[The Editors' Verdict] COVID-19 Crisis: What Must Be Done?

Under the Moon Jae-in administration, economic policies chasing illusions have been repeatedly implemented. This phenomenon occurred because the economic horizon was viewed too narrowly, and only policies that could secure convenient approval ratings were excessively promoted. The issue of income distribution is, of course, a very important task. However, what our economy needs most right now is long-term management. It is about preventing a trend of decline. Looking at the per capita real income over the past 30 years along the time axis, there has been no greater crisis than this.

Due to low growth, many quality jobs have not been created, household debt has accumulated, and consumption and investment remain sluggish. Low growth fundamentally occurs because, as the economy matures, high-return investment opportunities become exhausted. The phenomena of declining interest rates and savings rates are also not unrelated to this. On the other hand, living expenses increase in the opposite direction to economic maturity and low growth, and high costs in raising and educating children are no exception. Ultimately, the birth rate declines, and the population cliff has become a reality.

The structural problems facing the South Korean economy are deepening. This is not due to the fault of any single part but arises from systemic failure. Our current economic system is both a legacy of the very rapid high-growth era of the past and the result of repeated mismanagement. What South Korea must urgently do now is to innovate the economic system into an advanced country model, and this requires thorough reform. Here, system innovation means institutional reforms in labor, education, regulation, etc., that can guarantee efficiency to the extent of reorganizing the entire economy.

That is not all. There are numerous reform tasks in various fields such as finance, industry, corporations, and households. However, it is important to note that selectively reforming only one sector will not have a significant effect. For example, attempting restructuring or labor market reforms without expanding social safety nets or reforming education will likely yield little effect compared to the pain involved. Achieving educational innovation without regulatory reform will also be difficult.

Meanwhile, the crisis caused by the novel coronavirus infection (COVID-19) is looming. Every country in the world is busy locking their doors. Although we teach that the economy is a cycle, witnessing that cycle being cut off naturally causes concern. Especially since production, employment, and value chains are globally distributed, blocking circulation is fatal to the economy. What is more worrisome is the clear fact that conditions will worsen, at least for the time being.

Large companies with financial capacity may still have the strength to endure. Above all, the concern is for small business owners and ordinary people. Even when the economy is good, it is not easy, so how much more difficult must it be when economic activity has nearly stopped? Currently, discussions about disaster basic income are heated, and in that sense, the sincerity is understood. Providing help to those who are struggling to get through this crisis is wholeheartedly welcomed. After all, one must survive to plan for what comes next, right?

However, indiscriminate proliferation of free benefits is not desirable at all. This crisis does not seem likely to end soon. It is impossible to continue providing disaster benefits indefinitely. Therefore, now is the time to take a long breath, look far into the future, and design policies accordingly. Moreover, since the Moon Jae-in administration has just introduced all kinds of rigid systems, the current difficulties are likely to persist for a long time. I do not want to oppose disaster benefits, but I believe what is more urgent is to correct such deteriorations.

Jo Jang-ok, Professor of Economics, Sogang University