[OUTLOOK]Time to fix the economy now“No one does business in more difficult situations than Korean businessmen. The international interest rate is five percent, but isn’t ours close to 20 percent? Nevertheless, the debt ratio exceeds 400 percent or 500.
“Where are people as absurd as us in the world? But this is not a fault. Instead, it’s something to be proud of. Without such entrepreneurship, the Korean economy would have already been over.”
This was the opinion of the late Choi Jong-hyun, former SK Group chairman, which I may have heard or read somewhere.
Despite the idle money, businessmen do not invest. “Increase currency, cut the interest rate, and reduce the burden of businesses,” Mr. Choi used to demand.
But I have a different opinion. A vigorous desire to invest, regardless of interest rates, debt ratios and involved risks, primarily contributed to high economic growth, but it received a bitter blow under the International Monetary Fund’s stewardship.
This is not to say we should turn to out-of-season wisdom again just because the economy is difficult. The market interest rate decreased to around 4 percent, the real interest rate is close to zero, and the debt ratios of conglomerates dropped to around 200 percent through the government’s involvement. All preparation has been completed, but no one wants to invest. I wonder what on earth the reason is.
After Adam Smith, investment activity was the product of “structure.” It was thought that if there were capital, technology and labor, investment would automatically follow. A scholar cynically compared this way of growth to “muscle training.”
On the other hand, John Maynard Keynes advocated “psychology.” He said investors’ psychological preferences were no less essential factors than structural constraints such as interest rate and capital.
Is it that the age of coercion is gone and the age of “enticement” in investment has come? If the structure has no problems and investors still have psychological problems, then they should receive mental health treatment.
The primary factor that affects investment psychology is profitability, i.e. economic calculation. Another factor is the future prospects if a long-term investment is guaranteed, i.e. strategic calculation. Indispensable factors for the formation of this strategy are policy and politics, and, as the implementer of this task, the government and the political power.
Under the present “participatory” administration, policies became the objects of speculation, and even the administration’s unique duty seems to be lost in the president’s strong personality. In sum, the ultimate responsibility for the psychology of avoiding investment lies in the political authority. I don’t mean to acquit businesses. In our situation, businesses cannot dare to take on the political powers. If the political powers regard slow investment as businesses’ own sabotage and if businesses also think it a contest of stubbornness versus power, there would be nothing more pathetic than this.
Let’s take the controversy over what makes a “crisis,” for example. By saying, “Exaggerating about a crisis can bring about a real crisis,” President Roh Moo-hyun warned businesses not to instigate crisis in an attempt to block reform.
The head of policy planning, Lee Jung-woo, also said, “The present situation is not a crisis but only a recession, so I will not adopt a short-term policy to boost the economy.”
Their remarks are right, but their rhetoric is somewhat bitter. I wonder if a recession and a crisis can be divided into neat, separate categories, just as middleweight and heavyweight players are divided.
But if the controversy becomes a test of loyalty, this is more worrisome. Talking about the crisis is not holding back reform. Those who talk about a crisis think about the economy as much as those who are concerned about recession.
On the subway line I ride, fewer advertisements are posted these days and empty signs are also numerous in the stations. At a discount shop I sometimes patronize, the number of closed counters is increasing.
Rather than contending over whether it’s a real crisis or an exaggerated crisis, fostering trust in the political power is more important in filling the signs and opening the counters again.
A moment of neglect brings a decade of regret. As is the case with man, the economy can easily fall, but it is hard to recover. When the bubble burst in 1992, the Japanese economy, perhaps “tired” of prosperity, neglected taking measures for a while, thinking that it would take the opportunity to heal the side effects of prosperity. This was how Japan’s “lost decade” of recession began, and the consequences of a moment’s neglect were terrible.
If we also lose the chance to take proper measures while defending the recession, and if Mr. Roh’s rebuke about exaggerating the crisis discourages businesses, our economy can easily go into decline for a decade.
* The writer is an editorial writer of the JoongAng Ilbo. Translation by the JoongAng Daily Staff.
by Joseph W. Chung