[OUTLOOK]Probing for economic soft points

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[OUTLOOK]Probing for economic soft points

American capitalism is rocking and rolling. Hit by consecutive accounting scandals at big-name companies such as Enron and WorldCom, investor confidence is draining out of the the U.S. stock markets.

The nervous anticipation of where the next big crash will come from seems to be as intense as the psychological instability people felt after the Sept. 11 terror attacks last year. As is the case with any system, the market economy cannot exist without the trust of its participants, the investors.

The practice of investing, of course, has always involved an element of insecurity; but that is precisely the reason that investors must have confidence in the mechanisms of the market system itself.

Should the U.S. market fail to regain the confidence that was shattered by recent accounting scandals, there could be a serious crisis not only in the United States but in all the other countries that have been modeling -- or trying to model -- their economies after the American market system. Fraudulent corporate practices by American businesses are like one very big rotten apple -- it will spoil a barrelful of countries, including Korea, that have always looked to the U.S. market economy as a guide.

What is most needed right now is the restoration of investor confidence in the American market system. Investors just might be coaxed back to the market if guarantees are built in the system that there will be no more shenanigans by corporate chief executives.

President George W. Bush also seems to have realized this when he proposed tough measures for a corporate crackdown last Tuesday. But Mr. Bush's words seem to have failed to convince anyone except the chief executives of large corporations. Stock markets plummeted the day of his speech and the day after, and the national media evaluated President Bush's proposals as almost impressive but not including feasible solutions.

Mr. Bush's plan to restore confidence in U.S. companies and markets seems to rely on the logic of good guys against bad guys, and he seems to have also applied this good-vs.-evil logic to American diplomacy and military affairs as well as to his handling of the economy.

A tricky international issue? No problem. Just punish and get rid of the "bad guys" and it will be solved. In the same way, corporate fiddling can be eradicated if the firms are divided into "good business" and "evil business" and the evil ones are punished and put out of business.

In this context, Mr. Bush emphasized in his Wall Street speech Tuesday his proposal to toughen investigations and punishment of corporate crimes. The problem is that unless the motives for such corrupt corporate practices are eradicated, accounting fiddling and similar white-collar crimes will continue to exist. The answer lies in a fundamental change to the structure of today's American market system so that stockholder interests are upheld as an unconditional value. No amount of tinkering on the side will restore confidence in the market if the fundamental structure that allows the chief executives to keep their present incentives for their actions is left intact.

Assuredly, the U. S. administration along with the Congress, academics and businesses will come up with some kind of a plan and an answer to this problem sooner or later. But we should not remain just idle onlookers.

First of all, we have been remodeling our financial system after the American one since our financial crisis in 1997. To be honest, we had been led to pursue the American style of economy by our blind faith that the American model was the most successful one rather than by our own evaluation and judgment.

But now we need to think more deeply about what problems lie beneath the surface of the system that we have chosen as our own, and what steps we need to take to reinforce our own financial system.

Of course, a more critical look at the American economy does not mean that we need to despair of American capitalism. This is not the first time scandals have hit American stock markets, and this is not the first time the American economy has seemed to be in a true crisis. Moreover, falling stock market prices have just as much to do with the burst bubble of the 1990s as do the recent accounting scandals.

So we do not need to despair about the coming of the end of the world. We just need to observe with attention how the United States makes its way out of its present troubles and also conduct an honest self-evaluation of our own economy.

It must be remembered that in the long term economic security, not military security, is the most determining factor in the world order.


The writer is the president of the Institute of Social Sciences.

by Kim Kyung-won

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