The reshuffle of South Korea’s top two economic officials Friday raises concerns rather than expectations over policy direction.
President Moon Jae-in appointed his top social affairs adviser Kim Soo-hyun as new presidential chief of staff for policy, and Hong Nam-ki, minister of the Office for Government Policy Coordination, as new deputy prime minister for economy and minister of economy and finance.
The move reflects Moon’s will to sustain his basic policy direction, including the controversial income-led growth policy. He appears to have turned his back on expectations for the appointment of policymakers who will push policies in a more market-friendly direction.
However, the reshuffle is as good as acknowledging the failure of the economic policies pushed for about a year and a half since the inauguration of his administration. Deregulation has been blocked by labor and civic groups supporting Moon, and the income-led growth policy has worsened unemployment and wealth inequality.
Nevertheless, the profiles of the newly appointed officials show clearly that the presidential office will reinforce existing policies rather than change its course.
Kim is an expert on urban planning, who authored a book on issues regarding evicted poor residents. Under former President Roh Moo-hyun, he played a central role in pushing oppressive real estate measures, which caused housing prices to skyrocket. Under Moon, he has pushed a policy to wean the nation off nuclear energy, despite concerns about serious aftereffects.
His understanding of macroeconomics has not been verified. He is expected to drive policies further left. Regulation of the market and companies will likely be tighter, and labor-friendly policy sustained.
Hong is a veteran bureaucrat versed in executing directives thoroughly on the working level. Deputy Prime Minister Kim Dong-yeon, who Hong succeeds, sometimes voiced opinions that were different from those of the presidential office. Eventually, the big picture will likely be drawn up by Cheong Wa Dae, with Hong executing it.
Economic policies may well be set by the deputy prime minister for economy and economy-related ministries. If the presidential office takes the initiative in economic policies, they are likely to reflect political considerations.
If Kim and Hong push policies friendly to labor and unfriendly to the market, policies will not differ from what they used to be. What is the point of replacing top economic policymakers if problematic policies are not corrected?
On the day when the reshuffle was announced, Moon presided over a meeting on strategies for a fair economy, where he vowed to push an array of bills to regulate large companies for economic democratization.
He convened an economic meeting when the national economy began to lose steam, but it was about a fair economy, a topic that may dispirit businesses.
“The output accomplished together (by large companies and small and midsized companies) is concentrated on large companies. Small and medium-sized companies failed to grow together,” Moon said. “The economy for ordinary people crumbled because of foul play, privilege and corruption.”
He effectively instructed the new economic policy chiefs to keep pushing the same policies as before around three tenets: a fair economy, income-led growth and innovation-driven growth.
A fair economy is one of the issues that arise as a nation develops its economy. However, if companies are regulated tightly, business activities such as investment and employment cannot but be dampened.
Fairness and economic democratization are important, but everything has its time.
On the day of the reshuffle, an alarm sounded to the Korean economy. According to Statistics Korea, domestic supply by the manufacturing industry dropped 5.1 percent in the third quarter from a year earlier. It was the largest drop since related statistics were released in 2011.
It is well-known that the national economy is worsening mostly due to labor-friendly, market-unfriendly measures taken under the banner of the income-led growth policy. All medicines will prove useless if policy direction is not changed.
Economic recovery will be possible when ideology is excluded from the economy and practical, market-friendly policies are pursued.