[Insight & Opinion] The Korean Economy Trapped in the Interest Group Dilemma

The Korean economy is trapped in the interest group dilemma. As seen in the recent strike by medical residents, the government is helpless against collective actions taken for the benefit of the medical community. Such behavior by interest groups that prioritize their own benefits over those of the public or the nation is feared to delay institutional reforms, hinder economic growth, and deepen economic inequality.

Economic policies are decided by the government, but for these policies to be effective, support from laws and institutions is necessary. Laws and institutions are mostly determined by the National Assembly and its members. However, certain interest groups capture bureaucrats and lawmakers, lobbying and pressuring them to create laws and institutions favorable to their groups. The actions of interest groups can influence the formation of laws and institutions. In reality, countries that have overcome the role of such interest groups and chosen proper institutions that benefit the public evenly have grown into wealthy nations while alleviating economic inequality. Conversely, countries that have chosen flawed institutions favoring specific groups remain poor. This is why the choice of laws and institutions is crucial.

The problem is that despite the importance of such collective actions, mainstream economics focuses only on analyzing the behavior of individuals such as consumers or entrepreneurs, overlooking collective actions by groups like farmers' associations, labor unions, teachers' unions, and medical organizations. In contrast, Marxist economics emphasizes the behavior of groups such as workers or capitalists rather than individuals and presents effective strategies to change laws and institutions in favor of workers and ruling political groups. At least regarding collective behavior, mainstream capitalist economics is relatively weak and shows limitations in proposing solutions. This can be seen as the background for the government's recent ineffective responses to labor union strikes or strikes by doctors and medical residents.

The Korean economy is at a turning point. Industrial competitiveness is weakening due to China's pursuit, causing growth to stagnate. Entering a low-growth phase, unemployment is expected to rise further, and unlike the high-growth era, the public's suffering is expected to increase. Additionally, with the global supply chain restructuring, the world has entered an era of high inflation, raising the prices of all living essentials. Housing prices have surged significantly, and rapid innovation has deepened wealth inequality. As it becomes harder to make a living in a low-growth environment, the role of interest groups pursuing their own benefits is expected to grow. There is concern that the Korean economy will fall into the trap of low growth and high inflation due to failure in institutional reform caused by resistance from interest groups.

How can the Korean economy be revitalized? Laws and institutions built for past economic environments must be replaced with new ones suited to the digital and innovation era. To achieve this, ways to overcome lobbying and collective actions by interest groups must be sought. Mainstream economics needs to recognize its methodological limitations and actively research collective actions to become a discipline capable of analyzing reality more accurately. Furthermore, the government should inform the public about the problems and side effects of collective actions to increase public support for institutional reforms.

The Korean economy is wearing old and ill-fitting clothes because it has failed to reform the laws and institutions established during the past high-growth period. The recent medical resident crisis shows that the four major reforms the government is pursuing?labor, pensions, education, and healthcare?will not be easy. This is because strong interest groups like labor unions exist in each sector. Policy authorities must learn from the example of this healthcare reform and find ways to overcome the role of interest groups, reform institutions, and help the Korean economy escape the trap of low growth, high inflation, and deepening economic inequality.

Jungsik Kim, Professor Emeritus, Department of Economics, Yonsei University