[Editorial] War on regulations

President Park Geun-hye has declared a war on regulations. In her New Year’s news conference Monday, she unveiled a new three-year plan to reinvigorate the economy, suggesting deregulation as a key implementation strategy.

Park’s new economic policy platform calls for raising the nation’s potential growth rate to above 4 percent, elevating the employment rate to 70 percent and boosting Korea’s per-capita GDP beyond the $30,000 mark.

These goals are not easy to reach within three years. For instance, it will take significant productivity improvements to raise Korea’s potential growth back to the 4 percent range. Dragged down by the global financial crisis, the rate now stands at around 3.5 percent.

The 70 percent employment rate target is also a tall order, although not beyond reach. To attain the goal, analysts say, the economy needs to add at least 600,000 new jobs a year during the three years.

Korea’s per-capita GDP was estimated at $23,021 in 2013. Boosting it above $30,000 will require a steady appreciation of the Korean currency against the greenback as well as sustained economic growth.

As Park noted, it would be impossible for Korea to attain these goals if the economy continued to fly on a single engine ― exports. So the three-year plan calls for efforts to expand domestic demand.

One important key to stimulating domestic demand is fostering the service sector. Park picked five strategic segments ― health care and medical services, education, tourism, finance and software.

The first step to nurturing these industries is to remove or ease regulations that impede investment. So Park declared that she would have officials undertake a thorough review of all investment-related regulations and remove all of them, except for those deemed essential.

She also promised to introduce a system that would require ministries that sought to introduce new regulations to identify current regulations that could be removed. This approach is similar to the “one-in, one-out” system now in place in the United Kingdom.

Park also said she would personally preside over the ministerial meetings on deregulation, which have thus far been chaired by the prime minister.

The government’s push for deregulation is welcome as it can foster the service sector without using taxpayers’ money. All that the government needs to do is just to cross out cumbersome regulations so that private investment can flow to promising areas.

Fresh investment in services will not only create jobs and boost domestic demand but help sustain Korea’s long-term economic growth. In recent years, Korea’s plummeting potential growth has fueled concerns about the economy being stuck in a low-growth trap.

One way to boost potential growth is to improve the productivity of services, which is only about half of that in manufacturing. To boost productivity, investment in productivity-enhancing equipment is essential.

But deregulation is easier said than done. Last year, the government submitted a set of bills aimed at facilitating investment in tourism. But these bills remain on the back burner due to the main opposition Democratic Party’s objections.

The government’s plan to help hospitals attract private investment by allowing them to set up for-profit subsidiaries also faces strong resistance from the DP and physicians, who erroneously see it as a first step toward privatization of medical services.

Following Park’s press conference, the ruling Saenuri Party pledged to do its best to pass the tourism and other services-related bills in the February parliamentary session. It remains to be seen how it will overcome resistance from the DP and other interest groups.