[OUTLOOK]Time to Get Off the Roller Coaster

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[OUTLOOK]Time to Get Off the Roller Coaster

Our economy is like a roller coaster in a sense that fluctuations in its cycle are greater than in any other country. It has often happened in South Korea that the economic growth rate exceeds 10 percent during booms and plummets to below 5 percent during busts. In 1998, the second year after we were hit by a foreign currency crisis, the growth rate was minus 6 percent, but the next year the growth rate skyrocketed to 10.5 percent. A roller coaster, indeed.

We have been on the fast track of growth since 1999, and the growth rate reached 8.8 percent in 2000 but slowed down to an annual rate of 4.6 percent in the last quarter of 2000. Now a dramatic turnabout is upon us again. In 2001, the expectations for our economic situation have gotten worse and worse. Certainly this is a cause for anxiety, but what do we do?

It is certain that the future of our economy will greatly depend on the condition of the international economy, but the more important economic variables are how we handle our domestic economic problems.

The characteristics of our economy, something like a roller coaster, can be largely explained by the behavioral patterns of our people. Once facing national crisis, our people tend to overcome it easily with surprising solidarity. But once we surmount a crisis, we slide back into complacency. Then we invite crisis again by abandoning our solidarity and become, more so than in other countries, a nation of people who can't get along with each other.

Recall, for example, the national gold collection drive in 1998 when we were in the middle of the currency crisis. People all over the world were touched by it. Now recall all the disputes last year between the ruling and opposition parties, labor and management, doctors and pharmacists, and the government and the press. I rest my case; a major reason for our economic cycles is the oscillation of the national mood between mutual cooperation and stonewalling. The huge distance between boom and bust in our economic cycles show how much our national behavior fluctuates.

From this perspective, we can not use pure economic analysis when discussing measures to counter the current economic downturn. We need to add a socio-psychological analysis to it. According to such an analysis, an economic upturn is not necessarily good for us. We have to be alert to the possibility that an economic revival now could hinder institutional reforms and restructuring by sowing complacency. An economic downturn is not necessarily bad for us; we can use it as momentum for reform and adjustment.

In this socio-psychological analysis, we can see a basic problem that we have to address. If these extreme fluctuations in our economy result from the swing between mutual cooperation and mutual antipathy, it is also clear that we have not yet embedded in our nation the basic values of democracy and a market economy. Social and economic phenomena are still caused by arbitrary and emotional behavior, not by the operation of democratic institutions controlled by the people and market mechanisms controlled by the balance between economic interest groups.

So the "people's government," the Kim Dae-jung administration, has had difficulties in its avowed goal to develop democracy and market economy in parallel. Why so? Because it has failed to form a national consensus on pursuing concrete policies. It has tried to implement major reform policies by ramming them down the country's throat, and so has met objections, rancor, and stonewalling in response to its policies.

The government's stated objectives are correct: Our biggest task at the moment is indeed to institutionalize democracy and a market economy as soon as possible. Many structural problems and instabilities in our economy stem from the fact that democracy and the market are not yet deeply rooted. And in order to succeed in those tasks, it is very important to secure a national consensus by being more faithful to the principle of participatory democracy.

Whether or not we should stimulate the economy during its downturn is the focal point of the current policy discussion. I think we have seized on the wrong issue here.

The discussion should be about how we can set the economy on a good long-term path; the answer to that question is that we must pursue steadily our reforms to deepen democracy and a market economy. Most important is the need to pursue those reforms through institutional approaches.

Our economy and society will be stabilized if the market economy takes root through the reforms. Foreign and domestic investment will start pouring in thereafter, and we will see the economic stimulus we want automatically.

As I pointed out earlier, institutional reforms can be accomplished effectively during an economic downturn - more easily, in fact, than during a boom. And by cultivating more participatory democracy, we will also find it easy during this downturn to assemble the social consensus necessary to push ahead with those reforms. Indeed, democracy and a market economy go hand in hand.


The writer is senior advisor, Institute of Global Economics and former ambassador to the OECD.

by Young Soo-gil

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