A critical discrepancy
The author is the CEO of JoongAng Designworks.
Antitrust issues, externalities, public goods and information asymmetry have long plagued the mainstream economists of the neoclassical school. The market’s failures and imperfections baffled the textbook theories championing the work of invisible hands in the market. Those malfunctions were treated as examples of peripheral market failures by microeconomics which theorized free competition and price adjustment in an elaborate numerical methodology. Such marginal concepts took the center stage of academia and government policies after the Wall Street-triggered financial meltdown in 2008 brought disgrace to neoliberalism and gave more clout to market interventionists to institutionalize security against risks and uncertainties.
The 20 months of J-nomics, the nickname for the economic policy of President Moon Jae-in, raised the scary awareness that government failure can be more harmful to the economy than market failure. Looking through government regulation cases compiled by a private research institute, I could not agree more with the thoughts of American theorist John Ikenberry.
He argues that a powerful state believes the government can solve all kinds of the problems in the market because it does not trust the market. He also says that such a government is chained to its past policy commitments. Although it looks strong, that kind of government often falls under the influence of certain interest groups. His comments can apply to the Moon Jae-in administration in its obsessive pursuit of so-called income-led growth, a phasing out of nuclear power, the creation of 810,000 jobs in the public sector, a drive to lift our hourly minimum wage to 10,000 won ($8.90), a 52-hour workweek, slogans about economic fairness, sharing of profits, a vow to crack down on past wrongdoings, a surrender to the militant Korean Confederation of Trade Unions (KCTU), and a complete upgrade of part-time and contract workers to permanent employee status. Ikenberry advises that the real strength of the government comes from the courage to retract wrongful intervention and trust the market to work its problems out.
Policy failures also deepen social divisions. The flood of generous policies without persuasion, explanation or thorough preparation only provoked the socially weak. The downtown Gwanghwamun Plaza and streets are dominated by various different rally groups every weekend. The spike in the minimum wage has enraged both shopkeepers and their workers. The people are raging against the government for making their lives more difficult rather than improving them as it promised.
Park Joon, a scholar of social conflict, estimates the financial toll from social divisions and resistance at over 200 trillion won ($178.6 billion). That sum is tantamount to half of our government’s total fiscal spending last year and Samsung Electronics’ total revenue in 2018. Korea is sixth in the social conflict management index among 37 members of the Organization for Economic Cooperation and Development (OECD), even ahead of Greece, which came close to national bankruptcy. Korea has become a republic of conflict. A recent study claimed that if Korea can lower social conflict costs to the level of Sweden, which is third from the bottom on the list, our per capita income could increase by 13 percent, or $3,000.
Entering his third year, President Moon is passing the mid-point in his five-year term. There is not much time left. If he does not radically change his ways — morality-led politics and amateurish policies under the pretext of goodwill — the country can face a number of cliffs in jobs, growth, population and so on. He must decide whether he wants to join the list of failed presidents or retire in honor.
The country has suffered a lot from the government’s numerous policy experiments. After the minimum wage went up by 16.4 percent a year ago, the government had to come up with as many as 13 measures until Dec. 26 to make up for the harm caused. If the move required so much extra work and money, the government should have adjusted or stopped the hike. The drastic cutback in our workweek to 52 hours also added confusion. The government had to allow a six-month grace period and another three-month extension. Why did it have to rush the measure when the consequences were so obvious?
In the book “Capitalism 4.0,” experts advise a third way. An economic crisis stems not just from market and government failures, but from discrepancies between the market and government. A market can easily be swayed by greedy and monopolistic power. A government can become rigid and self-righteous. Our government must stop its useless tug-of-war with the market. Deregulation and revving up of the corporate sector are not compromises with chaebol or economic democratization. Moderation of the pace of our minimum wage increase and reduction in working hours similarly do not impair the inclusive growth concept of J-nomics.
JoongAng Ilbo, Jan. 2, Page 27