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In Japan’s footsteps

Oct 24,2019
CHANG CHUNG-HOON
The author is a deputy industrial team editor of the JoongAng Ilbo.

I often hear concerns about long-term stagnation, especially worries about an L-shaped, long-term slump like Japan’s. I actually see signs everywhere. Recent Statistics Korea reports show that the manufacturing operation rate is the lowest since the financial crisis 10 years ago. The operating profits of listed companies are half what they were a year ago. Exports, which have served as the foundation of the Korean economy, have been in decline for 10 consecutive months. Inflation has turned negative.

Cornered by the low birth rate and the fast aging of the population, growth potential is also falling. This year’s economic growth rate is expected to barely make 2 percent. While 1 percent growth rate is expected from next year, no expert is contesting.

The government has been fighting the slump with a fiscal input. As a result, the government’s spending from 2018 to 2020 is the highest in history, nearly on par with the credit card crisis in 2003 and financial crisis in 2009.

However, companies and households haven’t gained vitality and the economic slump is worsening. At this juncture, President Moon Jae-in stressed the importance of fiscal stimuli, as the government should play an active role to resolve structural issues such as low growth, unemployment, a low birth rate and the aging of the population.

But Japan’s example shows the clear limits of state financing in reviving the markets. Over the past 20 years, more than 20,000 companies went bankrupt and the jobless rate rose in Japan. The Japanese government used tremendous state funding during the slump, but failed to revive the economy, only resulting in a 200 percentage point increase in the government debt-to-GDP ratio.

Japan escaped the slump not because of the fiscal input but thanks to the three policies of the Abe government — lowering the corporate tax, easing labor and environmental regulations and improving export competitiveness through the weak yen.

Our economic slump began from September 2017. According to Statistics Korea, our economy has retreated for 24 consecutive months. If the slowdown continues until the first quarter next year, it will be the longest slump since the statistics began to be collected.

Of course, the current government is not responsible for structural issues of the Korean economy. But the current slump doesn’t seem unrelated to anti-business policies such as the excessive minimum wage increase, income-driven growth, the 52-hour workweek or labor market regulation. If it wants to get out of the slump, it must help companies run again rather than sticking to fiscal input.

JoongAng Ilbo, Oct. 23, Page 32