'Big Government Theory' Empowered by Overwhelming Victory... Market Intervention Expected to Intensify

Ruling Party Gains Control with Landslide Victory in General Election
Emphasizes Government Role Over Mayors
Accelerates Government Policies for Housing Price Stability
Bank of Korea Influence Grows, Corporate Regulations Expected to Tighten

'Big Government' Trend Global
Government Role Expands Worldwide Due to COVID-19 in US, Europe, Japan, and More

[Image source=Yonhap News]

[Asia Economy Reporters Eunbyeol Kim and Sehee Jang] Following the ruling party's landslide victory in the 21st general election held on the 15th, political and economic experts are predicting that the theory of a 'big government' will gain even more traction. This is because, in overcoming unprecedented crises such as the novel coronavirus disease (COVID-19), the government must intervene in various fields including disease control and economic policy. In particular, since the Democratic Party of Korea has historically emphasized government intervention over the market, it is expected that the Blue House and the ruling party will demand a more proactive role from the government going forward.

◆Political Circles and Academia: "Government Role Will Expand"= Political circles are emphasizing that the government's role will inevitably grow. On the 17th, Choi Un-yeol, a policy expert within the ruling Democratic Party, told Asia Economy in a phone interview, "To overcome the COVID-19 crisis and revive the economy, the government's role is more important than the private sector for the time being," adding, "Ultimately, we should move toward a small government, but until COVID-19 subsides, the government's role must be larger than ever." Professor Kim Jeong-sik of Yonsei University's Department of Economics also said, "This April 15 general election was a backlash against neoliberal market economics and an evaluation of its side effects," adding, "With the Democratic Party in the lead, regulations on unfair trade and large corporations may be strengthened."

As the government is calling for a bold fiscal role to address structural issues such as low growth, polarization, employment, low birthrate, and aging, the expansionary fiscal policy stance is expected to continue. Additionally, efforts to realize a fair economy, including improving the relationship between large and small businesses and eradicating abuse of market dominance, are likely to accelerate. After preparing the first supplementary budget (11.7 trillion won) and the second supplementary budget (7.6 trillion won) for emergency disaster relief payments due to the spread of COVID-19, a third supplementary budget is also considered highly likely.

With the ruling party securing a majority of seats, government market intervention is expected to gain further momentum. First, government policies prioritizing housing price stabilization are expected to accelerate. Existing policies such as strengthening taxation on multi-homeowners through comprehensive real estate tax, the construction of the 3rd new town, and the price ceiling system for pre-sale prices are expected to proceed without setbacks. Just as the government controls excessive stock market fluctuations, it is now poised to regulate the real estate market as well.

Regulations on corporations may also become stricter. Prior to the general election, the Democratic Party proposed policies for self-employed and small business owners, including restrictions on the operation of large shopping complexes like Starfield and Lotte Mall, regulation of commission fees for 'Baedal Minjok' (a food delivery app), and the development of a public delivery app. The Win-Win Cooperation Act, which prohibits large corporations from producing products similar to those of small and medium enterprises, the profit-sharing system where large corporations share profits with partner companies, and amendments to the Commercial Act are also expected to gain traction.

Among economic experts, there is also an opinion that, beyond existing fiscal policies, unlimited fiscal spending by the government should be added to the central bank's unlimited quantitative easing. This marks a resurgence of Keynesian economics triggered by COVID-19.

It is also anticipated that government influence over the central bank will intensify. Candidates for the next Bank of Korea Monetary Policy Committee include President Moon Jae-in's "economic tutor" (Jo Yoon-je), progressive economist who laid the foundation for income-led growth (Ju Sang-young), and the Bank of Korea's first female deputy governor (Seo Young-kyung). For the first time in the 70-year history of the Monetary Policy Committee, a member has been reappointed. The relationship between the Bank of Korea and the government is expected to become unprecedentedly close, although concerns have been raised that excessive closeness could undermine the bank's independence.

◆Concerns Over Side Effects of Excessive Intervention= However, there are concerns that excessive government market intervention could lead to reduced corporate investment → decreased employment → lower economic growth. Professor Kim Jeong-sik stated, "If regulations are excessive, there is concern about reduced corporate investment and employment cuts by companies."

There are also criticisms that the theory of a big government has limitations in achieving sustainable growth potential and qualitative leaps. Representative Choi Un-yeol said, "There are limits to a government-led economy. A private sector-led economy succeeds," emphasizing, "For startups and investments to be active in the private sector, the government must create a business-friendly environment."

Securing resources for the expanded government role is also a challenge. Professor Kim said, "If the economic downturn prolongs, fiscal spending will have to be increased again, which could lead to deterioration in fiscal soundness." Professor Jeon Sung-in of Hongik University's Department of Economics also stressed, "Resources should be appropriately allocated where needed, but it should not be done in the form of deficit financing." He added, "Rather than strengthening income or corporate taxes, it seems more appropriate to strengthen property taxes," noting, "If the big government theory expands, there may be calls for an overall tax reform."

◆'Big Government' as a Global Trend= The phenomenon of 'big government' is not unique to Korea. Governments worldwide, including the United States, Europe, and Japan, are implementing government-led policies. The United States has already invested over 2 trillion dollars (approximately 2,440 trillion won) in response to COVID-19. While there was strong criticism in the U.S. during the 2008 financial crisis regarding fiscal spending, the situation has changed to the extent that even market advocates now argue for additional fiscal spending.

Bloomberg News reported, "COVID-19 has reminded people of the value of 'big government,'" adding, "People have realized that bureaucratic states are the key to responding to crises, but if this phenomenon becomes excessive, it could actually set the country back, so monitoring is necessary." The Wall Street Journal (WSJ) reported, "During the financial crisis, Republicans opposed excessive fiscal spending, but now even those Republicans are accepting 'big government' solutions."

This content was produced with the assistance of AI translation services.