Challenges from within
The author is an economic news editor at the JoongAng Ilbo.
The economy hardly grew in the third quarter, managing a 0.4 percent gain against the previous three-month period. At the current rate, it won’t likely meet the annual growth of 2.0 percent for fall 2019. A growth number below 2.0 percent had only been experienced in crisis-hit periods.
The government should be getting anxious by now. The president has been dropping by corporate sites, and the government has been spending record amounts. Yet the economy is getting no better. The government blames it on unfavorable external conditions from a protracted trade war between the United States and China. But businessmen and experts point to inner problems.
First of all, the liberal administration has shown a lack of understanding and respect for the principles of the market economy. The Korean economy is devoid of life in the private sector. Corporate spending has been slumping for six quarters in a row. Capital flow is frozen. Money chases profit. But the government has been enforcing policies that have made it difficult to make money. The sharp increases in the minimum wage, a rash cutback in workweek hours to 52 and increased corporate tax bombarded the economy simultaneously — and at a time when it was in the midst of a downturn.
The 52-hour workweek restricts employee working hours. To keep up the same output with reduced working hours, more workers are needed. But increasing the workforce was difficult because of the jump in the minimum wage. Revenue has not turned out the same income due to higher tax rates. Even if employers want workers to work longer with higher pay, they cannot do so due to the limits on the workweek. That goes against market economy principles.
Heavy penalties also dampen the corporate spirit. Entrepreneurs complain it is hard to do business in Korea. When an employer violates the 52-hour workweek, the management faces two years in prison or a maximum 20 million won ($17,079) fine. According to the Korea Economy Research Institute, 88 percent of the 10 penalty clauses in laws related to commerce, labor and environment mandate criminal charges against the corporate head. A company should take responsibility if it has done wrong. But placing criminal accountability on the employer on various grounds could hinder the corporate chief from taking risks in management.
The cap on the sale prices of apartment offerings also goes against the free market principles. If the government interferes through the price cap, the supply is bound to fall. When the construction sector loses steam, the toll falls on jobs and overall domestic demand. Government-led price control frustrates companies wishing to do business based on market principles. Corporate investment cannot increase under the current environment no matter how much the government pleads for it.
Reckless fiscal spending has also eaten into economic vitality. Of course, social security needs to be strengthened, and fiscal input has a greater role when the economy is challenged. But tax and debt-financed funds are spent in competition among government offices and local governments. If public spending can save the economy, why has Venezuela gone bankrupt after the government took populist actions? Populism wrecks fiscal integrity, and the appetite for free lunch ruins market economy.
The government has gone too far in self-justification and self-excuse. According to the outlook by the International Monetary Fund (IMF), the Korean economy could underperform the estimated global growth of 3.0 percent by 1 percentage point this year. The gap is biggest since the country’s near-default crisis of 1997-1998. Government officials have been making all kinds of excuses. They compare Korea’s economic growth within the context of the 30-50 group (mature economies with per capita income above $30,000 and a population of more than 50 million). No other government had been so self-indulgent. Even liberal President Roh Moo-hyun was determined not to have the economy lag behind global economic growth.
The biggest problem is that the government has no remorse and self-reflection. The Korean economy has weathered many challenges so far. The challenge today comes from within, not from outside.
JoongAng Ilbo, Oct. 29, Page 30