Remedy lies in improving environment for corporate investment
Private investment's contribution to economic growth stood at minus 2.2 percentage points in the first half of this year, falling to the level of 2008, according to a report released Monday by the Sustainable Growth Initiative (SGI).
If the sluggish investment continues, the nation's potential growth rate could drop to the 1 percent range, said the SGI, a think tank of the Korea Chamber of Commerce and Industry. For Korea to maintain its growth potential at the current level of 2.5 percent, private investment should increase by at least 4 percent on average annually, it added.
The think tank cited dwindling corporate income as the first reason for the investment slump. Companies' earnings plummeted from 12.9 trillion won ($10.6 billion) on an annual average from 2015 to 2017 to minus 35.4 trillion won last year, sharply eroding their ability to invest. It also attributed the falling investment to slowing exports amid decreasing global demand and a drop in the marginal productivity of investment because of the nation's failure to carry out industrial restructuring toward new industries on time.
The SGI proposed four things to restore businesses' capital spending ― lower corporate tax rates, more tax benefits for investors, deregulation and predictable economic policies. It emphasized that the government needs to reduce the corporate income tax rate, which is highest among OECD member nations while expanding support for intangible assets such as software, R&D, brands and designs. The think tank went on to say that the administration also needs to lower regulatory barriers and maintain consistency in making economic policies.
The protracted U.S.-China trade war and Japan's economic measures have exposed all the weaknesses of the Korean economy. The last exit for embattled Korea Inc. is not "income-led growth" that indiscriminately spends taxpayers' money but "corporate-led growth" that helps businesses invest more, which in turn will lead to higher growth, more employment and larger incomes. To this end, the government should drastically lower corporate taxes and soften regulations. We hope the Moon Jae-in administration will swiftly take special measures to awaken the "innovative DNA" of corporate Korea.
Private investment's contribution to economic growth stood at minus 2.2 percentage points in the first half of this year, falling to the level of 2008, according to a report released Monday by the Sustainable Growth Initiative (SGI).
If the sluggish investment continues, the nation's potential growth rate could drop to the 1 percent range, said the SGI, a think tank of the Korea Chamber of Commerce and Industry. For Korea to maintain its growth potential at the current level of 2.5 percent, private investment should increase by at least 4 percent on average annually, it added.
The think tank cited dwindling corporate income as the first reason for the investment slump. Companies' earnings plummeted from 12.9 trillion won ($10.6 billion) on an annual average from 2015 to 2017 to minus 35.4 trillion won last year, sharply eroding their ability to invest. It also attributed the falling investment to slowing exports amid decreasing global demand and a drop in the marginal productivity of investment because of the nation's failure to carry out industrial restructuring toward new industries on time.
The SGI proposed four things to restore businesses' capital spending ― lower corporate tax rates, more tax benefits for investors, deregulation and predictable economic policies. It emphasized that the government needs to reduce the corporate income tax rate, which is highest among OECD member nations while expanding support for intangible assets such as software, R&D, brands and designs. The think tank went on to say that the administration also needs to lower regulatory barriers and maintain consistency in making economic policies.
The protracted U.S.-China trade war and Japan's economic measures have exposed all the weaknesses of the Korean economy. The last exit for embattled Korea Inc. is not "income-led growth" that indiscriminately spends taxpayers' money but "corporate-led growth" that helps businesses invest more, which in turn will lead to higher growth, more employment and larger incomes. To this end, the government should drastically lower corporate taxes and soften regulations. We hope the Moon Jae-in administration will swiftly take special measures to awaken the "innovative DNA" of corporate Korea.
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