Korea economically more free but problems remain

Economic freedom has increased in Korea in recent years, but indexes related to fiscal health and labor market flexibility show a deterioration, according to the Federation of Korean Industries citing research by The Heritage Foundation Monday.

The country ranked at 25 out of 180 countries this year on the Economic Freedom Index with a score of 74 points, up four notches, from 29, and up 1.7 points from the previous year.

The index measures the degree of freedom in trade, business, investment and property rights.

In 2018, it came at 27. In 2011, Korea was number 34.

This year, Singapore was first, followed by Hong Kong. The federation explained that a trade row between the United States and China pushed Hong Kong to second place from the top position, which it maintained over the past 10 years.

Korea scored lower in subcategories concerning taxes, public spending and fiscal health.

“In the tax burden category, it ranked at 125 in 2011 and edged up to 118 in 2019,” the federation said in a statement, “But the ranking went to 158 in 2020.”

The business lobby group attributed the poor performance to an increase in corporate taxes and income taxes instituted by the Moon Jae-in administration.

Growing government spending also dragged the country down, as it ranked 101 in the government spending index.

In that category, Korea was 84 in 2011 and remained between 70 and 90 in the mid 2010s, according to the federation. It blamed rising public spending for the recent result. It expects government funding for Covid-19 containment and support for those affected by the pandemic to weigh on Korea's ranking.

“Government spending has amounted to 32.8 percent of the country’s output (GDP) over the past three years, and budget surpluses have averaged 2.3 percent of GDP,” the Heritage Foundation noted in this year’s report, adding that public debt is equivalent to 40.7 percent of GDP.

Both the foundation and the business group noted declining labor freedom, which reflects how quickly a firm can respond to changing conditions in the market by making modifications to its workforce.

“Labor freedom improved until 2018 when Korea ranked at 100, but since then it deteriorated to 112 in 2020,” the federation said.

The Heritage Foundation also noted the less flexible labor market conditions, blaming strict regulations.

“Rigid labor regulations sometimes cause employers to make decisions they otherwise would not make that are not good for either employers or employees,” it said.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]