Anything but a ‘new normal’Charismatic bureaucrat Choi Kyung-hwan has been in charge of economic affairs for two months now, but the revival of the economy he promised to deliver is nowhere to be seen. The economy muddles along while consumer prices remain low. Stock prices have turned bearish.
Corporate and consumer spending stayed depressed amid a long hiatus in lawmaking activities due to political wrangling over a special law to investigate the cause of the April 16 Sewol ferry sinking. The external front also turned unfavorable, jeopardizing exports that have been the sole driver of economic growth. The recession in the euro zone raises concerns for deflation, casting a dark cloud over global economic prospects. The steep decoupling in the major currencies due to a super-strong U.S. dollar and a weak yen has also shaken emerging markets. And things only get worse.
Skepticism already prevails. Some doubt if the economy will ever pick up speed. Choi may be frustrated at the impatience, as he has only been in office for two months. His policies also were deterred because parliament didn’t pass any economic legislation for more than two months. But President Park Geun-hye’s administration has already wasted more than two years. Considering the stagnancy from the previous government, the economy has not moved beyond a snail’s pace for four years now. He cannot blame the public for losing its patience. The hopes he raised with the promise of charting a new path to restore the economy were dashed without any signs of improvement.
It doesn’t mean that we want to accept a structurally slow-moving economy. Disappointment means loss of confidence. But acceptance of slow growth requires a change in economic policy targets and direction. If there is no hope of recovery, the government will have to give up on expansionary and stimulus policies and turn conservative. It won’t need to urgently carry out reforms to raise growth potential and improve economic fundamentals for long-term growth.
Previously, there were talks about giving up on growth. Former President Lee Myung-bak, who was elected on rosy economic promises, more or less lost the will to stimulate growth, hit by a chain of complications - vigil protests against American beef imports amid the mad cow disease scare and the global financial crisis. The following Park Geun-hye government didn’t even include growth on the national agenda. When the economy showed little sign of pickup, the government late last year hurriedly tried to mend it. Announcing economic policy direction for this year, President Park called for a “quantum leap” forward to achieve a miraculous turnaround of the economy.
The administration finally focused on growth to pull the economy out of a slowdown fixture. But before any of the policies were launched, the country was hit by its worst-ever maritime calamity - the Sewol ferry sinking that killed nearly 300 passengers. Then Park placed her party confidant Choi in the deputy prime minister post and handed him the helm to steer the economy out of the turmoil.
Some economists continued to preach on the vanity of growth-structured economic policy. Former U.S. Treasury Secretary Lawrence Summers was one of them. During an International Monetary Fund forum in November last year, he said the world may be in an era of secular stagnation, where real economic growth has ground to a halt or remains at a very low level due to chronic underinvestment in future potential. He suggested that the damages could be irreversible, making all conventional fiscal and monetary policies to pump up demand useless, as low or little growth could be a “new normal.” Under these circumstances, it would be better to balance out growth and wealth instead of trying to create them anew.
The mix of heavy investment and cheap labor today neither helps growth nor productivity. Critics of neoliberalism advise authorities to instead invest resources to raise living standards and the happiness index for the people. They argue that endeavors to aid growth would be in vain against a declining working population due to aging amid low growth and inflation. This advice can work on advanced economies, but South Korea has not entered the advanced ranks yet.
It is too early to forgo the goal. If the past equation and prescription does not work, we could find a new solution to fuel growth. Why do we conclude that there is no means to improve productivity other than capital and labor? The services area is the most underdeveloped sector. If the service sector is vitalized through radical deregulation and investment, employment and our national productivity could increase.
Economic recovery does not simply mean returning to a past growth-oriented paradigm, but to seek a new growth model. We cannot finance enough funds to bolster social welfare to ensure better living standards under low growth and consumer prices. The economy still needs to generate meaningful growth. Giving up future growth potential is too risky.
JoongAng Ilbo, Oct. 8, Page 36
*The author is an editorial writer for the JoongAng Ilbo.
by Kim Jong-soo