Deregulation and reshoring hold the key

Kim Dong-ho
The author is an editor of economic news at the JoongAng Ilbo.

Gloomy signs are prevalent across the Korean economy. Stock brokerage houses and retailers are cutting back their payroll. Even the richest — Samsung Electronics — is contriving ways to save fixed costs by providing less-expensive cars for new executives and shortening the term for paid advisers. We can hardly expect an imminent reversal from the high-interest environment stifling the global economy. The U.S. Federal Reserve signaled its benchmark rate cuts next year, but they won’t come down sharply from the current mid-5 percent level. Prospects for the 2024 economy still remain dim.

The economy tends to fluctuate depending on transitions to new technologies, military conflicts and inventory buildups. But Korea’s case is different as it is mired in a structural slowdown. The economy at best can squeeze out a growth in the 1 to 2 percent range. The numbers suggest we may have to get used to belt-tightening. Corporate revenue and wages stagnate, and self-employed businesses are worsening. The ultra-low birth rate constraining the economy in slow motion can get worse as a weak economy aggravates the environment for marriages and births.

We are heading closer to the much-feared Japanese path of decades-long slump. After peaking out in 1990, the Japanese economy has been plagued with little-or-no growth. The gross domestic product (GDP) history of Korea, China, and Japan underscores the reversal of fortune among the three neighbors over the last 30 years. Assuming Korea’s GDP at 1 in 1992, China’s was 1.1 and Japan’s 11. Now Japan is 2.5 and China 11. But Japan is better off, as it does not face a nuclear missile-armed North Korea across the border or struggle with low birth rate as serious as South Korea. Despite marginal growth, Japan maintains the third-largest economy in the world.

Korea may end up differently. The economy is heading for a doom if it keeps to the low-growth trajectory. Low growth will worsen fiscal health. Welfare as well as defense costs could be in jeopardy. The New York Times recently worried about South Korea disappearing from the global map, given the depopulation trend. North Korea could attempt another invasion when population thins in the south, as the NYT pointed out. Lacking defense spending could fasten the scenario.

We know the solution. We must be more proactive in accepting foreign immigrants and create quality jobs in the high-tech manufacturing and service sectors such as finance the younger generation prefers. When the economy gains vitality and youths settle in decent jobs, more will be willing to get married and have kids. Population must increase to feed the economic scale and growth.

Government policy must pivot towards this direction. Regulations must be removed, and companies must be motivated to return home from overseas. Sadly, no government — whether it be liberal or conservative — pursues polices in a forward-looking way. Upon the order of deregulation, government officials glamorize their reports to the president and return with new senior-level duty and more red tapes.

The regulation reform committee under the president must have a larger role. The members must be brought from outside and have president-endorsed power. Each government office should have a division aimed at deregulation. At the same time, a commander is needed to break up intergovernmental selfishness and regulations. Japan was constrained in a slow-growth gear due to lack of innovation. It came under Galapagos syndrome because it was slow to adapt to ICT and big-tech innovations.

Since Korea’s export-led model has reached the limit, domestic demand must be expanded through deregulation and reshoring. When manufacturers return home for production, jobs will increase. The government and rivalling parties must prioritize deregulation and reshoring, as they are more imperative for the economy than labor, education and pension reforms.