Corporate facility investment decreased 1.4 percent month-on-month in August, according to Statistics Korea, sliding six months in a row from March.
It is the longest successive descent in 20 years, following a 10-month streak from September 1997 to June 1998. At that time, Korea received a bailout from the International Monetary Fund to recover from its financial crisis.
Investment is a barometer of future industrial competitiveness, and also directly related to employment. In this regard, its continuous decrease is particularly concerning.
The Korean economy has been sending signs of downturn.
An indicator showing current business conditions began to fall in May 2017 and then never bounced once in a year and three months until August. It just held steady from January to March this year, then slid five straight months.
Though the gross domestic product and other indicators need be considered as the government insists, most private economists see the present economic situation as teetering on the edge of a downturn. It is generally known that business begins to enter a downturn when the indicator slides six straight months.
Declining employment growth is nothing to sneeze at. Employment grew by 320,000 last year, but its monthly increase slowed drastically to 5,000 in July and 3,000 in August. In an interpellation session Tuesday, Deputy Prime Minister for Economy Kim Dong-yeon did not exclude the possibility that employment may have marked negative growth in September.
Things are different in other countries. The average quarter-to-quarter growth rate of G20 countries rose from 0.9 percent in the first quarter of this year to 1 percent in the second. That of the Organization for Economic Cooperation and Development jumped from 0.5 percent to 0.7 percent. However, that of South Korea fell from 1 percent to 0.6 percent.
The OECD recently revised its forecast for South Korea’s growth this year from 3 percent to 2.7 percent, but it is questionable if it can attain even that. External factors such as a US-China trade war and rising oil prices are weighing on its economy.
What holds Korea back while others sprint are government policies that have a way of ignoring markets and regulating large companies. A sharp rise in the minimum wage, corporate tax hike and pro-labor policies are among them. Policies fostering market functions, competition and labor productivity are few and far between.
The results of these policies are continuous decrease in investment. Unless this situation change, there will be no way to stop the decline.
The government must exert itself to create a business environment friendly to investment and employment, but it is moving in the opposite direction.
As concerns have mounted about side effects of the government’s income-driven growth policy, such as increased labor costs and declining employment, Cheong Wa Dae has dismissed them as “temporary pains accompanying policies to strengthen the health of the economy.”
Last month, the jobs committee, which reports directly to the president, called related officials of eight large groups together and asked them to submit specific projects for their investment and employment plans. Most of them reportedly met the deadline.
Investment and employment are matters to be determined by companies autonomously. What the government need to do is to concentrate on fostering environment for corporate investment, not to press companies.
Income-led growth policy has sapped growth momentum. It took jobs away from the low-income class. Before it is too late, the government must shed its obsession with the policy. It must try to boost the private sector more than the public sector.
Korean car exports declined 5.6 percent in the first half of this year. The car industry accounts for 11 percent of the nation’s exports. Those industries that have been major breadwinners for Korea, such as automobiles, shipbuilding and overseas construction, are staggering. Korea is falling behind the US, China and Japan in the fields of the fourth industrial revolution.
With a storm rising over the economy, the government must not repeat that there is no problem with its policies. It must first lift regulations that drag corporate investment down. Investment must be revived to add jobs, increase income and enliven consumption and business.
It is time to review the direction of Korea’s economic policies and redraw the growth blueprint. It must push industrial restructuring quickly. Bold change of policy is needed.
