When a nation’s growth has been fuelled by deficit/credit binge, not organic spending, that is an illusionary growth. As some pointed out, currency devaluation and debt monetization compounded by asset bubbles have created the illusion of economic growth.
If there had not been bailouts, stimulus, and capital inflows as well as global boom and bubbles, Korea wouldn’t have recovered quickly.
While maintaining a robust trade balance, a zombie economy has taken hold. The Korean government has propped up the financial system without overhauling it.
The Korean policy framework predicated on the state-led economic development model imposed both benefits and disadvantages on the economic landscape of Korea. As Korea couldn’t compete based on cost advantage any longer, the Korean government’s excessive interventions have done more harm than good. Yet, those have continued, causing capital misallocation…
Korea has to allow a free enterprise system to efficiently allocate resources in productive capacity. The Korean government has to limit its role to providing a structure and social culture in which entrepreneurship and innovation can flourish on a level playing field, as noted on more than a few occasions. Of course, it has to engage in the honest regulation of the markets given a persistent rogue element in any market.
Meanwhile, it has to realize that the global business model is broken and clear a zombie economy.
Only then can the basis of economic growth come from organic growth. This may be the only way to secure long term sustainability, promoting the ordinary citizen’s wellbeing.
(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)
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