Heading toward the cliffThe Kospi dropped another 1.8 percent to the lowest closing level in 22 months on Friday despite overnight recoveries on Wall Street. External factors can no longer be blamed for the acute weakness in Korean equities. Data suggests the economy may not even pull off a downgraded target of 2.7 percent in annualized growth this year. The U.S. economy, with per capita income twice that of Korea’s, is looking at growth of 3 percent this year. The scoreboard on the employment front is even more pitiful. Job openings in the United States and Japan far outstrip demand, and yet the shortage of jobs in Korea is the worst since the global financial meltdown of 2008. Mainstream industries are battered. The shipbuilding industry is shedding jobs due to lack of orders, and automakers may be next.
The external environment has not been favorable for our export-reliant economy due to a trade war between the United States and China and a spike in international oil prices. But that alone cannot explain the state of the Korean economy. There must be a better explanation for Korea doing worse than others. The government insists on experimental economic policies despite the obviously bad effects. It has stalled much-needed reforms in the public sector and labor market. Policies favor unions. Seoul has raised corporate taxes, which are coming down elsewhere in the world. Kim Dong-yeon, deputy prime minister for the economy, helplessly admitted that was the “limit” of the government’s abilities.
The government has been active in areas where it should not interfere. It pressed companies to improve their governance. It spent tax revenues to make temporary jobs while pursuing a wage-led growth policy that ended up killing jobs. The Blue House maintained that temporary job losses were “inevitable pains” as the economy evolves.
Policymakers chose to ignore warnings from within and out. Kim Kwang-doo, vice chairman of the National Economic Advisory Council, has been warning that the country could be entering a recession in May. But the government insisted the economy was in recovery. It snubbed the Korea Development Institute’s advice in December that income-led growth could worsen income disparities in Korea.
The Moon Jae-in administration has failed in economic policy because it mixed it with politics. To get out of this mess, it should immediately change direction and adopt policies that are in tune with reality. On it current path, it is pushing the Korean economy toward a cliff.
JoongAng Sunday, Oct. 27, Page 34