"Resolute Relaxation of Restrictions Is Indispensable.”

Is it possible to lift up Korea’s potential growth rate to 7%? To achieve this goal, what should the government do?

As President-elect Roh emphasized on potential growth rate and said, “Potential growth rate should be up to about 7% for the sound development of Korea economy,” upon the report from ministries and agencies concerning economy, potential growth rate is in a keen interest.

Most experts say that we do not need to be obsessed with the actual number of 7%, but it is desirable to lift up potential growth rate. On changed attitude of President-elect Roh who seemed to focus on distribution rather than growth, one economist said, “He starts to face up to reality that a cart (distribution) cannot pull a horse (growth),”

In addition, most economists said, “If the government keeps making policies only to restrain economic power concentration disregarding competitiveness of firms, even the current level of potential growth rate (5%) would be difficult to reach. The government should enhance competitiveness of firms by relaxing restrictions and interest women in economic activities by enhancing flexibility of labor market.”

▽Is It Possible to Lift up to 7%? = Potential growth rate is a growth rate which can be reached without price rise. Therefore, experts say, “The higher potential growth rate, the better.”

Controversy is about the possibility of that numerical value of 7%.

The KDI estimates that Korea’s potential growth rate for next five years would be 5% level. Even though other private institutions take a more positive view, they also estimate that it would be within 5% level. Others insist that it is possible to make potential growth rate over 6% even though there are difficulties.

Hongik University professor Park Won-am (Economics) said, “Singapore and Taiwan have recorded potential growth rate over 6% when their national income per capita was similar to Korea’s current level.

Park Jae-ha of Korea Institute of Finance said, “Potential growth rate can be raised to over 5% if the government increases productivity which is much lower than that of advanced countries and makes the most of unemployed labors.”

▽What Should Be Done? = Experts explains that either increasing labors and capitals or increasing efficiency of economy is the only way to increase potential growth rate.

Cho Dong-chul of the KDI said, “Considering the aging demographics and decreasing saving rate, increasing labors and capitals have limitations. Therefore, the government should increase efficiency by protecting private ownership and proper requital.”

Hongik University professor Kim Jong-suk (Economics) said, “Experts agreed on the ways to increase potential growth rate. Problem is that the ways to increase potential growth rate is contradictory to the policies of incoming government like those proposed by the PTC.” He also said, “The most realistic way to increase potential growth rate among Roh’s campaign pledges is to interest women in economic activities. This needs flexibility of labor market.”

Professor Park also said, “Without mentioning increasing labor input and technological innovation, the government should carry out policies for improvement of distribution and unemployment welfare based on a conservative policy which is activating market economy.” Professor Park also explains other requirements for high potential growth rate: proper disposal for risky factors in macroeconomics; improvement of public sector and labor market; interesting women in economic activities.

▽Relaxation of Restrictions Is Indispensable. = Economic experts emphasize relaxation of company restrictions along with flexibility of labor market.

However, policies of PTC such as intensified restrictions on total amount of investment are far from relaxation of restrictions. The governmental plan for relaxation of restrictions reported to President-elect Roh is evaluated to be contrary to key points.

Myongji University professor Cho Keun-dong said, “Sentiment is very important in economy so it is crucial for lifting up potential growth rate to make favored environment for companies by relaxing restrictions. Concentration of economic power is result of maximum efficiency. It is not desirable to restrict concentration of economic power too strictly. The government should put forth strength on antitrust policies.”

Joongang University professor Hong Ki-tack also said, “Management of large enterprises becomes much more transparent since foreign currency crisis in 1997. The PTC or the government should not be an obstacle to competitiveness of whole enterprises, with an excuse of problems of some “Chaebol.”

Kwang-Am Cheon iam@donga.com