firmly in place has been confirmed through an abundance of historical evidence.
Has low growth of the Korean economy been structurized?
When it comes to the economy, the results tell. The Participatory Government has posted too low economic growth rates of 3.1% and 4.6% since it took office. In addition, this year's economic growth rate, despite the regime's firm resolution to concentrate on the economy, is expected to hover at merely 4%. The problem is not in the figure itself, but in the fact that the fear "Is low growth structurized?" is being realized today. The Korean economy still has a long way to go as a 'young economy'. The 'structurized low growth' means that the economy can hardly get out of the ‘M'-shaped stagnation.
To see the economy from the perspective of production function, the economic growth rate depends on factor input and productivity. In other words, more labor and capital input, and higher productivity through technical innovation altogether leads to faster economic growth. Yet, since factor input and technical innovation depend on "people's economic mentality, future prospect, coherence in economic institution, and government's economic management to minimize uncertainty", it is safe to say that the economic growth relies on ‘institutional factors' or abilities to utilize physical resources, that is ‘software'. The recent Korean economy in recession is believed to be deeply related to institutional factors since it is not likely that hardware factors in the Korean economy changed all of sudden. In short, the recent low growth is largely ascribed to ‘failure in economic management'. In the sense, unless the failure factors are removed, the Korean economy will sink more into the swamp of ‘structurized low growth'.
The structural factors of low growth in terms of quality since the participatory
government took power can be summarized to be 7 as follows.
First, nonobjective sense of reality. The heritage from the Kim Dae-jung regime was not favorable at all to the Participatory Government. The declaration of ‘early escape from IMF crisis' by the Kim Dae-jung regime led to the wrongly-designed neglect of structural reform, and its excessive efforts for economic recovery gave rise to diverse side effects such as credit delinquents and short-term capital floating. As seen in these, the Participatory Government got off to a calm 'risky' start, but it failed to see the crisis as it was due to lack of a sense of reality. Instead, it came up with blueprints of well-balanced national development and Northeast Asia's financial hub. It went so far as to seem to have regarded the economy to roll over by itself. The regime should have given companies' structural reform a boost for higher competitiveness and strived to convert floating fund into industrial fund through more active investment. Then, it could have made huge difference.
Second, the national policy putting priority on distribution. The Participatory Government has stressed distribution for social unification and higher equity, and presented the theory of "virtuous circulation of growth and distribution". However, unless income distribution starts from extremely unfair condition, even better distribution cannot expedite growth. Thus, the causality that better income distribution leads to faster growth is nothing more than a vain expectation（hope）lacking positive ground. In fact, low growth has slowed down income distribution by class (Gini's coefficient). In the respect, it is recommended to bring up the growth rate in order for better distribution.
Third. well-balanced regional development. Artificially decentralizing Seoul and the Metropolitan Area can be conducive to narrower regional gap in the short run. Yet, it remains to be seen whether physically bridging the regional gap will lead to persistent common growth among regions, since in the worst case scenario it might end up with ‘common low growth'. Another breakthrough is required for balanced development, as there is a good reason why "a low income region remains as it is". Therefore, the regional policy should be focused on promoting growth of low income regions for their independence rather than on restrictions on high income regions.
Fourth, a road map for market reform. The Participatory Government has concentrated on stricter regulations, such as equity investment limitation, rather than on infrastructure for market rules, since it deemed that fair market order could be kept only by removing fouls and irregularities of Chaebol. In fact, the opposite is the case. In other words, the market rules are executed as legalism is established through reform and the government-market relations are normalized, enterprises corrupted with irregularities and fouls will get out of business through competition. In the sense, the market reform road map, as a core of the anti-Chaebol policy, has a switched cause and effect. The Participatory Government's anti-Chaebol policy only centered on regulations gave rise to many side effects, such as inactive 'voluntary conversion' of Chaebol and weaker economic vitality.
Fifth, the theory that workers are the socially weak. The Participatory Government is rooted in the idea that the 'power balance' between the labor and management should be tilted to the labor. Yet, the theory only gave the signal that more concentrated power will get more fruits. The labor movement got more radical, and under the circumstances, voluntary negotiation between the labor and management could not be properly implemented. The socially weak is the underprivilleged class in need of public assistance, not organized workers. In the respect, the "socially weak" theory in the labor-management relations has no point here.
Sixth, incoherent policy. The Participatory Government has externally insisted on market-oriented principle but internally failed to give up on the European 'social democracy. Therefore, it has strived to put together things, that couldn't stand together, through social agreement and compromise. The shareholder-centered view, labor-management co-determination, and atypical worker-management compromise cannot coexist. Too emphasis on compromise and social agreement only 'politicized' economic management, worsening the economic uncertainty.
Seventh, predominance of political logic over economic logic. Privatization of public enterprises actually drew to a close when the Participatory Government came to power. This was foreseen in the so-called ‘Review Theory' at its outset. The review theory has "public reform by creating a favorable condition and social agreement" at its core. In this case, social agreement actually refers to 'labor union's approval'. As seen above, the regime drifted about more on political logic of social agreement than on economic logic.
The recent low growth is ascribed to weak investment in macroscopic terms, and to business inefficiency in microscopic terms. Yet, this only explains what it looks today. There is another truth behind it. The recent low growth seen today is deeply rooted in the Participatory Government's failure in its policy. In short, the low growth resulted from a series of policies taking governmental intervention in the market for granted.
History shows that the combination of ‘big market-small government' can lead to more thriving economy, allowing potential of economic subjects to be displayed the most. This is also supported by the depressed economy in the west European nations that have insisted on social democracy and higher equity. In this regard, in order for low growth not to be structurized. it is advisable to learn a lesson from the policy failure over the last 2 years. "Design-oriented view, idealism and romanticism" should be precluded from economic management. Besides, the fact should not be forgotten that equity and paternalism look warm but ultimately lead to poverty. Unless the current administrative direction is changed by the roots, any technical effort for higher potential growth will be limited in the end. The Korean economy is too young to see structurized low growth.
Dong Keun Cho (Economic professor of Myongji University, Head of Market Economy
Institution Center, Citizens United for Better Society)