06-13-2012 18:41
Overprotection worry

Raghuram Rajan, the respected University of Chicago economist, delivers a speech at a global conference designed to mark KOTRA¡¯s 50th anniversary in Seoul, Wednesday. / Yonhap

Former IMF economist criticizes Korea¡¯s 'shared-growth' efforts

By Park Si-soo

The Korean government is intent on restoring parity in the country¡¯s business sector and preventing chaebol, the country¡¯s family-owned conglomerates, from encroaching areas traditionally occupied by small merchants and companies. But Raghuram Rajan, the respected University of Chicago economist, claims the government is making a big mistake.

Meeting with journalists in Seoul, the India-born Rajan, called for government officials to take a closer look at concerns about overprotection, which he says will only exacerbate the overall health of small- and medium-sized enterprises (SMEs) in the long run.

The role of the government is to create an ideal environment for businesses and entrepreneurship, not intervening, he said.

``In a global economy, it¡¯s a very bad idea to keep successful domestic entities out of certain areas, because in the absence of competitive rivals, successful foreign entities will enter the areas,¡± he said on the sidelines of an international business forum hosted by the Korea Trade-Investment Promotion Corporation.

He argued that in a mature economy, the government¡¯s market intervention will cause immense distortion in market dynamics and undermine the competitiveness of companies. The role of the government is to provide SMEs a ``high quality input,¡¯¡¯ referring to quality education, easy access to finance and help in improving their social reputation.

His comments doubled as a direct attack on the ``shared-growth¡¯¡¯ initiative pushed by the Lee Myung-bak government, which has led to large companies retiring from markets such as bakeries, coffee chains, and light emitting diode (LED) products, and major retailers reducing the operating hours of their mega discount malls.

Despite criticism that the efforts are beginning to run against the limits of acceptability, Cheong Wa Dae and the ruling Saenuri Party remain firmly committed, as they attempt to massage voters¡¯ egos ahead of the December presidential elections.

In a 2010 poll by The Economist, Rajan ranked first as the economist with the most important ideas in the post-financial crisis world.