A tipping point
The author is the Tokyo bureau chief of the JoongAng Ilbo.
Taro Aso, Japan’s deputy prime minister and finance minister, confronted Prime Minister Shinzo Abe on May 28, 2016. He told his boss to make a choice between being a sane or populist leader, by raising taxes to improve the country’s financial integrity or reverse the decision for the benefit of the economy at the moment. Two days later, Abe put off the plan to increase the sales tax rate from 8 percent to 10 percent starting April 2017 to October 2019.
All the intentions of the Moon Jae-in government’s jobs agenda — increases in the minimum wage, more public-sector jobs, upgrade contract workers to the permanent payroll — are noble. At the same time, they have popular appeal. But popular appeal can fade, and when it does, somebody usually has to pay a price. In a cabinet meeting on Tuesday, Moon finally admitted the economic statistics don’t look good.
Moon, however, did not entirely give in. While acknowledging difficulties, he claimed other macroeconomic data remained positive. When he was the chief of staff under President Roh Moo-hyun, he said, the economy was doing well, but the livelihoods of the people were not. Then and now, that argument has no logic.
A day later, Moon said economic conditions were grave. His perspective on the economy somehow dramatically changed overnight. Contradictions by the president can send an unclear message to the market. Economic participants become more insecure about prospects. A president is no economist.
Why did he have to claim data was sound if he thought economic conditions were serious? Who exactly advised him to make such contradictory remarks?
The surplus in the current account is imbalanced, interest rates are rising despite subdued demand, the factory operating rate is sinking, and job numbers are at their worst since periods of crisis like the late 1990s and after 2008. There are no signs of solidness anywhere except for the government’s unwavering commitment to its ideological beliefs.
The government has pursued its economic policies as if on a mission. Little room has been left for a sane finance minister. Productivity must improve to fuel growth in the economy. A comparative study in 2006 showed the greater the regulations, the weaker the labor productivity. The study of 15 economies by the United States and OECD left out South Korea. Even if it was included, the results would have been same. Korea is going against the wind with a leftist economic agenda.
Korea Inc. is weighed down by a chronic weakness — militant unions. The unions’ role has become more assertive under the progressive government.
Unions have resorted to illegal activities and violence condoned by law enforcement authorities. The Korean Confederation of Trade Unions (KCTU) acts as if it has a legitimate stake in the government.
The government is overly indebted to the union for protests that led to the ousting of the former president and election of Moon. It does not owe that much to the unionized workers. Moon did not win a majority of the votes in the election even after the downfall of the conservative front. Moreover, the candlelight vigils should not be credited to the KCTU.
The government must become practical. Before changing policy direction, it must be firm about illegal excesses by the KCTU. While respecting legitimate union activities, illegalities must not be tolerated. That alone can send a clear message to the market.
Sentiment also could improve. The government and ruling party may worry about a loss of support from its base, but it can win over the centrists. The KCTU must be humbled. Given the cold public sentiment towards the militant union, only change in KCTU can ensure its long-term viability.
There is no time to be wasted. The economy is withering. Without a dramatic turn, the fundamentals of a market economy could be shaken. Society and the economy can normalize in due time after a transitional period, but a lengthy correction can be damaging. Korea has already derailed from its rightful course. The ideologists may not see it, but consumers and economic players feel it to their bones. The Korean economy could be sinking.
JoongAng Ilbo, Dec. 14, Page 35