Reactivating our DNA
In 2016, the Korean economy is expected to be faced with various domestic and international challenges, and the social sense of crisis is likely to rise. However, Koreans have a unique DNA in creating new opportunities when a sense of crisis is elevated, so we can turn this misfortune to our advantage if the society’s elite works together to lead public opinion. Next year, the vortex of capital movements, as a result of gradual interest rate hikes in the United States, would move away from emerging markets and a slowdown in China’s growth would dent Korea’s exports.
Korean companies are reluctant to make investments due to the deteriorating export situation and limits to domestic growth and show signs of accelerating employment restructuring. Private consumption, which makes up a major part of the domestic consumer market, is not likely to grow due to youth unemployment, shrinking spending of retired people and increasing more the household debt.
However, next year’s biggest risk factor - which is an opportunity at the same time - are political changes. The National Assembly election in April has already created an adverse effect in the opposition party blocking labor reform bills. We are at a crossroad of placing our economy in the swamp of populism or preparing a political environment to support structural reforms and healthier finances by stimulating our unique DNA to overcome the crisis that Korean companies and people find themselves in.
What we fear the most are signs that remind us of Japan’s “lost decade” of the 1990s. When a high yen weakened Japan’s export competitiveness, the Japanese government used a slack policy of expanding its fiscal deficit to overcome low growth rather than pursuing painful structural reforms. As a result of that foolish decision, the prescriptions were not effective, and Japan’s sovereign debt became the highest in the world.
In Korea, welfare demands are increasing but financial income expansion is limited, and state public debt is likely to grow rapidly. Politicians are responsible for this. The so-called 1987 system of a five-year, single-term presidency successfully gave us electoral democracy, but it failed to achieve a more mature democratic spirit that prevents a monopoly of state power by a ruling party and supports national integration through a parliamentary democracy that respects majority rule.
The ruling and opposition parties are focused on grabbing the power of imperial presidency, and citizens lament the zero-sum political game that Korean politics has become, where any failures of the other camp is considered a victory for the rival camp. Therefore, in next year’s general election, voters need to show their support for the political group with a proper vision and will for reform that seriously discusses how to change the state management system to overcome economic crisis and resolve social discord.
The second phase of political democracy needs to be sparked through an election revolution. If voters are manipulated by promises of more welfare without tax increases or the political tactics of fanning regional and class conflicts, the future of the Korean economy will be a path strewn with thorns. Our economic officials need to devote themselves with a greater sense of seriousness and duty to save the economy from crisis.
For example, they can start a bold inter-Korean cooperation program that expands special zones like the Kaesong Industrial Complex and utilize North Korea’s affordable labor to respond to the shrinking Chinese export market. Creating jobs for young people cannot be achieved by putting pressure on conglomerates. Instead, the government must help them swiftly pursue restructuring to respond to the rivalry of Chinese competitors by removing obstacles for restructuring. Household debt is growing because of the desire of young people to buy homes, so instead of rashly decreasing it, long-term payment plans should be introduced as in the developed countries.
Looking back at our industrialization over the last half century, the DNA of the Korean companies and people to overcome crisis has displayed amazing power. In the 1970s, we overcame two oil shocks by freezing the national budget and closing failing firms. When the financial crisis hit Korea in the late 1990s, Korea went through painful financial and conglomerate reforms to drastically improve the financial structure of banks and large corporations and that brought out the potential to surpass Japan in smartphones, IT, automobiles and the shipbuilding industries.
To turn on this unique DNA, the restructuring of financial institutions and companies needs to be supported and we should also seek political reform in next year’s election. Then, we can avoid following Japan’s stagnation or falling into the trap of welfare populism like Europe and overcome the economic crisis we are squarely faced with.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Dec. 30, Page 35
*The author is a former minister of finance and economy.
by Kang Bong-kyun