[VIEWPOINT]Crying All the Way to the Beach ResortThe economy is slowing down rapidly. The growth rate of the gross domestic product dropped to 2.7 percent in the second quarter of this year; it was 10.7 percent two years ago, 8.8 percent last year and 3.7 percent in the first quarter of this year. What on earth made the economy plunge?
Though we have experienced many economic downturns and have overcome them, this slow economy is different from past ones in two ways. First, the basic cause of this recession is a falloff in corporate profitability, not a shortage of consumer demand. We are trapped in a vicious circle caused by mismanagement in the corporate and financial sectors. This is the epicenter of the recession.
Pinpointing the problem, the current economic difficulties stemmed from Daewoo, which went bankrupt and left 100 trillion won in debts behind; and from Hyundai, which is imposing burdens on the national economy with its scores of trillions of won of debts. Therefore, the current recession can be overcome only through restructuring the financial and corporate sectors; there are limits on how much can be done otherwise to stimulate the economy without restructuring.
Second, our recession is closely linked to the recession of the world economy. The United States, Japan and Germany, the three locomotives leading the world economy are expected to record a zero rate growth this year. Most South American nations and Southeast Asian countries, including Taiwan, Hongkong and Singapore, recorded negative growth rates in the second quarter of this year. It is hard for us to find a way to escape from the recession under these conditions. We have to search for a new route, while not defying the current.
What measures should be adopted to boost the economy and to invigorate companies in this unique situation? What kind of role should each sector of the national economy take?
First, the government should push on with complementary measures for restructuring. Keynesian economic stimulus measures such as an expansion of government spending is not desirable.
The origin of the recession is not a shortage of demand. Furthermore, such measures will raise market interest rates and work in opposition to the restructuring policy, worsening the balance of the national budget.
Second, moves to counter the sluggish economy should be made in finance and exports. Financial institutions have to open their purse strings and lower interest rate so that companies can complete their restructuring programs smoothly.
The exchange rate should be allowed to move to 1,350 won to the dollar to give exports a chance to recover. Positive effects on the economy and our trade balance will offset negative price effects.
In addition, the government should settle the Daewoo and Hyundai problems and finish restructuring other insolvent business firms. Completing the sale of Daewoo Motor Co. would be more effective in coping with the situation than unleashing trillions of won for an economic boost.
Third, labor unions should cooperate with management and the government. We have entered an age where we have to live always with unemployment problems. To minimize the unemployment rate, labor and management have to establish peace in the workplace and workers have to restrain themselves in their wage demands. The government should set up a system in which the rich and the employed take responsibility for the livelihood of the unemployed.
Fourth, political circles should take the lead in reviving the economy by making politics productive. Economic efficiency and political efficiency are two sides of the same coin. It is lamentable that the supplementary budget could not be passed and amassed economic bills are dormant in the National Assembly.
Finally, we should look squarely at the reality that there is no secret recipe to escape from the current recession quickly, and should be wise enough to share the pain with self-restraint and belt-tightening.
To summarize this year's economic situation, the growth rate is expected to be 3 to 4 percent, the rise in prices will be 4 percent and the current account surplus will be $13 billion. We need to admit that our economy looks good with these figures in spite of the economic downturn, comparing with other countries' economic performance.
A foreigner whom I know told me that he could not understand why the rich flew in droves to overseas resorts and ordinary people drove their cars to the beaches while complaining about the difficulty of making a living.
How can we explain to him the empty streets in Seoul during the summer vacation season?
The writer is a professor of economics emeritus at Chung-Ang University.
by Park Seung