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The End Of The Korean Miracle?

SEOUL: The Korean government has been the economy’s baby-sitter for far too long. In the past, hand-in-glove cooperation between authoritarian governments and the chaebols was a powerful way to mobilize and allocate resources, even though many now doubt the benefits of that proposition. It is a fact, however, that today the model is gone: government and the chaebols are at odds, the planned and directed capitalist economy is an anachronism. So there is an urgent need to build a new model. Just what that model must be is not in question -- an open market economy that self-generates competition and innovation.

But nothing so poisons the atmosphere for fundamental reform as past success. Until recently, South Korean leaders could boast of their economic miracle and could trace this to the country's system of economic management by bureaucracy. That was then. Now the miracle has become myth. Politicians, however, prefer the devil they know. So junking policies, institutions, and ingrained ways of doing things is doubly hard when the old ways are seen as having secured profound and unprecedented prosperity. Add to this a widespread sense that South Korea's very national independence was secured by the statism at the core of the country's economic miracle and you have a recipe for political timidity, if not outright paralysis.

Korea is not alone in hesitating to make this vital transition: Japan is dramatically in need of such change; so, too, are Germany and France. All shudder at the prospect. Wherever we see economies flat on their back, economies that were once powerful and now are swept off their feet by stagnation, the same conclusion holds. In Korea the distress seemingly does not run as deep as, say, in France, but without restructuring and privatization of economic decision-making -- away from government and chaebol bureaucracies -- Korea will come to look just like the sick advanced economies.

Where should Korea look for a successful example? Surely Chile, with its decade of 7% growth built on a far lower savings rate than Korea, is one case in point. And Chile's success indicates that Korea can have it both ways -- more consumption and more growth. To get there, it must ditch the outmoded economic regime that ruled in the days of the Korean miracle, opting for competition, decentralization, and innovation.