The Korea Chamber of Commerce and Industry this week suggested a set of policy tasks for promoting domestic consumption by reviving a virtuous cycle of increased corporate investment and more employment. The new economic team formed by President Park Geun-hye, which will get to work after parliamentary confirmation hearings, needs to give full consideration to the suggestion.
The Park administration and preceding governments have prioritized creating more jobs to boost household income and consumer spending so that the economy can grow in a more balanced, robust and sustainable way. Essential to increasing employment is expanding domestic investment in both the manufacturing and service sectors.
Data compiled by the KCCI shows that Korean companies’ investment at home has grown at a far slower pace than their overseas investment. Over the period from 2004 to 2013, the amount of Korean corporate investment abroad jumped by 370 percent, from $6.5 billion to $30.6 billion, while domestic investment increased by 60 percent, from $70.4 billion to $112.7 billion. Korean companies made an accumulated investment of $291 billion abroad over the past decade, while foreign direct investment here remained at $126.9 billion.
These figures should serve to accelerate efforts to forge a better environment for domestic investment. A set of labor and environmental bills drawn up under the Park administration would only increase the burden on corporations, while its deregulation agenda has been stalled.
It may have been inevitable that the initiatives aimed at eliminating regulations and reinvigorating the economy have been put on the backburner in the past months with the nation going through a ferry disaster, local elections and controversies over President Park’s nominations for Cabinet posts. The new economic team should press for them in a consistent and resolute manner, focusing on drastic measures to increase employment by encouraging domestic investment.
Enhancing the investment climate is also required to induce Korean companies with production facilities abroad to return home. Analysts at the KCCI estimate that more than 270,000 jobs will be added to the local labor market, if 10 percent of about 54,000 Korean manufacturers operating overseas move their factories to the country.
In a survey conducted by the chamber last year, about 80 percent of the companies polled said that conditions for operating their plants were more favorable abroad than at home. A meager 1.5 percent had the intention to move their overseas factories to Korea in the near future.
Economic policymakers need to think deeply about the reasons Korean manufacturers remain reluctant to return home when steep wage hikes in less developed countries have eroded the cost advantages they enjoy from operating there. It should be noted that many advanced nations have recently been active in improving business environments to lure back their companies operating overseas.
The government should implement concrete and effective measures to provide more tax incentives, financial support and assistance with securing production personnel and plant sites to bring more Korean manufacturers home. It would do better by tailoring its support packages to their individual needs based on periodic surveys.