Moon Jae-in of the Democratic Party of Korea pledged economic growth through increased fiscal spending.
Though he named his vision “human-centered economic growth,” its point is the government will lead economic growth with taxes.
Under his plan, Moon will double the annual increase rate of government expenditure from 3.5 percent to 7 percent and invest the increased budget in economic projects, including one for the Fourth Industrial Revolution. He said he would seek to raise tax rates if needed.
He expected the increased fiscal spending to create 500,000 jobs each year.
It is noteworthy that the leftist liberal has charted growth rather than distribution of wealth, but he is unlikely to accomplish the desired goal in his way.
Increased government spending and tax hikes are not necessarily bad. The government should improve public services in such fields as welfare, education, environment and safety.
But the idea of the government leading growth and employment is an obsolete way of thinking more useful to underdeveloped economies.
Increased fiscal spending will stimulate the economy temporarily but it is hard to sustain. Fiscal stimulus should be converted into private sector-led growth. The role of the government has its limits in pulling the economy out of the current low-growth rut. All it has to do is to prime the pump to induce private-sector investment and revive demand.
Today, many problem economies suffer from high levels of government debt. One example is Greece, which received bailout aid from Europe in 2016.
An economic theory, called “the crowding out effect,” stipulates that rises in public-sector spending drive down or even eliminate private-sector spending.
He vowed to increase government investment in economic growth projects, but offered little on how to curb the snowballing fiscal deficits.
His economic growth pledges are estimated to require 150 trillion won ($131 billion) for four years. The government has issued its bonds worth 30 trillion won each year to make up for its fiscal shortfall. The state debt topped 1,400 trillion won late last year.
Moon should have considered how to reduce the mounting government debt when he drew growth blueprints.
It is companies, not the government, that should keep leading the economic growth of a nation. Government policies should be focused on encouraging their growth. However, some of his corporate policies seem to be intended to discipline rather than motivate them. His campaign promises to allow punitive damages and class action suits may throw a dampener over business investments.
Ahn Cheol-soo of the People’s Party pledged “good growth and good jobs,” by which he means focusing economic policy on creating decent jobs through improvements in education, science and technology and starting up a business.
The points of his economic pledges are the eradication of cozy relations between politics and business, the elimination of unfair trades, and the removal of wage disparity and job insecurity. They are right in principle, but nothing new.
He promised to raise the youth wage level in small and medium-sized companies from the current 60 percent of that in large companies to 80 percent and keep the raised level for five years with government subsidies.
The pledge would not only require an enormous amount of taxpayers’ money, but cause a moral hazard. Rather than direct subsidy to payrolls, indirect subsidy to strengthen the competitiveness of small-and-medium sized companies would be of greater help to their growth.
He is not different from Moon in that they are going to use taxes on unsustainable projects. The two leading candidates are far from implementing good fiscal spending.
Former President Lee Myung-bak pledged 7 percent growth, $40,000 per capita gross domestic product and the seventh largest economy in the world. Ex-President Park Geun-hye promised 4 percent potential economic growth, 70 percent employment rate and $40,000 per capita GDP. But both failed to keep their dazzling campaign promises.
Presidential candidates should not try to win the hearts of voters with irresponsible pledges. They should analyze the economic situation thoroughly and offer realistic and frugal fiscal policies.