The crisis of AugustThe government has come up with a somewhat pessimistic assessment of growth for the Korean economy. The Ministry of Strategy and Finance said that the index of industrial production took a downturn after June, while the average operating ratio for manufacturers dropped. The ministry also said the pace of employment growth has slowed by 74,000 jobs in June compared to the same period last year. A day earlier, the Korea Development Institute, a state-run think tank, sounded a similarly gloomy note by saying that despite some improvement in facilities investment led by the semiconductor business, the pace of growth in other sectors is slowing. Such analyses demonstrate a weakening of our economy.
The government does not seem to know how to address these concerns. It blindly pushes one economic policy after another, which may dash cold water on investment sentiment. The Moon Jae-in administration is trying to raise corporate taxes in sharp contrast with other advanced economies such as the United States and Japan. Instead, it is hoping a rapid hike in the minimum wage will create more income for spending, even though it’s an obvious burden on small and midsize companies and mom-and-pop stores across the country who pay the minimum wage to workers.
Now is the time for the administration to encourage the corporate sector to invest more by cutting red tape rather than putting pressure on struggling entrepreneurs. Bank of Korea research shows this. The central bank pointed out that South Korea’s variability in GDP growth, or standard deviations of quarterly GDP growth, is stuck at only half of the OECD average as a result of simultaneous declines in the propensity to consume and invest.
Such economic anxieties are mixed with mounting security concerns about the threat from North Korea as it continues to develop nuclear weapons and more sophisticated missiles. Coupled with widespread rumors of GM Korea planning to pull out of South Korea and a management crisis simmering at Hyundai Motor and Kia Motors ahead of a court’s upcoming ruling on compensation for workers, August is feeling like a month of crisis.
In such a challenging environment, President Moon Jae-in’s economic policies — aimed at stimulating growth through a better distribution of wealth through changes in taxation — can hardly work. If our mainstay industries shake and economic growth dwindles, nothing is going to help fatten government coffers, not to mention create more jobs. It is time for the government to focus on rejuvenating the vitality of our economy before an August crisis extends into the autumn.
JoongAng Ilbo, Aug. 9, Page 30