[Outlook]Economy in perilI am writing this column as I watch the Kospi index hanging near 1,000 points. I hate to say it, but we can no longer deny reality: We are going through a very similar situation as in 1997 when Korea had to seek a rescue package from the International Monetary Fund. In fact, some say that the crisis is more serious this time.
In the late ’90s, only a few Asian countries experienced economic crashes, and other developed countries, including the United States, thrived. The IMF was a reliable guardian.
But today, the United States and developed nations in Europe, which are at the core of the global economy, are all shaking at once. The epicenter of the financial crisis is in the West, but it is evident that the tsunami it spawned will flood us as well. In the course of this financial crisis, the world is likely to change drastically. The most serious economic crash since the Great Depression of 1929 is going to change more than just economics. The international order, politics and foreign policy in the international community are likely to be influenced.
And questions are being raised about the legitimacy of the following issues. First, unilateralism is under fire. U.S. President George W. Bush and his neoconservative officials had the mindset that the United States is the sole global power that can keep political, economic and social order in the world. The financial crisis made this into a joke. The chaos engulfing international finance originated in the United States. It is not likely that a country that can replace the United States in the leadership role will emerge in the near future, but the United States cannot maintain an arrogant attitude.
Second, the world has grown skeptical about Wall Street. There is so much evidence that smart people there had toyed with the world. They have long taken as a given creating financial derivative products with complicated formulas and becoming instant multi-millionaires. Those in the manufacturing industry who faithfully produced real products became timid in front of the aggressive financial workers on Wall Street. Recently, e-mails exchanged among employees at the credit rating agency S&P have been disclosed at a hearing in the U.S. House of Representatives. They were aware of further hidden delinquencies and some suggested cashing in right away. Considering how furious ordinary people have become, Wall Street is not going to play with numbers for a while.
Third, we have learned that the market is not omnipotent. It is not a magic wand that can solve any problem. Of course, leftist scholars are wrong to argue that the crisis means the end of the market economy and capitalism. The socialist planned economy that shunned the market already collapsed a long time ago. However, it has been revealed that the “hidden hand” of greed and deception, instead of Adam Smith’s “invisible hand,” could defraud the world in the 21st century market. And we have learned that the market needs reasonable regulation.
Fourth, the era of luxury and lavish spending has come to an end. We have once again confirmed that there is no such thing as a free lunch. Celebrating the purchase of a home and becoming rich from stock and fund investments turned out to be a giant bubble. It has been proven that the best way to accumulate real wealth is to work hard, be frugal, save and make reasonable investments. Moderation is called for no matter how grand a feast might be. The same goes for accumulating wealth.
However, learning these lessons might be a luxury, considering the looming catastrophe at the end of the year. The financial crisis will begin to affect the real economy. In the U.S. financial industry, 250,000 people are expected to lose their jobs next year. Multinationals around the world are expected to downsize. The cold wave of an economic winter is going to sweep Korea very soon. So, how should we prepare?
Being no economic expert, I am not going to lecture about economic policy. I only want to make some requests of our politicians.
Here’s my request to the Lee Myung-bak administration: Many citizens were disappointed with the way it acted in the course of U.S. beef import negotiations and the incompetence it displayed in its response to rumors of mad cow disease and candlelight vigils. In short, we know the administration’s capacity. It is helpless if the opposition and citizens turn their backs. So I hope it will ask for cooperation sincerely and modestly. In particular, the economic team should not announce policies without careful planning. Imprudent policy might lead the country into a bigger disaster.
My request of the opposition, including the Democratic Party: I hope they do not exploit the crisis for political gain. They must not oppose the government just to make it fail. If the republic goes down, more than the ruling party will be destroyed. The Roh Moo-hyun administration’s real estate policy certainly contributed to the economic bubble. Let’s stop pointing fingers at each other and think about how we can overcome the approaching crisis.
*The writer is the senior city news editor of the JoongAng Ilbo.
by Kim Chong-hyuk