[Outlook]A German lesson for Korea

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[Outlook]A German lesson for Korea

Germany is no longer the “sick man of Europe.” In fact, the German economy is looking extremely good. This is the opinion held by most experts around the world after the recent improvements in the German economy, which had experienced a seemingly endless economic downturn since the historic reunification of the country in 1990. In 2003, Germany’s GDP growth rate was in negative territory. Last year, the growth rate reached 2.6 percent, followed by 2.5 percent this year. Next year, the growth rate is projected to reach 2.8 percent.
Ever since civilized societies developed their prime objectives have been peace and prosperity. In today’s world, with its sophisticated trade system in which goods and services overcome the traditional barriers of time and space, the economic success or failure of a country has an immeasurable impact on its citizens. We only need to recall the painful memories of the Asian financial crisis in 1997 to understand the consequences of a national economic collapse. Yet, looking around, one could think our country has forgotten the indispensable importance of economic growth and stability.
A prime example is the government’s restrictions on economic activity, which have become so complicated and numerous that they are choking the dynamism of our economy. According to a report by the Korean Chamber of Commerce and Industry last Tuesday, an individual company that wants to build a new manufacturing plant must plow through 35 regulations, from ones that govern the choice of site to those that determine approval for construction. The number of regulations rises to 39 if the factory site is located in the vicinity of Seoul, the KCCI report states.
The government has long promised reform of conflicting and irrational regulations on economic activities in answer to complaints and criticism, but nothing much has changed. This is all the more frustrating when considering that these reforms don’t have any recurring costs and only require the government authorities to put down the reins of power.
Surveys show that there is a great lack of public trust in the economic policies preferred by the government and the political leadership. The recent achievements in the German economy were made possible through a government coalition in which both the left- and right-wing factions cooperated. Underlying the changes was, of course, Chancellor Gerhard Schroeder’s social welfare reform, “Agenda 2010,” on which he staked his reputation. “Agenda 2010,” is regarded as the most comprehensive economic reform program in the history of Germany, and it focuses on tax reform. It aims to lower the financial burden imposed by government activity through reducing social welfare costs and the taxes paid by businesses.
In order to increase social welfare benefits, the government must collect more tax, and an increase in tax revenue is only realistically possible when businesses enhance their competitiveness and the country attracts more foreign investment. The German government is aiming to do so by lowering corporate taxes. It knows better than to try increasing social welfare by levying more taxes on businesses that are already struggling. Germany’s corporate tax reform program will cut the businesses’ tax rate to 9 percent, the lowest in the world. Once the tax reform is set in place, both domestic and foreign companies in Germany will be able to make higher profit -- paving the way for more new jobs and bigger tax revenue.
In the past, Germany had been able to successfully achieve both social welfare and economic growth with its “social market economy.” However, faced with the reality of intense and unforgiving global competition, it has now opted for bold change. Its policy objective, which had, until now, been a balance of economic efficiency, social equality and environmental preservation, has been readjusted to improve the corporate environment for the benefit of global competitiveness.
Korea is running out of time. Once the KorUS and Korea-EU FTAs take effect, our old regulations will be worthless and we will have to change our corporate environment to survive increased global competition, if we are to continue being a wealthy country. Incidentally, the presidential election will be held in a few months. In such vital times, the public should learn to choose a candidate based on their policies while the candidates should change accordingly and focus on presenting policies that really work.

*The writer is a professor of public law at Sungkyunkwan University. Translation by the JoongAng Daily staff.

by Kim Hyung-sung
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