German banker says Korea needs more labor flexibility

For the Korean economy to make a second leap, the rigidity in the labor market must be addressed and pension systems must be reformed, according to Hans Tietmeier, a former governor of the Bundesbank, the central bank of Germany.
Mr. Tietmeier lectured here yesterday.
If Korea wants to overcome the “German disease,” characterized by low growth and high unemployment, it must reform the economic structure, he said.
For the reforms to succeed, he continued, they must overcome great resistance from those whose interests are at stake, such as workers, and thus strong political leadership is necessary.
Germany also realized how serious the situation had become, and was aggressively pursuing economic reform, Mr. Tietmeier said.
German Chancellor Gerhard Schroeder has ben spearheading economic reform since March, believing that without economic reform, he cannot win the next election, the former central banker commented.
The reason that the Social Democrats are at the forefront of reform efforts in Germany despite resistance from workers is this sentiment that there is a crisis coming; if things do not change, people are beginning to understand, Germany could tumble to the second tier of global economies, he said.
He added that a majority of the German people also agree that even though they could lose some of their vested interests, they need substantial reforms.
Because of economic reforms like easier hiring and firing, some bad short-term effects could appear, Mr. Tietmeier said, such as fewer jobs and less consumption. But in the long term, the reforms would stimulate corporate investment and contribute to recovery of the economy. Leaders must set clear visions for the people, he said.
He advised that the unification of South and North Koreas be carried out in stages. Germany’s model, a drastic unification of the nations and economies, led to too many harsh side effects.

by Chung Jae-hong