[VIEWPOINT]An Economic Policy Looking to the PastThe Korean economy is sagging. The government is attempting to cope with a rapid downturn by loosening its purse strings and cutting interest rates.
The problem is, however, that the fundamental cause of the economic slump lies not in the lack of short-term measures to boost the economy but in the absence of a long-term growth strategy. The weakest point of Korea's economy is that it is long on tactics but short on strategy. The problem is not about the economic downturn at the moment but the lack of clear vision and ideas for its future.
Faced with such new challenges and opportunities as globalization, the propagation of information technology and an emerging China, Korea does not have a blueprint and visions for its economic future, and no national efforts are being taken to achieve them. So long as this is so, there is no hope for the future of Korea's economy.
That is why stock prices do not rebound even though the government has mobilized pension funds, and why companies are reluctant to make investments despite falling interest rates.
Why is this?
First, we have been engaged in defensive restructuring, but not future-oriented pro-active restructuring. There are two ways to restructure.
Defensive overhaul involves righting the wrongs of the past, disposing of bad investments by corporations and bad loans held by banks. In other words, such restructuring is aimed at eliminating excess investments, excess debts and excess employment.
Under pro-active reform, companies and banks create new capability and comparative advantages through innovative management and strategies in order to enhance profitability and global competitiveness.
Such aggressive restructuring programs should include strategies for innovation in each segment of corporate management and for global networking to make effective use of overseas resources and advanced technologies. In detail, there should be global strategies for Korean companies to make the Japanese and the emerging Chinese markets theirs. That is what should be achieved under aggressive and future-oriented reforms.
Nevertheless, we have been dragging our feet for years on the past-oriented restructuring that should have been completed with resolution according to defined principles and in a short period of time. And we have not even taken a full swing on future-oriented overhaul yet. How can we have hope about the future of Korean businesses and industries?
Second, in the era of globalization and information, all economic policies should focus on increasing the economy's aggregate supply and its capability to grow. In the past, the management of aggregate demand was at the top of the agenda, but it is of much less significance in the era of globalization.
Korea's policy for increasing aggregate supply, on the other hand, is very weak, unorganized and unsystematic, while its economic policy continues to focus on managing total demand in response to the business cycle.
Therefore, it is imperative that Seoul beef up its efforts to lift its economic growth potential and increase total supply.
For example, it should concentrate more comprehensive and systemic efforts on protecting private ownership, keeping economic order, eradicating corruption, developing education to cultivate human resources, expanding social capital, strengthening policies for science and technology and new industrial policies, abolishing regulations and reforming public service, building a system for national reform, making regional economies specialize, and increasing social infrastructure.
By doing so, Korea should present positive visions for its future. For instance, it should show a clear blueprint of how it will thwart the challenges from such low-wage economies as China and the Southeast Asian countries and jump over the wall of advanced technologies of the United States and Japan. Korea should make move in that direction in a systemic and organized way on a national level.
To do this, the country should hammer out a comprehensive national strategy for boosting the economy's total supply capability significantly and an implementation apparatus to push ahead with the plan systematically and constantly. Only if it does so can the people have hopes for the future of their economy, braving temporary difficulties.
And only then will the government's economy-boosting measures through the management of total demand take effect.
The problem of Korea's economy is not the current difficulties but the lack of hopes for its future.
The writer is a professor of law and economics at Seoul National University.
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