Back on Track Through Private-Led Growth

President Yoon Suk Yeol completely reversed the direction of our economic policy upon taking office. The key word is “private-sector-led growth.” In that sense, it is the exact opposite of the Moon Jae-in administration’s “income-led growth,” which emphasized government-led distribution policy. Simply by swiftly scrapping the income-led growth policy that sapped the economy’s vitality and restoring economic policy to the realm of common sense, one could say a green light has been turned on for our economy.

The Moon Jae-in administration’s income-led growth had no real substance and was nothing more than a political slogan whose failure was obvious. It sought to turn into reality the fantasy that if the minimum wage were raised aggressively and incomes boosted by creating public-sector jobs, that itself would become the engine of economic growth. This experiment conducted on the national economy and the entire public naturally ended in failure.

Over the past five years, jobs declined, the private economy contracted, and the self-employed went bankrupt. What remains are skyrocketing housing prices and inflation, increased national debt, and an unbearable tax burden.

Even the Democratic Party, then the ruling party, appears to have acknowledged the failure of income-led growth. In August 2022, the platform subcommittee of its national convention preparatory committee quietly removed the term “income-led growth” from the party platform. It did not even include “basic income,” a signature pledge of its new party leader Lee Jae-myung. Taking as a cautionary lesson this failure that wrecked the national economy and caused suffering for the public, we should never again advocate the unrealistic economic policy of increasing “income” by simply giving out “income.”

Fortunately, President Yoon Suk Yeol clearly understands that the drivers of economic growth are not the “government” but the “private sector” and the “market.” Through the president’s own words, we have been able to reaffirm the obvious common-sense point that “jobs are created not by the government but by businesses.” This is the exact opposite approach from that of the previous president, who set up a jobs situation board under the banner of personally managing employment and sharply expanded the number of civil servants and public-sector jobs.

Accordingly, the government is trying to shrink the public sector while pursuing a corporate tax cut and regulatory reform. There is also welcome news that a Regulatory Innovation Strategy Meeting chaired directly by the president will be held. One hopes that not only long-standing business regulations but also regulations related to new growth industries such as telemedicine and autonomous driving will be resolved.

“Normalizing the abnormal” means restoring our society to liberal democracy and a market economy.

However, this is undoubtedly as difficult as turning a ship’s bow in the exact opposite direction. It can only be done by overcoming substantial resistance. Already, the bill to cut the corporate tax rate and policies to ease regulations on owners of multiple homes are facing opposition from the Democratic Party, which holds the majority in the National Assembly. The abolition of mandatory closure days for large discount stores, which the government selected as its first regulatory reform measure, has also lost momentum in the face of strong opposition from small merchants.

Persuading opponents and delivering results is also the government’s responsibility. It needs to make an effort to explain the necessity of reform to both the public and the opposition from multiple angles. Such deregulation measures often produce results that are not immediately visible or take time to materialize, making it difficult to persuade opponents. However, in the last presidential election, the public chose fairness and common sense over populist policies. The people entrusted the future of the Republic of Korea to President Yoon Suk Yeol because of his steadfast and forceful determination to push ahead with what he believed was right. That is why the government must pursue private-sector-led growth without wavering.

The government should reduce spending and streamline its organizational structure

Meanwhile, reducing government spending and streamlining the government organization are reform tasks that can be carried out immediately without cooperation from the opposition. All that is required is the government’s will. Over the course of the previous administration, debt in the public sector increased, and the number of employees also rose sharply from 320,000 to 440,000. Addressing the bloat and inefficiency of the public sector has become an urgent task for the current administration.

Aware of the seriousness of the issue, the government is carrying out high-intensity restructuring of the public sector. It has promised to cut public institutions’ budgets by at least 10 percent and to review personnel reductions every year. It is also firmly advancing the “small government” agenda by transferring such functions as the operation of lodging facilities in national recreation forests and security technology operations of the Korea Minting and Security Printing Corporation to the private sector. It is important to maintain the current direction and resist the temptation to pursue supplementary budgets in response to the economic crisis or COVID-19, or to shower out populist giveaways to recover falling approval ratings.

For the banner of private-sector-led growth to shine even more brightly amid a global economic slowdown and low growth, reforms in labor, education, and pensions are needed to strengthen national competitiveness. The public must be persuaded to accept sustainable pension reform in which they “pay more and receive less,” and efforts must also be made to make the labor market more flexible so that businesses can improve productivity through technological development and innovation. Reform of the education market is also indispensable if we are to produce talent suited to a changing era. We hope to see concrete results that reflect the government’s commitment to reform.

If, as it is doing now, the government continues to place the highest priority on individual freedom, support the private sector and the market, and work to create a market-friendly policy environment that breathes vitality into the economy, it may well be recorded in the history of the Republic of Korea as a successful administration five years from now.

Eun-kyung Kwak, Director of the Corporate Culture Division, Center for Free Enterprise (CFE)

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Original title: ‘민간주도성장’ 통해 정상화 길로

Author: Eun-kyung Kwak

Date: 2022-09-16

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24963