The perils of policy

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The perils of policy

Published: 11 Feb. 2019, 19:44

Kim Ki-chan
The author is an editorial writer of the JoongAng Ilbo.

A record number of companies were newly established last year all thanks to government policy, President Moon Jae-in told venture entrepreneurs invited to the Blue House last week. The boasting sent eyes rolling in the room. A CEO pointed out that few unicorns (start-ups valued at $1 billion or more) are created in Korea because of uncertainties in government policy. “We fear distortion of the market whenever the government comes up with new support measures,” he added. Another said that too many regulations in Korea made it difficult for start-ups to make pitches to foreign investors. They were not just complaining, but pleading with the government to open its eyes and see reality.

President Moon remained clueless. In a gleeful tone, he urged companies to have more confidence, as geopolitical risks that posed as uncertainties for Korea have been significantly reduced, startling guests in the Blue House. At the end of the day, they were hearing the president lecture about the security front when they were really raising the alarm about the tough economic conditions, excess regulation and policy uncertainties that made their jobs even more difficult.

In the 2018 global competitiveness report, the World Economic Forum (WEF) singled out “policy instability” as a risk to Korea’s competitiveness. In policy stability, Korea received 15.5 points out of a possible 20, with 20 being the worst. In comparison, Germany got 4.8, Japan 6.2, and the United States 5.3.

A score used as reference for businessmen, economists, and policymakers around the world should be an embarrassment to Korea, the world’s 10th largest economy.

Korea also scored “high” — 12.1 points — in “inefficient government bureaucracy” and 9.8 points in “insufficient capacity to innovate.” In short, bureaucracy eats up efficiency and the potential to innovate, weighing on national competitiveness. The report more or less concluded that the government and public policy were making a mess of the economy.

President Moon Jae-in makes a speech before a meeting with venture business leaders at the Blue House on Feb. 7. [JOINT PRESS CORPS]

In other countries, taxation hurt competitiveness the most. Korea alone has a unique business environment. Kwon Soon-won, a professor of economics at Sookmyung Women’s University, explained the reasons why policy instability poses a problem for the Korean economy. First, market and labor regulation help the ruling party. Due to disagreements between the executive branch and legislature hampering timely legislation, labor relations have to be defined by the court. The courts instead of the government mediate between labor and management. The cost of uncertainty is transferred to the market, he said.

Public policy and laws are not reliable either. A company can go wrong by going ahead with a business on promises from the government, as those promises can be easily reversed. Autonomy is long extinct in the industrial fields. Workers take legal action instead of trying to work out the problem with the management. That’s not all. Any businesses can go wrong under the name of rooting out “past ills.” It is no wonder public officials keep such a low profile.

JoongAng Ilbo, Feb. 11, Page 27