Lack of leadership
The author is a columnist of the JoongAng Ilbo.
Lotte Group Chairman Shin Dong-bin sat across from U.S. President Donald Trump in the Oval Office on May 13 to receive thanks for a $3.1 billion investment in an ethylene plant in Lake Charles, Louisiana. Conservatives in Korea compared Shin’s 30-minute conversation with Trump with the two minutes Korean President Moon Jae-in got with the president during his visit to Washington earlier in the month.
But there was more to the scene than meets the eye. Apart from Trump, the only White House staff present at his meeting with the Lotte chair and other Korean visitors was Matthew Pottinger, senior director for Asian affairs at the National Security Council. The answer to why a security aide — not an economic or business aide — was seated next to Trump and Lotte Chairman Shin lies in the Terminal High Altitude Area Defense (Thaad) antimissile system and Beijing retaliation for the installation of the defensive system. Lotte paid the heaviest price — multibillion dollars of losses in its businesses in China — for giving up a golf course for the missile shield, which it believes is equipped with a radar Beijing suspects is capable of surveilling China.
The same day Trump tweeted the photo of his meeting with the Lotte Group, stock markets around the world crashed 2 to 3 percent due to the expanded tariff war between the United States and China. The scene with the Lotte chairman was both a comfort to Korea Inc., which bore the retaliation from China, and a warning to Beijing. Washington also sent a message to global enterprises on where they should stand in the ongoing trade war with China. The White House meticulously planned every detail.
The Lotte Group has been mulling a massive ethylene project since 2012. It settled on the United States following the shale gas revolution. As production cost for ethylene has gone down 40 percent, locating a manufacturing base in America could ensure access to a colossal market. Lotte first had attempted a buyout of Axiall, a chemical company based in Louisiana. But the attempt in 2016 fell through because the group was mired in a scandal. Prosecution was looking into a sibling feud over management control and bribery charges following the presidential impeachment. It had to hold off the project because of difficulties in securing the necessary financing. The investment came through three years later. In the meantime, Korea lost a massive investment that could have been lured to home turf if there was someone who can see the big picture in state affairs.
In terms of foreign and security affairs. Korea has been dangerously insecure due to lack of leadership. Seoul officials have had a hard time breaking the ice with Japan ahead of the Group of 20 Summit in Osaka, Japan this week. The Japanese government has been outraged by the insensitiveness of its Korean counterparts. Korean plaintiffs continued taking legal action to liquidate assets of Japanese companies for noncompliance with the Korean Supreme Court’s ruling ordering them to compensate individuals for forced labor during the colonial period. This happened in late April, when Japan was about to open the Reiwa era under Emperor Naruhito. Then Prime Minister Lee Nak-yon held a lunch for officials involved in Korea’s “triumph” over Japan in World Trade Organization (WTO) appellate litigation over the Korean government’s ban on Japanese seafood imports following the 2013 Fukushima nuclear disaster. Seoul has rubbed salt in Japan’s wounded pride by publicly celebrating the victory. Lee had served as a Tokyo correspondent during his journalist days and also a Korean vice chair in the federation of Korean and Japanese lawmakers. He also spearheaded the government task force on the forced labor issue. One Japanese official said Lee should have known better as an expert on Japan.
The absence of leadership in economic affairs has done more damage. Korea’s gross domestic product (GDP) retreated 0.4 percent on quarter in the first quarter. The outlook for the second quarter and onwards is equally dim. The on-year drop in exports widened to 9.4 percent in May from a 2 percent fall in April. Chip prices are crashing with no bottom in sight. The government only repeats the mantra that things will get better, and goes on spending.
While local and foreign institutions cut this year’s growth estimate to slightly above 2 percent, they jointly pointed to sluggish exports and weak capital investment. Without recoveries in exports and investment, there is no hope for the economy. Exports hinge on external conditions. Companies won’t likely make big investments as a result of arm-twisting by or promises from a government, promises that may not be kept by the next government. They make investments after weighing risk and return.
Operating profit of listed companies declined 37 percent on year in the first quarter. They cannot increase investment when they expect 20 to 30 percent plunge in profits this year.
If the government had economic leadership, it should have seriously reflected on the meaning of the largest-ever overseas investments by Korean companies and a 21-year low in facility investment in the first quarter. Simply put, the poor business environment is at fault, not our entrepreneurship. The government must first correct the harmful policies — the steep increases in the minimum wage and a universal cutback in the workweek to 52 hours. The government must dramatically policy in support of investment and economic freedom.
New presidential policy chief Kim Sang-jo offered to meet with Samsung Electronics Vice Chairman Lee Jae-yong as a move to appease corporate concerns about an anti-chaebol activist taking the helm of economic policymaking. Kim said his duty is to “present public policies to the public well.” The government may be thinking that its economic policies are not wrong, but misunderstood. All the policies the government has been trotting out are focused on winning votes in the general elections next year. The economic leadership that should be navigating the country with farsightedness remains empty. In a recent poll, 84 percent of economists said the economy was on the brink of — or already in — a crisis. They found a greater danger to the economy in the government’s lacking awareness.
JoongAng Ilbo, June 26, Page 31