The coming troubles
The author is an economic news editor of the JoongAng Ilbo.
When I met the head of a bank about two months ago, I asked his thoughts on the economy. “Very bad,” he answered as if he was asked an obvious question. At the time, President Moon Jae-in said his government was on the right course in its economic policy.
The economy has been sinking at a rapid pace since then. New hires in September were barely 45,000 compared to a year-ago thanks to various makeshift measures after the government panicked that the number might be negative. Large companies and financial companies were arm-twisted to increase employment. One executive of a financial firm said the company announced a recruitment plan beyond its affordability even though it needed just half the number. Capital investment shrunk 4.7 percent in the third quarter. The Bank of Korea cut its growth estimate twice.
The government feigned action. It replaced the industry, trade, and energy minister and the labor and employment minister as well as the chief of the national statistics office after disappointing data. But the real commanders of the economy — Kim Dong-yeon, deputy prime minister for the economy and Jang Ha-sung, president Moon’s policy chief — remained in their seats.
The government also came up with an action plan to create jobs. They included 59,000 temporary jobs that would last two to three months at best to help out with cleaning, security and farming. The government claimed those jobs are needed particularly in the winter when the number of employed usually drops by 800,000.
Such a move may be able to keep the number of employed from falling into the negative. But what happens after the budget runs out? The government said it could extend some job-making projects. However, will young people settle for such low-paying jobs? Some college graduates and job-seekers sneer that the money would have been better spent if it was handed out in cash for them to look for jobs overseas. The government will surely be under attack even after spending a massive budget.
The worse is yet to come. The minimum wage will go up 10.9 percent from the beginning of January on the back of a 16.4 percent jump this year. Few small businesses will be able to absorb such a rapid wage increase over two years. The universal 52-hour workweek cap also will be enforced from the beginning of next year after the six-month grace period runs out for most workplaces.
The Korea Economic Research Institute estimates such moves will translate into over 12 trillion won ($10.5 billion) in extra labor costs for Korea Inc. The jump in wages will weigh down the entire economy and eat into its competitiveness in a tougher trade environment due to upsets and barriers triggered by the trade war between the United States and China.
The government recently announced a package of promotions for companies returning home. Large companies repatriating their manufacturing bases back to Korea will be rewarded with government subsidies and tax incentives usually reserved for smaller players. But the government is naive if it believes those measures can bring back the jobs that fled the country because of unrelenting regulations, radical labor unions and costs. That’s why the government is being criticized for being oblivious to the problems in the domestic business environment.
Many are worried about our current economic conditions and the lax government policy and response. Kim Kwang-doo, vice chairman of the National Economic Advisory Board and an architect of the economic policy of the Moon Jae-in administration, is one of them. He sighed that the Blue House and government lack a sense of urgency despite all the obvious ominous signs in the economy.
The public has become jittery not just because of the downward spiral in stock prices and the bad economic data. They fear the government’s incompetence. The economy has endured a crisis almost every 10 years, and another is nearing.
The government’s fiscal prudence helped the country weather crises in the past. The government could bail out insolvent financial institutions through an input of public funds in the late 1990s. The government could also fend off shockwaves from the Wall Street-triggered meltdown in 2008 through loose monetary policy.
But whether the country can combat another crisis remains questionable. Many mainstream industries have lost their competitiveness. The self-employed are giving up. Fiscal and financial ammunition is not as rich as in the past. The government must rearm itself with strong vigilance to restore confidence in the economy.
JoongAng Ilbo, Oct. 30, Page 27