[INTERVIEW] 'South Korea doesn't push socialist economic policies'

Finance Minister Hong Nam-ki speaks during an interview with The Korea Times at the government complex in central Seoul, Jan. 10. / Korea Times photo by Shim Hyun-chul

Gov't to revisit financial hub vision amid HK unrest

By Kim Jae-kyoung, Lee Kyung-min

With the Moon Jae-in administration rolling out a series of measures focusing on redistribution over growth, there has been growing concern here and abroad that "socialism" is permeating into the capitalist South Korea.

Many foreign experts, in particular, have criticized Seoul government for tipping the balance of economic policies toward socialism, which they claim violate free market principles and will eventually lead to an exodus of foreign capital.

The nation's top economic policymaker, however, strongly refutes this criticism describing the Moon administration's income-led growth policies as an inevitable choice to tackle the ever-deepening issue of polarization and to ensure sustainable growth.

"I would disagree with such an argument," said Finance Minister Hong Nam-ki in an exclusive interview with The Korea Times at the government complex in central Seoul, Jan. 10.

"I believe they have gone too far. In an era of per-capita income of $30,000, it will be difficult for Asia's fourth-largest economy to move forward without addressing such issues as polarization and the fair distribution of wealth," he added.

He explained that income-led growth strategies should be taken as a process to find a new, sustainable growth model for the upcoming decades escaping from the old model that has underpinned Korea's explosive growth over the past 40 to 50 years since the 1960s.

In this regard, Hong, who concurrently serves as deputy prime minister, reiterated that the government will push for income-led growth policies, making minor modifications only when necessary.

"I don't think it is a proper explanation that our policy priority is skewed toward wealth redistribution over growth. The key growth engine for the Korean economy is now innovation and inclusiveness,'" he said.

This means that the government is pursuing a two-pronged strategy ― on one hand, boosting growth potential through innovation, and on the other hand, narrowing economic inequalities by enhancing social safety nets for the underprivileged.

"Growth potential-bolstering, long-term measures will be introduced to facilitate innovation and structural reform in the industrial and public sectors," he said.

"This, together with plans to help induce corporate investment and strong domestic consumption, will lay a firm groundwork for the country to sustain robust growth in the long term," he added.

Finance Minister Hong Nam-ki speaks during an interview with The Korea Times at the government complex in central Seoul, Jan. 10. / Korea Times photo by Shim Hyun-chul

Hong's comments came in response to foreign experts' growing criticism that ever-increasing regulations and a series of "socialist policies" are undermining the market economy here and driving away businesses and capital.

In a recent report, Paul Choi, head of Korea research at CLSA, voiced concerns that Korea is moving away from a market economy citing draconian measures to cool the real estate market and the restrictions on Tada's ride-hailing services.

In July, Bloomberg columnist Shuli Ren wrote that the so-called Korea discount has been deepening over the past two years as "President Moon Jae-in's socialist experiments have sapped the animal spirits from this once-vibrant economy."

"I don't think it is appropriate to argue that Korea is backpedaling in deregulation because the government has been making the utmost efforts to ease regulations businesses are complaining about," he said, adding that the introduction of "regulatory sandboxes" is a case in point.

Regarding the Tada case, he said that there was no reason why a new business based on a "sharing economy" should not be allowed here if it has been introduced in an advanced economy with a similar economic size as Korea.

"It (Tada chaos) was the result of failing to resolve conflicts among stakeholders (Tada and taxi drivers). We did not intend to disturb a new business. There was just a lack of effort to reach a compromise," he said.

"(For a new business), we need to set up a social dialogue system encompassing all stakeholders to ensure a win-win result for everyone," he said. "The establishment of a social fund or temporary permission of regulatory sandboxes could be options."

Enriching 'social capital'

The 61-year-old minister said that the continuing unrest in Hong Kong could offer a good opportunity for Korea to revisit its long-term vision to become a financial hub in Asia.

He said that a possible option would be to set up a special zone in Songdo in Incheon or Yongsan in central Seoul where exceptional tax and regulatory incentives could be provided.

"Korea is one of the world's top 10 economic powerhouses, and the country has a lot to offer in finance as well. If the unrest in Hong Kong extends over a longer period and global financial firms relocate to avoid risks there, I think the option is quite possible given (Korea's) geopolitical location and economic dynamism," he said.

"The government has yet to look into the issue in detail but raising such an issue is necessary and I'm aware of it," he added. "The government needs to examine it in a prudent manner."

To make the country a more attractive destination for foreign capital, Hong said that Korea, on top of offering various incentives, needs to become a country equipped with better "credibility" and "predictability" ― two values that he believes are key to attracting foreign investment.

"Incentives the government offers are important but what is more important is credibility, so-called social capital," he said.

In his view, the country's ultimate goal should be enriching its social capital, a fundamental basis not only for immediate gains ― financial or otherwise ― but for sustainable growth.

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"It is all about trust. The belief that certain principles and values will not be undermined or outright dismissed under any circumstances. We need to build that with long-term vision and planning," he said.

"Predictability reduces costs. It is the government's job to create an environment where the private sector is able to put their capabilities to full use. We will continue our efforts toward deregulation."

Labor market reform is also one of the most important issues for the minister.

"Reforming thr labor market is one of the most urgent tasks for Korea to cope with the rapid change in its demographic and industrial structures," he added.

"Given Korea's job security still remains vulnerable compared to advanced countries, we need balanced policies to ensure both market efficiency and stability."