There is a myriad of policy challenges to be tackled by the new Moon Jae-in administration: revitalizing the slowing Korean economy; narrowing the growing income gap; and addressing other chronic issues, such as the nation’s low birthrate.
The previous administration was not sitting on its hands, but it failed to achieve much, since it stuck to the same old policies and failed to catch up with changing economic environment.
A prime example is the industrial policy.
More than a decade ago, experts concluded that spillover effects could no longer be expected from industrial policies focusing on exports, manufacturing and conglomerates.
As exports get less effective in driving up domestic consumption, this has led to jobless growth; a lack of jobs has, in turn, increased income disparity as a consequence. The manufacturing industry continues to cut its workforce to reduce costs and makes up for the labor shortages by outsourcing. This has contributed to churning out contingent jobs and adding more low-paid jobs. Still, we have not found any solutions to the current economic situation.
Yet, the government has been busy promoting as a “new” engine of economic growth what is already in place in other countries and belatedly showering tax breaks on such industries.
When it comes to what consumers want and how to make money, nobody knows better than businesspeople. In this respect, the government-led industrial policy should be abolished. Instead, the private sector should be allowed to take the initiative in finding new breakthroughs for the future.
Job policy is another example.
In the fiscal year 2016, the government budget for job creation reached a whopping 15.8 trillion won ($14.1 billion). This is equivalent to distributing 20 million won each to 800,000 people. However, how many jobs were actually created by spending such a huge amount of money? As a matter of fact, unemployment has been on the rise with no desired outcome achieved. If a private company had been run this way, it would have gone bankrupt already or the CEO would have been fired. Despite such inefficient budget operations, the budget appropriated for job creation was increased by 1.7 trillion won to 17.5 trillion won this year.
Expanding the budget cannot be a magic bullet. It is the private sector, not the government, that creates jobs. Thriving startups and improved business environments would naturally lead to an increase in the number of jobs.
In reality, however, our economic environment is not conducive to launching new businesses. According to a survey, for instance, only 3 percent of college students in Korea consider starting a business. Worse still, as few as 0.1 percent of them put their ideas into action. Lifting regulations and realizing economic justice are essential to improving the current situation.
First, regulations should shift from positive to negative ones. Although the big data industry has proven to be promising all around the world, our outdated policy is preventing the new industry from getting even started properly in this country.
If aspiring entrepreneurs get frustrated even before starting a business, creativity cannot bloom in the private sector. A future growth engine to drive our economy will be found only when we allow the private sector to venture out and learn from trial and error.
Second, a level playing field is a necessary condition. Fair competition has been compromised by chaebols’ tyrannical business practices: forcing subcontractors to reduce unit prices, usurping their technologies, poaching key personnel and other unfair practices. Under these conditions, startups cannot claim their fair share and struggle just to survive, let alone grow into mid-sized to large companies. While it is problematic to dismantle large conglomerates altogether, at least they should be held accountable for their wrongdoing.
The same goes for the low birthrate issue.
Since the Framework Act on Low Birth Rate in an Aging Society was enacted in 2005, more than 100 trillion won has been spent so far to drive up the nation’s birthrate. Maternity and paternity leave and child care leave programs have been expanded, and the government has also introduced the right to claim for reduced work hours during the child care period. The number of day care centers, which was just around 8,000 in the 1990s, soared to about 40,000 in 2015. An enormous amount of child care subsidies are being provided as well. In fact, the government has adopted most of the child care policies implemented in advanced economies.
Nevertheless, there is no sign of improvement in the total birthrate. Rather, the number of newborns is on a continuous decline. When people think this country is not a good enough place to bring up children, would mere child care benefits really be able to persuade people to have them?
The low birthrate is a product of complex economic and social phenomena. The government should stop playing a numbers game with empty promises to reach X amount of childbirths by spending Y amount of money from the public coffers. Instead, it should come up with a blueprint detailing how Korea is to take steps for future prosperity. So far, simply tallying individual ministries’ program budgets has been falsely advertised as the “comprehensive” budget package for promoting childbirth. The government must take a broader perspective and determine what kind of task each ministry is to take up, not the other way around. To this end, we need a complete overhaul of the nation’s childbirth promotion policy.
To sum up, nothing can be done by the government alone, without resonating with the private sector. Sometimes, things are better left alone without government intervention.
Among other things, we need to guard against a misguided belief that increasing the budget can solve all the problems. Spending more government money alone does not lead to job creation or an increased birthrate. After all, companies are the ones that decide on whether to invest, and the same goes for childbirth.
Expectations are high for the new administration. I sincerely hope that it will tackle a series of policy challenges in a wise manner and live up to the public’s expectations.
By Lee Jong-koo
Lee Jong-koo is a three-term member of the National Assembly and the chairman of the Policy Committee of the Bareun Party. The views expressed here are his own. He can be reached at jjongkoo@na.go.kr - Ed
