More quality jobs keyChoi Kyung-hwan, the deputy prime minster for the economy and finance minister, champions income-led growth. Though the concept remains ambiguous, he seeks to first narrow the widening income gap between households and companies. “Only when companies’ revenues flow back to households can consumers spend more and the corporate world will invest more,” he said. But the economic czar’s prescription raises serious doubts.
Choi’s remedy for the economy is primarily focused on “distribution,” as he seeks to achieve household income growth by narrowing the income imbalance between the two sectors - in line with the International Monetary Fund’s latest emphasis on an appropriate level of redistribution to help ease income disparity. Choi’s new economic team may have taken note of the IMF’s analysis that growth can hardly be achieved without increasing the incomes of the middle class and those in the lower-income bracket.
In contrast with his predecessor’s formula based on raising employment rates, Choi’s new economic team set the goal of elevating household income, as clearly seen in its recipe to levy taxes on companies’ cash reserves or offer incentives to spend them by raising dividends for shareholders or wages for employees.
Choi said his team was taking an uncharted path. An intensive package of prescriptions may look reasonable given the urgency of rejuvenating an economy mired in low growth, stagnant consumption and a critical lack of entrepreneurship. But his team seems to be confused about the solution, as it attempts to mobilize public funds, expand fiscal spending and resuscitate the real estate market, while at the same time forcing the corporate sector to spend cash reserves to raise household income. That would amount to a disparate mix of policies ranging from Keynesian to Neoclassical to socialist economics.
Needless to say, income growth is best achieved by creating quality jobs. The government’s idea of imposing taxes on companies’ cash reserves is neither effective nor sustainable. The solution lies in easing regulations to beef up conglomerate investment and in recovering the lost entrepreneurial spirit. The government also must revitalize the services sector to create more quality jobs. The economy is basically about psychology. When all stakeholders are positive about the economy, it really can get better. Choi’s team must first inspire confidence.
JoongAng Ilbo, July 21, Page 30