Dilemma in President Park Guen-hye’s Policy Undertaking (박근혜 정부의 정책 딜레마)

Korea is in for a rough ride (For instance, the overall debt level is mounting; The Korean economy is easily shaken by the foreign financial entities; The income disparity is growing; The currency war is looming, and so on) The Park Geun-hye administration may be the last regime for Korea to turn things around given a dire economic situation around the globe.

The Korean people have high hopes for the Park Guen-hye administration.(The following post titled “Park Urges Chaebols To Share Growth With Community and Promises SMEs Support; 박 당선인 중소기업 대통령 되겠다” explains the reason for it: http://innovationandeconomicanalysis.blogspot.kr/2012/12/park-urges-chaebols-to-share-growth.html)  I have argued that any policy apparatus should be geared toward serving the broader social interest.  The president has promised to become a president of SMEs.  If the present genuinely cares for serving the best interests of the most people (I believe she does) she needs to push for a reform.

If she is really serious about job creations by putting SMEs on center stage in the Korea’s economic landscape, she may have to overhaul the centrally-planned command economy and adopt the free enterprise system with proper regulations.  This means that keeping her promise requires breaking down the institutional setup which his late father, President Park Chung-hee engineered to run the command economy. The very system which contributed to Korea’s rapid economic growth in the early stage of industrialization incurred structural risks. (I have discussed this in another post titled “Comparison of Two Critical Regimes in Korea: The Park Chunghee Regime vs. Kim Daejung Regime (박정희 정권과 김대중 정권의 비교) http://innovationandeconomicanalysis.blogspot.kr/2012/09/comparison-of-two-critical-regimes-in.html)  This system encompasses the centrally-planned economic/innovation model (Please see this posting titled "The Fallacy of Korea’s Economic and Innovation Model (한국 경제와 혁신 모델의 오류)" http://innovationandeconomicanalysis.blogspot.kr/2012/10/the-fallacy-of-koreas-economic-and.html), the oligarchy system, and the chaebol system.  The Korean model of concentrated political power in a partnership between the government and chaebols has hindered any reform effort.  President Park needs to reform the old system which has hampered the free enterprise system.  She has to set up institutional arrangements for the free enterprise system to grow and flourish.  Therein lie her biggest challenge and dilemma.

I have argued that innovation endeavor has to serve the best interests of the most people.  I am glad that President Park is determined to pursue this goal.  Then, the Park administration may have to develop a policy making apparatus in line with this goal.  In this context, the Park administration may have to limit its role in providing the conditions in which innovation and entrepreneurship can flourish on a level playing field, rather than directly intervening in the markets.  Furthermore, since innovation and production go hand in hand, the Park government also has to make an earnest effort to keep the manufacturing under wraps.  In this framework, the Park administration has to come up with ways to allocate resources efficiently in productive capacity, create incentives for citizens to gain necessary skills, draft and enact the necessary regulations, or provide tax breaks to encourage entrepreneurship and invest in new businesses in emerging technologies.  

The major policy agenda for the Park administration is building a creative economy(창조경제) to create more jobs.  Toward this, the new administration has promised to stop the power abuse by conglomerates while protecting the Korean SMEs.  President Park Guen-hye pledged her administration would play an active role in job creations by expanding investment in science technology and the information and communication technology.  Will the Park administration perform the market-forming role in a bid to generate the short-term return on investment which will stifle the entrepreneurship in the long-term as the case of the mobile phone did?  The very act of the Korean government promoting a specific industry (e.g., the ICT industry) may be hindering the reform effort Korea needs to pursue in order to transform from the command economy into the free enterprise system.  Letting the market forces run their course may be better than employing wrong policy measures that would work in the short term, if history is any guide (For example, please see a post titled “How the U.S. Government Policy Prolonged the Depression” http://innovationandeconomicanalysis.blogspot.kr/2013/03/how-us-government-policy-prolonged.html)

It has been reported the newly formed economic team of the Park administration would announce a stimulus package this week including issuing the government bonds.  We have seen what Japan, another strong command economy, has done during the last two decades.  It hasn’t worked and experienced a 23-year deflationary spiral. (I posted numerous postings on this)

It may be too early to tell, yet I’m concerned that considering the way things play out, the new administration may end up another experiment.

Update: Korea Goes All-Out To Boost Economy; Exports, Investment and Consumption Remain Weak (http://innovationandeconomicanalysis.blogspot.kr/2013/03/korea-goes-all-out-to-boost-economy.html)