Now comes the hard part
The author is an editorial writer of the JoongAng Ilbo.
With the ruling party commanding 180 out of 300 seats in the incoming legislative, the Moon Jae-in government can do almost anything except for rewriting the Constitution. The message from the voters in the latest election was clear. They want life back to normal and the economy restored. Before anything else, the government must do away with its income-led growth policy, which sucks up fiscal spending and controls wages and work hours. The goal was to raise wages for workers to stimulate consumption and reduce work hours to have more jobs to go around. The trickledown theory works as if the carriage pulls the horse. An experiment attempted nowhere else in the world has become more dangerous now that the economy has become devastated by the virus outbreak. The theory would work only when the economy continues to grow. But the economy has been in contraction from the first quarter.
The experimental policy caused side effects in an economy that already was losing steam. The economy has been projected to make its first annual contraction this year since the Asian financial crisis in 1998 and oil shock in 1980. It is on that path, having ending the first quarter at an on-quarter negative growth of 1.4 percent. A recession is probably in place. The number of unemployed in the United States topped 30 million with the jobless rate nearing 20 percent. China also posted its first negative growth in the first quarter.
The woes of its two biggest markets are shared by Korea. The number of people who have given up on finding a job totaled 2.37 million in March. Those forced to go on furloughs xceeded 1.6 million. Temporary jobs created through fiscal spending cannot accommodate all of them. The harmful policy therefore must be discarded. It is best to take shelter when it rains. The government is in endless expansion mode. Welfare expenditures took up 35 percent of this year’s budget of 512 trillion won. Beneficiaries collecting monthly checks from the government total over 10 million. Once paid out, welfare benefit cannot be reversed. It would more precise to coin the policy tax-led growth.
Welfare benefits are doled out on the presumption that the economy would keep on growing. But the reality is different. After the last contractions in 1980 and 1998, the economy bounced back due to strong growth potential. Even when the economy was at risk, companies earned enough to fill the national coffers. But such expansion is no longer easy. In fact, we may have to get used to seeing negative numbers in the economy. The government’s ability to afford welfare spending also has weakened. Korean baby boomers are beginning to retire. They will require free subway passes, basic allowances and medical coverage.
The government must be honest. It must admit to the people that it will have to adjust its policyin line with the changes in the economic paradigm. Now that it commands a comfortable majority in the legislature, it needs not fret about the opposition. It must turn to practicality. It must not resort to easy populism such as paying out disaster relief funds to every citizen to thank them for their overwhelming support in the election. The people do not want free lunches. The National Revolutionary Dividend Party pledged to pay 1.5 million won ($1,200) for life to every citizen from the age of 18. But it won a mere 0.7 percent of the vote.
The ruling party has a bigger role now that it commands the legislature. It has the chance to make policy fixes. The primary goal should be to revive corporate sentiment. Jobs must be created by companies. There is no reason to fear a change in policy direction. Former British Prime Minister Tony Blair and U.S. President Bill Clinton were liberals, but they accommodated conservative policies to drive growth. German Chancellor Angela Merkel is fundamentally rightist but engaged a leftist agenda and led
Germany as a European power for 15 years. Our president too can show some kind of decisive resolve. Leadership should be accompanied by responsibility.