A question of compensation

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A question of compensation

Weighing the costs and benefits is a procedural must in making public policies. A policy should be chosen if benefits are expected to outweigh the costs. But often in economic policies, the cost often plays a bigger factor than the projected benefit. It is particularly so with policies that involve conflicting interests, such as market liberalization, privatization of public enterprises and protection of small and midsize companies.

Take, for example, the liberalization in certain commerce and services markets that lags behind the overall manufacturing sector and international competitiveness. If markets are further liberalized, the society overall can benefit because of cheaper imported goods. At the same time, local manufacturers can be hurt by the foreign inroads and jobs can be lost. A market opening would nevertheless be better if the benefits overwhelmingly outweigh the costs.

But these wiser choices are often wasted by political constraints. Interested parties lobby and protest hard against them during the deliberation stage. They resort to cliche-like slogans and misleading reasoning that consuming local products is an act of patriotism or privatization is evil or that small and midsize companies must be protected to gain public support. In the end, they prevail and keep minority interests over the majority ones.

The same follies in methodology were repeated in the early stage of the outbreak of Middle East respiratory syndrome (MERS). People panicked at rumors of the spread in hospitals and demanded to know the names of the medical facilities. Experts also urged the government to disclose the MERS-hit zones and hospitals to spare unnecessary fear and rumors. But the government was stubbornly protective. It claimed that disclosure could hurt the local economies and hospitals. It was eventually pressured to release the names of the hospitals when rumors went wild about the outbreak. The masses quickly united when their lives and health were at stake.

On the other hand, there can always be victims if a policy is made for the broader good in spite of the cost. But a certain group should not be asked to sacrifice itself and would have to be compensated to some extent. The businesses and employees that are hurt in the early stage of liberalization need to be subsidized and supported to change businesses or start a new one.

The government has been right to pledge financial support to the regions and hospitals whose businesses were inevitably hurt from shutdown and stigmatization as disease epicenters. It helps society to place the common benefit ahead of the cost through compensation for the losses, rather than outright protection of the interests for a minority group. Market protections through levies of high tariffs can distort free market price mechanisms and cause deadweight losses, or higher costs to society because of market inefficiency. Opening the market and helping smaller local companies could, in the longer run, benefit the overall society and its efficiency.

Conflicts of interest are inevitable in a democratic society. But they must not constrain policy actions for social advances and keep the society in a status-quo trap. It is important to take up the challenge and face the problems straight in the eye in order to put the society at a higher level and keep it on a sustainable growth path. There is much work to do in building public confidence by eradicating corruption connections.

But it is also important to build a system and platform where various interests can be discussed and addressed in order to work toward a consensus. In this way, the interests concentrated on selective groups could be better evened out through public disputes, dialogue and compromise.

Economic players must accept the opening and competition as an inevitable norm. They must endeavor individually to improve their competitiveness to survive in the new environment. They cannot rely on and live under patronage and protection forever. From the MERS experience, authorities should have learned the importance of disclosing information transparently. Transparent public disclosure is the best weapon against an irrational spread of anxieties and fears provoked through mobile and Internet platforms.

Translation by the Korea JoongAng Daily staff.

JoongAng Sunday, June 14, Page 19

*The author is a senior researcher at LG Economic Research Institute.

by Shin Min-young

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