Seven New Year’s wishesI stopped making New Year’s resolutions long ago. The dawning of a new year never seemed to make any difference. But two friends and I happened to talk about New Year’s wishes over year-end drinks. One is CEO of a securities company and the other a retiree. We agreed to limit our discussion to the economy. The two differed on every issue, but we all hoped for a better economy next year. I ended up writing down seven wishes for the economy in 2018 — fully realizing they might never go beyond the realm of wishful thinking.
First, I wish that we could be free of the geopolitical risk from North Korea. Visitors from the world’s three major credit rating agencies make routine stops at the National Intelligence Service and ask about North Korea. The biggest influence on Korea’s markets is North Korea’s Kim Jong-un, my friend from the securities company said. If not for the North Korea factor, the Korean stock indexes could jump by more than 10 percent instantly. After Kim offered inter-Korean dialogue earlier this week, the secondary Kosdaq index jumped over the 800 milestone for the first time in a decade. The won appreciated to 1,061 won against the U.S. dollar. The Moon Jae-in administration is being tested as to whether it can can contain Pyongyang, something even U.S. President Donald Trump could not do so far. I hope Moon proves his ability to keep Kim at bay this year.
Second, I wish the shock from higher interest rates can be absorbed by self-employed borrowers. The United States has warned that it could raise interest rates three more times this year. Bank of Korea Governor Lee Ju-yeol said on Tuesday that any decision on further hikes will be made “discreetly” after studying the economic data. Lee, who administered his first hike in November, is unlikely to deliver another before his term ends in March. But whoever succeeds him will inevitably push up the benchmark rate two or three more times within the year so as not to widen the rate gap with the United States. Increases in interest rates could deal a heavy blow to 5.54 million self-employed businesses that run largely on debt. The BOK estimates that a 10 basis point gain in borrowing rates raises the chances of pushing self-employed merchants out of business by 7 to 10.6 percent. Korean self-employed businesses are mostly run by retirees. Their 30-plus post-retirement years hinge on incomes from their shops and stores. They are also the most debt-vulnerable.
Third, I hope the hike in the minimum wage does not translate into higher inflation and layoffs. The minimum wage has gone up by 16.4 percent — the biggest-ever annual gain. Prices are already rising and the job market is rattled. The government will be subsidizing small merchants and employers 130,000 won ($122) per employee in the first year of the increase in the minimum wage. That won’t be much of a relief. If the government’s subsidy does not work, it must stop raising the minimum wage next year.
Fourth, I hope companies won’t cut investments and jobs because of higher corporate taxes. But we can hardly blame them if they do. The United States lowered its corporate tax rate to 21 percent from 35 percent. Japan, China and France are also axing their corporate taxes. Only Korea has pushed up the rate. I just hope the government has a very good plan to keep companies from taking their hiring and investments elsewhere when it defied the global trend and decided to raise corporate taxes.
Fifth, I hope the government can turn half of the attention it gives to unions and workers to companies. Last year, the government cut work hours, pushed up the minimum wage, and fined a franchise company when it did not give outsourced workers permanent status of employment. Employers are burdened with extra labor costs of 83 trillion won.
Under such circumstances, the government is audaciously nagging companies to build factories at home. Park Yong-maan, chairman of the Korea Chamber of Commerce and Industry, said he felt like screaming on behalf of Korean enterprises doing business under a government more rigid than China’s.
Sixth, I hope the government won’t collect more taxes on the pretext of stabilizing real estate prices. If it really wants to raise the property ownership tax, it should target the rich in southern Seoul. It must remember the hard-learned lessons from the Roh Moo-hyun administration in 2005. No government could control the real estate market through taxes.
Seventh, if none of the above can be achieved, I wish for one thing: that politicians stop meddling in the economy once and for all.
JoongAng Ilbo, Jan. 4, Page 30
*The author is a columnist of the JoongAng Ilbo.