[Opinion] Investors’ Animal Spirit

In “The Merchant of Venice,” one of the Shakespeare plays, moneylender Shylock lends his money to Antonio but taking a pound of the latter’s flesh as the mortgage. In the 16th Century when pirates swarmed in the sea, it frequently happened that the trade ships did not make their way home. What made the ship farers willingly take risks was the high returns hundreds of times bigger than the principal. Investors used to gather up their sums of money to raise the principal so as to scatter the risks. This is the origin of a corporation.

Investors tend to show superhuman courage in front of profits. Joseph A. Schumpeter called it “entrepreneurship,” and John Maynard Keynes “animal spirits.” Animal spirits is a term that Keynes invented in explaining the causes of economic fluctuation. “In uncertain situations the decision on investments depends on the intuition of entrepreneurs, and this unstableness of investment causes economic fluctuations,” Keynes explained. The intuition of entrepreneurs that endure uncertainties itself is animal spirits.

Bank of Korea Governor Lee Seong-tae made a request to the entrepreneurs saying, “I ask entrepreneurs to show their animal spirits and be active investors.” This urge came out with the background that the attitude of Korean entrepreneurs which had used to be recklessly positive about investment turned conservative after the foreign exchange crisis, bringing down growth potential. As Governor Lee has pointed out the enterprises are increasingly piling up their earnings without reinvesting the money. Listed manufacturers are keeping in reserve 613 billion won per corporation on average as of the end of last year in the form of earned surpluses.

Stimulating the animal spirits of entrepreneurs is very important, but it is not proper to compel them to “invest whatsoever.” Reckless investment was one of the causes of the foreign exchange crisis. Money lacks sight, but the sense of the capital holders to smell profits beats out anything. While the chances for investment with the possibility of high profits are decreasing in number, regulations, anti-enterprise sentiments, aggressive management-labor relations and the doubt whether the government is really willing to maintain the market economy are expanding unceasingly. Would Governor Lee be able to answer who were the ones that drove away the animal spirits of entrepreneurs?

Heo Seung-ho, Editorial Writer, tigera@donga.com