[OUTLOOK]Take pragmatic stance to business

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[OUTLOOK]Take pragmatic stance to business

Last week I met with businessmen at the Namdong Industrial park, situated in Incheon, a port city southwest of Seoul.
In Korea, there are 3 million small and medium-sized companies employing more than 10 million workers. Without development of these companies, Korea’s economy cannot achieve continuous growth.
However, due to the economic downturn of the past several years, these companies have lost their competitiveness.
In particular, many of the companies and factories in the Namdong complex have been having a hard time because of the continuous rise in the cost of production and the economic rise of China.
As I already knew these facts, I had presumed that these businessmen would demand that the government conduct measures aimed at revitalizing the economy or increasing capital in the market.
But when I met with them, they did not ask for short-term measures such as those. In fact, the Korean administration already offers a variety of measures to support small and medium-sized companies, at almost the same level as those offered in advanced nations.
Part of the problems these companies talked about depended mostly on themselves. For instance, there is a limit to how the government and conglomerates can help these companies improve their brand image, develop technology through increasing their expenditure on research and development and build trust from financial institutes.
These companies can solve their problems by taking advantage of the existing measures and systems.
The Korea Trade-Investment Promotion Agency, for instance, can help them to increase the efficiency of their overseas marketing. Imports from China can be inspected more thoroughly in customs offices.
The Korea Export Insurance Corporation also offers foreign exchange risk insurance.
But the businessmen pointed out other more fundamental and structural problems.
Most of them complained about difficulty in filling workforce shortages. They wished to be supplied with a stable workforce, although these workers might demand high wages.
Under the system of industrial trainees, the supply of migrant workers filled the shortages to some extent.
However, the recent introduction of the employment permit system has significantly decreased this supply.
The employment permit system stipulates by law that foreign workers work under the same conditions as those for domestic workers. Because of this system, businessmen have paid the same maximum wage, overtime wage and severance money for migrant workers as for Korean workers.
As a result, this increased labor cost resulted in a rise in the cost of production.
Applying the same working conditions to migrant workers, who have difficulty in communication and lack the required skills, as are stipulated for domestic workers might be a good idea in terms of human rights and labor right issues.
However, this will weaken companies’ competitiveness and intensify rigidity in the labor market.
Another problem that the businessmen were the most worried about was China’s growing economy and business sector.
As Korea’s small and medium-sized companies lack technology and have weak capital strength compared to that of the nation’s conglomerates, they felt more sensitive to the threat by China, which is pursuing growth vigorously, using cheap labor as a weapon.
To compete with China, the companies knew that they should speed up additional investments before it is too late. But many businessmen seemed to be far from confident about making such investments.
Anti-businessmen sentiments are widespread in our society.
The future of the economy is foggy due to the government’s reform measures.
Measures such as the employment permit system make companies less competitive. These factors weaken businessmen’s motivation for investment.
If this situation keeps up, many businessmen of small and medium-sized companies will quit their businesses or transfer their factories or companies to other developing countries, including China.
This reality gives rise to growth without employment, and accelerates the polarization that the government has fretted about all along.
The government and the ruling Uri Party should first take a pragmatic stance and listen to businessmen in the field, before emphasizing the importance of reform measures and short-term economic measures to sustain the economy.

* The writer is a professor of economics at Yonsei University.

by Lee Doo-won
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