The term "New Deal" evokes the Hoover Dam and Tennessee Valley Authority projects, impressive sights for any visitors to the U.S. We make the association largely because our politicians have been using the term to package civil works programs such as the four-rivers project and in propaganda for other investment initiatives. The original New Deal, however, was a painful measure aimed at bringing economic recovery and turning the country into a world power; it was a revolutionary project that extended to social reform. The U.S., a newly developing country that could hardly be considered a competitor to European nations, changed its entire system of management during the Great Depression.
We must correct our illusions about the New Deal. The fantasy that President Roosevelt achieved economic success is problematic. In fact, assessment of the New Deal changes with the times. For example, Ronald Reagan rose from third-tier actor to successful politician while criticizing the TVA project, using its failure as kindling to stir up his supporters. If rated for its effectiveness in stimulating the economy, the New Deal was unsuccessful, in large part because of an inconsistent monetary policy of relaxing and tightening up money supply.
Ben Bernanke, the chairman of the U.S. Federal Reserve, says he has studied the failures of the New Deal in depth, and has consistently lowered interest rates to free up money supply. With Christina Romer, an economist with similar views, having been appointed as head of the Council of Economic Advisers of the White House, it appears that the Obama administration is attempting to avoid the mistakes made by Roosevelt.
Using civil works projects to create jobs, distributing food stamps, and protecting workers' rights are now thought to have had more of a political effect than an economic one. It is widely believed among economists that ultimately the biggest contributor to the American economy after more than 10 years of depression was World War II, not the New Deal. The war brought an economic boom for American manufacturers.
Considering the various assessments of the original New Deal, it would seem Korea's president is taking a big risk by trying so hard to steer the ship from the bow, increasing fiscal spending and enabling the early exercise of budgets for various civil works based on the belief that such measures will revive the economy fast. If the road to economic recovery turns out to be a long one, propagating this rosy picture of the New Deal will result in even bigger despair and disappointment.
The president must already contend with such a possibility given his promise of economic growth of 7 percent and the KOSPI reaching 3,000. Instead, perhaps he should promote projects as part of a defensive strategy, one needed to prevent further downturns in the economy.
Another fantasy surrounding the New Deal is the belief that bigger government in times of depression is a good solution, a belief that has been the view of many government officials lately.
The America of Roosevelt's time and today's Korea are in totally different situations. Back then, America was very much in a laissez-faire state of affairs, even in comparison with the U.S. today. There was no control against stock price manipulation and no supervision of fraud. Even in cases of obvious price-fixing, tax evasion, or embezzlement, no legal grounds existed for penalties. Labor rights were not protected by law, and people in poverty suffered famine-like conditions, receiving no aid from the government. It was near-anarchy by today's standard. Supporters of the New Deal decided measures were required to rein in individual and corporate indulgence and greed and therefore believed in the increase of governmental involvement and power.
In contrast, today's Korea is in the opposite situation. Its centralized power structure has lasted thousands of years. Even the economic development of the past 50 years was government-led. Most of the power is in the hands of government, and ex-government officials-turned-CEOs of public corporations. The abundance of rules and regulations kill the enthusiasm of businessmen. Therefore, no matter how bad the current depression, the direction we must pursue is not bigger government but smaller. We must focus on the big picture to rebuild the nation, just as the original New Deal aimed to do, rather than borrowing only the name.
By Chosun Ilbo columnist Song Hee-young