[The Editors' Verdict] The Government Cannot Outperform the Market

[Asia Economy Reporter Choi Il-kwon] Earlier this year, the Ministry of Economy and Finance held a brainstorming meeting chaired by the Deputy Minister, involving experts from various fields such as welfare and industry to discuss financial support. Although the purpose of this meeting was to gather ideas for more efficient use of finances in the mid to long term, fundamental questions about the government's role after the COVID-19 pandemic subsided also attracted attention. A government official at the time confessed, "We are also contemplating what stance the government should take once the COVID-19 crisis passes." It is no exaggeration to say that the debate over ‘big government vs. small government’ began among some bureaucrats from that point onward.

The role of government has become a subject of interest whenever specific events occur. In particular, the ongoing COVID-19 situation from last year to the present is evaluated as a turning point that expanded the government's role in terms of governance. Since the 2008 financial crisis, countries gradually aimed for a ‘small government’ approach, but due to the need to contain the pandemic, they intervened in all areas, ushering in the heyday of so-called ‘big government.’ To prevent infection risks, countries imposed restrictions on citizens’ movement and gatherings, which increased government involvement in economic activities. They drastically lowered interest rates and boldly expanded fiscal spending, instilling in economic agents such as companies and consumers the belief that money would never run dry. As unemployment rose, funds for the unemployed also began to be released. Even the United States, known for granting the highest autonomy in economic activities worldwide, saw the government step in to print dollars and hand out money to individuals, making the message that ‘big government has returned’ even clearer. All countries around the world began to follow the U.S.

The debate over ‘big government or small government’ has reemerged during the recovery process from COVID-19. Unlike last year, the focus this time is on whether the role of government can be reduced from big to small. As everything normalizes, including the return to daily life, the government cannot be free from this debate.

Looking at the movements of various countries, the debate over the government’s role is expected to intensify. The Joe Biden administration in the U.S. has unveiled another massive economic stimulus package following the Trump administration. In response to criticism of ‘big government,’ Ron Klain, White House Chief of Staff, rebutted in an interview with the media, saying, "I don’t think repairing dozens of bridges constitutes big government." Recently, the Group of Seven (G7) agreed on the principle of a global minimum tax rate, which has raised concerns among liberals. The Wall Street Journal (WSJ) stated in a column, "Governments with large spending may drag their feet and negotiate over the minimum tax rate." This suggests that President Biden’s intention to prevent U.S. corporations from moving overseas might fail before it is even achieved.

Meanwhile, in South Korea, public discussion about reducing the government’s role remains minimal. The government and ruling party have formalized the preparation of a second supplementary budget. Although the scale remains an issue, this reconfirms the government’s determination to lead the economy. With the presidential election coming up next year, there are also forecasts that the ‘big government’ stance will continue. Leading presidential candidates have already proposed pledges to guarantee a certain level of income through government support.

No one can deny the government’s role in supporting vulnerable groups. However, there are ongoing criticisms that the government’s large-scale fiscal spending on welfare rather than productivity improvement is deepening the crisis of competitiveness. A senior official who once held a high-ranking position diagnosed that failing to recognize weakened competitiveness is also a crisis. It seems clear that it is time to seek an exit strategy from ‘big government.’ There has never been a government that has outperformed the market so far.

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