Confronting a manufacturing crisisKorea’s factory data added gloom to economic prospects. According Statistics Korea, the country’s industrial output dropped 1.2 percent in March against the previous month, marking the biggest monthly loss in five years. The manufacturing sector is more worrisome. Mining and factory output contracted 2.5 percent, the weakest in 13 months. Apart from semiconductors, the slowdown was broad and most conspicuous in mainstay automobile and machinery equipment fields.
Factory operation rates slipped to 70.3 percent, the weakest since March 2009 following the Wall Street-triggered financial crisis in late 2008. Facility investment also fell by the biggest rate in five months. If not for semiconductors, Korea Inc. would have sunk further. When a manufacturing sector that is responsible for decent-paying jobs withers, no policy promoting employment can work.
The sluggishness in manufacturing is structural. Factory operation rates have been slowing due to higher interest rates, trade barriers and oversupply. Mainstay exports like automobiles, steel, ships and petrochemicals are shaking. Semiconductors, also, are not safe from Chinese competitors.
To revive competitiveness in Korean manufacturing, fundamentals must be strengthened. The manufacturing sector is in need of an overall structural overhaul and the government must help by removing all possible regulations to promote innovation.
So far, the government has been doing exactly the opposite. It forces employers to hire employees on a permanent basis, raise wages and shorten labor hours. All of these policies add a burden on the corporate sector.
Services and financial shares in the economy have been growing, but manufacturing remains pivotal to the Korean economy as it hinges heavily on revenue from overseas. The government must concentrate its efforts on saving the manufacturing sector.
JoongAng Ilbo, May 1, Page 26