ed Crisis after crisis

Economic balance is a must in rudderless world

It increasingly seems doubtful whether the day will come when the world economy is free from one trouble or another.

Negative sentiments deepen, as the epicenter of crisis has long moved from minor peripheral economies to the world’s two axes of Europe and the United States.

The EU’s problem stems from its haste to forge an economic bloc neglecting the wide gap in economic ability among 27 members. Many of its members failed to maintain balance between growth and welfare, and others who have managed to do so won’t make too much sacrifice.

In the United States, the invisible hand behind healthy profit-seeking has given way to unethical greed of giant market players amid governments’ dereliction of regulatory duty. Political leadership is another endangered species mired in extreme ideological confrontation. The rich are getting richer and the poor poorer with the middle class rapidly disappearing.

At the risk of abstraction and oversimplification, capitalism, which has proved to be the best economic system humankind has invented, seems to have underestimated human inclination toward parochial selfishness that breeds inhumane gaps among classes, regions and nations. Without an epochal turnaround toward coexistence, the historic downgrade of the U.S. credit rating Saturday may just be the beginning of co-destruction.

It is against this backdrop that Korean policymakers should review the nation’s economy, which has been blindly following the Anglo-American neo-liberalist model encouraging free but not always fair competition.

The similarities are striking. Especially since CEO-turned-President Lee Myung-bak took office, his business-friendly policy has perilously sped up ``income polarization,” deepening concentration of economic power in a few dozen family-controlled conglomerates, which have soaked up the bulk of economic growth. Lee’s conservative supporters are quick to paint any calls for modest welfare and just labor rights as influenced by ``lefties” or ``commies.”

Chances are high that Standard & Poor’s unprecedented move will have more symbolic than substantive effects on the U.S. and global financial markets, in part because it has long been anticipated and because there are few countries that can replace the U.S. as the world’s key financial player. But the danger threatening Korea lay far beyond the financial markets of the next couple of days or even weeks.

Despite boasting the world’s 15th-largest scale, Korea’s economy is small, barely one seventeenth of America’s, and too wide open for both its scale and ability to manage crisis. The IMF points out that Korea’s biggest weakness is its overly export-dependent structure (centered on large export firms) without corresponding domestic demand (created mainly by small- and medium-sized enterprises). Even much of its export markets are concentrated on the U.S., EU and China.

Excessive liberalization of the capital markets has made the nation the most vulnerable to global crises even among the Asian countries, as noted by the U.S. investment bank Morgan Stanley. Loose bank regulations have encouraged them to borrow an undue amount of short-term loans abroad and thrive on interest margins by lending them to cash-short individuals ― and posing the same risks as shown in 1997 and 2008.

So it’s clear what the government officials should do. They must find ways of harmonizing growth and welfare, most preferably by turning welfare spending into another growth engine. This is time for the politicians not to fidget about free school meals but to create more welfare-related jobs. They must also try to keep the balance between exports and domestic demand by focusing support on smaller firms and diversifying export markets to emerging economies, and introducing controls on foreign fund flows and discouraging banks’ easy, shortsighted business practices.

Coincidentally or not, however, President’s Lee’s Cabinet ministers responsible for finance and trade are officials who have no experience at all in their respective portfolios. More reasons Koreans will have to keep their fingers crossed wishing crises either won’t come or that they will be mild.