[OUTLOOK]Psychology’s impact on business

“Business will be better next year and you can make a fortune, so invest right away.” “No, business will be terrible next year and you will be ruined, so never invest.”
If you are a businessman, which advice do you follow? As long as you have no particular confidence in next year’s business conditions, the probability of your investing or not investing will be exactly the same at 50-50. But the answer of John Maynard Keynes, who asked the question, was the latter. He said that businessmen respond more easily to pessimistic prospects than to optimistic ones.
Was Keynes’ calculation of probability wrong? Of course not. He wrote a treatise on probability. Unlike his predecessors who were preoccupied with analyzing the “structure” of the economy, Keynes added a special factor called the “psychology” of economic actors.
His observation that businessmen have a stronger pessimistic psychology than optimistic psychology had something to do with his experience of prescribing remedies for the Great Depression in the 1930s.
I think Korea’s economic structure has good “fundamentals,” to use a buzzword of today. If business does not go well despite good fundamentals, this could be the result of a psychological reaction. Although the real interest rate has fallen to near zero, investment is not recovering, and while people cry over the shortage of jobs in Korea, companies are moving to foreign countries.
Where did the much-favored market principle go? This is what I mumbled to myself when I heard the news that the government pushed for a 2 trillion won bailout for LG Card. Why not calm the market down through market principles if it is unstable?
Let’s not kid ourselves. It may be easy to ridicule government policy, saying, “Is it talking about the ‘never-dying big horse’ again?” But it is not easy to answer the counter question, “Will the financial market survive even if a big company dies?”
In the aftermath of the foreign exchange crisis, which invited the International Monetary Fund’s stewardship, several big companies went bankrupt and the government injected 161 trillion won of public funds to fix their problems. Didn’t it cost more to support the big companies after they went bankrupt?
With financial support, LG Card may have escaped the worst situation, but, instead, banks are likely to suffer from the shortage of funds. The financial authorities probably strongly urged the banks to support LG Card, but it is hard to openly blame them for their support.
If we are to criticize the government’s measures, we should be able to endure the extreme hardship that might result from steps taken according to market principles. But honestly, how many people would stand for that situation?
These days, the prosecution enjoys the highest popularity. This may come from the people’s expectation that its investigation into political campaign financing will be a turning point for political reform. Because the prosecution drew its sword out and then put it back into its sheath many times, I hope it will at least cut something this time.
As the sword of investigation turned to the business community, businesses began to plead for favorable treatment, arguing about “its impact on the economy.” Economic instability is a fixed excuse the business community uses every time, which may be half true and half exaggerated. I hope the prosecution’s probe will be severe.
If the investigation is severe, businessmen can refuse politicians’ later requests for political funds, saying, “Shall I give you money and then shut down my company?”
The pain from an investigation conducted according to the law will never be weaker than that coming from measures taken according to market principles. Perhaps the prosecution felt burdened by the possible economic instability, so it hinted that it would consider listening to businesses’ appeal for favorable treatment on the premise that the companies cooperate voluntarily. The problem is the contents of their voluntary cooperation.
In short, they should confess obediently. It would not be difficult to confess whether they handed money to politicians in an apple box or noodle box, but they might be afraid of the consequences after they confess.
In the movies, a veteran FBI investigator comes forward to protect witnesses, but companies cannot run their business while hiding somewhere.
How could they not be afraid of the evil consequences when politicians, who were punished more severely because of their thoughtless confessions, come after them later?
Nevertheless, the prosecution detoured around the political community and turned its sword of investigation toward the business community, so businesses may well feel treated unfairly. Politicians once spoke up for reforms, but seemed to put an end to them as if there were no such thing. In this situation, why would businesses confess obediently?
If the prosecution tries to punish businesses without political reforms, what will businesses do? When the prosecution pushes them, it should do so with a way out for them. The prosecution’s role is to find a skillful way of conducting a severe investigation while opening a path of retreat.
My study has leaned toward the structure of the economy rather than its psychology, but these days, my conviction has been shaken.
I am worried about “big horses” because many big companies have been sold to foreign owners, so that few are left unhurt while more continue to be hurt.

* The writer is a columnist of the JoongAng Ilbo.

by Joseph W. Chung