Dhaka, Bangladesh
Diplomacy and economy

Diplomacy and economy

Writes Choi Sung-jin

President Moon Jae-in’s approval rating has reclaimed the 60-percent mark thanks to the progress in talks to denuclearize North Korea. When the major economic statistics come out later the month, Moon’s support rate may fall below 50 percent again. Throughout this year, the President has been repeating the same process ? losing popularity because of the economy after winning it from diplomacy. A leader enjoys support and popularity when they are good in dealing with both external and internal affairs ? that is, foreign policy and economic growth. U.S. President Donald Trump boasts he is one of such leaders but most commentators give generous marks only to Trump’s economic accomplishments. President Moon seems to be the opposite case, at least as seen by his performances this year. Economic gloominess is spreading rapidly in Korea these days. Monthly job creation in the third quarter dwindled to several thousand from hundreds of thousands a year ago. The income of the bottom 20 percent plunged, but that of the top 20 percent soared, widening the gap to 5.23 times. Major think tanks, both here and abroad, have revised downward this year’s growth projection for the Korean economy from 3.0 percent to 2.7 percent or even 2.5 percent. Some critics have already begun to cry wolf, saying the nation’s economy is to fall into another crisis like the one it experienced during the 1997-98 Asian financial turmoil. “Korea’s yearly economic growth rate is hovering even below those of the U.S. and Japan, which have economies 10 times and four times larger than ours, respectively,” one commentator said. Another complained, right or wrong, Korea is the only major economy suffering a slump while the rest of the industrial countries are enjoying a boom. The main culprit is Moon’s “income-led growth” policy, they say in unison. How correct is the diagnosis, however? The liberal Moon administration raised the minimum wage by 16.4 percent to 7,530 won ($6.60) per hour this year while shortening the workweek to 52 hours. It was part of his pledge “to put people ? workers ? at the center of the economy.” Moon and his economic aides want to create a virtuous circle, in which higher income leads to more brisk consumption which in turn fuels economic recovery. It was a policy in the right direction because the profit-led growth policy of the previous administrations had failed to produce the loudly trumpeted “trickle-down” effects. Moreover, all of Moon’s contenders in the presidential elections in May 2017 made the same promise to raise the minimum wage to 10,000 won. Narrowing the ever-widening gap in income and wealth was, and is, the call of the times transcending ideological differences. The road to hell must not be paved with goodwill, as Moon’s political opponents claim. It is also true, however, good intentions alone cannot always produce desired results. The Moon government made a mistake in implementing the policy. Because of the reality in Korea where the ratio of owner-operators is twice larger than those of other major economies, the minimum wage hike resulted in a fight between small business owners and low-wage workers. The business cycle was also unfavorable to the new government, as its two predecessor administrations failed to restructure the troubled shipbuilding and automobile industries, which resulted in mass layoffs. This notwithstanding, the conservatives are wrong to call for the government to drop income-led growth and go back to a profit-led one. The Moon administration is the child of the “candlelit revolution” ? the months-long vigil to replace an economy dominated by corporate behemoths called chaebol, or family-controlled conglomerates, with one led by smaller but innovative enterprises, and narrow the gap of income and wealth under a fairer and more just economic system. It may take a longer time and more sophisticated action plans but a return to the old days cannot be the answer. The shift has only begun. The income-led growth alone cannot bring about the intended outcome unless accompanied by expansionary fiscal operation for other steps promoting equity, including a broader yet denser social safety net for basic welfare and relocation training. Conservative economists and media outlets urge the Moon administration to learn from what they praise as the “pro-business and pro-market policies” of America and Japan. What they do not remember is Korea cannot be like those giant economies. President Trump is prying open foreign markets without hiding his intention to use any means to do so, including raw power. Japanese Prime Minister Shinzo Abe is pouring money from helicopters as the U.S. did years ago. This is possible because the Japanese yen is one of the key global currencies. Korea has neither the political muscle of the U.S. nor a major currency. Moreover, there are no chaebol in the U.S. and Japan. Both the Moon administration and its political opponents ought to have more patience. Income-led growth is a time-consuming policy that requires changes in Korea’s economic physique. The critics, in particular, should not make the mistake of judging a long-term policy based on short-term side effects. The economy may slide further in the course of pursuing the right path. However, the nation can ill afford to stop its journey to a normal state. Some conservative newspapers assume Korea’s economy were headed for collapse. They commonly claim policies for the underprivileged will ruin the national economy. Even if their analyses are right in the short term, Korea cannot abandon the minimum wage hike and reduced workweek. If the Korean economy is to crumble just because the nation tries to make society more livable, and prevent the strong from exploiting the weak, what is the use of its growth? To normalize inter-Korean relationships will take years, if not decades. So will economic normalization.

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