[OUTLOOK]Real reforms to strengthen usA productive debate is going on at last between the government party and the opposition over the direction our economic policies should take. The government party wants to increase fiscal spending to boost the economy and the opposition wants tax cuts to encourage private spending. Although it is coming a little too late, it is welcome that the political community is finally working toward a solution to revive the economy. But the measures that Korea’s politicians are discussing for an economy recovery are not the fundamental ones that the symptoms of our economic slump need.
The problems with our economy require us to go deeper than merely managing aggregate demand by coordinating the quarterly growth rate and adjusting the fiscal spending and tax revenues.
Right now, the biggest problem with the Korean economy is that our growth potential has steadily been declining. What the Korean economy needs is a reinforcing of the quality of the economy itself and an expansion of our supply capacity. If our supply capacity decreases, there will be a limit to how far our employment and income will increase despite a boost in aggregate demand.
Supply capacity increases with the expansion of production facilities and advances in technology. Investments in facilities and technology should come first. Yet in the Korean economy, investment in technology and facilities has been stuck at the same level for years. That is why there is a problem now in the supply capacity of the Korean economy.
Productivity must rise, and all economic actors must work hard and not waste resources.
But the unemployment rate shows no signs of decreasing and existing jobs are even being exported continuously. The rapid aging of our society and the increase in the number of retirees, together with the 40-hour workweek, is putting a strain on the supply capacity of our economy. If jobs and people to fill these jobs are decreasing and even those with jobs are not willing to work long hours, then obviously the supply capacity of the economy will be weakened.
To eliminate waste, we need to distribute land, labor and capital efficiently. The market, not bureaucrats, has to take on this function. The job of the bureaucrats is to revise the systems and regulations so that the production factors market will run smoothly and efficiently according to market principles.
The Korean labor market today is seeing both a shortage of jobs and of labor. There is plenty of land available in the land market, but businesses are moving abroad to build factories. There is plenty of money piled in the money market, but there are firms with enough money that don’t invest, alongside of businesses with crucial technologies that go bankrupt because of a lack of funds. In short, the production factor market in Korea is a monster of waste, inefficiency and inflexibility. The economy cannot even use the production factors it already has, and the productivity and competitiveness of our economy are both falling.
Therefore, in order to strengthen the constitution of our economy and to increase our productivity, the government needs to implement drastic reforms of regulations in the factor markets and create an atmosphere where businesses can invest in technology and facilities.
The government must restrain itself from pursuing idealistic reforms that have nothing to do with the issue of earning our livelihoods and reforms that would aggravate political strife. Why are businesses not investing these days? It is precisely because there are people in the governing party and the administration who actually believe that businesses are not investing just to spite the government.
I worry that the constructive debate will be spoiled by ideological attacks from the governing party who call themselves “reformers.” The real reform should be to increase our national power so that we can all live better, and so that neighboring countries won’t look down on us and try to steal our history from us. On the other hand, it would be rather a relief if the so-called reformists within the government party are finally pressed to present their vision for our country’s future through this debate.
* The writer is a professor of business management at Hongik University. Translation by the JoongAng Daily staff.
by Kim Jong-seok