Unabated efforts needed for deregulation

 

By Ahn Choo-young

The government’s full-fledged commitment to ensure regulatory reform for the robust revival of the Korean economy has gotten off to a good start, but the road ahead is bumpy.

Last Thursday, President Park Geun-hye presided over the first joint meeting for deregulation with officials at the ministerial level and civilian experts. As the Foreign Investment Ombudsman, I was also privileged to attend.

The open-ended meeting was an opportunity to bring to the table the entire gamut of issues related to administrative regulations that currently impede investment-related economic activities.

The President seemed determined to root out red tape and the “cancerous tumor” of bundled regulations to fully utilize a costless tool for reenergizing the sluggish Korean economy.

Park recently reiterated the importance of deregulations and mentioned the subsequent daunting challenges of removing pending administrative impediments, which hinder the private sector’s investments like thorny needles under a fingernail.

If the government were to remove regulations placed on the construction of a seven-star hotel or a huge plant at two adjacent administrative zones, for example, several projects worth billions of dollars could be jump-started and urgently needed jobs could be generated. Why, then, is it so difficult to remove those administrative regulations?

According to my experience as the chair of the Regulatory Reform Committee, government officials tend to stick to the Parkin’s dictum, which describes the tendency of administrative organizations in any nation to strengthen their administrative power by expanding their organizations and budget. This was especially the case in Korea during its government-led development in the “compressed growth” era.

To speed up economic development via a series of five-year economic development plans, the government initiated various development projects and monitored their implementation under a set of stick-and-carrot rules.

Still, Korea maintains legacies of administrative superiority, even despite its shift in recent decades to a private sector-led market economy.

Old and outdated regulations are visible here and there. Entangled and overlapping regulations still exist across government ministries and agencies to maintain organizational objectives while officials close their eyes to national macro objectives.

To make matters worse, lawmakers at the National Assembly competitively enact their own bills, frequently for the sake of leaving a record and often reflecting the interests of specific groups or regional constituencies. The lawmakers’ bills are not subject to review by an independent expert body.

As a result, some government organizations have enacted their bills through the lawmakers’ enactment process to avoid an objective, in-depth review process.

Fortunately, Korea has long had a unique Regulatory Reform Committee, which consists of civilian experts to review introduced and strengthened regulations.

The function of this committee must be strengthened to carry out in-depth impact studies. With respect to lawmakers introducing bills, a new system that requires objective impact analyses on proposed bills must be introduced.

Above all, the President must dismantle the resistance to deregulation harbored by bureaucrats whose aim is to protect their own administrative power.

Foreign direct investment can play a crucial role in Korea to promote investment and even trigger the development of a “creative economy,” as multinational companies can bring in new technologies and ideas.

At the Davos forum in January, President Park declared she would create a truly business-friendly environment for foreign investors.

In my remarks last Thursday, I emphasized that regulatory reform must consider the best practices of advanced economies. About 240 of the global companies on the Fortune 500 are doing business in Korea.

Their views and grievances need to be reflected in the deregulation process. I also highly recommend that the president regularly hear the views of the foreign business community.

I applaud the government’s intention to benchmark the British-type model of preventing “old regulations out, and then new regulations in.”

The government intends to strengthen this rule by having a “regulation cap” system to keep related costs steady. But we must also bring to light the hidden administrative internal rules of bureaucracies, which are the major source of regulations.

The spirit of deregulation, and the benefits that come with it, must reach the grassroots level.