming an International Organization

There are other organizations that pursue green economy projects around the globe, such as the UN Development Program and the Climate Knowledge and Development Network. Consulting powerhouses such as McKinsey & Company have generated numerous ideas related to advancing green growth strategies in recent years.³² Until now, however, there has never been an international organization dedicated solely to developing green growth strategies for integration into a country's core economic development agenda. The GGGI will remain small for now, but it sees itself as a new kind of organization.³³

The GGGI aims to be a hybrid organization, linking developed and developing countries as well as governments and nonstate actors. Its advisory committee will consist entirely of nonstate actors, such as leading experts in fields related to green growth.³⁴ In addition, its executive body, called the council, which will oversee the GGGI's strategy and budget, will include a range of contributing member countries and participating member countries, along with experts or other nonstate actors, the host country, and the director general.³⁵

The GGGI's financing has come primarily from voluntary contributions from members, with additional project funding from member and nonmember countries and international financial institutions.³⁶ The GGGI has also received funds from Korean steel giant POSCO and Denmark-based manufacturer the Danfoss Group.³⁷ The institute will seek Official Development Assistance (ODA) eligibility status from the Organization for Economic Cooperation and Development (OECD) as a means to enhance its attractiveness to some donor countries.³⁸

On October 20, South Korea won a bid to host the secretariat of the Green Climate Fund (GCF), a victory that could enhance the GGGI's prospects for securing future financing from a fund that aims to raise $100 billion per year by 2020.³⁹ The GCF was established during global climate talks last year to help developing countries access financing for climate change mitigation and adaptation projects. Locating the GCF secretariat in Songdo, near Seoul, could reinforce the GGGI's efforts and pave the way for relationship building between the two organizations. The decision to choose South Korea will become final upon endorsement by countries participating in the annual UN climate negotiations later this year in Qatar.⁴⁰

Prospects for Success

There are at least two important criteria for the GGGI's success in the long run. First, can it amass enough evidence to prove that green growth is possible? Second, can it show that successful cases can be emulated in diverse settings? These are two separate challenges. Even if green growth is shown to be possible somewhere, is this a guarantee that it can succeed anywhere? It will take only one successful case of implementing a wide-ranging green growth plan in a country to show that green growth has potential.

The second question is more difficult because answering it with an unequivocal "yes" means overcoming the same challenges that traditional development efforts have long faced: finding a way to address developing countries' institutional and technical limitations in a way that endures over the long term and successfully navigating in-country political dynamics. As a brand-new international organization, the GGGI has the benefit of decades of lessons learned in the broader development community, and the institute's embrace of these insights are evident in its approach, especially in the priority it places on gaining wide-ranging domestic support from the start and creating platforms for helping countries learn from each other's green growth experiences. Still, in order to achieve a paradigm shift, it will have to clear the same hurdles that continue to confront traditional development efforts. The GGGI will need many years of sustained support before it can show that green growth is truly possible in any setting.

Maintaining international political support will be an ongoing task. The GGGI has begun to operate as an international organization without the ratification of its host country. The South Korean National Assembly has yet to ratify the agreement that established the GGGI; fourteen other member countries have also not ratified the agreement.⁴¹ Distractions related to South Korea's upcoming presidential election may be one reason why the National Assembly has not acted. The National Assembly's lack of action raises the question of who will be the GGGI's national champion in the international sphere after President Lee's term is over. It is unclear whether South Korea will continue to be the driver of the GGGI that it has been under President Lee. Does South Korea see the GGGI specifically, and green growth more generally, as an agenda of the Lee administration, or will internationalizing the institute firmly establish it as an organization with its own identity? Denmark's early and strong support of the GGGI has endured, and the GGGI has amassed eighteen institutional partnerships so far, including with the Asian Development Bank and the World Economic Forum. These relationships may help it gain long-term traction. Winning over countries and other partners through the power of its ideas may also be a driver for its eventual success: the participants will be the ones who want to be there. This could add to unity of purpose, even if differences emerge among member countries on where to focus the institute's efforts.

