The cost of bad policyThe government has set the policy direction for the economy for 2020 in a meeting led by President Moon Jae-in. Economic policy will be focused to accelerate growth and long-term growth potential. The economy is expected to grow 2.0 percent at best this year. If achieved, it would be helped by the country’s record-low inflation rate. The GDP deflator fell 0.8 percent from weak domestic and overseas demand. Without prices factor, the nominal growth would have been just 1.2 percent.
Prospects for next year are equally murky. International and domestic institutions mostly predict the economy will grow slightly above 2.0 percent. The government is more sanguine and has set a growth target at 2.4 percent. It vowed to go all-out to achieve the goal.
It promised tax incentives and deregulation to drive corporate investment that has been negative throughout this year. It has finally realized that the corporate sector must spend to add jobs and income is needed for consumption and economic growth. Moon asked the government to do all it can to add a single job and investment.
It is a relief that the government has prioritized promotion of corporate investment for growth. But policy action isn’t that stimulating. It also promised to encourage corporate investment and regulation reform about this time last year. Still, facility investment slumped and manufacturing jobs have been weak throughout the year.
Companies are taking their capital and resources abroad. Overseas investment by Korean capital jumped 27 percent on year to $29.1 billion in the first half.
Anti-business and union-positive policy and feigned deregulation have sent Korean companies abroad. Regulations only mount. Van-hailing platform Tada used by 1.5 million could be outlawed soon.
Investment cannot be made when the business environment is this poor. Prime minister-nominee Chung Sye-kyun mentioned regulation after reporting to work to the prime ministerial office for the first time.
Companies won’t spend just because of tax benefits. They will invest when the business environment is ripe. Deregulation and labor reform should come first. The government must prove its commitment to reform. Otherwise, the supersized budget of 512 trillion won ($429 billion) alone cannot revive the economy.
JoongAng Ilbo, Dec. 20, Page 34