There Is No Such Thing as Excess Capital

Our society has long regarded restraint and moderation as virtues. That is why many people have adopted as a guiding principle the saying gwauibulgeup (過猶不及), which means “going too far is as bad as not going far enough.” As a result, there is a tendency to react almost allergicly to anything seen as “excessive.”

But what about “excess capital”? Most people frown on the phrase, treating “capital” and “excess” as fundamentally incompatible. Suppose the family next door owns five cars. People would surely say, “Why are they wasting money like that? Why would one household need five cars? What ridiculous conspicuous consumption.” But if they can afford several cars and use them for different purposes, there is no reason to criticize it as excess.

Those who disparage the neighbor for having many cars are often the same people who think, “Why does Seoul need as many as 10 subway lines?” If 20 million people use them, what would be wrong with building 20 lines? In Beijing, China, there are ring roads all the way out to the 7th Ring Road. There is no need to think, “Seoul has only two ring roads, the Inner Ring Road and the Outer Ring Road, so why does Beijing need seven? Isn’t that wasteful?” Those seven ring roads must all have been built because each serves a purpose.

The claim that “this much capital is enough; once capital becomes excessive, problems arise” is an unnecessary assertion. Those who possess capital will regulate demand on their own. If capital is being invested somewhere, that means there is a need for it.

Yet there are people who worry about excess capital at every turn. In some cases, although development through investment would seem beneficial, they see it as an encroachment. Statements like “We need to protect the ecosystem, so nothing should be built here,” “People with money are even trying to take over this too,” and “Big business is trying to swallow everything” all share the same underlying complaint: that capital should not extend its reach into these areas as well.

Agriculture is a prime example of a sector where capital is deliberately kept out. The reality is that Korea’s food self-sufficiency rate is low, and concerns about food security are serious. Although the country imports large quantities of agricultural products, instead of thinking about how to improve the situation, many have fallen into resignation, assuming that nothing can be done because the country is too small. In conclusion, there is plenty of land available for farming, and if capital is invested, Korea could become an agricultural exporter.

People with disabilities who once had to push wheelchairs by hand now ride around in electric wheelchairs almost like personal vehicles. This became possible because money was invested in research to produce convenient electric wheelchairs. When capital is invested, society can develop in better ways. Capital does not remain fixed or take away someone else’s share in a zero-sum game; rather, the more it is invested, the more it grows and becomes abundant.

If capital enters agriculture, the sector will certainly develop further. If we insist only on old methods, dramatic progress will be hard to achieve. Rather than dismissing the possibility out of hand, we need to accept capital and try.

If there is a sector where productivity is high and results can be achieved, bold decisions must be made. If capital can be invested to generate clear profits, we should move quickly. A concept similar to the rate of return on capital is the interest rate.

The fact that Korea’s average interest rate is 3–4% means that the rate of return is 3–4%. If an investment cannot generate a return of 3–4%, there is no reason to invest. At the same time, the fact that Korea’s interest rate is at this level means there is still much left to do.

Then where should investment go? Put simply, fields without large corporations offer bright investment prospects. But the problem is that in almost all such sectors, concentration of capital has been blocked. It is frustrating that investment is prohibited in fields where money could clearly be made.

Most domestic-demand industries are currently blocked. Entrenched domestic interest groups are preventing capital investment in agriculture, small and medium-sized businesses, and the service sector. Seen positively, this means Korea still has a tremendous number of industries with room to develop. In advanced countries, capital is allowed to enter all sectors, which is why large corporations have emerged across most industries.

All of Korea’s large corporations emerged from manufacturing. That was possible because President Park Chung-hee allowed capital investment in export firms. Under export-promotion policies, capital was concentrated in large corporations, and thanks to that, one global company after another emerged. But it is regrettable that domestic-demand industries were not allowed to receive capital investment and therefore failed to develop.

Beginning in the 1980s, scholars at economic research organizations, including the Center for Free Enterprise (CFE), advocated “capital liberalization.” As a result, capital investment was gradually permitted in domestic industries as well, but it never reached a full-fledged stage.

When people hear “domestic-demand industries,” nothing immediately comes to mind. The simple way to think of them is as sectors without large corporations. Services, education, consulting, and most other domestic-oriented industries remain small-scale. Even so, when someone says, “Capital needs to enter education,” there are people who recoil, saying, “Money in sacred education...?” They fail to imagine that if “corporation-run high schools” or “corporation-run universities” were created, world-class schools could emerge.

If investment were made in the domestic market to the point that people spoke of excess capital, and large corporations emerged in every sector, Korea would become a much wealthier country. We must abandon the notion that excess capital is unacceptable. Rather than reacting negatively to the idea of excess capital, we should study ways to ensure that capital can be invested effectively.

There is no such thing as excess capital. It simply develops as supply and demand come into balance according to need. I hope many more domestic sectors will emerge that actively ask for greater capital investment.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 자본은 과잉이 없다

Author: Sung-no Choi

Date: 2023-09-08

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=3&idx=26008