The GGGI will have to recruit more expert staff to carry out its goals of diagnosing the economies of up to twenty countries for their green growth potential and devising follow-up actions. This will be a big task in the months ahead; the GGGI plans to more than double its staff of sixty-two by 2014.⁴² Its elevated status as an international organization is expected to confer a certain gravitas upon it that will be useful in attracting talent and boosting its credibility.⁴³ Operating as an international organization might also help it attract more funding, but where will the money come from? The Green Climate Fund is in its infancy; details about how it will operate and raise funds are not yet settled.⁴⁴ It will be important for the GGGI to show successful cases of green growth to attract more financial support in the future. To that end, one of the GGGI's strengths seems to be a willingness to show restraint—it will be a cheerleader for green growth only to the extent that its own theory and practices show evidence for its success. This approach can help build confidence in its work. "We will build a body of evidence and call it like we see it," said Samans. "We are not an advocacy organization."⁴⁵

The GGGI is unique for forging ahead and pursuing a bottom-up approach to green growth without waiting for a global, consensus-based organization to agree on what should be done. The self-starter gene that seems fundamental to this international organization's DNA is commendable. The GGGI will be successful in the short term because action trumps inaction. The only way to know for sure if green growth is possible is to try it. Green growth as a concept has already caught on in the global discourse about the environment, development, and climate change. The real question is whether the GGGI will be able to succeed fast enough to maintain interest in and funding for its work. Achieving a wholesale paradigm shift, if that is possible, is likely to take many years. The GGGI itself acknowledges that this is an ambitious vision.⁴⁶ However, one thing is certain: the GGGI is sure to advance the body of knowledge about green growth in a way that would likely not occur if this organization had never come into existence. By kick-starting green growth efforts on the ground and learning by doing, the GGGI is already contributing to green growth theory. In a few years' time, the world will know more about the possibilities of green growth than it does today because of the GGGI's work.

South Korea's political rhetoric underscores the "South-South conflict" (in Korean, nam-nam galdeung) between ROK progressives and conservatives over policy toward North Korea and other social issues. Despite this dynamic, South Korea's 2012 presidential election is shaping up to be a contest for the middle.

Though it sometimes seems as if South Korean and American political parties are competing to see which country's politics can be most polarized, South Korea's political landscape currently resembles the 1992 U.S. presidential election (which had three major candidates) more than the 2012 U.S. race. The platforms of the ruling conservative New Frontier (Saenuri) Party and the liberal opposition Democratic United Party (DUP) are converging, and both parties face a centrist "third party" challenge from a successful entrepreneur, Ahn Chul-soo, who has tapped into public frustration with the stranglehold of established parties on political power. The result has been a move to the middle.

Several factors have contributed to this shift. First, the severity of the pendulum swing from conservative to progressive and back to conservative governments is moderating. Current president Lee Myung-bak was hardly as conservative as former presidents Kim Young-sam and Roh-tae-woo, or military leaders before them. Likewise, DUP candidates are not likely to find political space for a North Korea policy that will match those espoused by progressive predecessors such as Kim Dae-jung or Roh Moo-hyun.

New Frontier Party candidate Park Geun-hye, who formally won her party's nomination on August 20, has moved to co-opt traditionally progressive issues by centering her campaign on welfare issues and questions of economic justice. DUP candidate Moon Jae-in, who won his party's nomination on September 16, has sought to distance himself from the legacy of his political mentor, Roh Moo-hyun. And businessman and professor Ahn Chul-soo has shaken up the race with a progressive economic agenda coupled with what at first blush seems to be a conservative approach to foreign policy.

Park Geun-hye remade the image of the deeply unpopular Grand National Party through a series of bold moves in early 2012, including renaming it the New Frontier Party. One sign of her success was the party's victory in the April National Assembly elections, hailed in the media as the "Resurrection of the Queen of the Elections, Park Geun-hye." In her rebranding of the party, Park did more than change its name, logo, and colors; she also recruited a younger and more moderate cohort of candidates.

The DUP has faced dramatic changes of its own, albeit less due to leadership by any one individual than to the disintegration of its alliance with the Unified Progressive Party (UPP). The alliance between the DUP and the UPP in advance of April's general elections was designed to win progressive control of the National Assembly. But this marriage of convenience with the UPP put the DUP in the awkward position of calling for the repeal of the South Korea-U.S. Free Trade Agreement (KORUS) and opposition to plans for a naval base on Jeju Island—initiatives that began during the Roh Moo-hyun administration under the leadership of many currently in the DUP.

The DUP-UPP alliance has since foundered on a scandal within the UPP that exposed pro–North Korean leanings and has split the coalition. The end of any formal alliance with the UPP may free the DUP to further moderate its positions before the December 19 election. But the bigger problem for the DUP is that its only path to power is likely to form by backing the independent candidacy of Ahn Chul-soo. Such an awkward alliance will have complicated political implications in the event Ahn actually wins the presidency.

