No more populist drive with food prices

The public has already learned that state-led price control does more harm than good.

Cho Min-geunThe author is the business and industry news director of the JoongAng Ilbo. Last week, representatives of 16 food producers gathered at the Korea Food Industry Association headquarters in Seoul. The Ministry of Agriculture, Food and Rural Affairs rounded them up in less than two months after the last summon on Sept. 8. Vice Minister Han Hoon asked them to “refrain from raising prices unfairly” and instead try harder to “absorb the rise in cost from the spike in import prices by raising management efficiency” to proactively cooperate in the government’s effort to stabilize prices. After the meeting, the vice minister told reporters that the food industry promised to do their best to cooperate by recognizing the “grave circumstances.” His rhetoric such as “raising prices unfairly” and “grave circumstances” point to the grim atmosphere of the meeting on Oct. 20.

The 16 food companies are not alone. The ministry also had a meeting with the representatives of large grocery chain stores the previous day. It plans to meet with major dining franchises to seek their cooperation on price control. That’s not all. The Ministry of Industry, Trade and Energy also went busy calling up industry association executives to check the prices of industrial goods.

The high-level meeting held Sunday between the conservative government and the People Power Party (PPP) can give a clue to the government’s rush to control prices. The PPP has decided to regularly hold the high-level meeting with the government to accelerate its “drive to care for people’s livelihood” after its humiliating defeat in the by-election in Seoul on Oct. 11. The meeting attended by the prime minister, ministers, the presidential chief of staff and the PPP chair discussed “grocery prices.” The PPP and the government agreed to place top priority on reducing the burden for households.

Mentioning “public livelihood” often means election season is back. Businessmen feel it in the air. “The government said it asked us not to raise prices. But it was an order. The government wants us to keep prices capped at least until the parliamentary elections in April,” a food company executive who attended the meeting said.

Who would find fault with politicians tending to peoples’ livelihoods. After all, their basic duty is looking after the public wellbeing and improving it. But when the duty is accelerated with a “drive,” it could change. What should be an everyday responsibility will be rushed to produce immediate results — just like a swift military operation.

The governing force is out to repress the price gains in daily foodstuff like ramyeon and ice cream by twisting the arm of suppliers. If inflation is just transitory, it may work. But the Fed and the Korean central bank have projected extended inflation. Some experts warn of the global economy falling into the trap of structural inflation from de-globalization events like U.S.-China competition over the supply chain and more regional wars than before.

Price control under such conditions will force prices to go higher after the cap is removed. As a food industry official said, a price increase cannot be delayed long due to the persistent cost hikes in sugar, oil and other raw materials. The domino rise of prices after the election in April could cause more side effects and backlashes, he warned.

Given the overall mood, the government could put off the much-needed raise in utility charges, including electricity. Korea Electric Power Corporation’s multi-billion-dollar debt and losses may widen due to higher oil costs.

The public has already learned that state-led price control does more harm than good. The conservative government under president Lee Myung-bak 12 years ago interfered to contain prices when inflation shot up due to strong oil prices. It listed 52 “indispensable” commodities to keep watch over their prices. Economy-related ministers held a meeting on prices every week, and each government office had to check the price of the commodities under their jurisdiction every day. But the prices of the 52 commodities jumped 1.6 times higher than the average consumer price gains over the five years under Lee’s presidency. In his memoir, Lee also admitted to his policy failure.

I am not saying the political community should not pay attention to public livelihoods. But it must not package the move as part of a populist policy. The regular high-level party-government meeting must deal with more serious matters such as structural reforms to help elevate our potential growth rate, now sinking to 1.5 percent. Lower government offices can deal with issues like releasing state supplies of cabbages to stabilize prices ahead of kimchi-making season. We must not waste the ministerial or higher-level authority on wrangling over ramyeon prices. It is the government and politicians who should be containing themselves.