Election gives DP chance to expand ‘J-nomics’

The ruling Democratic Party’s landslide victory in Wednesday’s regional elections has put it in a powerful position for the future.

The party now dominates regional governments, has a plurality in the National Assembly and is in control of the presidency.

Market experts say the Democratic Party’s June 13 victory will propel President Moon Jae-in’s “J-nomics” economic strategy, which is centered on income-led growth and reforming conglomerates’ corporate governance.

Up until now, the ruling party has struggled to pass major bills, such as the supplementary budget, in the National Assembly.

But the recent election reaffirmed the popularity of the Moon administration and strong public support for the Democratic Party, as it won 11 of the 12 National Assembly seats up for grabs. The ruling party now controls 130 of the assembly’s 300 seats.

During the general elections of 2016, the Democratic Party defeated the conservative Saenuri Party - a predecessor to the Liberty Korea Party - by one seat and then won the snap presidential election in 2017.

The next general election is scheduled for May 2020, and the current administration will be able to push its policies without much opposition for the next two years.

“With the ruling Democratic Party’s overwhelming victory in the June 13 elections, the government’s income-led growth policies have secured full support for the future,” said Park So-yeon, the head of strategic investment at Korea Investment & Securities.

“Recently, there has been criticism over the side effects of the minimum wage hike and lowered working hours [the 52-hour workweek set to go into effect next month],” said Park. “The number of temporary workers being fired has been increasing and the income gap between the top tier and lowest income households is widening. But looking at the results, [the Moon government] has the public’s support, and despite the controversy it will likely continue with raising the minimum wage to the promised 10,000 won [$9.24] per hour by 2020.”

Korea’s umbrella labor unions plan to boycott negotiations with industry and the government on next year’s minimum wage. They are protesting a bill that recently passed the National Assembly that will reduce the effects of the increase to the minimum wage. Despite this, it is expected that the minimum wage will increase by at least 15 percent from this year’s 7,530 won by the end of this month.

The government is also likely to further tighten regulations on conglomerates and push them to reform their governance structures.

The Moon administration and the ruling party are also trying to get conglomerates to clear up their labyrinthine cross-shareholding structures, which allow the company’s founding families to control vast business empires with small stakes in a few affiliates.

The Democratic Party has been trying to pass an insurance reform bill that limits conglomerates’ insurance companies’ stakes in nonfinancial affiliates. If this bill passes the National Assembly, Samsung Life Insurance will be forced to sell about 20 trillion won worth of stocks in Samsung Electronics. The heir of Samsung Group and Vice Chairman of Samsung Electronics Lee Jae-yong owns only 0.57 percent of Samsung Electronics. When the shares of other Samsung family members, including Lee’s father, are added, they still only reach about 5 percent. Lee controls Samsung Electronics through the stakes that he owns in other Samsung affiliates, including Samsung Life Insurance.

The Moon administration has also been pushing for higher property taxes, particularly on the affluent Gangnam region of southern Seoul. The government is considering tightening comprehensive real estate taxes, which were loosened 10 years ago during the Lee Myung-bak administration.

Higher real estate taxes are expected to help cover the estimated 6 percent increase in welfare spending in next year’s budget. Inter-Korean economic cooperation projects are also expected to get the green light as a result of the Democratic Party’s June 13 election victory. The successful summit between North Korea and the United States may also spur economic cooperation between the two Koreas.

“Once the relationship between North and South Korea and the North and the United States improves and peace descends on the peninsula, our economy will experience huge changes,” said Moon during a national strategy meeting at the Blue House on May 31.

BY LEE HO-JEONG [lee.hojeong@joongang.kr]