Moon in denial
The author is a columnist of the JoongAng Ilbo.
The graph of the Korean economy shows that it might have bottomed out in March 2013 and maintained steady gains over the next four years. It is believed to hit a peak around May 2017. The economy has been heading south for the first time in 40 years.
Yet though Statistics Korea refused to admit it, it can no longer deny the fact. The office has confessed that the coincident index curve suggests the economy peaked in the second quarter of 2017, while the gross national product data point to the third quarter of 2017.
The statistics office has been reluctant to pinpoint the timing of the economy losing steam for political reasons. It would be an embarrassment for the current government to admit the economy has been losing ground after President Moon Jae-in took office in May 2017. The liberal administration’s economic policies would encounter more severe challenges if its experimental and risky policy of increasing the minimum wage and enforcing a 52-hour workweek were pushed ahead while the economy was slowing down.
It even raised corporate and individual income taxes, a move usually possible only during times of economic strength. The government can hardly counter the criticism that its amateurish policymaking has wrecked the economy.
Various studies have been released to expose the contradictions and fallacies of the income-led growth policy so fervently pursued by the government. First of all, the data have been misleading. The progressive front has been referring to the findings of the Organization for Economic Cooperation and Development (OECD) that indicate that the wages of Korean workers in the national income fell by 10 percentage points since the 1997-98 financial crisis in order to justify government policies to increase the wage levels. But in fact the share naturally becomes lower in an economy with a high ratio of manufacturing activity that requires higher capital and facility investment input or when offshore production increases. If the fall in the ratio is so important, the Japanese should be grumbling as their share is lower than Korea’s, at 53.7 percent, versus 55.7 percent. If the liberal camp’s arguments are correct, people in Italy, Brazil and Argentina should be happier as the ratios have gone up.
According to Korea Productivity Center, labor productivity of Korea’s manufacturing sector increased by 4.4 percent annually from 2000 to 2017, whereas wages increased at a faster 5.2 percent. The data suggest that income increases have actually been spurring national growth for the last 17 years, according to Pyo Hak-gil, professor emeritus of Seoul National University. Dongguk University Prof. Kim Nak-nyeon also claims it is misleading to argue that economic inequalities have deepened since 2010, as the data show the otherwise. Their comments underscore the dangers of emphasizing the labor income distribution ratio to back wage-led growth or draw support from those with lower incomes.
A joint economic symposium in spring concluded that both macroeconomic conditions and income distribution have worsened under the government’s wage-led growth policy. The numbers are heading toward the negative. The GDP in the first quarter is estimated to have increased by a crawl, or just 0.3 percent against the previous quarter. Semiconductor prices have halved from a year ago, and facility investment was back in the negative after a brief rebound in the final quarter. The current-account balance for April is expected to show its first red figure in seven years due to the deterioration of exports and an outflow of capital as a result of ever-increasing dividend payouts to foreign shareholders. The Bank of Korea (BOK) has already cut this year’s growth estimate to 2.5 percent, the fourth downgrade over a year.
The Moon administration has bungled economic policy. While raising the minimum wage, the government should have come up with actions to bolster productivity in small- and medium-sized, as well as self-employed, businesses.
Jobs numbers and income in the lowest-income categories suffered most because the government did not introduce the right policies. The government defends its move, claiming that other presidential candidates all promised to raise our hourly minimum wage to 10,000 won ($8.70). It kept making excuses even when job data showed the worst levels last year. The government blamed the unseasonable climate for the loss of jobs in the construction and farming sectors or demographic factors.
The government has not wavered in its policy direction despite the devastating toll on the economy. It is confident that this year’s supersized spending package, plus a near 6.7-trillion-won supplementary budget, would help the economy to recover. Its stubbornness has only invited louder criticisms from the opposition. “The wage-led growth theory is a monster that should not have been born for the sake of the Korean economy,” the main opposition attacked. Even progressive economic commentator Kim Dae-ho, who is head of Social Design Research, condemned the income-led growth policy as a “job killer” and argued that it is “suicidal for the Korean economy.”
The so-called Dunning-Kruger effect refers to a cognitive bias whereby people who are incompetent at something are unable to recognize their own incompetence. In fact, they are actually convinced that they are doing a good job. The Moon administration has also been mysteriously confident about income-led growth policy. The government does not think any correction is needed in its economic policy, nor does it have any capability to undo the wrong, said Kim Chong-in, a former chairman of the ruling Democratic Party.
The Korean economy is seriously crippled. In his inauguration speech, President Moon promised to deliver a country like never before and personally wipe away the tears off the faces of the people. Two years have passed, and Moon’s policies have done far more harm than good. The Income-led growth policy has ruined income and growth. The tax burden has increased, while the government is getting bigger. “It is impossible to retort to every criticism. We must accept what cannot be denied. It is true that polarization has worsened under our government,” said President Roh Moo-hyun during a cabinet meeting in 2007.
I beseech Moon to look back on the words of his late friend and boss.
JoongAng Ilbo, April 24, Page 35