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Conditions for economic success

The new president should not fret too much over the details of the reform bills.
May 06,2017
A new administration will be launched in a few days, but we are more worried than relieved. The job won’t be easy for whoever wins. The new president will probably struggle with an economy that teeters throughout his term. The Korean economy has already hit a slow-growth level.

The new government can forget about traditional growth targets of 3 percent. The target has been raised for this year, but it is still below 3 percent. The Bank of Korea and the Korea Development Institute estimate our growth potential at 3 percent up to 2020. Private institutes give lower figures.

The economy’s greatest challenge is demographic weakness from Korea’s low birth rate and the aging of its population. The number of newborns, which reached 1.01 million in 1970, will be less than 400,000 this year. The working population will start thinning this year and shrink at a faster rate in coming years.

Production and consumption will become sluggish. From next year, the share of our population 65 or older will exceed 14 percent. Productivity will inevitably slow. Low growth is a byproduct of low productivity in an aging society.

There is only one way to avoid lengthy stagnation. The country must carry out structural reforms and deregulation to recharge the economy. Without an overhaul in the public sector, labor, education and corporate sector, there is no hope for the Korean economy. But that is easier said than done because there are many conflicts of interests involved. The mainstream holds steadfastly to their vested interests and strongly resists any change.

The public sector should first be overhauled. Many young people want to find jobs in the government thanks to job security and decent pay. When including pension benefits, those jobs pay better than at large companies. Government employee pensions must be reformed. Of the 1,433 trillion won ($1.26 trillion) national debt last year, as much as 600 trillion won covered the deficit in the government employees’ pensions.

No government has been able to fix the money-losing pension system. One attempt faced strong challenge two years ago. Few politicians can fight the collective power and votes of government employees. They can hardly move onto other areas of labor and education that would be far more resistant.

The solution to our problems hinges on political leadership to push forward reforms. If the incoming government can break the mainstream power and persuade the public to share some pain, the economy could avoid retracing the path of Japan.

Such leadership is possible through partnership with the National Assembly. Reform bills must first go through the legislature. Without approval from politicians, no economic policies can bear fruit. Yet the Korean people blame the president and government for our poor economy. So the president must use all his political capabilities to combat economic challenges.

Presidents in the past all failed in economic policies because they lacked political skills. They had not turned to the legislature for support even though the key to economic solutions lay there. Businessman-turned-president Lee Myung-bak fell short of reviving the economy due to his poor politicking. As the new president comes into office without a decisive majority in the legislature, it is imperative to seek bipartisan support.

The new president should not fret too much over the details of the reform bills. Instead, it must draft bills that can pass the legislature. That is the only way to keep its reform drive alive. The administration cannot do anything with the ruling party power alone in an opposition-led legislature.

Past governments also promised integration. But integration cannot be achieved with words. The new government should be more engaging to gain bipartisan support and save the economy from sinking further into the pit of stagnation. The government should be willing to share power with the opposition.

A coalition government would be the best solution. The new president must propose a coalition if he really wants to succeed in resuscitating the economy. Joining hands with groups of reform-minded conservatives and reasonable liberals would surely help advance Korean politics.

JoongAng Ilbo, May 5, Page 24

*The author, a former editorial writer of the JoongAng Ilbo, is an adviser to the Korea Institute of Finance.

Kim Yeong-ook