Alarm bells are sounding all over for the Korean economy. One might even think now is a good time for a change of command for the government’s economic policy team.
But Tuesday’s change of command from Kim Dong-yeon to Hong Nam-ki, both career bureaucrats, still leaves the question open: Will the presence of a new deputy prime minister responsible for the economy be enough to redress the long list of problems -- from the low growth trap to the job crunch to a worsening slump affecting mom and pop stores, small firms and self-employed businesspeople?
A positive answer remains out of reach because many of the current problems faced by the Korean economy stem from ill-conceived government policies advanced by President Moon Jae-in.
The prime example is Moon’s signature “income-led growth policy,” which is best embodied in the recent two-digit increases in the minimum wage and reduction of the maximum working hours in a week.
Despite repeated warnings of adverse effects, Moon stuck to his guns, drawing rebuke eaven from his advisers and fellow liberals.
One of those critics, Kim Kwang-doo, resigned as vice chairman of the National Economic Advisory Council after finding fault with key elements of Moon’s income-led growth policy.
Before quitting his post, the economist and architect of Moon’s economic platform for the presidential campaign said the Korean economy was being “shaken to the roots” due to government policy failures.
Chang Ha-joon, a respected liberal economist at the University of Cambridge, has also sounded strong alarm bells, saying the Korean economy was “in a state of emergency.”
He pointed out that the income-led growth policy, including the minimum wage hikes, had failed to revitalize the economy because they were not accompanied by measures to strengthen economic fundamentals.
The biggest problem with the higher minimum wage is that higher labor costs are driving small firms, merchants and self-employed businesspeople to reduce their workforces, resulting in the loss of many temporary and contingent workers.
For Moon and his economic aides, the professor’s criticism may well be more painful because he is a revered liberal economist and cousin of Jang Ha-sung, the former presidential policy chief at the forefront of the income-led policy for the first 18 months of the Moon administration. Jang and former Deputy Prime Minister Kim bore the brunt of the criticism arising from the negative effects of the income-led growth policy.
Unlike Jang, Kim sometimes voiced concerns about the direction of the government’s economic policy. In his farewell address Monday, Kim said the government should have the courage to be frank with the public, tell the truth about difficulties facing the Korean economy and implement “unpopular policies” -- asking them to share the pain.
Kim also emphasized the importance of overcoming the “crisis in political decision-making” concerning the economy. He did not elaborate, but it was easy to figure out what he meant -- the government should depoliticize its economic decisions and abandon its populist approach.
In his confirmation hearing, Hong indicated that he would take measures to make up for problems caused by the higher minimum wage.
It is hoped that Hong’s statement reflects an awareness of the grim reality and is not merely lip service to appease opposition lawmakers.
On the day Hong took office, Moon for once acknowledged problems with his income-led growth policy. Speaking at a weekly Cabinet meeting, he specifically pointed to unemployment, polarization and hardships faced by merchants, self-employed businesspeople and small firms.
Moon did not propose any concrete measures to overcome the problems. But he must know what his once-close associates and supporters are asking him to do: separate ideology-packed politics from economics and give more authority to Hong. Also important is to restrain voices within his traditional support base, such as leftist ideologues, radical unions and activist groups that put politics and their own interests ahead of the national economic interest.