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President Lee Myung-bak often speaks about an economic crisis on official occasions. Indeed, the country confronts economic troubles at home and abroad, such as the fallout from price hikes in imported raw materials and confusion in the international financial market stemming from the U.S. subprime mortgage crisis. It's not beyond reason under these circumstances for the president to sound a wake-up call to economic bureaucrats. However, there is ample cause for concern.
For the chief executive to give the impression as though the economic crisis was already upon us, making it a fait accompli through frequent public remarks, may bring about unintended results. An economic crisis can be ignited not just by worsening economic fundamentals but also by a psychological crash on the part of the key economic players. If former president Roh Moo-hyun invited public distrust of authorities on his own by ignoring academic and press warnings of difficult economic circumstances, President Lee, one fears, is going the opposite way by responding too sensitively and thereby aggravating the problem.
The presidential remarks about prices also cause concerns. In a briefing from the Ministry of Knowledge Economy on Monday, he issued an abrupt instruction to monitor the prices of 50 daily necessities, baffling the ministries concerned. The directive was reminiscent of the price measures the authoritarian government took in the 1970s, with problems too serious to be dismissed as a result of the new president's concern about the burden ordinary citizens suffer. Monitoring the price of noodles and public bath charges by the authorities may succeed in short-term price index management, but it cannot halt the overall pressure. What's more, it will eventually cause bigger problems by distorting the market price structure. Creating the image of a hands-on president is all very well, but it can be taken too far.
The display of such uncertainty in President Lee's economic policy in the initial period reflects a dilemma between growth (economic uplift) and stability (crisis management). Lee, who won the presidential election promising to be an "economic president" and bring ˇ°recovery", pledged to achieve an average annual economic growth of 7 percent during his five-year tenure. As it looks almost certain that this year's growth will fall far short of the targeted 6 percent, however, all the available resources are concentrated on boosting growth. For example, policy authorities, despite the likelihood that the weakening of the won will make price fluctuations worse, appear tacitly to accept the sudden weakening of the won for the sake of more growth through increased exports. They are apparently paying no attention to the factors that weakened the won, while giving subsidies to the export industry and major corporations, transferring the costs to industries aimed at the domestic market and small and medium-sized businesses. Now prices are going up as a result, the authorities are trying to keep them down by the dubious expedient of direct government price controls.
Meanwhile, the government is being too assertive in matters that are of interest only to an extremely small number of big corporations, like ending the separation of financial and non-financial industries, deregulation of holding companies and ways of protecting management rights. Perhaps because the government is too keen to boost investment by large corporations in order to stimulate the economy, it seems to overlook the market distortion, concentration of economic power and a possible financial crisis that such indiscreet deregulation can cause.
And while the government has vowed to come down hard on illegal strikes, it has said nothing about unlawful actions by big business. The rule of law, the basic framework needed for long-term growth of a capitalist economy, seems to easily jettisoned for the sake of short-term economic invigoration.
Whatever the reasons, the Korean economy does confront major difficulties. Lee, who has promised economic recovery, will be impatient. But he must not forget that an unreasonable economic management achieved by an obsession with short-term results will eventually exact a price. With all his calls for creative pragmatism, he must clearly distinguish what the government must do from what it must leave undone, and what the government can do from what it cannot. Running a country is not the same as running a company. To go further, we need to go a little more slowly.
This column was contributed by former Seoul National University president Chung Un-chan.
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