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When the economy becomes politics

Published: 14 Jan. 2026, 00:01

Park Sun-young

The author is a professor of economics at Dongguk University.

The expansion of medical school quotas and the controversy surrounding Tada, a platform-based mobility service, appear at first glance to be unrelated issues. Yet, both stalled in strikingly similar ways. In each case, the policy rationale was clear and the broader social benefits were widely acknowledged. Even so, conflict intensified and decisions were delayed or rolled back.

President Lee Jae Myung takes his seat at the public briefing on the 2026 economic growth strategy at the Blue House in central Seoul on Jan. 9. From left are Prime Minister Kim Min-seok, President Lee, Deputy Prime Minister and Finance Minister Koo Yun-cheol and Kim Ki-moon, chairman of the Korea Federation of SMEs. The slogan “The First Year of Korea’s Major Economic Leap Forward” is displayed in the background. [JOINT PRESS CORPS]

This was no coincidence. In most cases, policy gridlock is not caused by disagreement over whether a policy is right or wrong, but by the structure of conflict surrounding it. Most reform policies involve questions of distribution. The greater the overall welfare gains, the more likely it is that certain groups will face short-term losses. When these losses are neither fully recognized nor adequately buffered at the design stage, reform efforts almost invariably come to a halt.

A merchant watches President Lee Jae Myung’s public briefing on the economic growth strategy on Jan. 9 at Gyeongdong Market in Dongdaemun District, eastern Seoul. [NEWS1]

Korea has not always failed to overcome such deadlock. The structural reforms implemented during the Asian financial crisis stand out as a rare success. That outcome rested on three conditions. First, losses were not confined to a specific group but were perceived as a shared social burden, easing distributive conflict. Second, the sense of crisis eliminated the option of delay, forcing political time and policy time to converge. Third, external constraints imposed by the IMF program institutionalized trust that commitments would not be reversed. When all three conditions aligned, Korea was able to push through some of its most politically difficult reforms.

That experience offers three design principles for successful reform. The first is to embed compensation and buffering mechanisms that absorb losses. Rather than trying to overpower opposition, policymakers should incorporate the rational basis for resistance into policy design. Transition support and compensation schemes can help ease distributive tensions.

The second principle is to break execution into stages and sequence reforms carefully. Reforms that attempt to do everything at once tend to fail. A more effective approach is to signal a change in direction within the first 100 days through visible measures, demonstrate that institutions are functioning within a year and gradually convert core rules into structures that are difficult to reverse over a three-year period. This phased execution allows interests to be adjusted over time.

The third principle is to institutionalize trust. Skepticism is deeply ingrained: what is promised today may be overturned after a change in administration and commitments are often assumed to be temporary. To counter this, policymakers need rules that operate according to predefined criteria, much like automatic stabilizers, as well as independent evaluation and transparent data disclosure. These mechanisms provide the minimum level of confidence that commitments will be upheld.

Viewed through this lens, the government’s recently announced 2026 economic growth strategy reflects a high degree of completeness in its diagnosis and policy mix. It comes close to the best design an administration can offer. It also aligns closely with the emphasis placed by Bank of Korea Gov. Rhee Chang-yong in his New Year's message on diversifying growth engines and sustaining structural transformation through the development of new industries.

What remains absent from the strategy are politically sensitive structural reforms that fall squarely within the realm of politics, where competing interests must be reconciled and responsibility for choices must be borne. These reforms remain essential tasks if Korea is to overcome structural low growth.

At this point, even the nature of what are commonly labeled as “problems” comes into clearer view. Housing, low birthrates, youth unemployment and punishing educational competition are often discussed as separate policy failures. In reality, they are manifestations of the same underlying structure, one in which resources and opportunities are concentrated along narrow paths and the costs of failure are disproportionately borne by individuals.

Even if housing supply expands, child allowances increase, youth policies multiply or admissions systems are revised, these phenomena will reappear in different forms as long as the underlying structure remains intact.

Rhee Chang-yong, governor of the Bank of Korea, delivers his New Year address at the bank’s headquarters in Jung District, central Seoul, on Jan. 2. [BANK OF KOREA]

What is needed now is not a series of stopgap measures to alleviate symptoms, but a strategic choice to prioritize structural reforms and concentrate capacity on core changes. Regulatory reform offers the greatest spillover effects because it reshapes the rules governing the flow of capital and talent.

Regulatory reform itself consists of multiple layers with very different political difficulties. These range from technical reforms that streamline administrative procedures to industry-promoting reforms that open the door to new sectors and reforms that recalibrate rules long designed to protect entrenched interests. If regulatory reform has so far remained at the technical level, the time has come to move toward industry-promoting changes and the adjustment of privilege-protecting rules.

Compensation and buffering, sequencing and execution and institutionalized trust are the minimum design requirements for policy to enter reality. When sound policies continue to be blocked, the problem is often not that the policy is wrong, but that the design for getting it through is incomplete. It is at that point that policy debate can finally become productive. The question Korea must now ask is not whether a policy is right, but whether the conditions have been designed so that opposition is no longer inevitable.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.