[Viewpoint] Grading Lee on the economyThe Lee Myung-bak administration turns two years old next week, nearly halfway into its five-year term. With President Lee’s swearing-in, the conservative party regained power for the first time in a decade and many had high hopes for a stable and solid economy under the leadership of an entrepreneur-turned-politician.
The economy has been quickly losing steam in its growth engines under the last two governments, and Lee was expected to be Mr. Fix-It for the economy. At first blush, though, his midterm report on the economy seems to fall short of satisfactory.
First of all, we can look at data to evaluate the macroeconomic management of the Lee Myung-bak government. For the last two years, the economy grew 2.4 percent combined, lower than the first two years of any past administration. But when the economy is assessed in the context of the global economy, it reveals a different story.
According to statistics by the International Monetary Fund, the 1988-1989 economy under President Roh Tae-woo grew 2.25 times faster than the global economy. Growth in the first two years under Kim Young-sam in 1993-1994 was 2.79 times greater than the global economic growth.
The growth disparity reversed under the following liberal governments timed with the Asian financial crisis, slipping to 0.81 of the world average under Kim Dae-jung and 0.87 in Roh Moo-hyun’s administration. The economy under the Lee Myung-bak government accomplished 1.24 times the growth of the global economy. The local economy expanded faster than the rest of the world for the first time in a decade in the last two years.
The administration’s economic management in the face of an unprecedented widespread global financial crisis could result in contradictory conclusions. Fans could say President Lee acted promptly with a quick fiscal stimulus to help the economy weather the storm. On the other hand, skeptics could argue that the government pumped in too much fiscal spending to jump-start the economy without a hard re-examination of the economy’s fundamental weaknesses. The initial economic rebound can only be meaningful if it is accompanied by real and sustainable demand, not dependent on government stimulation.
The Lee Myung-bak government succeeded in jump-starting the economy, but has been less aggressive in strengthening its fundamentals - investment, employment and income distribution - needed over the long term. Corporate investment serves as the yardstick for the economy’s longer-term growth. But capital investment by companies in the last two years contracted 10.9 percent, compared with a 2.3-percent rise during the Roh Moo-hyun government and a 3.1-percent fall in Kim Dae-jung government.
Employment is the most sensitive data involving the public. The employment rate, which hit as high as 60.1 percent during the first two years of the Kim Young-sam government, slipped to 56.7 percent in the first two years of the Kim Dae-jung administration amid the Asian financial meltdown. The following government improved the employment rate to 59.8 percent. The number edged down to 58.6 percent during the last two years.
The income gap has also worsened. The Gini coefficient, which measures inequality in wealth nationwide except for single-person or farming families, inched up to 0.331 in 2008 from 0.304 four years ago. A higher Gini coefficient indicates more unequal distribution, with 1 corresponding to complete inequality. The gap likely widened in 2009 considering the economic circumstances.
A strategy of quick fixes cannot produce improvements in future growth data such as investment, employment and wealth distribution. For the long run, a more fundamental and structural approach is called for. To spur corporate investment, the government must undertake changes by discarding unnecessary red tape hampering corporate activities and enhancing flexibility in the job market. To create new jobs, local demand, particularly consumer spending, must revive. Efforts to stimulate local demand needs to be multifaceted.
The macroeconomy must be kept stable while revamping foreign exchange, financial, industrial and labor policies. To attain more equal wealth distribution, the government must create more jobs, revise the tax system, and upgrade the welfare system.
The Lee Myung-bak government should not be satisfied with small improvements in economic data. Its stress on figures undermined efforts for structural improvements to spur future growth and narrow the wealth gap. An economist might give out a harsher grade than “unsatisfactory” on the midterm report card. We hope to see leadership that has its eye on future growth, not immediate applause, during the remaining years of the Lee administration.
*The writer is a professor of economics at Sungshin Women’s University.
Translation by the JoongAng Daily staff.
By Kang Seog-hoon