Losing the battle and the war

Kim Kwang-ki
The author, the head of the Economic Research Institute for the JoongAng Ilbo, is an editorial writer.

President Moon Jae-in must be biting his nails after the news of his utter defeat in the battle to create jobs. His two commanders - presidential policy chief Jang Ha-sung and Deputy Prime Minster for the Economy Kim Dong-yeon - have fallen out over the employment strategy. Moon gave an ultimatum and told the economic team their positions would be at stake if they cannot save jobs. The mood on that battlefield has gotten intensive and solemn.

They must not have imagined they could lose so easily, rapidly and thoroughly. The team believed it was ready both in theory and practice. Jang brought in the most apt and determined recruits from the labor and activist front, which contributed to the democratization of Korean society. Their strength is a passion for justice and compassion for the weak and disadvantaged.

On the flip side, Kim leads an army of bureaucrats who planned and achieved industrialization. They have close connections with businesses and markets. They have the means to regulate, and also have the authority to bend and lift regulations to spur innovations.

The public hoped that the progressive front would bring about harmony among unions, companies and the government. They thought Moon’s economic team would nurture new growth engines and ease inequalities. That mission may have been possible if Jang’s team had pulled along the combative unions and Kim’s team pushed the business groups toward that goal.

But power tilted towards Jang’s team, which was led by self-righteous members of the protests that helped oust former president Park Geun-hye and put Moon in her place. Jang’s team put into practice pro-labor policies such as hikes in the minimum wage, cutting of the work week, and a crackdown on rich people making money on real estate. Kim’s team was sidelined and only called on to clean up a mess and make amends with government money. Jang’s army was swift and unwavering. That charge has wiped out jobs, with more than one million people losing jobs in less than a year.

President Moon Jae-in’s policy chief Jang Ha-sung, right, is an avid proponent of so-called income-led growth. [YONHAP]

There are several reasons behind the defeat.

First, despite goodwill, the commander has charged ahead without caring for his soldiers. Some have fallen while others fled because they could no longer endure the pain. Second, the leadership has not read the climate well. The operation went ahead despite alarming changes in the trade front due to a head-on clash between two superpowers, the United States and China. Third, it overlooked the fact that the world is now borderless. Companies and the rich frustrated with negative sentiment and red tape or tax levies have taken their money out of the country to invest and spend elsewhere.

The Blue House and ruling party will have to collect more taxes to shore up their ammunition in the losing war to create jobs. They are betting on a 60 trillion won ($54 billion) surge in tax revenues over the next five years. But how they came to the conclusion that tax revenues will soar in a sagging economy is a mystery. The government inevitably would have to collect more taxes or issue more debt. If its spending can increase decent jobs, then the money would be worthwhile. But it will probably be frittered away.

To charge ahead at this stage is too risky. Such tactics would only worsen the damage. Fighting with courage does not always end in victory. A retreat to wait for a better time can be a wiser strategy.

While responding with the same intensity in the trade war with the U.S., China nevertheless comes to the negotiating table. Some among the Chinese intelligentsia advise President Xi Jinping not to provoke the U.S. too much by making hegemonic ambitions too obvious. They remind Beijing of Deng Xiaoping’s famous dictum: Hide your strength and bide your time. In a lecture, Jilin University professor Li Xiao first called for reforms in a system that hampers innovation and more engagement in a flexible market economy. “Building an innovative state is how China can ultimately beat the U.S.,” he argued. If Seoul can share just half the openness and flexibility it shows to Pyongyang, the mission to generate growth through innovation could be successful.

JoongAng Ilbo, Aug. 22, Page 27