Majority of economists, analysts view income-led growth positively
Since Moon Jae-in’s presidential campaign and his taking the oath as President five months ago, his economic policy has stirred debate.
This was largely expected because he made promises that were almost totally opposite those of former conservative Presidents Lee Myung-bak and Park Geun-hye.
As a former human rights lawyer and close friend of former liberal President Roh Moo-hyun, Moon has been focusing on a policy to improve the welfare of middle- and low-income workers.
On the other hand, Lee implemented a business-friendly policy, and Park, too, was lenient toward conglomerates, in addition to boosting startups.
Moon’s economic policy includes many things, which the incumbent government hopes will bring changes to the aging industries dominated by traditional chaebol.
He laid out plans, albeit not yet in detail, to reform and reshape this market order through tougher antitrust regulations against those conglomerates.
The President wants to cut ties with businesses so that the government will no longer give favors to particular companies and their executives.
This also means no more conglomerates colluding with politicians and unfairly treating small- and medium-size enterprises.
His government seeks to actually keep a level playing field not just between small and large businesses, but also between employers and employees.
Moon’s key focus has been on improving the welfare of workers.
Since the trickle-down economic policy of supporting companies’ growth by previous governments did not work effectively, it was logical for Moon and his economic advisers to go for a policy that could help boost workers’ income.
This income-led growth policy further gave way as the economy has been fueled by debt that weighed on private spending.
People’s average income has not increased as high as the rate of consumer and apartment prices over the past years.
They relied on taking out loans to fill in the widening gap to find and buy an affordable place to live.
This resulted in skyrocketing household debt, and a very slow increase in personal wealth.
With inequality and unemployment growing, President Moon pledged to increase the country’s minimum wage, reduce the number of irregular employees and hire more social service workers such as firefighters and police officers.
Positive over income-led growth
His policy for job protection and increases has received a mixed response.
Liberals and conservatives are clearly split over the President’s income-led growth policy.
Those who argue for his policy said it was time to focus on the people or workers’ wellbeing since companies failed to do it through job creation and wage increases.
Those who argue against it said Moon’s policy only hinders private investment and job creation.
Economists and analysts, in gener- al, are in favor of the income-led growth policy.
The Korea Times surveyed 20 economists and analysts, asking them about the pros and cons of Moon’s economic policy.
More than a dozen economists mentioned the government’s income-led growth policy.
Of those, 10 said they are positive about his policy supporting workers’ welfare.
“I see it as positive. The average income growth has been very slow. The economy has been driven by debt, and this caused abnormal development of the real estate market,” said Sun Dae-in, an indepen- dent economist and head of SDInomics rearch center.
Choi Pae-kun, an economist at Konkuk University, said he sees the policy as part of efforts to “normalize” the labor market and reduce inequality.
He added the growing income inequality between households and companies over the last two decades led the economy to be in bad shape.
“The policy will be able to help fix this problem,” Choi said.
The incumbent government negotiated with representatives from the business and labor sectors to increase next year’s minimum wage.
It has been raised 16.4 percent to 7,530 won per hour, a record increase.
Moon has pledged to increase the wage to 10,000 won by 2020.
Also, soon after his inauguration, he visited Incheon International Airport and a fire station in Seoul, reaffirming his pledge for zero irregular public workers and higher incomes.
However, economists say his income-led growth policy alone cannot do the trick.
President Moon will need a policy that can drive innovation in the private sector.
If the government only focuses on boosting workers’ income and job security, the policy will work only in the short term.
Creating jobs and reducing the number of irregular workers in the public sector can further burden tax payers.
Lee Sun-yup, an analyst at Shinhan Investment, said raising taxes to support the economy will also increase the burden.
“There is no detailed policy on innovation,” said Ju Won, an economist at Hyundai Research Institute.
Only recently did President Moon make a brief comment on the importance of innovation led by the private sector during a Cabinet meeting.
Improvement points
Five months in office is considered too short for some to thoroughly evaluate Moon’s economic policy.
Still, eight economists and analysts said the government needs to draw a much more detailed policy on altering a business landscape filled with chaebol through innovation.
This is because ultimately it is the private sector that creates jobs in the long run.
“This is the right time to push reform when his approval rating is high. But it seems the government is looking over its shoulder so that it will not upset others,” said Ha Joon-kyung, an economist at Hanyang University.
Nevertheless, economists Oh Jung-geun of Konkuk University and Ha of Hanyang University said although its policy lacks clear vision and balance, the market should give the President some credit for trying something new for workers and realizing the importance of business innovation for growth.