[Interview] Mimicking neoliberalist policies is a mistake
Kim Geun-tae, the new leader of the ruling Uri Party, has been given the responsibility to rescue the party from its crushing defeat in the May 31 local elections. Kim pointed out the reviving of economic opportunities for the socially underprivileged as the party’s foremost priority. Professor Kim Sang-jo of Hansung University and Sung Han-yong from the Hankyoreh sat down with Mr. Kim to hear his thoughts on the economy, among other things. The interview was conducted June 18 at Uri Party headquarters in Seoul. Q: Many see the reason behind the Uri’s defeat in the May 31 local elections as its failure in managing the nation’s economy. Would you give us your view on the current administration’s economic policy? A: It’s hard to say it was a success, but the administration should be credited for some of its achievements. For example, it severed the age-old ties of favoritism between the business tycoons and the government, and enhanced transparency and trust in the nation’s economic operation. It also effectively nipped the negative economic impact in the bud by declaring that it would not artificially stimulate the economy. However, it failed in a couple of things. Firstly, its neoliberal policy. The neoliberalist economic approach has worsened the nation’s income gap by generating low investment, low growth and low employment. The government and the Uri Party, however, repeatedly insisted that all the economic indicators were "normal" when there has been growing unemployment among young adults and over-employment in the self-employed sector. This incurred the public’s mistrust and dissatisfaction. The government also failed in preventing real-estate speculation. Q: Was it due to excessive reform or lack of reform?A: Both. The excess side of the reform enhanced the market efficiency. The market, by nature, tends to move toward monopoly. However, the government officials didn’t familiarize themselves with the competitiveness of the market. This was the lacking side. Q: If the government wants to increase investment, it needs to draw cooperation from the so-called chaebol or business conglomerates. But they have the tendency for monopoly and oligopoly. It seems hard to be able to strike a balance between the firms. A: The government should work toward that. The chaebol is a historical product of Korea’s economic development process. It’s also the result of many individuals’ sacrifice and devotion. The chaebol groups, however, are lacking in social responsibility; [they don’t] feel that they are entrusted to the public. It’s necessary to demand social responsibility from the chaebeol groups and institutionalize it. On the other hand, we need to guarantee their right to manage their business. In doing so, we should caution against approaching the issue with a simple measure of deregulation or abolishment of investment limits. Q: In early 1998, you demanded a more democratic market economy system. In that sense, how would you rate the former Kim Dae-jung and current Roh Moo-hyun administrations? A: My demand for a democratic market economy was based on the 119th article of the Constitution. The problem is that most of South Korea’s policymakers and policy advisors are educated in the United States. Inbreeding results in recessive traits. They have the knowledge of neoliberalism, however they lack real experience. In uncritically accepting the theory, they have caused considerable policy failures. Q: What do you think is the reason behind the lagging standard of living of the underprivileged? A: Firstly, low investment and low growth have resulted in low employment of these individuals. Secondly, real-estate speculation and exorbitant private education fees have led to tension and pain in their life. It required a special commitment to tackle the issues, which the government lacked. Q: Ideally, the medium- and small-sized business should be the driving force for the nation’s economic growth. Increasing short-term investment, however, takes the participation of the large businesses. A: The big conglomerates and the small- and medium-sized businesses have been unable to forge a constructive relationship so far. Here, the government’s role is important. The government should actively engage its policies in supporting the creation of a symbiotic relationship between the two sectors. It needs to provide encouragement to the chaebol and business conglomerates, as well. The government should fund more research and development. On the other hand, when the chaebol conglomerates accept their social responsibility, it is necessary for the government to recognize them. Q: The real-estate issue is not solely an issue of taxation. It has a ripple effect in the rest of the economy. A: This is a difficult issue. It is also where the economic policymakers should think hard. At the end of the day, we should ask whether the overall makeup of the different policies has been effective. In South Korea, finance-centered capitalism, modeled after the United States, is practiced and even imposed. In a sense, this has caused an increase in private lending, retail financing, and the real-estate bubble. I am critical of it. In addition, we also see a less-than-successful outcome in the government’s effort to create balanced regional development and prevent the population from concentrating in regions with good private education. Some point out that all this has contributed to real-estate speculation, and the government and the Uri Party should be duly responsible for such criticism. Q: You said that further economic growth is possible by a combination of policies. Do you have any specific plan? A: It is estimated that South Korea has some 80 trillion won (80 billion USD) in spare cash. The