Daniel J. Mitchell
When I give speeches on the importance of public policy, I frequently share data showing that pro-market nations are relatively prosperous when compared to countries with statist policies.
One of the most dramatic examples is South Korean prosperity versus North Korean deprivation.
It’s not that South Korea is perfect. After all, it only ranks 35 according to Economic Freedom of the World.
But that is enough economic liberty to be in the “most free” category. And this helps to explain why South Korean living standards have climbed dramatically compared to the economic hellhole of North Korea (and you see something similar if you compare Venezuela and South Korea).
The jury may still be out, but there is growing evidence that South Korea is heading in the wrong direction because the nation’s relatively new president is increasing the burden of government.
Here are some passages from a report in the Japan Times:
“Moon Jae-in began his second full year as South Korea’s president with a reminder of what did not work in the first – namely his economic policies …. The self-styled ‘jobs president’ has seen his once sky-high poll numbers tumble … Moon, a progressive, was swept into office in 2017 promising a reversal from the conglomerate-focused economic agenda of ousted President Park Geun-hye. But his plan to raise the minimum wage 11 percent disappointed … More than three-quarters of the 30 experts surveyed by Bloomberg News last month predicted that employment growth would slow this year, in part because of the wage hike … In a speech at his news conference Thursday, Moon … pledged to improve the safety net … and fix what he described as ‘the worst forms of polarized wealth and economic inequality in the world.’ … More than half of South Koreans surveyed in another Gallup poll last month said that the administration needed ‘to focus on economic growth, rather than income distribution.’”
The article does not even mention that South Korea faces a major demographic challenge. It has a catastrophically low fertility rate, which means that the tax-and-transfer welfare state will become increasingly unaffordable as the ratio of workers to recipients shifts in the wrong direction.
Entitlement reform is the sensible answer to this problem (see Hong Kong, for example). But that is obviously not happening under President Moon. Indeed, he wants to make matters worse by expanding the welfare state.
Some people in South Korea realize that demographics are a problem for their nation. The U.K.-based Express looks at their attempted solution: university courses on dating, sex, love and relationships, complete with “homework” assignments requiring students to date three classmates for a mnth each.
I’m skeptical of this approach, regardless of how much money the government spends.
Policymakers should focus instead on things they can control, such as fiscal policy and regulatory policy.
And this is why South Korea’s lurch to the left is so disappointing. Politicians are making things worse rather than better.
Even the New York Times is reporting that Moon’s statist agenda is not working. More taxes, more spending, more regulation, and more intervention. Who does Moon think he is, Barack Obama or Richard Nixon?
On a serious note, it surely says something that even the New York Times is forced to acknowledge that statist policies backfire.
Let’s close by looking at how South Korea’s economic freedom score has evolved. South Korea’s current score of 7.53 is not much lower than its 7.67 score in 2006. But that slight drop, along with pro-reforms steps that other nations have taken, means that South Korea is now ranked 35 instead of 20.
And the current scores are based on policy in 2016, before Moon moved South Korea in the direction of more statism. This does not bode well.
P.S. I’m not expecting South Korea to become another Hong Kong or Singapore, but it should at least seek incremental progress rather than incremental deterioration. Taiwan is a good example of that approach.
Daniel J. Mitchell, chairman of the Center for Freedom and Prosperity, is on the Editorial Board of the Cayman Financial Review.