[Editorial] Gloomy growth outlook

The Korean economy grew at a disheartening rate of 3.6 percent last year, almost half the 2010 growth rate of 6.2 percent. Even gloomier is what is yet to come. Few private financial institutions and research institutes predict this year will be better than last year.

Mostly culpable were the worsening external economic conditions. The Bank of Korea had to revise its 2011 outlook from the original 4.5 percent to 4.3 percent when the global economy showed few signs of an early recovery. It lowered it again in December, this time by a whopping 0.5 point to 3.8 percent.

But the actual growth rate was found to have been even lower, planting seeds of suspicion about the nation’s economic health in the minds of many Koreans. Now private economic think tanks and financial institutions are painting murkier pictures for this year

Among them are the Samsung Economic Research Institute and the LG Economic Research Institute, both of which have come up with 3.6 percent. More pessimistic are foreign financial institutions, including Nomura with 3 percent and Morgan Stanley with 3.2 percent. But a most frightening forecast has come from UBS, a Swiss-based banking and financial services company, which says growth will be stunted to 1.9 percent.

On a bit more optimistic note are the Bank of Korea and the state-funded Korea Development Institute. Both believe the Korean economy will grow 3.8 percent this year. But not many Koreans would find much solace even if this forecast should prove to hit the mark. Instead, they would wonder if the nation has started to follow the footsteps of advanced nations that are trapped in a low-growth mode.

Don’t ask what has become of President Lee Myung-bak’s election promise to push up growth to an annual average rate of 7 percent during his five-year term in office. Wasn’t it just a campaign pledge? When it was announced, few in their right mind believed that it was attainable.

But growth hovering around the 5 percent level should not be too high a goal to attain. Indeed, many economic experts believe that a right mix of economic policies, when consistently applied, will raise the annual growth rate to 4.5 percent or higher.

True, Korea’s current hardship is closely linked to the global economic downturn precipitated by the global financial crisis of 2008 and the succeeding eurozone fiscal crisis. But it cannot be denied that the Lee administration, which has made a policy U-turn, has its fair share of responsibility.

Upon its inauguration, the Lee administration professed to be business-friendly. It promised to cut corporation and other taxes to boost growth. But all of a sudden, it abandoned the business-friendly policy in favor of promoting welfare for families on low-incomes. No wonder entrepreneurs have lost confidence in the administration’s economic policy.

Moreover, the ruling and main opposition parties are competing against each other in denouncing big businesses for their allegedly unrestrained greed ahead of the April general elections. They promise to put new restrictions on investments by large business groups, increase the corporation tax and tighten other regulations. Top corporation managers cannot be blamed if they profess to believe the political community is bashing business as an election gimmick.

The parties are fanning anti-business sentiment at a time when corporations should be encouraged to increase investments and, by doing so, help generate growth and jobs. Instead, they should join forces with the administration in creating an environment conducive to corporate investment.

This is not to say that the political community and the administration should turn a blind eye to what are deemed to morally indefensible practices by large family-owned business groups, such as running bakeries, coffee shops and eateries at the expense of small businesses and self-employed businessmen. Instead, they should encourage those business concerns to abandon those labor-intensive businesses and concentrate on technology- and capital-intensive ones.

It is necessary to promote deregulation, spend more on government-initiated joint research projects and take other pro-business policies, if the nation is to push up its growth potential, which, according to estimates by economic experts, has fallen to 3.5 percent. Otherwise, the nation will not be able to extricate itself from the low-growth trap.