Don’t kill entrepreneurshipThe exact framework of Moon Jae-in’s economics plan is not yet clear. The basic direction is growth led by bigger government and a bigger budget. The question of how lingers. Kim Kwang-doo, a professor at Sogang University who oversaw Moon’s economic campaign platform, says the keystone is investment in people. That does little to clear up the ambiguity.
One person on Moon’s campaign team said the financing means and strategy to drive growth were never really formulated because there was so little time to coordinate policies and a fear of jeopardizing votes. He said a planning committee that will act as a transition team will come up with an action plan within the next 100 days. In other words, there is still time to revisit the economic policy direction of the new president and his administration.
I advise his aides to read Harvard professor of economics Martin Feldstein’s paper “Why the U.S. Is Still Richer than Every Other Large Country” published by the National Bureau of Economic Research in April. Feldstein gave ten structural merits of the U.S. economy: an entrepreneurial culture, a developed system of equity finance and banks, world-class research at universities, relatively free labor markets, a growing population, culture and policy that encourages hard work and long hours, abundant energy combined with private mineral rights, a favorable regulatory environment, a smaller government than in other industrial countries, and a decentralized political system in which states compete.
He mainly highlighted favorable tax rates, ease of regulations and flexibility in the labor market. In short, an economy becomes strong when it is business-friendly. Feldstein served as chairman of an advisory board on the economy for President Ronald Reagan, so his views are not exactly objective. Still, what he suggests has implications that shouldn’t be ignored.
Moon’s economic agenda goes entirely to the opposite direction of what has made the U.S. economy strong. First of all, he neglects the business sector. Instead of entrepreneurship, Moon focuses on equality and reforming our outsized conglomerates, which happen to be the drivers of the Korean economy. On his economic policy, Moon talked in his inaugural speech of increasing jobs and reforming the chaebol.
He wants to set up a state committee entirely devoted to rooting out illegal and unfair practices of large companies, simplifying the procedure of pressing charges against unfair business practices by large companies without going through the antitrust agency, and allowing class-action suits and electronic voting systems for shareholders to raise scrutiny on chaebol owners’ excesses.
That policy is based on the simple dichotomy that the large companies are rich and therefore bad, and that their smaller counterparts are weak and therefore demand protection. The business sector complains of such simple labeling and the viewing of the corporate community as a target for reform rather than an economic driver.
This one-sided view is even more obvious on the labor front. Moon proposes shortening of working hours, a higher minimum wage, a special law preventing discrimination toward contract workers, and an act to ban outsourcing of hazardous jobs. These moves could make an already rigid labor market even worse. Regardless of his good intentions, job seekers will find it tougher to find work. Feldstein advises that the government must not interfere in work conditions and recruitment by companies to make it easier for job seekers to find work and companies to go on with innovations.
Moon’s economic agenda resembles that of his former boss, president Roh Moo-hyun. Roh’s economic policy was more idealistic than pragmatic. He ended up raising the property tax because he blamed a scarcity of homes for the lower-income class on the rich, who had too many. The comprehensive tax was met with heavy resistance and led to the crumbling of the liberal government. A policy that is just in theory without respect to reality can produce catastrophic results.
I personally hope the Moon administration does not repeat those kind of mistakes. I am not saying the U.S. model is the only one. I do not mean to say, “Leave chaebol alone.” Balancing out the economy’s overreliance on the chaebol is essential.
What can be moderated is the scope and pace. Good medicine can be fatal if too much is taken. A hasty clamping down could dampen corporate activities, hiring, and investment. Former president Roh thought chaebol retaliated against state interference by cutting back on hiring and investment. The new government must be able to differentiate policy on businesses and the economy and social justice. Feldstein warns that capitalism will die if entrepreneurship is undermined.
JoongAng Ilbo, May 12, Page 34
*The author is a columnist of the JoongAng Ilbo.