Time to talk, and listen
The author is a columnist of the JoongAng Ilbo.
On Nov. 7, 2017, a local newspaper reported that Samsung Electronics put more effort in its relationship with the German administration than with the Korean government. It said Samsung Electronics Chairman Kwon Oh-hyun had flown to Germany to secretly meet Chancellor Angela Merkel several times in just three months. The paper believed the electronics giant would have discussed electric and self-driving vehicle projects with the German government. Samsung denied the meetings had taken place.
I recently learned the true story from Samsung executives and German officials. Kwon did meet with Merkel, with each talk lasting for hours. But the meetings took place not at the request of Samsung, but at the request of the German leader. The dialogue was not entirely about business. Merkel would ask the entrepreneur about why Europe lagged behind the United States in the IT revolution. Kwon was asked about Europe’s weaknesses and what should be done to invigorate the sector. If she liked the answer, she would tell her aide to study it.
French President Emmanuel Macron also secretly met with Kwon upon his inauguration in 2017. The other figure often invited for talks was president and chief strategic officer Sohn Young-kwon. The young French leader has been passionate about artificial intelligence (AI) and called Sohn to the Élysée Palace on March 29 last year. Cédric O, Macron’s aide on the digital economy and of Korean descent, arranged the meeting. Two months later, Sohn was invited back, along with CEOs of other tech companies, such as Facebook, Microsoft and Intel. Macron joked that as there was no free lunch, he would extract 13 AI-related investment commitments from the guests. Samsung Electronics opened an AI research center near Paris.
President Moon Jae-in also invited over 130 business leaders to the Blue House last month. After town hall-style discussions, he separately strolled around the Blue House garden with the heads of the four largest conglomerates. The business leaders requested aggressive deregulatory action. The president asked for increases in hiring and investment as well as more shared growth in the supply chain. The scene of the president walking side by side with business tycoons has been seen for more than half a century. Yet it made news because of the liberal administration’s anti-chaebol sentiments. A businessman cynically said foreign state leaders meet with Korean entrepreneurs more than the Korean government and ministers.
The government’s policies have been equally unfriendly to corporations, also defying the global trend. The only developed economies that had upped corporate tax rates like Korea were Greece, Chile and Turkey which are combating with national default crisis. Korea’s maximum corporate tax rate of 25 percent is higher than that of the United States (21 percent), of Japan (23.3 percent) and of Britain (19 percent).
It is no wonder corporate investment has become sluggish. Facility investment is so critical to the domestic economy that Statistic Korea issues a monthly investment index ahead of the Bank of Korea’s quarterly data. Output, jobs and income hinge on facility investment. Facility investment in 2018 fell by 4.5 percent. The drop was especially steep in the latter half. Overseas capital investment by Korean enterprises reached a record-high of $38.9 billion last year, whereas foreign capital investment in Korea was a mere $16 billion. Fewer companies are investing in Korea and the home team is opting to take money out.
Last week, an economic forum gave poor scores to the Moon administration’s income-led economic policy. The majority of economists presented empirical studies to argue that growth, investment and jobs suffered from the rapid rise in the minimum wage. As a result, unemployment shot up and income inequality worsened, they concluded. They warned that if the government continues the wage-driven growth policy, economic growth, investment, hiring and inequalities will only worsen.
The progressive front claims the mainstream was talking up economic crisis for self-serving purpose. The government has been shelling out a record budgetary spending to hide its policy failures. Economists worldwide, including the chief of the International Monetary Fund, warned governments to brace for an economic downturn resulting from trade frictions and a hard-landing the Chinese economy. The leading indicators have been dropping for seven consecutive months, the longest slump since the 1997-98 foreign exchange crisis.
The Blue House sounds like a broken tape recorder: it only repeats that it is disheartened by the poor data and is taking the situation seriously. But it believes income-led growth is the right move for the Korean economy. I wonder where its baseless confidence comes from. The livelihood of the ordinary people are at stake. Why is the government gambling with people’s lives? If it really wants to go down the wrong path, it must ask the population if they also want to go along.
JoongAng Ilbo, Feb. 20, Page 31