[Viewpoint]High expectations

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[Viewpoint]High expectations

The people have high expectations for President Lee Myung-bak. We hope he will revitalize the economy and make us lead prosperous lives.
For the Lee administration to be able to revitalize the economy and narrow the gap between the rich and the poor, however, it needs to learn from the economic failures of former President Roh Moo-hyun’s “participatory” government during the past five years.
Roh’s government failed to revive the economy. It dropped the interest rate and raised the exchange rate, but domestic spending has not recovered.
The reason was that business investment, the most important factor to influence economic recovery, has not gone up. The Roh government failed to improve the business environment to stimulate investment.
The Roh administration was permissive about illegal labor disputes and reinforced all kinds of government restrictions, including the ceiling on equity investments, to prevent a concentration of economic power.
As business investment failed to increase, jobs were not created. Eventually, this led to decreased spending and Korea’s failure to escape an economic downturn.
Therefore, for the new administration to revive the economy, it should drastically lower the corporate tax, which is higher than in Korea’s rival countries. Lee should also deal strictly with illegal labor disputes.
And it should ease or abolish excessive government restrictions that impede business investment, such as the restriction on the expansion of factories in the metropolitan areas and the ceiling on total equity investment.
Our economy can be revived when the business investment environment is transformed to stimulate investment.
Furthermore, the Roh government failed to stabilize real estate prices.
During the early stage of the Roh administration, the government saw the increase in real estate prices as a phenomenon limited to some areas, but did not actively deal with it.
Later it tried to solve the problem by increasing taxes, though the causes for the real estate price hikes lay in excess liquidity and a shortage in the housing supply.
The new administration should properly identify the causes for the rise in real estate prices and make the right policy choices.
Considering the current situation in which it is hard to absorb excess liquidity, the new administration should stabilize prices by increasing the housing supply.
In particular, the administration should raise the supply of housing with a good residential environment in the metropolitan areas where there is high demand for housing and expand transportation networks for suburban areas to absorb the demand for housing in downtown Seoul and stabilize prices.
Third, the participatory government aggravated polarization.
It tried to narrow the gap between rich and poor by raising expenditures on welfare with increased revenue from the raised taxes.
But the polarization of income deepened and the government’s financial deficit worsened.
Due to slow business investment, unemployment increased and so did the ranks of the poor, whereas the increase in tax revenues did not amount to much due to the economic fall-off.
As the property income gap widened due to the rise in real estate prices, polarization became more serious.
The new administration should prevent polarization from taking place by promoting business investment with a tax reduction policy.
It should also generate increased income for the poor through job creation and at the same time expand welfare expenditures for the aged, the vulnerable and the sick with increased tax revenues from economic revitalization.
It should also stabilize real estate prices to reduce the property income gap.
The new administration needs to understand that if it fails to stabilize real estate prices, it faces the possibility of following the failure of the participatory government.
Last, the participatory government failed to reach a national and social consensus on policy decisions; It made a number of arbitrary policy decisions.
Policies that do not go through a process of national consensus will have a hard time succeeding; they are highly likely to be the wrong choices.
Therefore, the Lee administration should make efforts to induce national social consensus more prudently before making policy decisions.
In particular, policies for building a grand cross-country canal, real estate and labor and management related to business investment need to be decided based on a national consensus reached through sufficient discussion.
If the new administration revitalizes the economy and stems the tide of polarization based on the right policy choices, we can usher in an era of economic success. Perhaps everyone can lead a prosperous life, as President Lee Myung-bak has pledged to achieve.

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

by Kim Jung-sik
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