President Park Geun-hye has been pushing for sweeping deregulation as she believes this to be the most effective and efficient way to spur the country’s sluggish economy. In a move to demonstrate her commitment to eliminating unnecessary regulations, she listened to complaints from businesspeople and ordered government regulators to look for remedies during a nationally televised meeting last week.
Park told participants at the meeting that she believed deregulation was the only cost-free way to stimulate the economy and bring about a great leap forward. Few people now seem to doubt her determination to seek until the end of her term to abolish nonsensical business restrictions, which she earlier denounced as a “cancer.”
It is understandable that she is focusing on deregulation as a shortcut to boosting corporate investment and increasing employment. Certainly, regulatory reforms are essential for keeping the economy afloat and ensuring its continuous growth. It has been hoped that Park would differentiate herself from her predecessors by overcoming the deep-rooted resistance of the bureaucracy to having its authority reduced or taken away.
At the same time, the president needs to set her sights on another task that is just as important as the deregulation drive, or perhaps more so, when it comes to sustainable economic growth. It is urgent to strengthen efforts to narrow the widening income gap and expand the shrinking middle class.
The more fundamental reason for inactive corporate investment may be sluggish demand at home and abroad rather than excessive regulations. Helping working-class families earn more would lead to enhanced local consumer spending at a time when overseas markets remain volatile.
According to a recent report from the Bank of Korea, companies accounted for 48.6 percent of domestic savings in 2011, up from 42.7 percent in 2007. In contrast, the proportion of compensation for employees to national income decreased from 61.1 percent to 59.5 percent over the cited period. Last year, inflation-adjusted household consumption shrank by 0.4 percent from a year earlier.
As noted by the central bank, the slump in consumer expenditure has made it difficult for the economy to move forward. Large profitable companies should increase wages and dividends to help boost domestic demand. Major economies have taken measures to raise minimum wages, with the Japanese government led by Prime Minister Shinzo Abe prodding businesses to pay their employees more.
Many international experts and institutes have also cautioned that the widening income gap both between countries and domestic groups is becoming a major drag on global economic growth.
In Korea, deteriorating income inequality is causing people to delay or avoid getting married and having children, resulting in a shrinkage of the working-age population. It is also pushing a growing number of elderly people into poverty and even driving them to suicide. Unless tackled in a more active and serious manner, unequal income distribution will hamper the country’s social coherence as well as economic growth.
The ongoing deregulation drive should not be pursued in lieu of efforts toward guaranteeing economic and social fairness. It may also be necessary to work out more innovative fiscal policies such as more support for rural residents to enhance the balanced distribution of income.