South Korea's one-term presidency and the resulting early lame-duck status of President Lee Myung-bak, not to mention the looming U.S. presidential election, has already had an impact on issues related to U.S.-ROK relations. The prospects for South Korea joining the Trans-Pacific Partnership (TPP) trade negotiations, the unfortunate last-minute cancellation of a much-needed General Security of Military Information Agreement (GSOMIA) between South Korea and Japan, and the almost certain punting of the difficult negotiations over the U.S.-ROK Peaceful Nuclear Cooperation Agreement to after the elections are but a few of the many issues that will face new leadership teams in both Washington and Seoul in early 2013.

Regardless of the outcome of the two elections, several issues will prove to be challenging for U.S.-ROK alliance managers. First and foremost, the movement to the middle by the three leading South Korean candidates suggests a more moderate approach to North Korea, and there is wide anticipation of early postelection initiatives from Seoul, including the restart of the Diamond Mountain tourism project in North Korea and further expansion of both humanitarian aid and economic investment. Coordinating these efforts in the face of likely continued North Korean intransigence on its nuclear program will provide an early test for diplomats in Washington and Seoul.

Another early challenge will be the negotiation of a revised nuclear cooperation agreement between Washington and Seoul, something that needs to be concluded by the beginning of summer 2013. Although seemingly unrelated, ongoing U.S.-ROK negotiations over so-called new missile guidelines threaten to set the context for the nuclear cooperation agreement talks. As the missile negotiations have dragged on, the issue of whether or not South Korea will be able to amplify the range of its missiles has increasingly been portrayed in the South Korean media and in some political circles as a question of U.S. respect for South Korea and relative fairness—particularly in terms of North Korea's provocative and unfettered program. Should negotiations over U.S.-ROK nuclear cooperation become defined by a narrative of "fairness" and "respect" rather than focused on strengthening international regimes and South Korea's interests as a nuclear exporter, the first major negotiations between a new administration in Seoul and a potential new administration in Washington will be exceedingly difficult.

The recent deterioration in relations between South Korea and Japan poses yet another challenge for Seoul-Washington coordination. As a treaty ally of both Japan and South Korea, the United States needs and strongly encourages increased cooperation between them. However, the recent increase in tensions over historical legacy issues including comfort women (sex slaves) and the Dokdo/Takeshima Island has served to strengthen more nationalistic elements in both countries. Ordinarily the more internationally minded Saenuri Party might be expected to take the lead in tamping down such sentiments and pushing for closer cooperation with Japan as part of alliance coordination with the United States. However, given Park Geun-hye's personal legacy as the daughter of former president Park Chung-hee, who was educated in Japan, her susceptibility to criticism that she is "too pro-Japan" may make this more difficult in the coming years.

The pendulum swing of parties is an unavoidable characteristic of democracy in both the United States and the Republic of Korea. While the swing in South Korea may be less severe than in years past, it will not be clear for three more months whether in this year of shared elections the U.S. and ROK pendulums are swinging in tandem.

These charts draw on data from the Stockholm International Peace Research Institute (SIPRI) and from the U.S. Bureau of Economic Analysis (BEA). Both data sets include spending on overseas contingency operations as well as defense. This distinguishes them from data used in the U.S. budget, which separate defense spending from spending on overseas operations.

In some instances the flare-ups in and between Japan and South Korea represent mere political opera with little real substance at stake. But the latest cause for tension—the ROK government's cancellation of both the June 29 signing of the General Security of Military Information Agreement (GSOMIA) and its plan to pursue an equally sensitive (but sensible) military Acquisition and Cross-Servicing Agreement (ACSA) with Japan—has serious national security implications and affects Washington's relations with both nations. It also cost South Korea one of its more forward-thinking strategists, Senior Presidential Secretary for National Security Strategy Kim Tae-hyo, who lost his job. His "sin"? Putting Korea's national interests ahead of public opinion.

