Korean New Deal vs US New Deal
By Dr. Jeffrey I. Kim
Last week President Moon Jae-in disclosed a grand policy package, better known as the “Korean New Deal.” This project addresses large-scale job creation and the strengthening of the economic growth potential.
The government plans to spend 160 trillion won ($133 billion) to provide 1.9 million jobs by 2025. While being a little short on specifics, the Korean New Deal program has target areas which include artificial intelligence (AI), big data, digital healthcare infrastructure, renewable energy and eco-friendly mobility.
President Moon's Korean New Deal can be compared with the U.S. New Deal which was implemented by Franklin D. Roosevelt (FDR) between 1933 and 1939. The U.S. program came after the Oct. 29, 1929, stock market crash that prompted the Great Depression.
The Great Depression was a worldwide economic meltdown that persisted during the 1930s. It began in the U.S. and battered other countries in 1929, and lasted until the late 1930s.
Herbert Clark Hoover was the U.S. president during the Great Depression. Hoover, a Republican, won the 1928 presidential election and was inaugurated as the 31st president of the U.S. in March 1929. Soon after his inauguration, the U.S. stock market crashed and Hoover pursued a variety of policies to lift the economy but was not successful.
Amid the economic crisis, Hoover was defeated by Democratic candidate Franklin D. Roosevelt in the 1932 election. To revive the U.S. economy, FDR undertook the New Deal, implementing a series of large-scale relief programs and reforms.
The New Deal was a series of programs, public work projects, financial reforms and regulations enacted by FDR. He focused on the “3Rs.” They are relief for the unemployed and poor, recovery of the economy back to normal levels and reform of the financial system to prevent a repeat of depression.
But the performance of FDR's New Deal program was assessed to be ambiguous. The negative effects of the Great Depression lasted until the outbreak of World War II in September 1939.
The evaluation of the U.S. New Deal includes: (1) The New Deal fostered bureaucracy and administrative inefficiency of the federal government. (2) It infringed upon free business enterprise. (3) It made the federal debt increase vastly. (4) It rescued free-market capitalism in the U.S. but would have almost nationalized banking, railroads and other industries. (5) It improved distribution of wealth to some extent. (6) It established the Federal Deposit Insurance Corporation (FDIC) to end the risk of runs on banks. (7) It gave birth to the Glass-Steagall Act to limit commercial bank securities activities.
The Moon government has launched the Korean New Deal as part of its efforts to revive the economy in the face of the devastating COVID-19 crisis. To make his program a success, the government should cautiously carry out three policies ― housing, fiscal and monetary policies.
Housing policy among others is the most critically important in Korea.
President Moon's New Deal will be evaluated by critics for generations to come. Housing in Seoul, particularly in the Gangnam area where quality high schools are clustered, has been in excess demand over the past four decades. This problem would never go away so long as unjustifiable economic or social discrimination based on academic background or provincial connection distinctively prevails.
South Korea?requires a dynamically sound fiscal policy management. Since the outbreak of the COVID-19 pandemic, major countries have enacted quantitative easing policies, and many others have followed suit.
If countries issue no global reserve currency, they must be prepared for potentially higher inflation arising from massive fiscal and monetary easing. Korea's monetary authorities should set the timetable to absorb excessive liquidity before it is too late.
During the period of the Korean New Deal, a large degree of fiscal and monetary expansion is inevitable, even though the expansion is not limitless. Otherwise, measures against housing speculation will surely backfire and the Moon government has no choice but to suffer political damage.
Last but not least, the administration should strive to build the public's trust in the Korean New Deal. To maintain the policy credibility at a high level, top policymakers must always pay heed to public opinions even when they carry out the programs. Then the people can look forward to much success of the Korean New Deal.
Dr. Jeffrey I. Kim (ickim@skku.ac.kr), former foreign investment ombudsman, is a professor emeritus at Sungkyunkwan University. He earned a Ph.D. in economics at the University of Chicago and taught at the University of Colorado, Boulder, and the American University, Washington, D.C.