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It was on a day in May 228 that Zhuge Liang (Kongming) bent down and wept after ordering the beheading of Masu. Kongming had wanted to keep Masu, whom he loved like his own son, alive, but he believed that since Masu lost a battle by breaching military discipline, it would compromise his command if Masu lived. This is a famous episode from the ¡°Tales of Three Kingdoms.¡±
Having been faithful to principles throughout his life, Kongming could for once have allowed himself to bend and pardon Masu. After all, didn't Masu breach military discipline only out of patriotism? But Kongmin was right. One exercise of discretion can end up destroying principle.
The economists Kydland and Prescott, in a paper titled "Rules rather than discretion" in 1977, proved that a government, however fair and just, can achieve long-term effective policy only when it abides by the rules. In other words, they proved by economics that Kongming was right. The two were awarded the Nobel Prize in 2004 for a series of studies that followed that paper.
So why principles rather than discretion? It is a question of credibility. All transactions and contracts in the world need credibility between parties. If credibility is low, transactions decline. And transactions are determined by cost. Principles reduce transaction costs, but discretion increases them.
Trains bound for Chuncheon are crowded on weekends but empty on weekdays. Now, an effective way to save costs might seem to start the train on weekdays only when a reasonable number of passengers are on board, at the conductor¡¯s discretion. But that hurts credibility in the form of departure on schedule. That transaction cost causes passengers to avoid the train and eventually reduces proceeds below what they would have been from fixed-time departures.
The question of principle and discretion applies to running a country. The Roman Empire lasted more than 1,000 years, while huge empires were short-lived in the East and Middle East, largely because it established the rule of law. Rome's principle reduced transaction costs. Low transaction costs resulted in the prosperity of the empire through vigorous transactions. In contrast, other empires sent transaction costs spiraling by abusing discretion and eventually ruined themselves.
The area where our country now pays the biggest price from the destruction of principles is in North Korea policy. We have only rarely stuck to principle in inter-Korean dealings, from former president Kim Dae-jung's illegal remittance to the North ahead of the summit to recent debates about shipping rice and fertilizer to the North. Pyongyang, having twigged that the Roh Moo-hyun administration does not insist on the principle of reciprocity, has violated all its promises right up to the missile and nuclear tests last year.
More than a month has elapsed since the deadline under the Feb. 13 agreement to shut down North Korea¡¯s nuclear facilities. Pyongyang must now think that the U.S. administration is weak on principles too. That has further increased the transaction costs with North Korea.
North Korea policy is a question of national importance that transcends political factions and governments. We must establish national principles based on public consensus regardless who is in power. Citizens should punish an administration that violates them for political gain. We must behead Masu and weep. Only then can we reduce the transaction costs with the North.
After many twists and turns, two trains from the South and North cross the armistice line along the Gyeongui and Donghae Lines on Thursday for the first time in half a century. But the test-run is a one-off, with future developments left to the discretion of the authorities in the two Koreas. If the trains are ever to leave on a regular timetable, like the ones to Chuncheon, and run on to Sinuiju and all the way to Siberia, we need a firmer North Korea policy.
This column was contributed by Kim In-kyu, a professor of economics at Hallym University.
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