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Lessons from Great Leaders on Economic Reforms

Lessons from Great Leaders on Economic Reforms

HAN Chang-Soo

Feb. 5, 2008

Transcript

Welcome to our Video Program. I’m Chang-Soo Han from the Management Strategy Department. Today, we’ll take a look at the great leaders of the world who revived their national economy through reforms.

Economic reform is emerging as a central issue here in Korea ahead of the inauguration of the new administration, which has set the nation’s economic growth rate target at 7% per annum. This is a high target considering that Korean economic growth has been hovering around 4% in recent years.

To achieve its goal, the new administration wants to shift the focus of economic policy from distribution of social wealth to growth. To this end, economic reform seems inevitable. In order for reforms to succeed, national leaders need to spearhead the effort with strong confidence. Let’s take a closer look at some examples of the world’s most successful reformist leaders and their implications for Korea.

First, Margaret Thatcher, who became Prime Minister of the Great Britain in 1979. Thatcher called the Britain’s economic slump and frequent labor strikes “the British disease.” As a cure, she broke from “consensus politics,” which had persisted since World War II. Under the consensus, the Labor and Conservative parties agreed that no matter which party was in power, the government would pursue high employment, provide an adequate level of social welfare, and continue state control of basic industries.

Thatcher, a Conservative, staked her political life on privatization and labor reform. When the miners’ union, the UK’s largest labor union, launched an all-out strike in 1985, she remained firm and calm and put down the illegal labor strike, earning the nickname “Iron Lady.”

David Steel, the leader of the Party of Freedom at that time, asked, “Where has the spirit of consensus politics, the virtue of the UK parliament gone?” Thatcher answered, “Under the slogan of consensus politics, you all made the future of the country dependent on the interests of the interest groups. I rather prefer confrontation politics.”

Thatcher’s aggressive reforms paved the way for economic recovery and development of Britain into a financial hub of today’s Europe.

Second, US President Ronald Reagan also carried out top-down economic reforms in the 1980s. During the 1960s and 1970s, the US government’s fiscal spending increased substantially while government regulations hindered productivity. When the oil crisis erupted in the 1970s, the US economy was hit by “stagflation,” stagnant growth coupled with high inflation.

Ronald Reagan promised all-out economic reform during the 1980 presidential election campaign. Under the catchphrase of “small government,” Reagan vowed to reduce government intervention by cutting the fiscal spending, as well as invigorate the private economy through tax reduction. During his tenure, he consistently carried out reform- focused policies, known as the Reaganomics. Thanks to his strenuous efforts, the US economy saw consumer price growth stabilize at 3.8%, while real economic growth rose to 3.5%.

Third, Ruud Lubbers is the longest serving prime minister in the history of Netherlands. When he took office in 1982, the country was in a recession. To overcome the crisis, Lubbers formulated a three-stage strategy.

The first stage focused on financial reforms, aimed at reducing financial deficits and suppressing inflation. In the second stage, he deregulated, and in the third stage, he focused on unemployment by promoting a system of job sharing, which did not add to operating costs of employers.

During his 13 years in office, Lubbers also sent a clear signal to both labor and management that the government will intervene if the two parties fail to agree on salary levels. In response, employers and labor unions signed the Wassenaar accord, in which they agreed to pursue moderate wage increases and the reduction in work hours. The tripartite compromise between labor, management and government laid a strong foundation for the country to become powerful despite its small size.

Each of the great leaders in today’s focus had some things in common. First, they identified and diagnosed the symptoms of national decline, based on their insight into the situations facing their respective countries. Second, they set the reform direction towards “small government” and “the expansion of market functions.” Third, they presented a long-term vision and persuaded the nation to follow and, eventually, achieved broad support. Lastly, they exerted strong leadership, going beyond the limits of ideology and politics towards practical economic agendas.

Thus far, we have seen a glimpse of the great leaders who played a landmark role in getting their country back on its feet again. The soon-to-be-inaugurated new administration in Korea needs to learn some lessons from these great leaders.

Thank you for watching. I’m Chang-Soo Han.

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