[Viewpoint]Lessons for new economic team

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[Viewpoint]Lessons for new economic team

After long contemplation, Germany’s postwar minister of economic affairs, Ludwig Erhard, made a decision. The only way to restore the country’s economy was to implement a combination of policies.

Without warning, he ended the central distribution system so that the market would determine prices, and initiated currency reform. In 1948, the Deutsche Mark replaced Nazi Germany’s Reichsmark.

When World War II ended, Germany lay torn and devastated. Nothing was produced normally. Store shelves were collecting dust, and the German currency was worthless after excessive issuance of money to fund the war. When consumer inflation became extreme, the country had adopted a central distribution system, which did nothing to bolster the economy. Germans were desperate to stock up on American cigarettes and whiskey in the black market. With the country between life and death, Germans needed decisive action.

Minister Erhard’s decision proved to be right. Abolishing the central distribution system combined with currency reform produced amazing changes. Products that could not be found began to reappear at stores. The market became lively, and the economy started to show signs of life.

“The Miracle of the Rhine River,” Germany’s post-war economic revival, had begun.

I discuss this history of a faraway country for a reason. The German example is full of lessons we need today. The Lee administration’s second economic team led by Yoon Jeung-hyun is soon to be launched. Having watched its clumsy predecessor, the public is uneasy. If the new team fails to revive the economy, we will have to suffer even longer.

There are many reasons for the first economic team’s less-than-stellar performance. The team had internal disagreements, failed to communicate with the market and did not accurately read global economic trends.

The most fundamental flaw was that their policies were inconsistent. Kang Man-su’s economic team produced various policies, but they often collided with one another. When policies failed to provide a solution, the market was bound to fall into chaos.

For instance, one policy urged financial companies to issue more loans to small and midsize businesses while another demanded stronger financial health at lenders. So the banks were reluctant to act until they figured out what the government actually wanted. When no one was sure which companies would collapse, the banks could not afford to lend money freely. Shaky borrowers directly affect banks, so no bank would step up to help struggling companies. It was if a doctor prescribed a nutritional diet and rest to a patient and then ordered him to work non-stop. The incongruous policy combination pressured the financial market even more.

The policy on public corporations was equally inconsistent. At first, financial authorities demanded that public corporations implement reform, including staff reductions. The plan proposed cutting 16,000 jobs. Later, public corporations were urged to participate in job sharing so that more people could be hired. The economic team cannot expect the market’s trust when policies are in open conflict.

The first team was also very slow. To save a patient whose life is in jeopardy, the doctor needs to accurately diagnose the cause and act quickly. However, the first team took a lot of time just to figure out the symptoms. As the financial tsunami was approaching, each part of the economic team held on to its own view. The Ministry of Strategy and Finance and the Bank of Korea had different positions, and the Ministry of Finance and the Financial Services Commission were acting separately.

Policies need to be pursued swiftly and decisively. Minister Erhard announced the economic reconstruction program without consulting the [Allied] occupation authorities first. When the occupation forces command called him mad and strongly opposed the plan, Minister Erhard was undeterred. He argued that even his lieutenants were not informed of the plan beforehand. He had a conviction that he must act quickly to execute what he believed in, and his determination made Germany one of the most solid economies in the world.

The crisis of the past is a textbook for today. The second economic team should learn the textbook’s basic lessons.


*The writer is a deputy economic news editor of the JoongAng Ilbo.

by Kim Jong-yoon
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