Deregulation is the answerPresident Park Geun-hye presided over a joint public-private investment and trade promotion meeting that was held for the first time in five years. She said trade and investment are national tasks that should go beyond any political faction and emphasized the need for deregulation to stimulate corporate investment. It is good to see the president pay close attention to industrial voices and order specific policies to support trade and investment for small and mid-sized companies.
The Korean economy is stumbling. Exports are quickly slowing, and capital investment has been contracting for the fourth consecutive quarter. The Bank of Korea warned that 22 percent, or 48 trillion won ($43.56 billion) worth, of loans by large companies are potentially in danger of turning bad amid the prolonged slowdown in the construction and shipbuilding industries. The government came up with stimulus measures to pump life into the comatose real estate market, but household debt of 959 trillion won is a ticking bomb. Growing anti-corporate sentiment following the economic democratization wave during the campaign season and Japan’s cheap yen have dampened corporate vitality.
Politicians pressure companies to invest at least 10 percent of their cash reserved to stimulate the economy. But corporate reluctance suggests a pessimistic investment mood. To businessmen, politicians are being audacious for using them as scapegoats during campaigns and then cajoling them to invest in order to help out the economy. To fuel investment, companies should be encouraged to have more confidence. Pressure or not, a good businessman would be willing to invest if uncertainties clear up and profit-making is evident. The starting point would be deregulation.
We could start with the lucrative medical services sector. Foreign patients are rushing into the country, and Korean hospitals are exporting medical care programs overseas. The country has the medical skills and technology, but foreign patients are being turned away because hospitals cannot join with hotels to host them. Society is paying a heavy cost to send children to be educated overseas but is critical of an international school on Jeju Island. The government must first remove red tape in the service sector.
The economy is all about sentiment. If the government demonstrates decisive and clear leadership, the economic tide could change. Backed by the government and Abenomics, Japanese companies have become energetic and aggressive. The government in Seoul must send a consistent message that it is supportive of the economy and corporations. Instead of coming up with new regulations, politicians should focus on corporate investment.