By Anthony Kim
With global economic recovery far from secure, many economies are at a critical juncture, and governments face decisive policy choices. Political and economic developments since the economic and financial turmoil in late 2008 have inspired a fundamental rethinking of the social contract between citizens and governments in many parts of the world. Debt, recession, and financial instability have been key words in many newspapers. In fact, economic crises and mismanagement of them have become political crises, particularly in countries where governments play a large role in directing economic activity.
South Korea, one of the world’s top 35 freest economies according to the Heritage Foundation’s 2012 Index of Economic Freedom, confronts its own economic and political challenges as the economy attempts to weather uncertain times ahead. Particularly this year when for the first time in 20 years, South Korea holds both parliamentary and presidential elections in the same year, the intensity of the debate on how to reform and reshape its dynamic economy for the future has been ever increasing.
As one of the “moderately free” economies in the Index, South Korea’s economy has the fundamentals-such as its large supplies of capital, highly educated labor forces, modern infrastructure, and stable legal system-all in place. However, corruption continues to damage government integrity and undermine the foundations of economic freedom, keeping South Korea from becoming a “free” economy. Frustration builds among people, in particular among young people whose unemployment rate stands at a high level. Anti-business sentiment and populist attacks on the free market system become more frequent. These developments, in turn, make it even harder to achieve the necessary reforms.
Equally notably or perhaps more critically, the extent of South Korea’s long-term economic vigor will be surely determined by the outcome of ongoing debates about the proper scope of government, the existing social contract, and welfare policies.
Indeed, the political and policy choices that emerge from the current debates will have far-reaching consequences. If those who govern acknowledge the limits of government and make necessary policy adjustments, economic freedom can blossom and reignite economic dynamism. If political leaders instead carry on with ill-guided and irresponsible populist policies that empower government and special interest groups rather than countless law abiding ordinary people, the result is likely, at best, to be economic stagnation and ever-increasing dependence. The alternatives and consequences are clear: openness or protectionism, entrepreneurial dynamism or economic drift, prosperity or impoverishment.
Take a real time example, the current debt crises in Europe and the United States cannot be solved until leaders address their root causes: unsustainable welfare-state spending and false politically promises of cradle-to-grave care by the state. The underlying dilemma is that governments have promised their citizens more social programs than can be financed with the tax revenue generated by the private sector. Free markets and entrepreneurship are the keys to prosperity.
As the 2012 Index of Economic Freedom documents a global economy that is engaged in this evolving battle between the forces of government and free markets, today’s troubles have been neither accidental nor inevitable. The problems we face are the outcomes of politically driven and economically self-defeating policy decisions that have turned an economic slowdown into an accelerating decline.
As Friedrich A. Hayek foresaw decades ago, “The guiding principle in any attempt to create a world of free men must be this: a policy of freedom for the individual is the only truly progressive policy.” Thus, the battle of ideas must also be a battle for the meaning of the very words with which we debate. Is it “progressive” to utilize the coercive power of the state to redistribute and level incomes within a society? Is it “liberal” to build a massive state apparatus to regulate conditions of employment, usage of energy, and access to capital? The answers to such questions will determine how South Korea enhances its economic dynamism and sails through the 21st century.
Neither South Korea nor any other country can turn back the clock. Globalization is a fact of life – both economically and socially. As real time examples around the globe have been clearly showing, welfare-statism is the road to bankruptcy. In rejecting that path, South Korea must not shy away from the challenge of pursuing greater economic freedom that will empower South Korea’s coming generation with more opportunities.
Anthony Kim is Senior Policy Analyst for Economic Freedom in the Center for International Trade and Economics at the Heritage Foundation.
Photo from Michael McDonough’s photostream on flickr Creative Commons.