GSOMIA is a fairly routine agreement outlining procedures to facilitate the sharing of classified defense-related threat information regarding North Korea's nuclear and missile programs and other potential common security challenges. Its adoption would also make trilateral defense cooperation with Washington easier for both Japan and South Korea. Seoul has agreements similar to GSOMIA with some two dozen other countries. An ACSA allows for logistical cooperation when both countries are engaged in humanitarian assistance/ disaster relief and peacekeeping operations. Negotiations for both long-overdue pacts were finalized in May 2012. Unfortunately, that is when public opinion and national emotions took over in South Korea, turning what Professor Jeffrey Hornung described as "a practical, forward-looking effort to strengthen relations between two vibrant democracies facing shared security challenges" into "another casualty of the complexities of politics and history."

Still, working behind the scenes, the ROK Ministry of Foreign Affairs and Trade succeeded in passing GSOMIA through the cabinet. When the Lee government publicly announced its plan to sign the GSOMIA agreement on June 29, while continuing its review of the ACSA, this provided opposition politicians—especially those who pander to citizens with lingering anti-Japanese feelings—with a political windfall they have chosen to exploit. Ruling party politicians have been equally shameful in their response. The South Korean press has also seen fit to help inflame rather than inform the public about the importance of such agreements.

Despite the subsequent cancellation of the GSOMIA signing and shelving of the ACSA, the Lee Myung-bak administration continues to pay lip service to the agreements, saying that they have not been scrapped, but merely postponed until a more propitious moment. However, no one sees that happening before the December 2012 ROK presidential election, thus resulting in more precious time wasted. Ironically, along the sidelines of the ASEAN Regional Forum in Phnom Penh, Cambodia, earlier this month, ROK foreign minister Kim Sung-hwan joined U.S. secretary of state Hillary Clinton and Japanese foreign minister Koichiro Gemba in agreeing to form a trilateral consultative body to "promote peace and stability in Northeast Asia." But will genuine consultation and real-world cooperation be possible between Seoul and Tokyo without GSOMIA and an ACSA? It is hard to imagine how.

In discussing the history issue, most Japanese and Korean interlocutors seem to agree on only one thing: the ball is in the other one's court. The Japanese claim, not without some merit, is that Tokyo has both acknowledged and apologized numerous times for its crimes during World War II: "How much longer," they ask, "are we to be punished for the sins of our great-grandfathers?" But other Japanese cannot seem to resist keeping the flames alive, claiming that the past never occurred or, more frequently, that it was not as bad as critics claim. Their argument that "only" eighty thousand Korean women, rather than the two hundred thousand that some Korean assert, were forced into slavery, only demonstrates insensitivity and a lack of remorse. Official Japanese government protests against "comfort women" statues that are springing up in the United States and South Korea further inflame the situation and prompt even more statues to be commissioned.

Tokyo should remember that democracies promote and guard "freedom of expression." The same goes for South Koreans who insist that the government of Japan issue a formal apology every time a private citizen or parliamentarian utters a preposterous statement denying what everyone knows is fact.

The most sensible U.S. response to the history debate is to say and do as little as possible. When faced with a lose-lose situation between two allies, it is normally more sensible not to play the game. But U.S. territory is now part of the extended battlefield, and U.S. security interests are being at least peripherally affected. Seldom has a situation seemed more appropriate for a preventive diplomacy intervention than the current comfort women dispute between Tokyo and Seoul. The history dispute goes beyond the forced sexual slavery of Korean (and Filipino, Indonesian, Chinese, and other, including even Japanese) women by the Japanese Red Army during World War II, and there are territorial issues as well, but the comfort women issue has become the poster child and rallying point and must be dealt with first.

As an ally and trusted friend of both Japan and South Korea, the United States is well situated to play the mediator role, assuming both sides ask for the intervention—the first rule of preventive diplomacy is that outside assistance is voluntarily sought and accepted. President Obama should privately offer to provide an impartial mediator to help craft a statement that both sides can accept, in order to finally settle or at least depoliticize this issue, such as former president Bill Clinton or former national security adviser Brent Scowcroft.

President Lee, along with his Japanese counterpart Prime Minister Noda Yoshihiko, has a golden opportunity to help Koreans and Japanese face the future with both eyes open by seeking and accepting outside mediation to put this cancerous issue behind for the sake of both nations. Or he, and the people of Korea, can remain consumed and blinded by their tragic past.

Though public sentiment in a democracy is important, one should keep in mind the comments attributed to a former U.S. president who, when reportedly asked if he knew what the American people really thought about a particular issue, replied, "I know what they damn well ought to think about it." It is this type of leadership that is needed most in Japan and South Korea right now to get beyond the past.