[Kim Kyung-ho] Substantial, not conceptual, growth

In a meeting with his senior policy advisers last week, President Moon Jae-in said economic policies pursued by his administration fitted into the concept of inclusive growth.

If efforts are exerted with confidence, he said, inclusive growth, through which a people-oriented economy takes root and the benefits of growth are shared evenly, would be made possible.

His remarks, which came with pledges to pay more heed to speeding up deregulation and structural reforms, invited criticism from opposition parties that he was attempting to cover up his administration’s poor economic performance by changing the name of its income-led growth policy.

Moon came out again the following day to explain that inclusive growth is a more comprehensive concept and that income-led growth, along with innovation-driven growth and steps toward building a fair economy, serves as a concrete way to achieve it.

Days later, the presidential office distributed a press release to highlight that before the July 23 meeting with his aides, Moon had mentioned inclusive growth on six other occasions after taking office in May last year.

Certainly he did so, though his previous references to inclusive growth were mostly made in front of foreign audiences at international gatherings such as the summit of Group of 20 major economies in Hanover, Germany, in July 2017.

The moves by Moon and his aides to attach a more positive label to their economic policy seem to be yet another indication they lack practicality in coping with substantive tasks.

If Moon wants to reinvigorate the sluggish economy to create more jobs and increase income for working families, he should not simply tinker with concepts that are hard for ordinary people to understand, but take effective steps toward bolstering corporate activity.

Furthermore, Moon’s view of inclusive growth appears detached from those of foreign scholars who have initiated and elaborated on the concept.

They describe inclusive growth as enabling all people, including the poor, to take part in economic activities and gain their share of the wealth created by growth. What is notable is that their studies cite Korea as an example of success in forming institutions and policies needed to push for inclusive growth.

This does not mean the country can sit idle and do nothing to tackle the widening income inequality. What is important is to locate the root cause of income inequality and find ways to ease and resolve it.

It seems a view shared by most economists that income inequality is widening in Korea as its economic growth slows down.

Poor and working families suffer the most from the economic slowdown that is accompanied by a reduction in jobs and consumption. Low-skilled workers and small business owners remain most vulnerable to the risk of losing work and having their earnings cut. But affluent and professional workers are relatively unaffected by an economic slump, widening the income gap with the less privileged.

If a government truly wants to narrow income inequality, it should pursue policies designed to facilitate growth.

The Moon administration’s income-led growth policy intended to boost consumption by raising wages, not by increasing jobs, is hardly a path to growth but a way of distributing income. A year of experimenting with the policy that has never been tried in any other major developed economy has only resulted in a cut in jobs and earnings for low-income households.

Pro-labor measures taken to push for income-led growth, including sharp minimum wage hikes and reduced working hours, have dampened corporate activity.

Inclusive growth as described by Moon seems little different from the income-led growth policy that views government intervention as a panacea for economic problems.

It should be noted that inclusive growth is not meant to intervene in the market but to accept the inevitability of competition. Government roles are supposed to be limited to supporting people pushed out of competition by offering retraining programs and strengthening social safety nets.

The Moon administration has turned a blind eye to the fact proven by all high-performing major economies that the best way to boost growth is to forge more business-friendly conditions to induce companies to increase investment and employment.

What it should do now is not to change the adjective ahead of growth but to accelerate regulatory and labor reforms that are essential to galvanizing corporate activity and improving the productivity of companies.

Despite a recent string of pro-business remarks by Moon, the corporate circle still remains doubtful about whether his administration will act on his pledges to carry out deregulation and structural reforms.

Unless it changes not just the slogans but the substance of its economic policy, the Moon administration will probably find itself deepening the suffering of low-income people it has so arduously tried to help over the past year.

A shift in economic policy is all the more needed as deteriorating external conditions, including an escalating trade war between the US and China, are poised to inflict severe damage on the weakening economy.

In a rare meeting with citizens at a pub in downtown Seoul last week, Moon was asked by a small business owner whether it was necessary to raise the hourly minimum wage to 10,000 won ($8.92) over the coming years across the entire nation as pledged by him. The question was based on the sensible assumption that the same amount of money might have different buying power in different areas.

Moon replied that permitting the differentiation of minimum pay would go against the very purpose of setting the minimum wage to help those who make insufficient income, though he suggested the government might consider the idea in the future.

Judging from his answer that sounded benevolent but apparently unpersuasive to the questioner, it seems still hard to expect practicality from his administration in handling economic matters.


Kim Kyung-ho
Kim Kyung-ho is the Sejong-based business editor of The Korea Herald. He can be reached at khkim@heraldcorp.com -- Ed.