Beyond warning signs

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Beyond warning signs

The yellow alert has turned red for the Korean economy. The Korea Development Institute (KDI) in its monthly economic report for April said the economy was in bad shape, using stronger terminology than it has since November. Until October, the state think tank said the economy was in a “recovery phase.” The KDI said a slump better described the ongoing economic phenomenon, as industrial output, investment, consumption and exports have all turned negative.

The reality is worse than what data shows. Lights stay off in many office and commercial buildings; the vacancy rate in the office buildings along the main commercial street in Gangnam, southern Seoul, hit 20 percent; the number of small business owners who closed their businesses topped 1 million last year; and exports have been contracting after semiconductors — the only sector that stayed strong among mainstay exports, including petrochemicals, petroleum products, ships, automobile, steel, and displays — gave way. In its earnings guidance, Samsung Electronics reported an operating profit of 6.2 trillion won ($5.5 billion) in the first quarter, down a whopping 60 percent from a year ago.

Moody’s Investors Service downgraded its economic outlook for Korea for this year to 2.1 percent. Yet the government remains buoyant. President Moon Jae-in claimed the economy was strong and Hong Nam-ki, deputy prime minister for economy, also said there were “positive signs.” Where their confidence comes from is bewildering. The president defends his signature income-led growth policy, selling it as a proven theory with history. Paul Romer, an New York University professor who won the Nobel Prize in economics in 2018 for his endogenous growth theory, criticizes the income-led growth concept, warning it can end up destroying human capital. Economic policy veterans recently invited to the Blue House lectured the president that the income-led growth concept should be a “humanitarian” direction, not an economic policy. Most of their sharp advice was left out in the press briefing.

The job situation has become catastrophic under the Moon administration. To defend its policy, the government has been spending massively to push up employment numbers through temporary and public jobs. Bahk Byong-won, the honorary chairman of the Korea Employers Federation, advised that budgetary spending should be spent on jobs that can pay taxes, not those that cause tax money to be spent. What is imperative is removing regulations to generate investment in new industries. Yet deregulation has still been moving at a crawl.

JoongAng Ilbo, April 8, Page 30
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