Will MB continue to zigzag between growth, distribution?

By Kim Jae-kyoung

Time flies. Two and a half years have passed since President Lee Myung-bak took office in February 2008. Today is the exact midway point of his presidency. For Lee, the first half of his tenure must be bittersweet as his first-half economic scorecard is mixed with praise and criticism.

His presidency did not take off properly as economic policies were distracted by a series of mishaps, such as candle-light demonstrations and a global financial crisis.

He had to give up his ambitious “747 Plan,” the gist of MBnomics, and instead focused on saving the country from the crisis.

His growth-oriented policies successfully steered the economy onto a path of recovery but they have begotten unwanted side effects, widening the economic polarization. His economic policies are now seeking to maintain a balance between growth and distribution.

Swift policy response

Lee has been praised for a timely policy response to the global crisis, which many believe helped the Korean economy recover at the fastest pace in the world. He maneuvered aggressive economic policies — large-scale budget spending and loose monetary policy —in a preemptive manner.

His pro-business policies are also considered an important factor that has helped the country stave off the unprecedented woes. Market analysts say that large firms enjoyed robust exports amid the global crisis thanks to the government’s weak won policy.

“I think that Lee is doing quite well. He has led the fastest economic recovery by timely action against the global crisis and managed several tough situations reasonably. He has also created a pro-business environment,” Choi Jung-kiu, global head of strategy at Standard Chartered, told The Korea Times.

Sunny Yi, managing partner of Bain & Company, echoed the view, saying, “The best achievement Lee made during the first half of his tenure was coming out of the recession and successful risk management.”

Lee is also faced with a myriad of criticism. He has failed to keep most of his election pledges, such as the 747 Plan and creation of 600,000 jobs every year.

The “747 Plan” was his ambitious vision to achieve 7-percent growth and achieve $40,000 GDP per capita while becoming the world’s seventh largest economy. This plan crashed due to the global financial crisis.

Lee’s bulldozer-style leadership and lack of communication skills with the public have been also under fire. The former CEO of Hyundai Engineering and Construction has been criticized for pushing ahead with a couple of controversial plans, such as the four river project and Sejong City development, despite massive opposition from the public.

Market experts said that Lee could have had better communication with the public. “The worst mistake Lee made during the first half of his tenure was that hedid not communicate well with the middle class,” Yi of Bain & Company said.

Ironically, Lee’s pro-business policy has helped the country recover fast from the crisis but it, at the same time, has widened the economic polarization in the society. Only the rich and large firms are enjoying the benefit from the fast economic rebound, while smaller firms and the poor are still struggling to stay afloat.

Concerns over populism policy

Against this backdrop, the Lee administration has recently shifted the focus of its economic policy to supporting middle- and lower-class families by introducing a series of policies aimed at boosting the job creation, stabilizing prices and strengthening the social safety net.

Lee has pressed local conglomerates to pursue a win-win strategy with smaller firms, and the government introduced the new tax reform plan to create more jobs for the underprivileged and the youth.

Experts said that the policy shift is a step in the right direction but warned that Lee should not resort to populism policies, stressing that it is time to develop future growth engines to sustain high economic growth.

“I am concerned about a popular approach. Income divide is an issue and job creation is an issue too. But this is due to a lack of future growth engines and clarity of national strategic direction,” said Choi of Standard Chartered.

“More pressure on chaebol would make the situation worse. We need high value added industries growing, rather than popular approaches,” he added. “We should focus on what would be the future growth engine of Korea rather than dividing pies.”

Steven Chai, co-head of Boston Consulting Group Seoul Office, said that President Lee should find talented people who will lead the country in the right direction.

“I worry about a vacuum in profiles people can truly respect and count on to lead Korea’s government in the next two to five years,” Chai said.

“Also, the government should choose one issue which is dear to thecountry and truly make a difference.And ask the question what will this administrationbe remembered for in 10 to 20 years time,” he added.