Neo-liberalism has become an epithet in Korea. Misconceptions about it have been used by populists to push destructive policies (e.g., price controls on the price of chicken, barriers to entry in different fields for large businesses, forced "mutual growth" for large and small companies) that harm the interests of consumers and reduce economic growth.

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Neo-liberalism, demonized word

Will it be long before Korea's monsoon season is blamed on "neo-liberalism?" Seems far-fetched, but just wait. Just about every ill in Korean society is now being blamed on "neo-liberalism."

For example, after several KAIST students committed suicide last spring, flyers posted around the campus connected the tragedy to "neo-liberalistic" reforms. Students are certainly welcome to their views of reform initiatives pursued by KAIST president Suh Nam-pyo, but to blame "neo-liberalism" makes no sense.

Students, rather dramatically at solemn candle-light protests, denounce neo-liberalism when they call for tuition cuts. Desperate for getting a free lunch at the expense of taxpayers, they bring out the whipping boy of neo-liberalism to make their case and to disarm opponents.

The demonization of "neo-liberalism" has even been blamed for the reported widening gap between the rich and poor. These critics insist that neo-liberalism has made the have-nots poorer and the haves much richer. This complaint encourages people to blame their situations on sinister forces allegedly conspiring against them.

Neo-liberalism is constantly getting denounced as being cold-blooded competition that crushes the poor and weak. Their flimsy premises lead to a faulty conclusion: that is, they say, competition must be curtailed in order to protect the poor and weak.

This society was polarized before anyone ever heard of neo-liberalism. If there is new polarization then it would make more sense to recognize the reality of changing times. Changing production structures, advanced technology and the international division of labor have made things better, but also more competitive. It is that competition that makes things better, we will harm ourselves by trying to shield the nation from it.

The misperception of competition (or, "neo-liberalism") tends to produce damaging policies. Who most benefits when competition is restricted? "Neo-liberalistic" critics will say that the "socially weak" benefit. But they are now the "untouchables" in this society, as "socially weak" has now become a magic phrase uttered by pure people. Politicians who are desperate to cling to power can't ignore motivated people whose loud voices make them appear to a larger group then they really are. That's how populist policies are created.

The latest regulation on so-called "super supermarkets" is a good example. The ban was ostensibly intended to protect mom-and-pop stores from being overrun by large retail chains. What is celebrated is the protection of mom-and-pop stores and the restriction on despised large companies.

Whenever policymakers create regulations or laws, there are unintended consequences they'd prefer to ignore. In this case: 1) The interests of consumers are, once again, being trampled upon. 2) Protecting retail businesses will result in them being less competitive and remaining underdeveloped. 3) The real beneficiaries will be mid-sized supermarket owners rather than family businesses.

A similar case is the ban on large retail chains selling fried chicken for 5,000 won. Citizens, including many low-income people, lined up in long queues to purchase discounted chicken. Instead of remaining neutral, authorities chose to protect competitors rather than competition. This type of protection hurts consumers in the short-term and allows inefficient distribution channels to remain in place.

Who speaks for the consumer?

Another bad idea that became policy: prohibiting large companies from even entering some business areas in order to designate some businesses for SMEs (small and mid-sized enterprises). The scheme contradicts itself. If SMEs can do better in a certain sector then there is no need for government intervention. Large companies would be forced out of the market without any government intervention. This is government-mandated inefficiency forced onto the economy that ignores the interests of consumers.

Populism means politics being dictated by interest groups, not by economic principles. Economic populism to protect "socially weak" people may make some people feel good, but such policies have unintended consequences that harm consumers and force inefficiency on the economy. When the negative consequences from populism become so clear that even intellectuals and politicians can't ignore them then "neo-liberalistic" critics will probably also blame the bad results on "neo-liberalism."

Cho Dong-keun, professor at Myongji University and chairman of the Korea Hayek Society

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