[Editorial] “Government’s Desire to Control” Fuels Economic Collapse Concerns

We believe that the Roh Moo-hyun administration has recently been shaking the free market economy, which has affected economic development and national prosperity. Worse yet, the administration’s desire for increased control over and influence on the market seems to be a return to authoritarian era policies. The government and the ruling party describe “policy (or government) failures” as “market failures.” It seems that the government is moving to threaten the founding principles of the market economy, such as private property rights and freedom of contracts.

This leads to worrying developments, including the market losing its autonomous functions, the prolonged contraction of investment and consumption, and the acceleration of the outflow of money and human resources. The government is expected to shake the very foundation of constitutional order by driving forward various anti-market policies, such as the transformation of private property into public property through government intervention. If this trend continues, experts worry the country might see a major setback in the economy.

Under the circumstances, the Roh administration is moving toward an “inefficient big government,” excessively collecting taxes and poorly managing tax money, as if taxpayers’ money was a limitless resource. It is also packing public offices with those who share the “same code” as the president, treating its mandate from the public like a trophy of power.

The recent surge in land and housing prices across the country is the result of a “comprehensive government failure” brought about by unreasonable and short-sighted policies, not the “failure of market.” Had the government adopted and consistently pushed ahead with systems which could attract some 400 trillion won of floating money to productive investment, and created conducive environments in business, market and society, it would have been able to significantly mitigate the unhealthy real estate fever that we currently see. However, the government recklessly pushed forward plans for creating a special administrative city, a corporate city, and an innovation city, without any consideration of possible side effects, as if it was aiming to overhaul the land. Furthermore, it released a plan to relocate 176 public corporations without considering the move’s efficiency and relevance to hosting regions. On housing policy, it insisted on focusing on curbing supply and demand, turning a blind eye to naturally occurring demand in the market. The net result was skyrocketing land and housing prices in some areas, and the deepening of relative polarization.

Nonetheless, the government only presents political solutions to these problems. It responds as if “killing the targeted real estate” is the final goal of economic policy, without comprehensive measures designed to recover the private sector’s investment sentiment and revive national growth engines. A prime example is that it attempts to curtail speculation by re-adopting the public concept of land ownership which the Roh Tae-woo administration introduced, but which was ruled unconstitutional. It even drew up a blacklist of some 50,000 real estate owners. This is an idea that is above the law.

It is true that real estate can be considered as a public asset in this narrow land. The limitations on exercising one’s property rights, however, must be permitted only for very exceptional cases. Moreover, the idea that the government directly controls real estate ownership and transactions without dealing with the issue of supply and demand is a fundamental element in the surge in land and housing prices tantamount to prescribing the wrong medication to patients.

Experts warn that the government must not forget the fact that populist regimes of Latin America in the 1980s and 90s took advantage of conflict between rich and poor for political gain and, as a result, collapsed their economies by leaking national wealth. The government should be warned by their example.

Violations of private property rights are underway in various forms. An example is a bill that obligates conglomerate-affiliated financial agencies to sell their surplus shares if they own more than a five percent stake in a subsidiary. Meanwhile, the government keeps opposing permission for building and expanding cutting edge plants in the Seoul metropolitan area, citing the logic of balanced national development.

Government measures to deal with these issues by taking the lead means a return to “Park Jung-hee era” which this administration finds distasteful. In short, the government is in a state of self-contradiction.

The threat to private property rights is already contributing to the leakage of national wealth. The amount of money that overseas immigrants took out exceeded one trillion won as of late May this year. With the trend of “spending first” spreading, the proportion of overseas spending in household spending increased to 3.6 percent from 3.1 percent last year. The figure is three times higher that that of the U.S. and Japan.

The government is complaining about insufficient resources for investment, even though this year’s per capita tax burden is expected to reach 2.7 million won, up by as much as 10 percent from last year. It focuses only on spending the taxpayers’ money, talking about a “Korean New Deal,” without thinking of the people’s suffering in paying taxes.

In order to revitalize the economy, it is time to return to the starting point and review everything, giving up “stubbornness” and “code.” Above all else, the government should realize that the short cut to economic recovery is enabling the market to function well. That is also the key to escaping the crisis the government is facing.