The uncomfortable truths
The author is a columnist of the JoongAng Ilbo.
Korea’s testing system for the new coronavirus has received wide acclaim from foreign countries. Yet underneath this success story is a sad reality — how the domestic market has been a complete wasteland for biotechnology ventures over the past two decades. Any time a new product or service was developed, the Korean Confederation of Trade Unions (KCTU), the People’s Solidarity for Participatory Democracy (PSPD), pro-environment civic groups and religious fundamentalists blocked it from hitting local shelves, prompting biotech firms to steer towards less regulated markets outside Korea. They exported their products to China, Japan and Southeast Asia, and held clinical tests overseas.
Many domestic companies started developing test kits for the coronavirus as soon as the disease spread through Wuhan, China, in January. After years of business in China and Southeast Asia, they knew the test kits would be a big hit. Looking back, the ruling Democratic Party — alongside the KCTU and the PSPD — have made doing business awfully difficult for local biotech companies. They joined hands with local civic groups in opposing an easing of regulations for medical equipment and biotechnology. But this time, it was these biotech companies that saved the Moon Jae-in administration. Lee Seung-kyou, vice president of the Korea Biotechnology Industry Organization, put it well when he said he was stunned by the kind of treatment his industry is now receiving from the government.
The controversy over large companies’ cash reserves also has been addressed throughout the outbreak. Activists from the so-called 586 generation — who are currently in their 50s, attended college in the 1980s and were born in the 1960s — frequently pressured the government to increase employment by using conglomerates’ cash reserves. When President Moon was chairman of the main opposition party in 2015, he claimed 300,000 jobs could be created if conglomerates used just 1 percent of their cash reserves. But now, the whole world is rushing for U.S. dollars due to a lack of cash. Over the past decade, American companies have returned profits to shareholders in the form of dividends or stock buybacks because CEOs had to curry favor with them. In the midst of the virus outbreak, those companies — now with their coffers being empty — are scurrying for cash, like last week when Boeing pleaded for a bailout from the U.S. federal government.
In contrast, Amazon has built a solid amount of cash reserves. Since its founding 26 years ago, the company has bought back its stock only once and has never paid a dividend to shareholders. As a result, Amazon shares fell only 13 percent amid the outbreak whereas Apple and Google saw their shares plunge nearly 32 percent. Amazon is pleasantly contemplating which companies to take over with its 35 trillion won ($28.2 billion) worth of cash reserves. Just imagine what would happen if Samsung, Hyundai Motor, SK and LG all had succumbed to pressure from the Moon administration and leftist forces to use all their cash reserves.
Yet the government takes a political approach to economic issues. Drawing up a supplementary budget recently, it chose to allocate 241.8 billion won to support low-cost air carriers, ignoring the irrevocable financial blow to major airlines in the country. Even at times of economic crisis, the government wants to support only those who were on its side. On Tuesday, Moon said his government would extend help to conglomerates after drawing up a massive emergency fund worth 100 trillion won.
Last week, Moon said this crisis was worse than the 2008 global financial meltdown. In two ways, he’s right. First, we do not have anyone to lean on. When the Lee Myung-bak administration faced the financial meltdown in 2008, he arranged a currency swap with the United States and aggressive government spending to tackle the challenge. Another factor was China’s 4 trillion yuan ($564.8 billion) stimulus package, from which Korea financially benefited as the Chinese economy grew by 9 to 10 percent despite the crisis. Even during the 1998 foreign exchange crisis, Korean exports were able to bounce back as the economies of the United States, Europe and China continued growing. But today, both the U.S. and Chinese economies are shaking from the coronavirus pandemic, which bodes ill for export-reliant Korea.
Another reason why this crisis is worse than in 2008 is that the global financial markets and the real economy are both paralyzed. We recently saw stock prices and exchange rates crash, but the world is in for something far worse in the longer run. We will most likely see a negative growth rate and high levels of unemployment. The Economist predicted that 10 to 15 percent of the world’s companies will go bankrupt.
Moon has two years left in office and his administration should take responsibility for handling the coronavirus. But we see few aides with expertise in the economy. His policy chief Kim Sang-jo used to be a member of the PSPD, and Democratic Party Chairman Lee Hae-chan publicly threatened Deputy Prime Minister for the Economy Hong Nam-ki for his prudent extraordinary budgets. South Gyeongsang Gov. Kim Kyoung-soo, a close aide of Moon, began asking the government to provide 1 million won to every citizen in the nation to “revive the domestic economy.” They are all ideology-driven politicians — but the economy is about practical interests, plus psychology. The administration must ditch its anti-market, anti-corporate sentiments. It should trust the market and allow companies to run autonomously.
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