A protracted campaign
The author is an editorial writer of the JoongAng Ilbo.
The outlook for the global economy remains murky in the wake of the Covid-19 outbreak. Is Korea responding well to the worst pandemic in our time? Evaluations of President Moon Jae-in’s handling of the crisis can be mixed. Given his economic track record over the past three years in office, concerns were justified. According to the first-quarter household income data, the gap between the top and bottom stratum in terms of incomes widened even as the head of the statistics office and data guidelines were changed. Minimum wages were sharply raised annually for three years and work hours shortened at workplaces of all sizes. Even so, incomes have not improved for the workers who need it most.
The Covid-19 shock came when the economy was weak, putting Moon to a serious test. Leadership can be judged in times of crisis. Moon has convened emergency economic meetings five times over the last three months, the latest held just 40 days after the previous one. The policy strategy and a direction to fight the crisis were laid out over the last five meetings. The president has given strict orders to save companies, while differentiating the strong and weak.
He has not set a condition to defend Korean companies from the Covid-19 turmoil. Given the prevailing anti-big business sentiment, Moon and his aides could have excluded big companies from the operation. But few raised the issue when Moon led discussions to prevent companies from going under. During his lawyer days in Busan, many of Moon’s clients were dismissed workers. He could not help those workers whose employers had closed or gone out of business. He learned that workers and jobs can be saved if companies stay in business. That experience led to the proposal to deploy all permissible fiscal means to help companies.
The government has created more than 50 trillion won ($41 billion) in supplementary budgets, when including the third, which is on the scale of more than 30 trillion won, as well as five-years and 76 trillion won in spending on New Deal projects. Moon’s spending plans have been true to his pledge at the beginning of his term to be radical and preemptive. A 40 trillion won fund was established to protect the country’s key industries. The fund first went to rescue airliners and shippers. Another 135 trillion won was set aside to help large companies in need. The all-out campaign to defend Korea Inc. has helped calm investors and market jitters over the Korean economy. Despite worsening data, the economy and markets are actually doing better than elsewhere.
Moon’s response to Covid-19 comes down to saving jobs and companies regardless of their size through aggressive fiscal expansion. It is a sharp volte-face from his pro-labor mandate and emphasis on chaebol reforms. At a time of crisis, he has set aside his liberal principles to save companies and jobs.
His crisis management may be effective in quenching the immediate fire. But a long-term vision and plan is also required. The fundamental policy direction must change. The Bank of Korea has lowered the base interest rate to 0.50 percent. Tax revenues this year are expected to fall short of their target by 30 trillion won. The central bank estimates a 0.2 percent contraction in this year’s economy. The president must be ready for a lengthy battle to rebuild Korea Inc. before his monetary and fiscal armory runs out.
The real hope lies in industrial revival. Regulations must be eased and labor markets reformed. Without such fundamental actions, the New Deal projects and reshoring campaign cannot win. There is already talk about a tax hike to cover shortfalls in tax revenues. LG Electronics has moved its TV manufacturing lines to Indonesia. Regardless of heavy bailout funding, Doosan Heavy Industries & Construction cannot be saved if it is forced to shift its expertise to costly wind power from nuclear reactors because the government sticks to its plan to phase out nuclear power generation. If the president pays heed to the voices of business and ends up stimulating investment, his leadership in this crisis will truly end in a success.