nation uses about 60 percent of its entire manpower capacity. That means that the nation has an adequate amount of capital and labor force [to see further economic growth]. After the Asian financial crisis, the banking sector’s share in the entire nation’s economy has been reduced to 12 percent. Here is where the government needs to be creative and think intelligently. We are still a developing economy. We also need to prepare for the reunification of the peninsula. The mere 3 to 4 percent annual economic growth is a strain on the nation. Although we oppose monopoly in economic development, we are faced with very important issues, including how the nation and the government can create the additional economic growth and how we can combine different policies to achieve our goal. Q: Is it because of a lack of thinking that the Roh administration has not achieved the additional economic growth that you mentioned? A: The government has simply followed the American neoliberalist model in its economic policy platform and directions, without good understanding of what neoliberalism is about. I believe this is behind its failure. Q: You mean, lack of thinking? A: Lack of insight and prudence. Q: President Roh Moo-hyun has a similar economic philosophy as yours. But his actual policy turned out to differ from it. A: It pretty much depends on the ability of economic advisors to propose, make, and implement the policy, but this is where the government is absolutely lacking. It is also lacking in concretizing the policy platform and direction. This is because the president is surrounded mainly by aides who come from economic backgrounds only and lack other experience. Q: The blame for the lack of specialization and expertise fall both on the government and the Uri party, but some of them should be also attributed to the academic community. When President Roh launched his administration, strangely he chose economic bureaucrats not perceived as reform-minded and who don’t share his philosophy. A: There was a lack of preparation and there was also fear. The president, progressive and forward-looking, felt that he should hire economic bureaucrats to gain wider public support. But when he came to face specific and complicated issues, he became more and more dependent upon them, because these are the people who provide him with solutions and alternatives. Q: What is the equation between the welfare budget and taxes? A: We need to earmark more of the budget for welfare. Without national harmony and integration of the different sectors of society, it is difficult to become a developed country. Financing is an issue. There are demands for a "small government." However, if Roh Moo-hyun cannot manage the nation with a small government, then he should explain this to the public so that he can earn their support. Otherwise, it is realistically impossible to raise the issue of a tax increase. Additional economic growth is necessary in order to create a larger welfare budget. You know, once money gets into people’s pockets, it is not wise to ask them to pay more taxes. However, if we ask them to pay a 50-percent tax on their additional income, for example, they may be more likely to agree. Q: Increasing tax has never been popular as a policy. At the same time, it is very difficult to ensure its fairness. A: We need to reform the tax system. But, given the conditions the government and Uri Party are in, it is not possible for the government to [push a policy] that can be interpreted by the public as a tax increase. The administration lacks the political power to do so. It is not coincidental that the pro-government Uri Party lost the May local-level elections. It provoked antipathy when it hinted at the possibility of a tax increase. Although tax reform is a reasonable thing to do, there are people who perceive it as burdensome. It is possible to talk about this reform among experts and at the policy brainstorming stage, but it is very difficult to actually implement it. Q: As for the ongoing free trade agreement [FTA] negotiation with the United States, the National Assembly, especially [assembly members from the] Uri Party, should be able to set a clear limit of concessions so that it can earn the public’s support. A: Even if Korean society progresses, if its members don’t fairly share the burden along the way, the FTA won’t turn out to be a blessing. Particularly for those who will have to bear the burden of the FTA, the agreement will mean a disaster to them. The National Assembly and the Uri Party should put in some serious thinking on how to relieve the burden of these people and make up their loss. Q: The Uri Party tried to become a nationwide party by trying to gain regionally balanced support. But it failed, as demonstrated in the elections. There are some who suggest that Uri should acknowledge its failure and make a new start. A: The Uri Party utterly failed in the southwestern and central regions, where its previous supporters turned their backs against it. Although it saw some increase in support in the southeastern region, it wasn’t enough to win the elections. This is a painful lesson for us. But I disagree in looking at the issue only from the theoretical, political-science view. There are areas of reform where Uri actually made contributions. Yet it is right to say that Uri’s vision is to become a truly national party that receives balanced regional support. Q: How would you go about doing it? A: This is something that we are agonizing over now. Q: Do you oppose President Roh’s leaving the Uri Party? A: I oppose it. His leaving the party denies the will of the people who voted for him so that he could engage in responsible politics. It is also to deny party politics, which is at the core of practicing responsible politics.
