[OUTLOOK]We must face economic factsThere had until recently been a controversy over whether the country is in an economic crisis or not. Now the debate has shifted to whether the country is in for a “Japanese-style” long-term recession or not.
Government authorities have pointed out the differences and said no. The Korean population is still less aged than the Japanese; our rate of demand for housing and consumption goods still has a chance to rise; our real estate bubble and fiscal deficit are far less serious than those of Japan; and Japan had not undergone the vast structural adjustments that Korea did largely due to the financial crisis in 1997. These claims are reasonable and support the government’s contention.
The government wants to reassure the public that our current economic recession, unlike that of Japan, will not go on for long and that things will improve sooner rather than later. Of course, we all want to believe this message of hope.
However, we are committing the folly of oversimplification in contrasting our present economic situation to that of Japan in the early 1990s. It was the aftermath of arrogance and the result of a bubble economy, swelled by the overconfidence that it could catch up with the U.S. economy and hold sway over the world economy, that caught Japan’s ankles in the 1990s.
The different basic economic standings of Japan in the 1990s and present-day Korea, and the disparate external and internal factors that should be taken into consideration, make any comparison or contrast of the two absurd from the beginning.
Instead of pointing out meaningless differences, it would be far more useful to pay attention to important similarities. First, the biggest reason Japan’s recession continued for as long as it did was because of the laid-back optimism that the Japanese held in the beginning. The optimism being expressed by the Korean government nowadays amounts to prompting the Korean economy to follow in the footsteps of the Japanese example. The majority of Japanese government officials and experts had not expected their economy to suffer from a recession for so long. Had they realized the seriousness of the situation, they would have taken appropriate measures sooner.
Korea is currently going through a similar situation. We are at risk of facing a decade-long recession like Japan or even an economic collapse as the South American economies experienced. Yet, the government is accusing anyone hinting at this being a crisis or the beginning of a long-term recession as “insurgents.”
What is fundamentally more important is that the recessions in Japan and Korea were both brought about in the process of implementing large-scale structural adjustments in the economy. In the 1990s, Japan faced a serious collapse in its manufacturing industries. Korea, also, has recently begun to experience this collapse with factories rushing out to invest abroad. With the sharp expansion of the information technology industries on top of that, Korea has now entered an era of “growth without employment.”
The recessions in both countries were perhaps the inevitable birth pangs of an economy shedding its labor-intensive industrial structure to become a technology-based economy. In a sense, the recession is not the result of failed government policies but rather the result of successful policies.
Seen from this point of view, the Korean economy began winding into a Japanese-style long-term recession a long time ago. The bursting of the bubble in Korea can be said to have started in the financial crisis in 1997, and if we count that as the beginning of a recession, we are already into our seventh or eighth year of a downturn.
The reason the Korean economy once looked like it was about to recover rapidly was because of the pump-priming policies that the Kim Dae-jung administration hastily set up. At a time when we should have endured our pains with patience for a fundamental cure, we started a second bubble and indulged in it under the misperception that our economy had indeed gotten better.
Now, we are feeling the aftereffects of having partied too soon. There are concerns about the decreasing consumer spending and investment; both consumer spending and investment, as well as various other economic indicators, are around the same levels as in 1997.
Japan has finally seen the light at the end of a long, dark tunnel and its consumer spending and investment are rising solidly. Would our recession also end automatically at the end of 10 years? From the looks of it now, that seems unlikely.
Japan overcame its recession with patience and a collective effort based on social consensus. In contrast, Korean society not only lacks any form of consensus, but is divided in utter disruption. Before we can even talk about the end of our recession, we are engulfed by union walkouts that are manifest everywhere. This is not the behavior of a society that is concerned about its economy.
Through its long and dismal recession, Japanese society did not show any serious labor-management tension or empty ideological struggles, as is going on in Korea right now. Isn’t the inability to recognize danger when it exists a real crisis?
Instead of expecting a rapid recovery, let’s honestly accept the fact that our consumer spending can decrease further and investment can also shrink further. Do we really have to see jobs disappear, let alone see our wages shrink, to understand how dangerous our economic situation is right now?
* The writer is the chief economic correspondent of the JoongAng Ilbo.
by Lee Chang-kyu