[Editorial] Corporate exodus

In yet another reflection of the negative impact of anti-business policy implemented by President Moon Jae-in’s administration, local companies have drastically increased overseas direct investments, while continuing to reduce domestic investments.

South Korean companies’ ODI rose 44.9 percent from a year earlier to $14.11 billion in the first three months of the year, according to data released last week by the Ministry of Economy and Finance. The figure is the highest for any first quarter since 1981, when the government began compiling related data.

By contrast, facility investments by Korean firms at home recorded a 17.4 percent on-year decrease in the January-March quarter, the steepest decline in a decade, according to separate data released by the Bank of Korea.

Certainly, local companies have grown more active in securing large-scale merger and acquisition deals and expanding production abroad in a bid to increase sales overseas.

But, as many economists indicate, the contrast between their soaring investments abroad and sagging investments at home can be attributed mainly to the Moon administration’s ill-conceived policies that have made it harder to invest here.

Over the years since Moon took office in May 2017, his government has turned away from the intensifying global competition to forge a more corporate-friendly environment to help spur economic growth and create more jobs.

To propel its income-led growth drive, the minimum wage has risen at double digits for two consecutive years. A rigid implementation of a shorter workweek has added to increasing labor costs.

The government has made little progress in pushing for deregulation, which is essential to nurture new growth engines.

Furthermore, it has raised corporate taxes, while other major advanced economies have competitively cut related levies.

Unfavorable business conditions resulted in committed foreign direct investment in the country shrinking 35.7 percent from a year earlier in the first quarter of the year.

The widening investment deficit means that Korea has lost job opportunities and growth vehicles it could and should have kept at home to other countries.

What is particularly worrisome is the rapid exodus of manufacturing firms.

Local manufacturers’ ODI soared a whopping 140 percent on-year to a record high of $5.79 billion, or more than 40 percent of the total, in the January-March period.

A hollowing out of the manufacturing sector, which shores up Korea’s relatively small open economy, will exacerbate the unemployment problem.

The number of manufacturing workers decreased on-year for the 14th consecutive month in May, when the sector shed 73,000 jobs.

The massive loss of decent jobs in manufacturing industries could not be offset by an increase in low-paid temporary jobs created by government-subsidized employment programs.

Corporate-friendly conditions need to be enhanced, not only to keep local companies from moving production abroad but to encourage the reshoring of Korean manufacturers operating overseas.

Many domestic companies operating in China have recently moved production to India, Vietnam and other Southeast Asian countries to avoid the fallout from the escalating trade friction between China and the US. They give no consideration to returning back to Korea, as they see business conditions at home deteriorating.

According to data from the Ministry of Trade, Industry and Energy, only 52 Korean firms have moved production back home over the past five years.

The latest investment data should serve to prompt the Moon administration to change its misguided policy in order not to be left behind other major economies in strengthening support and incentives for private companies.

It should overcome objections from vested interests and rein in excessive demand from labor groups to lift regulations and make the job market more flexible. The taxation system needs overhauling to lessen the burden on companies.

A sharp drop in facility investments was the main cause for the 0.4 percent on-year contraction of the economy in the first quarter, the worst performance in a decade. Without reviving corporate investments, it could hardly be possible to prevent the faltering economy from being drawn deeper into a downturn despite expanded fiscal spending.

With less than a year to go before the next parliamentary elections, the government may continue to remain reluctant to address regulatory reforms and readjust pro-labor steps. But a job market further weakened by reduced corporate investments would be a key factor that might deliver an election defeat for the ruling party.