The Economic Policy Plan for 2018 announced by the government last week reflects the tendency of government economists to be optimistic about economic prospects and effects of policy programs. A close look at the yearly economic blueprint reveals many loose ends.
The plan is highlighted by the projection that the Korean economy will grow by about 3 percent -- not so disappointing in view of the fact that Korea has been stuck in a low-growth trap.
Per capita GDP is set to reach $32,000 this year, which would make Korea the third Asian country to exceed the $30,000 level -- after Japan and Australia -- and the ninth among the 35-member Organization for Economic Cooperation and Development.
The projections are based on the assumption that all will go well with the Moon Jae-in administration’s efforts for its economic priorities, including job creation, income- and innovation-led growth, quality of life and fairness.
In short, the government is saying that it would achieve modest growth of the economy on the strength of more earnings for the low-income bracket and industrial innovation, which then would help create jobs, improve the quality of life and enhance economic fairness.
However, there is a gap between the government’s road map and reality. Take job creation -- the Moon government’s top priority -- as an example.
Officials said the government would earmark 19.2 trillion won ($18 billion), compared with 17.1 trillion won last year, for job creation. The problem is that the job creation plan focuses on increasing employment in the public sector -- the central and local governments and public agencies and corporations. Part of the job creation fund will also go to the private sector in the forms of fiscal subsidies, tax benefits and other incentives.
But the job creation plan falls far short of alleviating the unemployment problem, especially among youths.
In some way, the government’s plan itself admitted that the situation would not improve: It projected the creation of 320,000 new jobs in 2018, the same as last year. Keeping the number of newly created jobs at last year’s level does not fit an administration that calls itself a “job-creating government.”
A more fundamental problem is that many government policy programs initiated in the name of income-led growth and fair economy are backfiring on the job market.
The legal minimum wage, which rose by the highest margin of 16.2 percent over the last year, and the government’s push to turn contingent workers into regular employees are good cases in point.
Many of the already struggling small and medium-sized enterprises and self-employed businesses will be forced to cut their workforces to make up for the higher labor costs stemming from increased hourly wages and the hiring of more regular workers.
The economic policy plan does not have any convincing suggestions and programs to resolve the self-contradiction.
The promotion of innovation-led growth also lacks concrete actions. Industries listed by the government as new growth engines include financial technology, renewable energy, driverless vehicles, hyperconnectivity, superintelligence, drones and smart cities.
As with the job creation plan, the biggest problem with the innovation-led growth plan is that the government is taking charge, instead of making the private sector the driving force.
The Moon government’s economic policy is built around ensuring a virtuous circle in which greater income for the low-income bracket leads to increased consumer spending, which in turn helps expand corporate investment and hiring.
The Economic Policy Plan largely overlooks the role of the private sector in completing the virtuous circle. It lacks measures to encourage businesses to expand investment and hiring, such as deregulation, incentives, labor reform and restructuring. Without addressing these and other loose ends, the government’s economic management plan is destined to miss its targets.