Back to growthPresident Moon Jae-in’s economic score card is not very good as clearly seen in growth for this year expected to hover over 1 percent — the kind of low level South Korea has only seen during the oil shock of the 1970s, the 1997-98 Asian economic crisis, and the 2007-08 global financial meltdown. Economic forecasters at home and abroad expect the growth rate — even lower than the world’s average — to stay low next year too.
On the distribution side, things are looking no better. While income polarization is deepening, the middle class is shrinking. A business leader even lamented recently that our economic achievements over the past half a century may vanish.
The economy is failing on both fronts: growth and distribution. The Wall Street Journal attributed these failures to the government’s “income-led” growth policies and its anti-corporate, pro-labor stances. Despite the International Labor Organization’s warning against seeking growth by raising the minimum wage, the government pushed it. As a result, jobs decreased, stores shut down and the economy is stuck in a rut.
The government’s ill-conceived policies helped our growth potential plunge to 2.72 percent this year — a whopping 0.45 percent drop from the previous year — according to a recent Organisation for Economic Cooperation and Development report. The organization ratcheted up the growth potentials for the United States and France due to their efforts to revitalize their private sectors through labor reforms and corporate tax cuts. Those two governments lifted their real and potential growth rates by stimulating the “animal spirit” of the corporate sector.
The Moon administration went in the opposite direction. It pulled down labor flexibility and hiked corporate taxes. Its suffocating regulations on the sharing economy got tougher. Companies are busy surviving, not prospering, which has led to frozen investment, employment and consumption. Warning lights are blinking on the government’s fiscal solidity. In 2023, the national debt is anticipated to exceed 1,000 trillion won ($865 billion), more than a twofold increase in just 10 years.
The government must return to growth-focused policies, as suggested by five major business lobbying groups on Wednesday. It must achieve labor reforms, deregulation, and a revamp of the corporate taxation system. If deregulation helps draw investment in high value-added industries, it will raise both labor productivity and growth potential. As long as this government adheres to its current policies, our economy will be stuck.
JoongAng Ilbo, Nov. 8, Page 34