[OUTLOOK]Roh is wrong about the economy

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[OUTLOOK]Roh is wrong about the economy

Last week was filled with anticipation, confusion and speculation about President Roh Moo-hyun’s New Year’s address.
The speech contained encouraging points - stressing the open policy demanded in the globalized era and asking regular workers to make concessions to resolve the problems of part-time or temporary workers.
But most of the time, Mr. Roh just reiterated his opinions. While he attempted to settle the anxiety growing in the market in the news conference that followed a week later, Mr. Roh’s perspective on economic issues seems problematic.
First, he overemphasizes the polarization and discord between classes, and stresses a distribution-oriented policy to resolve wealth disparities.
There certainly is a polarization of Korean society. However, we have to remember that the lower class created after the 1997 financial crisis has continued to grow for the last several years.
The “participatory government” has failed to reduce the number of poor people in the past few years largely because slow economic growth caused few quality jobs to be created.
The solution is to create more jobs by expanding growth, not by expanding the distribution-oriented economic policy.
In other words, the discussion should shift from social polarization and wealth distribution to poverty reduction and growth policy.
Secondly, Mr. Roh stresses that the government must play a key role in settling every problem.
While Mr. Roh spoke about the government, economy and boosting consumer spending, we can find no mention about the private sector, businesses and encouraging investment.
Mr. Roh seems to think the national treasury will care for the disadvantaged and poor, the public sector will create jobs to improve unemployment and strict regulation will suppress real estate speculation.
Because Mr. Roh put so much emphasis on the role of the government, he came to think that there wasn’t enough money and naturally, a tax increase became an issue.
Although he said there won’t be an immediate increase, he failed to propose an alternative, and there seems to be little change in the government’s position to secure additional revenue.
As we can see from the experiences of many developed nations, a government-led campaign to eradicate poverty and boost employment is effective only temporarily and is not a sustainable solution.
Thirdly, Mr. Roh expressed strong convictions about real estate policy. However, the conference only confirmed the government’s “anti-market” position in real estate policy.
The president argued the real estate price in the Gangam area continued to rise even after the new real estate tax measures were announced on Aug. 31, 2005, not because of the market, but because of intervention by speculators.
He meant that the solution can be found not from the regulation of supply and demand in the market, but from a system that roots out real-estate speculation.
He hinted that all profits made from real estate speculation would be returned to the government, which would seriously violate the individual’s right to own property.
If the government collects the legal profit made from real estate investment, it becomes a virtual public land ownership agency.
If we follow such an idea, the government should also make up for the losses from real estate speculation if the price of the property falls.
Mr. Roh asked the media and the public not to be too skeptical about the economy, but be optimistic. He is right indeed. Optimistic thinking actually brings more positive results.
However, he seems to miss the fact that it is the president himself who poured cold water on the market’s optimistic atmosphere.
Just as Mr. Roh mentioned, domestic demand is finally showing signs of revival after a slump of more than three years.
Now is the time when the bud of optimism sprouts. If an unnecessary dispute about a tax increase brings the stock market down, and “anti-market” real estate measures shrink the construction industry, it would be Mr. Roh who is nipping the bud.
It would be better for the president to refrain from creating new controversies and quietly observe the natural recovery of the market.

* The writer is a professor of economics at Yonsei University. Translation by the JoongAng Daily staff.

by Lee Doo-won
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