[VIEWPOINT]Short-Term Policies No Economic CureThere is an economic theory named the "political business cycle." It can be summarized like this: The ruling party implements policy to invigorate the economy prior to an election, to boost its chances of holding on to the reins of government. After the election it implements policy to contract the economy, to check the inflation caused by economic stimulation.
The theory thus suggests that the business cycle revolves in accordance with the term of a political regime. It is usually applied to Western countries enjoying advanced party politics.
Can this theory be applied to Korea? People may well think that the theory aptly describes Korea, where political parties will seemingly do anything to get into power. But in fact Korea is likely to have rather a different cycle from democratic states in the West. Here, the alignment of political parties changes not according to ideology or policy but largely according to the whim of political leaders. Also, the ruling party usually doesn't care what it leaves behind for the next regime.
Therefore, we can review the economic situation under each presidency and evaluate its success and failures in accordance with the economic legacy each of them hand over to its successor. We can review our economy in terms of a political business cycle from the presidency of Roh Tae-woo onward, because it was from his term that a democratic direct election was resumed. Mr. Roh was inaugurated as president in 1988, at a time when Korea was enjoying high economic growth, low inflation and a huge trade surplus. But five years later Mr. Roh handed an economic depression and a trade deficit to his successor. Mr. Roh's administration focused not on improving economic competitiveness in this period of economic blossoming, but on stimulating consumerism by committing itself to Olympic games and Northern Policy--establishing relations with socialist bloc countries.
President Kim Young-sam, Mr. Roh's successor, was inaugurated in these difficult economic conditions. Mr. Kim acted too hastily in his desire to set the Korean economy at the level of more advanced countries. He boasted that the average income per capita would reach $10,000 within his term. He hurried to join the Organization for Economic Cooperation and Development, a club for economically mature countries, instead of concentrating on strengthening and bolstering the Korean economy.
These impatient, politically motivated steps were partly to blame for Korea having to request a bailout from the International Monetary Fund in 1997. Kim Young-sam's legacy for Kim Dae-jung was a foreign exchange and financial crisis.
In fact, Kim Dae-jung might have thought it fortunate that the economic crisis broke out during Kim Young-sam's tenure. Kim Dae-jung's administration was free from the responsibility for the economic crisis, they only bore the duty and potential rewards of overcoming it.
The Kim Dae-jung regime is nearing its end. The "election war" will break out next year and the president will inevitably be struck with a bad case of "lame duck."
It is time for us to assess what the legacy of the Kim Dae-jung government will be. The biggest burden that the next regime will take on will be the enormous national debt. The public will also have to suffer from this debt, which comes from establishing huge public funds. Admittedly, it would have been difficult to get the country back on its feet and tackle corporate and financial problems without creating public funds.
However, if it does not complete restructuring which will contribute reducing national debt soon, the Kim Dae-jung administration will be blamed for passing on the cost of governmental and corporate missteps to the people by using public funds recklessly in the name of overcoming the economic crisis.
The administration should also remember that if it promote inter-Korean cooperation projects with public money, it will be blamed for laying more burdens on the public shoulder, despite the relatively small cost of the project.
So, here's what the next regime will inherit: huge national debt, uncertainty about the future, low investment and competitiveness, the possibility of rising foreign exchange rates and fast outflow of foreign capital. I worry that those economic conditions could spark another economic crisis. I hope that those who hold power forgo their short-term policies and work to create legacies to the successor. Only then we can achieve an advanced society in which people can truly enjoy a comfortable life.
The writer is a professor of economics at Yonsei University.
by Lee Young-sun