Shift to Pro-Market Business Policy in the New Year

The New Year of 2019, the Year of the Pig (己亥年), has dawned. Although the year symbolized by the pig—an emblem of abundance and wealth—has begun, regrettably Korea’s economy is expected to be far removed from prosperity and affluence this year. After economic growth fell from the 3 percent range in 2017 to the 2.7 percent range in 2018, it appears likely to decline further in the new year. As a range of economic indicators—such as the stock market, the consumer sentiment index, the unemployment rate, and the closure rate among self-employed business owners—continue to worsen, people are saying that the real economy feels even more difficult than during the IMF foreign exchange crisis or the 2008 global financial crisis.

The economic situation felt by businesses, the main pillar of the economy, is even gloomier. Externally, the trade conflict between the United States and China continues, while U.S. interest rate hikes and changes in fiscal policy have heightened uncertainty in the business environment. As the global competitiveness of Korea’s key industries—such as automobiles, machinery, and steel—has weakened, exports, apart from semiconductors, have failed to post noteworthy results.

Accordingly, business leaders are speaking with one voice in their 2019 New Year’s messages to call for regulatory reform. Park Yong-man, chairman of the Korea Chamber of Commerce and Industry, appealed for changes to “the laws and institutions surrounding businesses so that they fit the trends of the times.” Son Kyung-shik, chairman of the Korea Employers Federation (KEF), also stated that “the high-cost, low-productivity structure caused by adversarial labor-management relations leads to a decline in industrial competitiveness,” emphasizing that companies need opportunities to innovate through deregulation. The view is gaining strength that, in order to breathe life into our sluggish economy, conditions must be created in which businesses can innovate and invest.

While championing income-led growth, the government has increased rigidity in corporate management through pro-labor policies. The sharp increase in the minimum wage, the introduction of the 52-hour workweek, and policies expanding ordinary wages have all raised employment costs. Rising labor costs without corresponding gains in labor productivity have weakened corporate competitiveness and, furthermore, threatened business survival. Market-friendly labor policies can increase good jobs and stimulate corporate investment.

Eliminating regulations is also urgent. With key industries underperforming, new industries must continue to emerge if the economy is to find fresh momentum. Yet new investment opportunities and opportunities for innovation for businesses are being blocked by regulation. A representative case is the Kakao carpool service, which was supposed to be introduced at the end of 2018. Regulation could not be loosened because of opposition from interest groups, and the opportunity for innovation was postponed indefinitely. Deregulation is necessary both for consumer convenience and for national competitiveness.

While Korean companies have been held back by pro-labor policies and regulation, innovative firms in rival countries are rapidly growing on the basis of new technologies and creative ideas. In the case of telemedicine, not only advanced countries such as the United States, Canada, and Japan, but also Chinese companies such as Alibaba and Tencent, have already entered the market. Despite Korea’s medical standards being superior to China’s, telemedicine services remain illegal in Korea. This is precisely why we should take seriously business leaders’ argument that anything Chinese companies are allowed to do should also be made possible in Korea.

For Korean companies competing globally, innovation is not a choice but a necessity. Because the process of innovation replaces existing industries, it inevitably meets resistance. That is because someone’s job disappears. The problem usually lies in outdated, low-productivity industries. By contrast, the result of innovation is stronger corporate competitiveness and the creation of new jobs. In other words, low-competitiveness jobs disappear and good jobs are created. Painful though it may be, Korea must endure this process if it is to cross the threshold into the ranks of advanced countries.

In the new year, I hope that instead of pro-labor policies, market-friendly policies will take root, and that an economic environment grounded in innovation rather than regulation will be created so that businesses and the Korean economy can regain vitality. I also hope that the wealth and abundance symbolized by the pig will flow throughout every corner of our economy, proving wrong all the negative economic forecasts that raised concern at the beginning of the year.

Eun-kyung Kwak, Head of Corporate Culture Division, Center for Free Enterprise (CFE)

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Original title: 새해에는 친시장적 기업정책으로 전환해야

Author: Eun-kyung Kwak

Date: 2019-01-02

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=25&idx=11326