Moon's policies feared to stifle growth
President Moon Jae-in looks pensive during a meeting with his senior secretaries at Cheong Wa Dae, Thursday. / Yonhap
Government warned of ‘paradox of reform’
By Kim Jae-kyoung
Just 100 days after his inauguration, President Moon Jae-in and his aides may still feel euphoria with approval ratings hovering over 80 percent and strong public support for his policies.
Statistics might make them believe everything is on the right track but experts warn that South Korea faces a “paradox of reform” as Moon’s policies are destined to constrain future economic growth.
Many of his new measures aimed at fixing ongoing problems, ironically, go against key values that ensure future economic success, namely competition, productivity and innovation.
Simply speaking, the new programs are short-sighted and based on yesterday’s logic, and not designed to brace for the global trends that will shape the evolution of the economy over the coming decades.
In other words, Moon’s policies could help produce more jobs and bolster the economy in the short term but in the long term they will be a heavy social burden and become a major stumbling block to Korea achieving sustainable growth.
“The government is counting on economic growth to pay for a substantial portion of Moon’s new economic and social programs,” Sohn Sung-won, a professor of economics at California State University, told The Korea Times.
Describing Moon’s approach as “too optimistic,” he forecast budget deficits to go up for the foreseeable future.
“It could hurt economic growth in the long run well after President Moon's term ends,” he said. “A new approach to boost economic growth in the long run is needed.”
This concern comes as Moon, since his inauguration, wasted no time in fulfilling his campaign promises aimed at redistributing wealth and supporting low-income families.
The problem is many of his policies, viewed as populist, require a huge amount of taxpayers’ money but lack a detailed financing plan.
Among them are a job creation plan for the public sector, a nuclear-free energy policy with a promise not to raise electricity fees for five years, an increase in the basic pension for all senior citizens, and a sharp hike in the minimum wage.
The latest one is his promise to boost public health insurance coverage. Under Moon’s plan, the increased coverage will cut individual medical expenses by 18 percent over five years and by 46 percent for low-income households.
“The policies seem to be aimed at securing a base of support for himself among working-class and lower-middle class voters, not reflecting the true cost of electricity or healthcare,” said Mauro Guillen, the director of the Lauder Institute at the University of Pennsylvania’s Wharton School.
“Part of the issue is that since the removal of President Park from office, South Korean politics are unsettled and more partisan. It is important to keep politics within certain boundaries and to realize that Korea needs to remain internationally competitive.”
Long-term vision needed
What is most worrisome is that he is trying to funnel a fortune in taxpayers’ money into creating 810,000 public sector jobs while seeking to convert 340,000 irregular public sector workers into full-time employees.
Moon believes this approach is a solution to economic growth and the low birthrate as well as youth unemployment.
“Creating good jobs is not only a way to give hope to young people, but also increase the number of taxpayers and consumers," Moon said in a televised event on Aug. 20.
"It is the most worthwhile way to spend taxpayers' money.”
However, experts disagree with Moon’s idea. They say public sector jobs should only be created if they are productive enough for their cost and that excessive conversion of irregular workers into regular ones will discourage fair competition.
They warn that if Moon keeps pushing this kind of policy with no long-term vision, it will not only create a huge social burden for the next generation but also hurt productive economic output in the long run.
They called on the government to spend more money in encouraging firms to create more jobs and building a vibrant and innovative private sector.
“In general, his current policies will lead to a net loss of jobs in the private sector balanced by a growth of jobs in the public sector,” said Anthony Mitchell, managing director of Euro-Asian Business Consultancy.
“In income-led growth, government spending is a transfer from income generators, not new income in itself.”
To become a true competitive country in the Fourth Industrial Revolution, it is crucial to reform the economy but not to address ongoing challenges at the expense of productivity and innovation.
In this vein, Moon should come up with a long-term plan to rebalance Korea’s economy toward a new growth model that will improve productivity and foster innovation through competition.
“Given the challenges of the Korean economy, competition, innovation and productivity are key,” said Antonio Fatas, a professor of economics at INSEAD.
“It would be a mistake to implement policies that go against any of them.”