Deflation scare tactics unnecessary
The government has obvious reasons to push for an increase in the minimum wage. Interest rate cuts and quantitative easing were not enough to boost the economy, so as a last resort it is proposing a wage increase. It is a proposal of desperation. The premise is that the Korean economy is at, or at least approaching, its worst. Is it?
On March 4, Deputy Prime Minister for the Economy Choi Kyung-hwan said a wage increase was inevitable “because we are deeply concerned about deflation.” In February, the consumer price index fell 0.5 percent, its lowest level since July 1999. But core inflation, which excludes volatile oil and food prices, rose 2.3 percent compared with a year earlier, remaining in the neighborhood of 2 percent for the second consecutive month. As falling oil prices stabilize, consumer prices are likely to rise again in March. Deflation means a “constant” decrease in the general price level, but Korea is not yet in such a state. So Choi’s remark may well be a calculated threat.
Let’s look at the economic growth rate. Since our neighbor China is growing 7 to 8 percent a year, we feel we should be, too. But the Korean economy has passed that stage. According to the Organization for Economic Cooperation and Development, Korea’s economic growth last year was 3.5 percent, highest among its 34 member countries. It may not be remarkable, but neither should 3.5 percent growth be taken lightly.
Yet Koreans complain of poverty. We still cry “more growth.” Politicians and the government push for the economy to grow more than it can manage. The Lee Myung-bak administration advocated 7 percent growth and the current administration aims for 6 percent. Let’s be honest. We need to admit we can’t do it. There is no need to threaten citizens with deflation and low growth after making unattainable promises.
It is merely acknowledging a failure of policy. Instead of blaming the opposition party, the president and ministers need to persuade it to create an atmosphere of cooperation. The situation is not that bad. Housing prices and inventory have begun to move. Dominant economic analysis says corporate performance bottomed out in the fourth quarter of last year and is now going up. Then spending and investment will revive. Pushing companies to raise wages would only transfer ultimate damage to low-income workers.
But the ruling party, government, the Blue House and even the opposition party seem to have agreed to finalize a minimum wage increase. They must have the general election in April 2016 in mind. Even in this desperate time, the economy may end up melting into politics.
The author is a business news writer of the JoongAng Ilbo.
JoongAng Ilbo, Mar. 11, Page 30
by KIM JUN-HYUN