Time to change courseThe U.S. economy is on a roll. The world’s largest economy expanded by 4.1 percent in the second quarter against last year, nearly doubling the 2.2 percent pace from the first quarter. For the early six-month period, its gross domestic product grew 3.1 percent, on pace with the Conference Board’s estimate for 3.0 percent annualized expansion for 2018.
But the Korean economy is moving at a snail’s pace. The government has lowered its estimate for this year’s growth from 3.0 percent to 2.9 percent. The U.S. economy may end up moving at faster pace than Korea’s. An economy with per capita income just half of the U.S.’s $62,000 and its GDP 12 times smaller is moving at a slower pace.
Since the 2008 financial crisis, Washington has been consistently boosting corporate investment and improving the business environment. The Barack Obama administration sought a revival of the manufacturing sector under the slogan of “Remaking America” in 2010. Corporate taxes have dropped since then. President Donald Trump went further with his “America First” slogan. The maximum corporate tax rate was axed from 35 percent to 21 percent. Companies returned home and increased spending and hiring. The number of employed in the manufacturing sector has topped 15.5 million. The unemployment rate that neared 10 percent in 2010 fell to the 4 percent range.
The increase in jobs has fueled consumption. Consumption gained 4.0 percent in the second quarter. Trump vowed to accelerate growth through fiscal expansion and infrastructure spending.
Korea is going in the opposite direction. The maximum corporate tax rate was bumped up to 25 percent from 22 percent and now is heavier than that of the U.S. Instead of policies aimed at generating jobs, they are focused on raising incomes. The push for minimum wage hikes ended up wiping out jobs at small- and mid-sized companies and the self-employed.
Consumption in the second quarter hardly grew, up 0.3 percent in the quarter — the lowest since the fourth quarter of 2016. The result dashed the government hopes for stirring consumption through increased income. In a recent report, the International Monetary Fund warned that if our minimum wage goes beyond a certain threshold, Korea’s fundamentals could be shaken and advised discretion in the pace of increases.
In the second quarter in Korea, facility investment fell 6.6 percent compared to the first quarter — another grave signal of a receding economy. Yet the ruling party head blames the country’s top company for “becoming [one of the world’s best] by exploiting its supply chain.” The government must re-draw a feasible outline to stimulate growth without ideological engrossment. The U.S. economy is a living lesson.
JoongAng Ilbo, July 30, Page 30