To enhance policy credibility

The Korea Times

The Korea Times

Opinion

Fri, December 1, 2023 | 22:15

Times Forum

To enhance policy credibility

Posted : 2019-02-18 17:14

Updated : 2019-02-18 17:14

By Dr. Jeffrey I. Kim

The Moon Jae-in government is suffering from a lack of policy credibility. This problem is not new in Korea. Previous governments have often experienced credibility problems in implementing their economic and social policies.

President Moon disclosed numerous reform policies in his inaugural address in May 2017. The most important economic policies among them were a nuclear energy phase-out, income-driven growth and anti-property speculation measures.

Each of these three policies has a tremendous impact on the economy. Export competitiveness, employment expansion, household consumption, business investment and housing construction have been affected, as these policies are interdependent.

If any one of these policies fails, the entire economy will be critically damaged. To make all these policies successful, inter-ministry coordination is absolutely required.

Without this, individual households and commercial investors will lose their confidence in the government and postpone consumption and investment. This will retard the hiring process and GDP growth. If the government loses its policy credibility, the entire economy will be damaged.

Policy credibility has been discussed in economic literature, specifically in the field of monetary economics. Recent research suggests that if monetary policy is transparent and credible, this will be more effective.

For instance, if the U.S. Fed announces a goal of long-term price stability and shows its commitment to achieving the goal with the appropriate money supply, then the Fed's monetary policy would gain full credibility.

When a country like South Korea wants to enhance the credibility of its policies, additional conditions need to be imposed. First, the government should have experienced scholars and specialists check on the theoretical relevance of a new policy and its practicability.

Second, it should subject a new prospective policy to open debate to identify potential problems and weaknesses.

Third, the government should make a timetable for policy implementation and make it public. Fourth, if changes occur in the underlying conditions of the economy, the speed of implementation needs to be adjusted properly.

In relation to gaining policy credibility, one episode is worthy of introduction. Early in January the executive members of the Korean Economic Association (KEA) attended the 2019 annual meetings of the American Economic Association (AEA).

They were impressed by one of the AEA's special programs, an interview with two former Fed chairpersons, Ben Bernanke and Janet Yellen, and current Fed Chairman Jay Powell.

Having returned from the AEA conference, KEA President Yi In-sil and other key members of the KEA suggested holding a policy forum as an annual event. Former central bankers, high-level policymakers, respected journalists, and renowned scholars are invited as forum panelists.

The open discussion and free exchange of candid opinions regarding current policies will surely help to raise the credibility of new government policies.

Another episode can be referred to in relation to improving policy credibility. In October 2014, I attended a two-day memorial conference organized by the University of Chicago. The conference was to celebrate the life and work of Gary S. Becker.

Professor Becker died in May 2014at age 83. He received the Nobel Prize in economics in 1992 for having extended the scope of economics. His analyses focused on economic and social challenges. He has written on human capital, marriage and divorce, fertility, and racial discrimination.

Whenever he introduced a new theory and new concepts, he had to face challenges from different schools of thought. At a session during the conference, I asked the session chair, Professor Kevin Murphy, one of Becker's close associates, how Becker overcame such challenges.

He said, "Mr. Becker was able to overcome harsh criticisms with confidence and persuasion. His strong confidence had been built up based upon his successful research."

To make a new policy credible and successful, the government should conduct the following:

First, try to accommodate criticism as much as possible because every policy has merits and demerits.

Second, publicize the justification for the new policy.

Third, provide a platform where scholars and policymakers freely debate any controversial policy.

Fourth, try to patiently persuade the public of the necessity of the policy.

Fifth, adjust the speed of implementation if unexpected changes occur.

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.