[OUTLOOK]Ignoring Market Realities Invites FailureThe Korean economy is fast deteriorating, like the leaves of early autumn being suddenly stripped and the season moving quickly on to winter. Even worse, the United States is preparing for a war. At such a time as this, President Kim Dae-jung should focus more on domestic issues than on relations with North Korea and on the economy rather than politics.
A country's president should pursue reality rather than idealism. What really matters to the people is the course of the economy. There is a saying that goes "The people regard food as their almighty." To put it benevolently, President Kim seems to be pursuing his own ideal, disregarding reality.
Crucial for a market economy is lots of freedom and few taxes. Despite this, the current administration is antagonizing the market with various regulations and manipulative measures. Given the Korean economy's international competitiveness and domestic circumstances, there should really be just a single regulation on maintaining transparency regarding the provision of timely and accurate information to consumers, depositors and shareholders.
When the participants in the market act in accordance with their interests by taking relevant information into account, the product of their actions is the most useful regulation the market can impose on itself. Regulations such as designating and monitoring the business activities of the 30 largest conglomerates or imposing a limit on how much they can spend on investment are just tools of extortion for the government and bureaucrats. The Korean economy, which has matured in a short time, has at the same time lost the dynamics it exhibited during the period of rapid economic development because of the regulations.
The manipulation of the economy by the government often ends up ruining the market. Examples abound. The government pressured financial companies to purchase bonds issued by certain companies that are on the verge of collapse. It also put the entire health care industry under the auspices of the monopolistic national health insurance. It established the Tripartite Commission of labor, management and the government and then wielded pressure on the management by forming an alliance with labor. The nation's schools are dominated by the government and the teachers union, which collectively have chosen to exclude school foundations and parents from decision-making.
While the market may appear as though it belongs to corporations, it really belongs to consumers. Those companies that most efficiently serve the interests of consumers can survive the market. From this perspective, consumers tend to view capitalists rather than labor unions as more responsible managers of corporations.
The current administration advocated the need for a social safety net when the Asian financial crisis hit Korea in 1997 and a massive number of people were laid off. Devising a social safety net and stimulating the economy through an increase in the money supply are necessary when the economy is experiencing depression-like supply-side problems. But the two measures cannot serve as reasons for maintaining "big government" with huge taxes under normal circumstances just as a Keynesian, left-of-center government would.
Instead of pursuing standard free-market policies of deregulation, transparency, privatization, tax cuts, a flexible labor market, and less government intervention, President Kim is trying to play a "psychological battle" in buoying the construction industry and the stock market. The name-only projects such as the Cheju free city, the Pusan customs-free zone, privatization of commercial banks and the lifting of the ban on development-restricted green areas are also part of the mind game the president is playing.
Small commercial buildings and apartments are selling like hot cakes because of the record-low interest rates, but soon there will be a large number of apartments and offices left over when the bubble bursts. President Kim's strategy of duping the Korean people and the fact that the Keynesian policies he is trying hard to emulate are actually destroying the Korean economy will become apparent to everyone by spring of next year.
The government should devise and implement detailed plans on privatizing commercial banks. It should also drop the idea of submitting parliamentary bills on restricting the capital holdings of media companies or forcing the companies to share editorial rights with labor unions. Economic recovery results neither from suppressing nor praising market principles. It will naturally ensue when the government reduces taxes and conducts politics to minimize regulations and manipulations. That is when corporations begin to make new investments.
The writer is the editor of the monthly Emerge New Millennium.
by Kang Wee-seuk