We Urgently Need Institutions That Will Enrich the Next Generation

A society abundant in capital, a society with strong social capital, and a society where capital circulates smoothly everywhere is bound to prosper. The key lies in institutions. Roads, ports, and airports for exchanging goods are important, but an environment in which money can easily flow in and out and investment can be made with ease is an especially important form of social capital.

During the foreign exchange crisis, Korea implemented foreign exchange liberalization so that foreign capital could enter easily. As a result, a great deal of overseas capital flowed in, but the outflow of domestic capital has remained subject to very strict controls. Only recently has it been allowed on a limited, exceptional basis.

Korea needs to be more open to overseas capital. In particular, in the financial sector, it must create a level of freedom comparable to Singapore so that foreign capital can move in and out easily.

First, the institutional infrastructure must be improved so that overseas capital can enter and leave freely. At the same time, a capital-friendly environment must be created so that Korean capital can be invested abroad. No matter how hard the government tries to block it, money that wants to leave cannot be stopped. Amid unstable domestic conditions, a great deal of Korean capital has already fled. The more socialist-leaning policies are strengthened, and the more control and uniformity are imposed, the more money will run away.

There is no need for resentment toward foreign capital earning profits in Korea, nor for wariness about domestic capital being invested overseas. Even if our money flows out, it will come back in eventually anyway. We therefore need to be more accommodating about money moving in and out. If capital is allowed in but not allowed out, no more money will come in.

What is needed most is for public officials to adopt an open attitude and make institutions more flexible. It is worrying that there seem to be more officials interested in tightening control and protecting vested interests than officials thinking seriously about advancing the nation. The fact that public officials show little interest in modernizing institutions is an enormous national loss. The regression of the financial industry in particular is largely the fault of public officials.

Singapore, the United States, and the Netherlands, which rank first in the world in flexibility, inclusiveness, and openness, are racing ahead. The United Kingdom, New Zealand, Ireland, and Australia are also moving diligently. Excluding these countries, Korea belongs to the group just below them, though with some variation. Japan is at a similar level to us.

If we make the effort, we too could be number one in the world. We too could prosper like Singapore or the United States, so why should we imitate troubled countries like China or Vietnam? We should aim for something better. To do that, we must change our institutions into a more friendly environment.

Now is the time for the entire nation to think about how to pass on more capitalized assets to future generations. Just as individuals pass capital on to their children, society and the nation must also pass capital on to the next generation. What will happen if the current generation consumes all the capital built through the sacrifice and dedication of previous generations and leaves only debt to those who come next?

I hope the Republic of Korea will become more open, flexible, and inclusive, so that it can build abundant physical and human social overhead capital and pass it on to future generations.

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

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Original title: 다음 세대를 풍요롭게 할 제도 마련이 시급하다

Author: Sung-no Choi

Date: 2023-10-05

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=3&idx=26050