[Editorial] Face up to reality

By Korea Herald

Income-led growth policy fails; government must listen to market

  • Published : Aug 23, 2018 - 17:08
  • Updated : Aug 23, 2018 - 17:08

Despite the unemployment crisis, Cheong Wa Dae and the ruling party have chosen to ignore reality.

Though most economists are advising the government to change its policy direction, senior officials adhere to the belief that the income-led growth policy has not kicked in yet.

So does President Moon Jae-in.

“We put job creation at the center of state affairs and have employed policies and fiscal measures accordingly, but in hindsight I cannot but admit they were not enough,” he said to his senior secretaries and aides Monday. “All members of the economic team should stake their offices on the resolution of employment problems through perfect teamwork.”

His remarks indicate that he has misidentified the problem: It’s not that his policies are wrong, but that they have not yet been fully implemented. In other words, let’s speed up the implementation of the existing policies and we’ll be on the right track.

This view echoes what Jang Ha-sung, Cheong Wa Dae’s chief policymaker, said in an emergency meeting of economic ministers and the ruling party floor leader on employment issues last weekend. “I am convinced that once the income-driven growth policy begins to work, the employment situation will improve. Please (trust) the government and wait a little longer,” Jang said.

Moon ordered the government to implement active fiscal support to resolve the unemployment problem. However, for all its 50 trillion won ($44.6 billion) in fiscal injections into job creation programs this year and last, the reality is terrible. There were just 7,000 more jobs this July, compared with a year earlier. And yet the government is poised to pour in more funds. Where has the enormous sum of money gone?

You can’t hope to cure a disease by taking the wrong medication. As long as the government sticks to a misguided policy, spending tax money to create jobs is like pouring water into a sieve.

The current problem is too serious to resolve through “perfect teamwork.”

It is pathetic and even infuriating that ruling party officials have pointed an accusatory finger at past administrations.

Choo Mi-ae, chairwoman of the party, said, “The nation is in the process of recovering its economic fundamentals, which could not (have been) any weaker several years ago.”

Rep. Lee Hae-chan, who is running for party chairman, attributed the employment woes to the administration under President Lee Myung-bak. He said the Lee administration had dried up resources by spending 27 trillion won on a project to refurbish the nation’s four major rivers. The Moon administration could have invested those funds in other industries, the logic goes.

Floor leader Hong Young-pyo argued that the employment crisis happened because the Lee and Park Geun-hye administrations paid little attention to the need for industrial restructuring, instead doubling down on policies to increase exports and benefit large corporations.

Jang is of the same mind. In the Special Committee on Budget and Accounts of the National Assembly on Wednesday, he said, “Employment growth has been greatly restricted by social overhead capital projects (such as infrastructure construction, which were initiated by past governments but) completed under the current government.” He did not provide evidence to support his argument, and his view is far from that of most economists.

The ruling camp is quick to put the blame on others when it should reflect on its own failings. The current crisis is attributable largely to its policies, rather than to external factors or the actions of past governments.

According to Statistics Korea on Tuesday, the number of employees of small businesses with fewer than 300 people had fallen 706,000 as of July 2018, compared with the same month a year earlier. It is the first such drop in eight and a half years. Last year, about 900,000 self-employed people closed their businesses, and industry experts expect that figure to top 1 million this year.

On Wednesday, the government and the ruling party unveiled their strategy to support small businesses. The central idea is to help them by providing 7 trillion won from tax coffers -- in other words, they are repeating the same mistake again. They have turned a deaf ear to the outcry from self-employed businesspeople, who believe a drastic hike in the minimum wage is unsustainable.

They must admit the failure of their income-led growth policy, and they must change course before it’s too late.