[OUTLOOK]Politics as usual hurts economy

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[OUTLOOK]Politics as usual hurts economy

The Korean economy has had a disappointing third quarter, with a growth rate of 2.3 percent. The meager positive figure is largely due to exports and investment in construction, while domestic consumption and investment in industrial facilities continued to decline.
Domestic political, economic and social environments have shown no sign of improvement. The so-called ruling party is too small to function properly, and opposition parties take up far more than two-thirds of the assembly. The acute confrontation between the ruling and opposition parties only elevates the uncertainty for players in the market.
Economic policy lacks direction and conviction, and seems to rely on luck and coincidence. The society is extremely unstable from the crisis in Buan over the nuclear waste treatment plant project, the chronic labor struggle, and the violent demonstration of farmers protesting free trade agreements. As Nobel Prize-winning economist Paul A. Samuelson famously put it, the tree of capitalism cannot grow in a storm, just like a rose cannot bloom in a dumpster.
But the administration itself has courted most of the problems. It began with a party that was already a minority, and then a new party broke off without serious policy disputes. Due to the split, the ruling party now has even fewer seats in the Assembly, and hence has even weaker political clout. Until the Assembly election scheduled on April 15, the Assembly will be inevitably dominated by opposition parties, and the administration will have a hard time pushing for legislation necessary to solve the pending economic problems.
The opposition party publicly claims to be concerned about the national economic pain. But in the run-up to the election, it will not follow the ruling party’s initiative from which the ruling party would save face. Any economic policy that requires legislation is destined to drift away until the second half of the next year, when the National Assembly is reorganized.
Will the political uncertainty be removed once the election is over? Unfortunately, recent survey results show that the political chaos would not be any less likely after the election. Political uncertainty exerts a tremendous effect on the decision-making process of economic players. Households may cut back consumption to prepare for a potentially murky future, and companies may be reluctant to invest. Foreign investors would find Korea even less attractive. Removing the uncertainty that politics creates regarding the economy is one of the prime challenges for the administration.
One of President Roh Moo-hyun’s campaign pledges last year was 7 percent economic growth. But the reality is far from the rosy promise, and the growth rate has been declining since the new administration came to office. The growth potential cannot be raised without specific economic policy planning and aggressive implementation.
Mr. Roh will celebrate his first year in the Blue House in two months. The government has been putting out sugarcoated slogans, but there hasn’t been any viable effort to resolve the entanglement.
The absence of effort is apparent in the recent cash crisis of credit card companies. The problem was initially raised in the spring, but the government used stopgap measures to cover up the mess instead of addressing primary causes. Without a fundamental prescription, it was inevitable that the disaster would return.
The government supposedly pursues market reform but does not apply the principles of market economy to failed companies and owners. Many companies are competing in the credit card market. Even if several companies that can’t compete were to be expelled from the market, the Korean economy would operate without much hindrance.
But the government is repeating the failure of the past out of fear of immediate shock. Temporary remedies cannot get to the root of the problem, and would only delay an even greater shock. It is as if someone is committing suicide because of the fear of death. For the sake of the future of the Korean economy, we need to change the direction of our economic policy.
Interest groups are vying to secure their own piece of the pie from the market, and the consuming battle is threatening the precious economic foundation that we have endeavored to establish. The government seems to interpret the situation as a simple step of democratization. But social unrest is bound to continue if there is no harmony among interest groups. The president needs to take drastic measures to remove factors that create uncertainty. The economy cannot be separated from its political and social environment.

* The writer is a former senior presidential secretary for economic affairs. Translation by the JoongAng Daily staff.


by Kim Chong-in

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