Japanese-type Downturn

The central bank governor voiced concern before a group of lawmakers on Tuesday about the possibility of the Korean economy going into a decade-long slump, as the Japanese economy did in the 1990s.

Nothing is fresh about his remark itself. Many economic experts have already issued similar warnings. What is new is that a top economic policymaker has publicly acknowledged the possibility for the first time.

As he noted, the Korean economy is losing vitality as low wages and high profitability are giving way to high wages and low profitability. In addition, the population is aging fast, eating into the nation`s growth potential. Another similarity to the Japanese economy in the 1990s is that interest rates and the consumer price index have fallen sharply.

This diagnosis should be listened to by President Roh Moo-hyun and his economic aides, who have brushed aside talk of economic crisis as nothing but a conspiracy theory. They should stop claiming that the economic fundamentals are sound as shown by macroeconomic indicators. Instead, they should find an answer to the question about why an increase in money supply fails to stimulate consumer spending and corporate investment.

The central bank governor is not alone among the top economic policymakers in believing the Korean economy is in deep trouble. Backtracking from his long-held optimism, the deputy prime minister for economic affairs recently observed that the Korean economy is afflicted with "hypochondria."

What is noteworthy is that their prognoses are similar in one count. Both give priority to a change in the mindset of leading economic players as a cure for our economic ills.

The central bank governor says the absence of a change in the outdated mindset of politicians, civic leaders and others will make sustainable growth difficult. On the other hand, the deputy prime minister finds fault with the ideological rigidity of those in their late 30s and 40s, who are going against the market economy principle by putting income redistribution before growth.

Since the deputy prime minister and the central bank governor have set the agenda for economic discussions, economic ministers and presidential aides are urged to have brainstorming sessions on the ailing economy. They will have to fix it before it slips into a long-term slump.