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[Editorial] Where’s the market?

Sept. 7, 2011 - 19:03 By
One of the first things students learn in an economics class is that, in a competitive market, the price of a good is determined by the supply of and demand for it. There is no room for intervention by the government except in case of a market failure.

But the Korean government intervenes in the market even when it operates without a hitch. It does in the name of its lofty goals, such as shared growth between large and small businesses or assistance for people in the middle or lower income brackets.

A case in point is the lowering of commissions that department stores, home-shopping channels and other large retailers charge on the use of their floor space and airtime by sellers. The chairman of the Free Trade Commission and representatives of 11 retail giants agreed to cut their commissions by 3 to 7 percentage points. Here the “agreement” was intended to promote “shared growth” between operators of retail giants and small sellers, the Fair Trade Commission said on Tuesday.

Of course, the “agreement” was a euphemism for the antitrust agency’s arm-twisting of the large retailers. The veiled coercion cannot be justified. Moreover, shared growth is beyond the purview of the antitrust watchdog, whose job it says is to “formulate and administer competition policies, and deliberate, decide, and handle antitrust cases” as a quasi-judiciary agency.

Another case of illegitimate market intervention was an accusation it recently hurled against a new high-end brand of instant noodles. It accused its maker of profiteering, unveiling the cost of making the noodles. It did so in a government-wide campaign to rein in inflation. Here again, however, the pursuit of price stability is beyond the realm of its authority.

It is not the antitrust regulator alone which resorts to arm-twisting. When gasoline prices were soaring, the Ministry of Knowledge Economy forced refineries to lower the prices and threatened to look into the books of gasoline stations.

Of course, it goes without saying that the antitrust regulator and other government agencies must launch an investigation when a department store or an instant noodle maker, for instance, is suspected of breaching the Fair Trade Act or other regulations. Then they have to act on their findings, as they are legally authorized to do. Otherwise, government agencies should restrain themselves from the temptation to intervene in the market. Distortion of prices in the market economy does more harm than good.