Incompetence and misjudgment
The author is the editor in chief of the JoongAng Ilbo.
In January 2000, Zimbabwe held a national lottery for anyone with more than 5,000 Zimbabwean dollars ($14) in their bank account. The top prize went to the sitting president Robert Mugabe. The strongman did not just double his pay and the pay of his cabinet but also swallowed up the lottery money for his people. The case was cited as an example of destructive “extractive” institutions in the book “Why Nations Fail: The Origins of Power, Prosperity and Poverty” by Daron Acemoglu, a professor of economics at Massachusetts Institute of Technology, and James A. Robinson, a professor of government at Harvard University.
Since President Moon Jae-in took office in May 2017, his earlier policy chiefs Jang Ha-sung and Kim Soo-hyun, who designed the government hard-line real estate policy, saw their wealth balloon over 1 billion won ($853,000) thanks to sharp appreciation in the value of their homes in southern Seoul. People who had believed in the president’s assurance of controlling the real estate market have been betrayed. How different is the result from the exploitative system in Zimbabwe?
A Gallup Korea poll showed that middle-class with homes in Seoul — not the presumed working class — has emerged as the primary supporters of Moon. Who would hate a liberal administration helping raise their wealth by nearly a million dollars in just two and a half years? Whether they are left or right, anyone with homes in Gangnam, a posh district in southern Seoul, would be grateful for the Moon Jae-in administration. The people outside of Seoul, blue collar workers, and low-income people have turned resentful. The government should be held accountable for the consequences of its regulation-bent real estate policy.
It is hard to comprehend the true identity of this administration. It is either deceitful — as it betrayed common citizens in its sweet promise to deliver fairness, equality and justice — or just shrewd enough to make the rich even richer to broaden its support base. In either case, it should be ashamed.
A society cannot be ethical if unearned income demeans the value of earned income. Public policy that brings about such a result is immoral and denies justice. Being lured into the gambling field, people are under the spell of being rich that discredits the healthy flow of the economy. U.S. politics are heated in the debate over introducing taxes on the rich to ease inequalities ahead of the presidential election, but the government in Korea has been fanning wealth disparities.
In a poll on the community site of Seoul National University students, former President Lee Myung-bak has ascended to the top rank in terms of former presidents. He was credited for protecting the Korean economy from the wave of the global 2008-2009 financial crisis, lowering the jobless rate, and raising national dignity by making Seoul the third host of the G-20 summit. Moon and impeached President Park Geun-hye were at the bottom.
Real estate policy under Lee has also come under the spotlight. During his five-year term, he raised interest rates five times to rein in speculative housing purchases while supplying affordable apartments around Gangnam. He did not allow bailouts even when builders went down from a real estate market slump. Only during his term, housing prices went down.
His predecessor, liberal-minded Roh Moo-hyun, introduced a heavy comprehensive real estate tax, but apartment prices in Gangnam went sky-high. Meanwhile, Park promoted the real estate market to boost economy. She lifted real estate regulations and eased mortgage-backed financing to stimulate growth. Her government even encouraged people to borrow money to buy homes. The biggest mistake of the Moon administration was the price cap on new private apartment offerings. The plan helped the massive liquidity to zero in on the real estate market due to the obvious consequence of a price spike from a shortage of supply. Lee’s policy — more ethical and market-friendly than Moon’s — succeeded.
Land and Transport Minister Kim Hyun-mee continues to lie to the public by claiming that the housing market was stabilizing across the nation. She has taken the people as fools as if they can’t do the math. The median price of an apartment in Seoul that was 606.4 million won two years ago has jumped 45 percent to 880 million won last month. Prices could rocket again when 40 trillion won goes to landlords to compensate them for giving up their land for the third massive suburban development scheduled for next year.
The Moon administration has pitched its policy for its design to help the socially weak. The steep increase in the minimum wage, a cutback in workweek to 52 hours, and public jobs for the socially weak all had benign goals in the beginning — even if they did not work out well. Regardless of the harm, Moon’s major support base stayed loyal as they believed the government was working on their behalf. But the results from the real estate measures showed the government has been pro-rich all along. The powerful Citizens’ Coalition for Economic Justice even demanded a sit-down with the president. The liberal administration finds itself in a hot spot because of its real estate policy.
It should learn a lesson from former President Lee. The government must not fight the market. It must increase the housing supply and cut the transaction tax so that multi-home owners can divest themselves of homes. The government must stop anti-business policies.
JoongAng Ilbo, Dec. 16, Page 35