Concerns have been raised that a set of policies being shaped by the Moon Jae-in administration will result in cutting deep into the competitiveness and efficiency of the Korean economy by aggravating its high-cost structure.
Economists are beginning to ring alarms over this possibility, noting the country has already seen its major industries losing their competitive edge in the global market in the face of mounting challenges from foreign rivals while facing difficulties finding new growth engines.
Initial moves taken by the Moon administration since he took office in May portend a steep rise in production costs, which is feared to push some vulnerable companies to the brink of collapse.
Especially worrisome for businesses is the push for radical measures to give more benefits to low-income employees.
Apparently affected by a growing pro-labor sentiment, a tripartite commission comprising representatives from the government, labor and management decided last week to raise the minimum wage for 2018 to 7,530 won ($6.70) per hour, up 16.4 percent from this year. It is the highest on-year increase after a 16.6 percent hike in 2000.
The decision, which has drawn strong protests especially from small business owners who view it as ignoring their ability to pay, is seen as a first step toward fulfilling Moon’s campaign pledge to raise the minimum wage to 10,000 won per hour within his five-year term.
On Sunday, the government unveiled a plan to spend about 3 trillion won next year to help relieve smaller businesses of the financial burden of the sharp increase in minimum wage.
The planned measure has prompted criticism that it would not make sense to make up for wage costs of private businesses with taxpayers’ money.
As conceded by government officials themselves, it would only provide a temporary relief for employers, who would have to shoulder the long-term burden from the wage hike.
Moon’s initiative to transform all irregular jobs into regular ones is also set to put pressure on the management of companies in both the public and private sector.
His move toward phasing out nuclear power generation in the country risks resulting in a steep rise in electricity fees, which would lead to an additional increase in production costs.
Board members at Korea Hydro and Nuclear Power voted last week to temporarily halt the construction of two reactors in Ulsan, after Moon suggested at a recent Cabinet meeting that work be stopped before a civil panel decides its final fate.
The elimination of nuclear power generation would deprive the Korean economy of advantages from relatively low energy costs, which experts say have served to induce foreign companies to build factories in the country despite other unfavorable conditions.
The new administration’s plan to increase corporate taxes would also have negative effects on the competitiveness of local companies.
Yun Chang-hyun, a professor of finance at the University of Seoul, said “more careful consideration and a bigger picture are needed” to prevent the Korean economy from suffering from the high-cost, low-efficiency structure.
But Moon and his aides seem adamant on sticking to the path of what they call income-led growth or people-oriented growth.
In a meeting with top presidential secretaries Monday, Moon hailed the minimum pay increase as marking a “great turning point for opening the era of people-oriented growth by reducing the extreme income gap.”
Kim Hyun-chul, the president’s economic adviser, told reporters earlier this month the new administration would pursue “good growth,” which he said would be aimed at ensuring a balance between growth and income redistribution.
He said it would no longer be important to set a specific growth target and try to achieve it at the expense of causing negative side effects.
In the coming weeks, the government plans to announce a set of policies for running the economy and measures to reform fiscal and taxation systems, expected to focus on backing up such new approaches.
Economists still indicate efforts should not be slackened to enhance competitiveness and efficiency by eliminating regulations, implementing structural reforms and developing future growth engines.
Such efforts are needed to pull the country out of a low-growth rut and solve unemployment and other pressing economic problems.
In this regard, concerns are rising over the composition of Moon’s economic team, which includes professors long on theory but short on experience in practical fields.
Introducing populist programs to increase benefits and discourage competition may initially be applauded by their recipients, but would prove a drag on the economy in the long run, economists say.
In a meeting with heads of legislative and judicial branches last week, Moon said the extra spending plan he was trying to pass through parliament would be in the same direction of global efforts to spur growth.
But officials from the International Monetary Fund and global credit rating agency Moody’s posed questions during discussions with the Ministry of Strategy and Finance in June about a range of the new administration’s policies, which they apparently viewed as going against the global trend.
By Kim Kyung-ho (
khkim@heraldcorp.com)
