Our economy is in a sinkhole—collapse must be prevented

As the novel coronavirus infection (COVID-19) crisis drags on, it is choking an economy that had already been losing vitality. People have disappeared from the streets, and customers have stopped coming to stores. Employees are anxiously wondering when they might lose their jobs.

As the “consumption cliff” continues, companies are also being crippled by falling sales. In a situation where the future is impossible to predict, taking on more debt is extremely dangerous. Already, a considerable number of firms are being driven to the brink of closure. Not only countless self-employed business owners, but also many small and medium-sized enterprises and even large corporations are facing the prospect of shutting down.

The failure of the initial response to COVID-19 is amplifying the economic crisis. There is now more reason to worry about damage caused by panic than by the pandemic itself.

The government has presented a supplementary budget as the solution. But this is a complacent response. It may serve as an excuse to say the government did not sit idly by, but it is not a measure that will revive our economy. It merely increases government spending under the pretext of emergency measures for quarantine and disaster response. Moreover, expanding populist spending in the form of gift certificates ahead of an election will only increase the long-term burden on our economy.

A supplementary budget may have political significance in that it creates the impression that the government is responding, but there is little to expect from it in terms of actually resolving economic problems. If the government remains fixated on political responses and increases national debt, it may instead damage fiscal soundness and worsen economic problems over the long term.

Even before the COVID-19 crisis, the competitiveness of the business economy had already been falling apart. Anti-competitive policies and policies that protect only the privileges of certain segments of organized labor had already been causing corporate weakness. The private economy had been severely contracting while only government spending kept growing. A weak economic structure creates a vicious cycle that further suppresses growth over the long term.

The weakening of the economy’s fundamentals is the result of the accumulation of pro-union government policies and regulations that squeeze businesses. Companies have grown weary of the government’s anti-business policies. They have lost vitality and their willingness to invest. The number of businesspeople selling factories or moving them overseas has been increasing.

What the government must do is withdraw failed policies and restore flexibility to the economy. As long as policy failures are left untouched, long-term stagnation cannot be prevented.

The slogan of income-led growth, which has thrown economic policy into confusion, must be abandoned. To reduce the harm caused by the minimum wage system, the 52-hour workweek, and weekly holiday pay—which have all reduced jobs—it is necessary to pursue either a suspension or abolition of these systems. At the same time, pro-union policies that have expanded union privileges should be scaled back, and labor market flexibility should be increased.

The more the government leans on political logic and insists on union-friendly policies, the more workers’ jobs will be threatened. Now is the time to discard policies for the privileged minority within unions and shift to pro-labor policies that increase jobs for the vast majority of workers.

In addition, it must remain committed to market-friendly solutions that enhance the vitality of private enterprise. Jobs can increase only when competitiveness improves. Now is the time to improve the health of the economy.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 우리 경제는 싱크홀 상태, 붕괴를 막아야

Author: Sung-no Choi

Date: 2020-03-18

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=22&idx=22489