Economic Insights from South Korea are Applicable in the U.S.

In this edition of The Gallery, Robert Campbell discusses key lessons state and local governments can take away from other governments across the world. Specifically, economies that are currently thriving despite this tough global economic climate.

Sometimes we have to go outside of our borders to attain a clearer perspective on what is going on inside our own country. I had just that experience last week when I traveled to South Korea to keynote an annual business summit in Seoul.

South Korea limits its presidents to one, five-year term. President Lee Myung-bak will have his term expire next year and various parties and candidates are already positioning for the coming election. Interestingly enough, the dominant political issue at the moment is the government’s role in social welfare and the desire to significantly expand social welfare programming.

From what I can glean, part of the interest stems from the duress brought on by the economic downturn, coupled with the reality that South Korea has a comparatively limited spend on social welfare programs.

As I prepared for my talk, I learned more about South Korea’s strong economy, which is growing at approximately four percent annually. Its unemployment rate is an admirable four percent, although average income still significantly trails several other developed economies. And to the envy of those of us in the U.S., South Korea’s debt in relationship to this GDP is only 30 percent.

I took away some insights from my visit that might be of interest to U.S. government leaders as we define our approach to address deficit spending and aggregate debt. Much as leadership in South Korea is starting to critically assess the government’s role in social welfare policy and programs, so must the U.S. government. As I discussed at the summit, there are several broad policy questions that are appropriate for consideration in both South Korea and the U.S.:

  • What is the relationship between social welfare expenditures and the economic performance of a country?
  • Are there some social welfare related expenditures that have a greater impact on economic performance than other areas of expenditures?
  • At what level does social spending have a countervailing impact on national and state economic performance and becomes an impediment to economic growth?
  • What services and groups of individuals should be regarded as an obligation of a national government and state governments, independent of the relationship to economic impact?

Our experience here in the U.S. led me to advise South Korean national and state officials as follows:

  • Recognize that it is much easier to expand benefits in good times than it is to contract in tight times.
  • Think through carefully the longer term financial consequences of entitlement program expansion on national and state budgets.
  • Conduct sensitivity analysis to anticipate the longer term budgetary impact of entitlement expansions considering potential changes in demographics and economic performance.

As I said initially, going out of the country was helpful in bringing clarity to several of the vital issues that we must address at a national and state level in the U.S. As always, I would be interested in any perspective and feedback which you may have.

Mr. Robert N. Campbell III is Vice Chairman, Principal, Deloitte LLP and is the U.S. State Government Leader, based in Austin, TX

The Gallery is a forum for ideas and examination of matters facing state and local government. Readers, members of the media, academics or the business community are invited to submit guest columns to bailey{at}civsourceonline{dot}com. Member of the public sector? We’re interested in hearing from you too. CivSource does not endorse the views presented in The Gallery, but offers them in an effort to present more diverse coverage. CivSource will review all submissions but does not guarantee publication of all works submitted.

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