[Outlook]The folly of balanced development

Progressive forces want economic policies that encourage a certain kind of growth. They want both the rich and the poor to benefit, conglomerates to coexist with small and midsize companies, balanced development of the capital and other areas, and compassion for the underprivileged.

Who would oppose such ideas which embrace the weak and the poor?

Still, I am against trying to pursue all of these goals at the same time. I believe that the growth engines of the Korean economy will be severely damaged if we simultaneously step up wealth redistribution, strict regulation of conglomerates and balanced development of the country. If we do, the whole population will become “the weak and the poor.”

The markets tend to encourage the strong to become stronger and develop further. Balance is a great value, but it poses limitations on growth. The more limits there are, the more difficult it becomes to develop.

I don’t mean to say we should relinquish our basic values for the sake of development. I have no intention of deceiving the people by saying that the benefits of growth will flow down to poorer people and that growth is therefore the best social welfare policy. I only want to argue that if balance limits growth, we can give up on going too far with the concept of balance, while still maintaining its fundamentals.

Balanced development of the country belongs in the “going too far” category. The most essential type of balance is in incomes, and the reason is simple. Except for some specific cases, residents in underdeveloped areas can easily move to more developed areas. But poor people can’t easily get away from their low incomes and start earning more money. The current understanding of balanced development means achieving a balance in incomes while not forcing people to move from the towns where their forefathers were born.

However, it’s more reasonable to pursue balance in growth and income through redistribution of wealth and more efficient use of our land.

I think this way probably because my parents were born in North Korea and therefore couldn’t go back to their hometowns, and because I lived abroad for most of my 20s and 30s. Also, in my work with young students, I can sense that they are increasingly losing a sense of connection with their hometowns.

I was also influenced by a Nobel Prize-winning economic theory. Paul Krugman asked this question: There is one city of 6 million people, and another of 4 million. Apart from the difference in population, the two cities have the same conditions, and are totally isolated from the outside world. In which city are the workers happier?

If economies of scale exist in terms of production technology, workers in the bigger city must be happier. The variety and quantity of products that the market can offer are determined by the market’s size. If too many different products are produced, the quantity of each kind goes down and production costs increase. Therefore, in the city with a larger population, a bigger variety of products can be produced at lower prices. That means workers in the larger city can enjoy more abundance more economically. The conclusion is valid even when products can be transferred between the two cities, as shipping costs must be paid.

Now, let’s say that residents in one city can move to the other. What would happen? The workers in the city with the population of 4 million will move to the one with 6 million so they can have access to a wider range of amenities. If the larger city’s population increases to 7 million, the city’s merits will rise in turn. The remaining workers from the smaller city will move to the larger one. The only things that prevent a large metropolitan area from sucking up all the residents across the country are the resulting surge in housing prices, heavy traffic and pollution in the environment.

This theory proves that it is pure folly to build cities across the country and expect them to be able to compete against the Seoul metropolitan area, which has more than 20 million inhabitants.

The only option that can work is to select several existing large cities and concentrate our national power on developing them further. In this regard, it is good that the Lee Myung-bak administration has a plan for broader development.

But as the past Roh Moo-hyun administration poured the cement for its plans for balanced development of the country, the Lee administration’s plan has yet to be undertaken.

It is unfortunate that our political leadership isn’t making things easier for people with low incomes by establishing a reliable welfare policy, and isn’t persuading the public about the necessity of selecting certain areas for development.

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

by Song Eui-young