Keynes vs. SchumpeterUnlike past presidential elections, economic issues are out of the spotlight in the contest among candidates aspiring to be elected our 19th president on May 9. Security issues such as the deployment of the Terminal High Altitude Area Defense (Thaad) system and the possibility of a U.S. preemptive attack on North Korea dominate the campaign amid concerns about a sixth nuclear test by the North and additional long-range missile tests. Political reform such as a constitutional amendment to change our governmental system is the next hottest topic for heated debate. Maybe the public has become disillusioned by the promises of past presidents who all promised economic recovery but did little to improve the economy.
Still, economic issues are important criteria for selecting the next president. It is the fundamental duty of the national leader to make lives better for the people. We must coolly study how the candidates understand our economic conditions and what short-term remedies and long-term visions they believe will make improvements.
The frontrunners — Moon Jae-in and Ahn Cheol-soo — have distinctly different perspectives and policy directions for the economy. It is actually better than in the past, when candidates more or less stole policies from one another, making it hard to differentiate them.
Moon and Ahn refer to famous figures who shaped 20th century economics for guidance in their policies. Moon borrows his agenda from British economist John Maynard Keynes and Ahn from Austria-born American Joseph Schumpeter. Keynes championed the state’s active fiscal and monetary role to combat recession. The Keynesian idea of fighting an abnormal slowdown is to “shave the peaks and fill the valleys” through public spending on infrastructure projects to increase jobs and income and to inflate demand. The fiscal spending is backed by increases in taxes and debt, as well as low interest rates.
Schumpeter advocated what he called “creative destruction” and identified innovation and entrepreneurship as the key to economic growth. He believed that economic crisis and recession is a process of correction in overcapacity. He argued that state interference would help little in hastening a correction of economic forces. Instead, he said, the government should provide a playing field for innovative companies to compete freely. It can also play referee to keep the playing field level.
Moon borrows from Keynes when he pledges to create 500,000 jobs annually by increasing fiscal spending from a current 3.5 percent to 7 percent, which would expand the budget by another 150 trillion won (131.5 billion). He will use the extra spending not only on pork-barrel projects, but also to create jobs in the education, childcare and health care sectors to achieve so-called “People-oriented growth.”
The extra spending would be mostly financed by deficits or debt and may require higher taxes. It would also require the Bank of Korea to keep interest rates low to make the deficit financing as cheap as possible. Moon is less eager for corporate and industrial restructuring, which usually requires massive layoffs. The liberal candidate cannot afford to anger his support base: trade unions. Instead, he will resort to a crackdown on the chaebol and other rich companies.
Entrepreneur-turned-politician Ahn believes growth and jobs should be led by the private sector in line with Schumpeter’s teaching. He believes the government’s role is to encourage companies to be bold and innovative and to generally provide a welcome environment to start-ups. He is against a crackdown on chaebol, but advocates selective regulation to end irregular and corrupt practices of big companies. He respects free market principles and sovereignty for the central bank and supports corporate restructuring.
The two leading candidates also differ in welfare policy. Moon wants to spend more and buttress social security protection. Ahn is more practical. Ahn thinks it would be too costly to make a welfare cushion for everyone.
We cannot say which agenda is better because the two economics inspirations — Keynes and Schumpeter — were both proven in certain real-life situations and at certain times. That makes a draw. The judgment should be made based on what remedy suits our present economic needs and those of the future considering the public and private capabilities and domestic and external conditions. We must do our due diligence on the platforms of both candidates. And we don’t have much time.
JoongAng Ilbo, April 14, Page 28
*The author is the manager of newspaper production and head of the Economic Research Institute of the JoongAng Ilbo.