The ills of ideology
The author is a senior editorial writer of the JoongAng Ilbo.
Social media has turned decisively negative about the liberal Moon Jae-in government. Voters helped bring about a sweeping victory for the ruling party in last June’s local elections, a signal that public support was still strong at the time. But a month is a long time in politics. Attitudes changed as side effects of Moon’s “income-led growth” policy and steep hikes in the minimum wage started doing damage to poorer Koreans and started choking off new jobs for all classes. The heat wave and possibility of blackouts made the government’s phase out of nuclear power plants look premature. Frustration and disgruntlement built into anger.
Moon himself has begun to realize how unpopular his signature income-led growth policy has become. Chairing a senior secretariat meeting at the Blue House, he used the term “inclusive” growth — commonly recommended by mainstream international organizations like the International Monetary Fund and Organization for Economic Cooperation and Development to tend to the inequalities brought about by globalization and liberalization — to describe his new policy direction. The president explained that the two concepts actually aim at the same goal.
But that is disingenuous. Income-led growth is a concept floated by economists from a distinct ideological pole. The government said that if it artificially raised people’s incomes by intervening in the market, it would lead to economic growth. The inclusive growth championed by mainstream economists envisions stronger welfare and social protections to provide more equal opportunities to economic players without impairing market mechanisms and fair competition. The two concepts differ completely.
Whether the president will revise his policy is questionable. Such a move could stoke protests from liberal civic groups and labor organizations that make up his voting base. The Blue House last month delayed a meeting on regulation reform because the People’s Solidarity for Participatory Democracy (PSPD) — the source of many people in positions of power in the Blue House — opposed any moves to ease a banking law that currently limits industrial capital in banks to 10 percent to prevent the chaebol from entering the financial sector. The PSPD issued a statement protesting the liberal government giving into demands from bureaucrats and industry. The PSPD and the militant Korean Confederation of Trade Unions (KCTU) roll out three or four commentaries and statements every day to express their opinion on current affairs. They have outstretched their proper role.
In a recent interview, Kim Sang-jo, the Fair Trade Commissioner who comes from the PSPD, highlighted that the government’s policy could fail due to the nature of fundamentalism in civic activist groups. “The president is deliberating political judgment to push ahead with regulation reform even at the risk of losing favor with his supporters,” he said. Moon reportedly worried about the impact on employers if the minimum wage went up too high. The progressive front upped its offensive to make sure their president does not deviate from their desired path.
Last week, progressive groups criticized the government for compromising the social and economic reform agenda. They reminded the ruling power how the liberal front turned its back on former President Roh Moo-hyun for betraying his supporters with conservative policies like striking a free trade agreement with the United States and deciding to dispatch Korean soldiers to Iraq in support of the U.S.-led military engagement.
But the government can no longer turn a blind eye to the many alarming signs on the economic front. When changing direction in policy, it is better to give a heads up to the market and economic participants sooner rather than later. The semiconductor boom is fizzling out. Bellwether Samsung Electronics has moved to secure long-term clients for stable supplies, raising alarms about the market prospects and sending its stock price plummeting on the local bourse. Given the fast ascension of Chinese companies with the support of generous government backing, Korea’s heyday in semiconductors may be coming to a close.
The strengthening of international oil prices also threatens the petrochemical industry — the other sector that has supported exports amid Korea’s underperformance in mainstay products. The market regarded $60 as the resistance point for crude when reflecting the drilling and fracking costs in shale gas production. But Dubai crude has hit $72 per barrel. The U.S. is sitting on ample shale reserves and is unworried. It has renewed an embargo on Iranian oil. China, in a trade war with the U.S., is on the weaker end as it is the world’s biggest oil importer. Given the oil leverage in the trade war, the price won’t likely come down any time soon.
The global financial markets also have turned volatile. The U.S. debt curve is showing inversion signs where long-term instruments have yields lower than short-term ones, which is feared as a harbinger of an economic recession. The inversion happened six times in the U.S. since 1970 and each time was followed by a recession. Fiscal debt problems always cause global financial crises, and that was triggered by U.S. monetary tightening.
The government should just admit flip-flopping on its income-led growth policy and muster support to build resilience against a looming tsunami of external shocks. It may not be able to achieve next year’s hike in the minimum wage if the opposition rejects approval of fiscal spending to subsidize employers for increased labor costs. The government is digging up reserve funds to meet the 3.8 trillion won ($3.37 billion) program, but won’t be able to sustain the program long.
The liberal government should also keep a modest distance from civic groups. Even if its agenda was a campaign promise, policies led by ideology cannot succeed. If policy and the government fail, the country and people suffer. We are sick and tired of the ideological wrangling in economic policies. We do not care whether it is conservative or liberal as long as the policy generates a successful outcome. As China’s great reformer Deng Xiaoping famously said, a cat can be black or white — as long as it catches mice.
JoongAng Ilbo, July 25, Page 31