Unintended consequences

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Unintended consequences


Lee Sang-eon
The author is an editorial writer of the JoongAng Ilbo.

On Jan. 21, 1793, Louis XVI was publicly executed by means of the guillotine at the apex of the French Revolution. By then, rival revolutionary factions led by Maximilien de Robespierre and the Jacobins were engrossed in a struggle to dominate the new legislative National Convention. Living conditions in Paris had not gotten any better since the starvation-triggered insurrection of 1789.

As bread and food riots continued on, the assembly leaders began to clamp down on hoarders and speculators enforcing a cap on bread prices through the Law of the Maximum. Also known as the General Maximum, it capped the price of bread at 1790 levels plus an additional 33 percent. Any merchant charging more was fined double the overcharging.

Bakers argued they couldn’t sell at the maximum price due to the expensive cost of flour. Authorities slammed price controls on flour. When flour merchants pointed to grain, they capped the price of grain as well. Flour mills had to close down because they couldn’t make ends meet. The assembly then passed a law punishing flour mills and bakers for “counter-revolutionary” acts if they did not report business closures three months in advance.

Despite a generally good intention — to make life more affordable for the general public — the price-fixing wrecked the market and supply system. Bakers that kept money-losing businesses going steadily produced less and used cheaper materials. People queued in front of shops all day and often went home empty-handed. The lucky ones complained their loaves tasted worse than in pre-revolution days. Factories were opened outside the city, but their products often could not make their way into towns due to a breakdown in the distribution network. As a result of all this tampering with the free market, the black market thrived. The iron fist was utterly defeated by the invisible hand of commerce.

The National Convention enforced the General Maximum on other foodstuffs and daily necessities, causing similar havoc. A year later, the radical political force was brought down by an enraged public. Karl Marx criticized Robespierre for relying too much on political force to solve economic problems. Hannah Arendt, the German-born American political theorist, accused Robespierre of trying to defend freedom through oppression and terror. The upright moralist and idealist did not hold a title beyond being a member of the Committee of Public Safety at the assembly although he was a revolutionary leader. He led a modest and virtuous life in Paris until he was executed for conspiracy.

Let’s return to our problem. The media warned of a backlash after the hourly minimum wage went up 16.4 percent from the beginning of this year to 7,530 won ($6.60). The progressive aides of the Blue House and bureaucrats disavowed the economic theory that demand (jobs) falls on a rise in prices (wages). The same team now proposes to cut a tax to bring down car prices and stimulate consumption. Their actions seem to have no logic.

They are confounded by the threat of collective action from self-employed businesses and other small shopkeepers. They tried pinning the blame for their financial woes on landlords, franchisers, and credit card companies, saying they were exploiting merchants. The convenience store franchisers suddenly find themselves in the position of the French grain traders of the early 20th century. If rent prices, franchise contracts, and credit card commissions were problematic, they should have been addressed before authorities pushed up the minimum wage. There may be some in the policymaking team devising a state-administered convenience store headquarters. The peak of regulation is direct control.

Bread price control and hikes in the minimum wage were meant to help people. But good intentions do not always lead to benign results. In his book “Doing Good Better: How Effective Altruism Can Help You Help Others,” Oxford University professor William MacAskill cites examples in international aid programs in Africa that have resulted in undesired or even harmful outcomes. He recommends application of the head and the heart — in other words, practical, research- and data-driven approaches.
JoongAng Sunday, July 21-22, Page 34
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