Price populism

Yi Jung-jae
The author is a columnist of the JoongAng Ilbo.

You are a leftist if you believe wealth distribution can be achieved through price controls. You think pushing down prices is justifiable for the right reason. The Moon Jae-in administration is eager to play hardball with prices — using force, if necessary — regardless of the toll on the economy. It has pushed the price campaign too far.

Evidence One: 55 franchise operators ranging from child playrooms to fast-food delivery shops filed a collective suit with the Constitutional Court last week, challenging the legality of an administrative act forcing franchises to disclose the details of their costs under a Fair Trade Commission (FTC) campaign to enforce “fair prices” for franchisees. They must report the costs of their products and services by next month. Franchises unfamiliar with the new requirement are putting off the work to watch what others do.

The administrative order is ambiguous as it requires companies to disclose their “appropriate wholesale prices.” The industry has taken the issue to the Constitutional Court claiming it is an invasion of their property rights. They claim their competitiveness will be hurt if they expose information on prices that reflect their marketing strategies. “Limiting property rights through the administrative order violates the principles of the Constitution,” said one industry source. “They would not have gone as far as waging a court battle with the FTC if it was not a life-and-death matter. The move will only hurt the smaller franchise operators and fan collusive acts in the industry. The jobs of 1.4 million in the franchise industry are at risk.” The franchise association did not disclose the details of its petition, fearing retaliatory actions from the anti-trust institution.

Evidence Two: On March 5, the Ministry of Science and ICT disapproved SK Telecom’s outline on 5G service packages, pointing to an overpriced package that costs more than 70,000 won ($62). The company disclosed in a press statement that the ministry demanded the leading wireless player come up with a price in the 30,000-won range. The statement was more or less a “warning” to the other two players in the industry. The industry may not be able to introduce 5G-based mobile networks for smartphones within the first half of the year as planned if it has to fit next-generation wireless services into 4G or lower-tier network price packages.

Korea may end up like Israel. Six years ago, Israel forced wireless carriers to cut the prices of their services. That instance of state meddling ate into the companies’ profits, investments, and later quality and speed to make the country bottom out in terms of 4G proliferation among members of the Organization for Economic Cooperation and Development. 5G services are expected to power the fourth industrial revolution. If the Korean government insists on a cut-rate price policy, Korea could lose its leadership in 5G telecommunications.

Evidence Three: In this year’s policy outline, the Financial Services Commission called for a regulatory action to lower insurance premiums by requiring disclosure of costs in servicing insurance products. The action is a typical bit of financial populism and it drew strong protest from the insurance industry, which warned that the move would end up disadvantaging consumers as the companies would inevitably have to reduce coverage to make ends meet.

The financial authority also forced reductions in credit card service fees last year and lenders’ loan rates this year. The reckless cut in credit card fees generated side effects: Hyundai Motor and Kia Motors threatened to cut ties with credit card issuers that did not lower rates, and wireless carriers, airlines and retail chains followed suit. The conflict over credit card fees reduced consumer benefits. The government relented, saying the issue should be solved among market players.

Governments are often tempted to control prices. Few succeed due to poor balancing of equality and efficacy. An excess on one side would cost efficiency and a lack of it would cost equality. A wise leftist should try to achieve equality without impairing efficacy. The government must ask itself whether it has been wise. It needs to first shake out of its obsession with playing hard with prices.

JoongAng Ilbo, March 20, Page 30