[Constitutional Amendment, Connecting the Future] The Economic Roots of Korea Shaken by Martial Law, Parliamentary Cabinet System Restoration Helps

③ Interview with Barry Eichengreen, Professor at UC Berkeley
Martial Law Shakes the Rule of Law... Negative Impact on Growth
Severe Polarization Increases Instability with Each Change of Government

Editor's NoteThe Constitution of the Republic of Korea is the foundation of the nation and the standard for the lives of its people. The '1987 system,' symbolizing the last constitutional amendment, is now being called into question. Considering nearly 40 years of changes, there is a need for new standards to redesign Korea's present and future. For members of the National Assembly and political scientists, constitutional revision is recognized as an inevitable and timely task. The 'social turmoil' triggered by the declaration of martial law paradoxically revitalized the momentum for constitutional amendment. Across the political spectrum and various sectors of society, constitutional revision has emerged as a key topic of interest. Based on diagnoses from former presidents of European countries that have experienced constitutional amendments, leading political and economic scholars from the United States and Japan, the president of the Korean Constitutional Association, and former governors of the Bank of Korea, this article aims to analyze this era of great transformation and sketch a blueprint for constitutional revision suited to Korean society.

Barry Eichengreen, a globally renowned economic scholar and professor at the University of California, Berkeley (UC Berkeley), diagnosed that the Korean economy is facing a crisis due to President Yoon Suk-yeol's declaration of martial law. For growth and investment to continue, the global market's confidence in the rule of law is essential, but martial law has fundamentally shaken the trust Korea has built over decades. Professor Eichengreen stated that a parliamentary system, institutionalized rather than a presidential system governed by a single 'charismatic individual,' more effectively protects democracy and is clearly more beneficial for the economy.

In a written interview with Asia Economy on the 27th, Professor Eichengreen shared his views on Korea's economic outlook and political system following the martial law incident. He is a world authority in international finance and monetary policy. He earned his Ph.D. in economics from Yale University and has been at UC Berkeley since 1987. He served as an overseas advisor to the Bank of Korea's Economic Research Institute for ten years. With a strong interest in Korea, he has offered recommendations through multiple interviews and lectures over the years.

◆ "Korea's Martial Law Incident Raises Questions About the Rule of Law" = Although an economist, Professor Eichengreen expressed clear opinions on sensitive political issues. While many economists hesitate to comment on political matters, he emphasized that martial law, the rule of law, and the economy are inseparable. He explained, "Many countries have experienced over decades that the rule of law is crucial for investment and growth."

The biggest side effect of martial law, according to Professor Eichengreen, is increased uncertainty. He said, "We know that uncertainty suppresses corporate investment. Especially in situations like impeachment crises where it is unclear who will take power, this leads to uncertainty about various corporate-related policies such as taxes and regulations, causing companies to postpone investments and consumers to delay purchases of high-priced items like apartments and cars."

◆ "Parliamentary System Better Protects Democracy... Also Advantageous for Growth" = Regarding the recent constitutional amendment debate, a hot topic in Korean politics, Professor Eichengreen favored the parliamentary system over the presidential system. Following impeachment crises faced by former President Park Geun-hye and President Yoon, there is widespread demand inside and outside the political sphere to resolve the problems caused by the 'imperial presidency,' and Professor Eichengreen partially agreed with this view.

When asked about the economic pros and cons of the presidential system, he said, "There is evidence that the parliamentary system is better at promoting economic development and growth. Because it focuses on political parties rather than a charismatic individual (president), it is more institutionalized." He added, "The parliamentary system more effectively protects democracy, provides greater freedom of the press, and tends to impose constraints on the executive branch. All of these factors are favorable for growth."

◆ "Extreme Political Polarization... Increasing Economic Policy Instability" = The drawbacks of the presidential system become more pronounced in an extreme two-party system. Due to the winner-takes-all structure, the ruling and opposition parties inevitably engage in extreme factional conflicts over the presidency, and policy directions change drastically depending on the presidential election results. Professor Eichengreen said, "If the ideological and political gaps between the ruling and opposition parties were not too large, policy changes would not be abrupt even if the government changed. However, with severe polarization, policy directions change dramatically every time the party controlling the presidential office changes. Unfortunately, both the United States and Korea are living in an era of political polarization."

He added, "This is not a problem that the legislature can solve." This implies that without institutional reforms, it is difficult to resolve the issue given the entrenched power structure. Professor Eichengreen explained, "Voters need to understand that political polarization and extremism cause irregular government changes, leading to unstable shifts in economic policy."

◆ "Trump's Policies Are Madness... Korea Also Suffers" = Professor Eichengreen's explanation is influenced by recent political developments in the United States. Since Donald Trump took office, the U.S. has undergone rapid changes, issuing more than 73 executive orders within a month. He pointed out, "For example, the Trump first-term administration (Republican) removed many environmental measures implemented by the Obama administration (Democrat), the Biden administration (Democrat) reinstated them, and the Trump second-term administration removed them again. This is no way to run a railroad," criticizing the inefficiency.

Professor Eichengreen believes that the risk is too great when a single president wields excessive power. Trump's tariff wars indiscriminately targeted allies, exemplifying this risk. He said, "Trump's tariff policy is, frankly, madness. It raises living costs and producer expenses, and it harms good relations with allies, ultimately negatively affecting the U.S."

For a major power like the U.S., 'presidential risk' inevitably impacts neighboring countries like Korea. He said, "All Korea can do is bow its head and hope not to attract Trump's attention. But no matter what the Korean government does, it will eventually be revealed that Korea is running a trade surplus with the U.S."

Professor Eichengreen suggested, "Encouraging Korean companies to invest more in the U.S. or importing more liquefied natural gas (LNG) from the U.S. could help prevent tariff impositions. Nevertheless, there is concern that Korea will remain on the tariff target list."