The Deadly Consequences of Undermining Policy Consistency

The foundation of the economic policy that made possible Germany’s “miracle on the Rhine” after World War II lies in ordoliberalism, represented by Walter Eucken (W. Eucken). Put simply, ordoliberalism holds that in a market economy, the government’s role should be limited to establishing and maintaining a framework for fair competition, and that it must not intervene in the process of the market economy or in the free economic activities of the private sector.

In his book *Grundsaetze der Wirtschaftspolitik* (*The Principles of Economic Policy*), Eucken presented six constitutive principles that form the framework of the competitive order. He identified monetary stability as the highest policy objective, along with open markets, private property, freedom of contract, the principle of personal responsibility, and finally policy consistency. Furthermore, he stressed that these principles are complementary to one another, and that a competitive order can be established only when they are realized as a unified whole.

Among these six constitutive principles, the one that has become especially problematic in Korea these days is the lack of policy consistency. Education, for example, is said to be a plan for a hundred years, yet in Korea the education system often does not last even a single year before being changed again. The recent push by the government to abolish specialized high schools, such as autonomous private high schools and foreign language high schools, is another such case. It has become known that most of the children of senior officials in the current administration, who are leading the call for and implementation of the abolition of these schools, themselves graduated from such specialized schools, drawing criticism that they are “shameless.” Yet more serious than this moral criticism are the side effects caused by the destruction of policy consistency. If the education system keeps changing so frequently, what becomes of the future of the hundreds of thousands or millions of students, parents, and people connected to these schools who trusted government policy and planned and worked toward their lives accordingly? And can the private property of school founders really be infringed in this way?

The vocational high school system, which the government had ambitiously promoted while calling for an “era of success for high school graduates,” was also distorted in an instant. After a student died in a safety accident during field training, policy changed, plunging many young students into frustration. The government sharply tightened the requirements for companies participating in field training, which had served as the gateway to employment for high school graduates, and also made post-management procedures much stricter. As a result, even if companies accept student trainees, they cannot assign them to actual work and must limit them to “learning” on site. On top of that, during the field training period they must undergo safety inspections at least four to five times by teachers and labor attorneys. The once-flexible hiring period has also been restricted to after October only. Naturally, the number of companies participating in field training has fallen, and hiring of high school graduates has also had no choice but to decline sharply. The employment rate, which had exceeded 50%, is only 34% this year. With conditions having deteriorated like this, applications to vocational high schools have naturally dropped as well, and now even the very survival of the system itself is being questioned. That is because the policy was altered before it could last even a few years.

The problem of inconsistency in government policy is not limited to education. It appears across economic policy as a whole, including real estate policy. When the housing market, which had seemed calm after last year’s “September 13 Real Estate Measures,” recently began to rise again, the government began considering expanding the application of the price ceiling system for apartment presales to private housing sites as well. The setting of the minimum wage itself is based on arbitrary judgment, and even that swings wildly depending on the political situation and the direction of public opinion. It is difficult even to guess when and where government policy might jump next.

Although this lack of policy consistency occurs all too frequently in Korea, its side effects and damage are usually not clearly visible and are therefore easy to overlook. Yet a case that concretely and visually shows that the destruction of policy consistency brings enormous harm is the ongoing “economic war” between Korea and Japan. In the end, the “economic war” that erupted between Korea and Japan over the Supreme Court’s ruling on compensation for victims of forced labor is also a side effect of undermining policy consistency.

Of course, a number of other factors likely acted together to produce this situation, but above all, the Korean government’s position maintained for more than 50 years since the 1965 Korea-Japan Treaty—namely, that the issue of compensation for victims of forced labor had been settled along with the 1965 Korea-Japan Treaty—was reversed 180 degrees under the current administration. Japan says it will strictly control export approvals for three materials used as key components in semiconductors, remove Korea from its whitelist, and significantly expand the list of items subject to export controls in the future. In response, the Korean government and political circles, which should be coolly judging the situation and actively seeking solutions, are instead busy stoking anti-Japanese sentiment with talk of “Admiral Yi Sun-sin’s 12 ships,” “the bamboo spear song of Donghak,” and “21st-century anti-Japanese righteous armies and the National Debt Repayment Movement.” If things continue this way, it will help neither Korea nor Japan. In particular, the Korean economy, which is highly dependent on trade and imports most materials and key components from Japan, could suffer devastating damage. Japan has a very low dependence on trade.

Policy consistency matters because it reduces uncertainty about the future and increases predictability. In a society lacking policy consistency, individuals and businesses cannot properly plan for the future or put those plans into action. The future is inherently uncertain. But if, in addition to that uncertainty, government policy can be changed easily and abruptly, then the uncertainty that individuals and businesses must bear increases greatly. In particular, businesses become reluctant to make long-term investments, resource allocation between the present and the future is distorted, and trust in government policy declines. In a country where the government, which should reduce uncertainty about the future, instead amplifies it, nothing can be expected to develop soundly.

Policy consistency can also be said to be connected to the importance of a kind of “spontaneous order,” such as customs and practices, emphasized by Hayek. Hayek sharply criticized the government for overturning, all at once, an existing spontaneous order that had previously been respected, in the name of reason, rationality, or justice. When policy consistency disappears and policy changes capriciously like a monkey switching from three in the morning to four in the evening, individuals and businesses become confused and anxious, and the economy stagnates or collapses.

We must never overlook the fact that policy consistency is one of the constitutive principles for establishing a free market competitive order, and that these constitutive principles can work only when they are realized as an integrated whole.

Hyukchul Kwon, Vice President, Center for Free Enterprise (CFE)

---

Original title: 정책 일관성 훼손의 치명적 결과

Author: Hyeok-cheol Kwon

Date: 2019-07-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=24&idx=20352