Gov’t reform holds the key to true progress

Lee Sang-ryeol
The author is an editorial writer of the JoongAng Ilbo.

The government has cut this year’s growth outlook to a disappointing 1.4 percent for the second half. The government more or less has admitted that it does not have a miraculous solution to prop up the growth rate. It was unable to clearly explain why the economy is performing below the potential growth rate of 2 percent, except the sluggish mainstay chip exports. The government made it clear that it will not resort to fiscal stimuli to bolster the economy.

Instead, the government stressed that it would pursue reforms in the labor, education and public pension sectors in “full force” to strengthen economic fundamentals. Structural reforms take time, but they are the best solution for economic growth. The drive so far has been at a snail’s pace. Labor reform has been put on hold after all the twists and turns over the government’s attempt to flex the rigid 52-hour workweek. The government conducts an opinion poll from April to August, according to its second-half economic policy outline. But even if a revised guideline comes out in the fall, it is still questionable whether it could be welcomed by stakeholders. The push could face resistance even if the government and labor unions are on the same page. The unions came up with radical slogans demanding the withdrawal of the conservative government, but the government nearly stands aloof.

The hardship of the three reforms is related to the laggard restructuring in the public sector. Any reform drive cannot move on if the outdated government system does not change. The government should renovate itself first. Such proactive actions can help draw a public consensus on the key reforms. Resistance to reforms can appear when the government and public corporations shun innovating themselves.

Public-sector reforms stayed stagnant in the past governments. The public sector showed the least restructuring among the four — financial, corporate, public and labor sectors — in the aftermath of the 1997-98 Asian financial crisis. While the private sector underwent seismic changes — such as the shutdowns of major banks and merchant banks and the dismantling of large conglomerates like Daewoo Group — and the legalization of layoffs, the public sector didn’t — except for a minor change like the introduction of recruiting talent from the private sector. Under the previous Moon Jae-in administration, government employees increased by more than 100,000 instead of downsizing.

Public-sector reform is particularly hard as it requires a change in the Government Organization Act. Due to the statutory nature of civil servants and public enterprises, government organizations or their payroll can hardly be streamlined once enlarged.

Reforms do not have to be ambitious. There are plenty of areas that can be done. For instance, political interference can be stopped in setting utility fees. An independent electricity rate-setting body can be established under the Ministry of Trade, Industry and Energy to be free from political pressure. President Yoon Suk Yeol himself pledged to enhance independence and professionalism in the electricity market. The majority Democratic Party (DP) can hardly oppose the move as it has been blamed for all the mess of the Korea Electric Power Corp. by freezing utility charges for political gains.

The alarm over a bank run at the Korean Federation of Community Credit Cooperatives (KFCC) provides a good momentum to revamp the regulatory system. It does not make sense for the financial institution dedicated to the working class to be free from oversight from financial authorities even though they play the same role of providing loans based on consumer deposits just like other banks do. The DP is readying a motion to revise the related law to hand over the supervisory authority on the KFCC from the Ministry of the Interior and Safety to the Financial Services Commission. The government offices must not clash over the issue, since delaying a remedial action while knowing the problem can be a sin.

Also urgent is to raise the independence and expertise of the fund operation of the National Pension Service (NPS), which manages nearly 1,000 trillion won ($775 billion) in assets. An expert committee of the NPS estimated that the rise of 1 percent in average return rate can delay the time of fund depletion by five years. Before demanding people pay more and receive less, the fund’s system must be improved to raise the returns on its investments. Performance-based compensation system also must be adopted in the public sector to draw in talents from the private sector.

Structural reforms are tough. But they are necessary to put the economy back on track. The government must change if it is really determined to see through the reforms. It must reform what can be done within the government first.