[Viewpoint]Smart economic changeThe first requirement to successfully overcoming an economic crisis is to precisely understand its characteristics. The second is to have a clear vision for where our economy is going.
The latest crisis does not originate with Korea’s internal problems. It began in the United States and damaged Korea through the channels of foreign currency and trade because the country’s economy is highly dependent on outside forces.
The global crisis ignited by the bubble in the U.S. housing market and surplus and greed in the financial sector has already caused restructuring in household assets and liabilities and the financial sectors in the United States and Europe. The deleveraging of excess debt is rapidly increasing.
Meanwhile, there is a credit crunch and household spending and income are shrinking.
Capital that once poured into emerging economies is draining out, and stock markets have plummeted. Exports have also dropped, leading to a worldwide reduction in production and consumption.
Until Europe and the United States enter a stable phase, the global economy is not likely to recover and Korea’s crisis will not end.
No matter how hard we struggle to prevent an economic crisis, Korea is not secure as long as our economy is wide open.
Rather, the real economic crisis has only begun.
What the government needs to do now is prepare for bigger future challenges and set up a restructuring framework that will produce a new growth engine.
Instead of giving citizens vain hope that we might be able to avoid the crisis with emergency measures, the government should convince the nation to turn the crisis into an opportunity by improving economic fundamentals and quickly restructuring.
The economy the government hopes for in the future will be one that is more open, more efficient and more market-driven.
So the government should refrain from prescribing policies that undermine market principles and encourage moral hazard just to avoid the current crisis.
Since the 1990s, the Korean economy’s structural changes are deindustrialization and specialization. The proportion of manufacturing sector in overall employment is rapidly decreasing and light industry is drastically shrinking. Meanwhile certain industries, such as electronics, heavy machinery and chemical industries thrive.
The consequent decrease in employment did not result in higher unemployment but rather led to irregular employment and jobs of lesser quality.
Many small and midsized businesses, food services, hospitality and wholesale and retail businesses use irregular employees.
Considering the present situation, the pending challenge to the Korean economy is not the temporary drop in performance but a more structural problem. Many industries, aside from a few dominated by conglomerates, have failed to adapt to the changes in the domestic and foreign economic environment since the 1990s.
Instead of trying to save struggling companies already dependent on government subsidies by offering more aid, the government needs to rewrite the policy framework to facilitate restructuring in industrial and employment structures, no matter how painful this might be. No country has large scale credit guarantees as big as Korea’s, and not many have so many businesses in proportion to population and gross domestic product.
It would be better to expand retraining, re-employment and unemployment benefits to workers rather than spending money to save businesses that aren’t competitive.
Ailing companies should be weeded out to let new businesses and industries grow.
But workers will remain the Korean economy’s most valuable resource.
Big financial institutions in the United States and Europe are collapsing, and deflation is an urgent concern. Emergency measures are pouring out.
However, Korea’s situation is not yet so desperate. It is wise not to use up all our measures until they are absolutely necessary.
The government can actively expand the current economic policy while limiting intervention in financial policy.
Considering the direction of economic development and future financial markets, the government should prioritize making an orderly financial supervisory policy and a neutral currency and credit policy.
*The writer is a professor of economics at the Graduate School of International Studies at Sogang University. Translation by the JoongAng Daily staff.
by Cho Yoon-je