Opinion Leaders` Digest 03-14
Date : May 6, 2003
Author : KIM Young-Yong, Professor, Dept of Economics, Chonnam University yykim@chonnam.chon nam.ac.kr

Buy Brazil, Sell Korea

  The focus of the global attention is on the Brazilian economic reform spearheaded by Luiz Inacio Lula da Silva who took office as President in January. Lula`s administration put most emphasis on bridging the gap between the haves and have-nots, but at the outset his attempt to reduce poverty and increase employment chances were supposed to be gloomy.

Lula, as a leftist president, created such a great stir in the Brazil that the people called his bold policy "Lula Shock". Despite his devoted supporters` defiance, Lula insisted on implementing his reform policy in accordance with the market economy. Lula carried out a drastic reform of the social security system, the tax system, balancing budget and implementing tight money policy. All these were quite different from the old policies that had curried favor with popular opinion.

His effort to recreate the conditions for a normal functioning of the financial and capital markets infused vitality into the Brazilian economy. Brazil was exposed to default about seven months ago, but now its export is on a steady increase and its economy is put on the stability track at a rapid speed. Investors from Wall Street started to buy Brazilian government bonds. An encouraging phenomenon of ``Buy Brazil`` is happening. "Lula shock" has changed into "Lula effect".

Oppositions and criticisms against Lula for breaching promises on public commitments made during the campaign period, imply that switching the policy and introducing a new concept of market economy into the country were not easy. However, he dared to scrap his campaign pledges with the belief that promoting the people`s welfare and life are the most important. His courage and faith that made it possible to brave his new policy out cannot be praised too highly.

Roh Moo-hyun took office as the president of South Korea two and half months later than Lula. Roh`s public promises during the campaign period bore some resemblance to those of Lula. A few of them were bridging the gap between the rich and the poor through fair distribution, carrying out a drastic reform of business conglomerates, promoting fair competition and market reform.
Roh`s remarks do not deviate much from the frame of his commitments during the campaign. However, the problem is the ends and means of his policy are not clear. Roh`s economic policy is causing social and economic concern rather than stability. It serves unfavorably as an epicenter of apprehensions.

It is not necessary to predict a policy is as right or wrong as it is leftist or rightist. Looking closely into its basic concept makes things clear. Let me shortly look over a few.

Roh had committed to corporate reform in a sustained and consistent way during the campaign period. But he appears now to exercise self- restraint in expressing his policy for equal distribution, for instance.

Virtually, growth and distribution is just like the two sides of a coin. In this perspective, his distribution policy was an unreasonable, thus unfeasible idea. The distribution policy was little short of failure from the very start. Similarly, his administration is emphasizing fair trade or fair competition, but in the long run no government should seek to interfere in or distort the competition order in the market.

Companies cannot compete in the market fairly unless the government stays away from doing special favor for a certain company or companies, or giving them preferential treatment such as a monopoly or an exclusive right. Government intervention does more harm than good to fair trade. For instance, price controls made for public interest or social welfare cannot be justifiable. They only do harm.
In the fair market competition system, it is right to regard a high rate of market share by one or several companies as the pure result of the company`s endeavor to promote its efficiency of production. A company`s superior market share is possible only when the company supplies goods or services that are higher in quality but lower in price. Therefore, a dominant market share by a company cannot be a problem. It is trite to insist that monopoly or oligopoly can be practiced by one or several companies that are dominating the market. That is just impossible in the globalized market system.

In particular, Roh`s idea of market reform is hard to understand. The normal, free market that is not manipulated by the government tends to develop itself toward reducing or eliminating its self-defects on a steady basis. Government direct intervention to regulate the market`s fundamental function of demand and supply thwarts natural evolution of the market, inevitably causing one side of the concerned parties to benefit more from it.

This problem was clearly revealed in the process of dealing with the labor strikes at the Doosan Heavy Industries and Construction and Korea National Railroad. The hard-attained principles of "no work, no pay", or "self-regulated settlement" returned to its original point.
Only three months have passed since the Roh administration was launched, but now is the time to scrutinize the basic direction of its economic policy. No doubt, it is not necessary to follow the model of Lula. Few remember that the falls of South America and socialist states in the latter part of 20th century taught us valuable lessons.

At present, the South Korean economy is confronted with a variety of problems. Not a few experts say that we are on the verge of economic recession. The South Korean economy is experiencing duplicate problems due to the coincident nuclear issues of the North. The North Korean nuclear problem is impossible to solve at our own discretions. Our ability to deal with the issue is limited. The serious youth unemployment coming to the fore recently results from the de-industrialization and rigidity in the labor market. Problems brought about by temporary employment also originate from the same reason.

It is hoped that the Roh administration will promptly come up with effective, practical measures to vitalize the sluggish economy on a healthy basis so the "Roh Moo-hyun effect" will soon replace the "Roh Moo-hyun shock".

¡á(June 20, 2003. This article was published in and quoted from The Korea Times dated May 22, 2003. This was translated in English by The Korea Times from the author`s article which was originally published on CFE home page on May 6, 2003)