Malaise pervades the Korean economy

The Korean economy is now in an anemic state. Pessimists are comparing the economy to a cancer patient waiting for emergency surgery. The patient, they say, is barely clinging to life and, without surgery, could enter a coma.

The Korean economy is now growing at just 2 percent annually, with no quick recovery in sight. Even if drastic measures were taken, the economy would probably not reach a sustainable 5 percent growth for the foreseeable future.

Indeed, the tumors in the economy are becoming malignant. One of the main culprits of the economy’s current state is the unsustainable household debts, which now equal 89 percent of the nation’s GDP. In 1997, Korea had to seek an IMF bailout, mostly due to gargantuan corporate debts. Now the household debts are likely to jolt the economy at any time. Furthermore, many retiring baby boomers borrowed heavily to open unprofitable businesses such as restaurants, coffee shops, bakeries, and one-person shops. Only three out of every 10 businesses owned by self-employed individuals survive, with the rest going bankrupt in a decade, according to a study by the KB Financial Group.

Now the household debt tumor is threatening to turn cancerous, unless the plummeting housing prices, the cause of the mounting household debt, pull out of their nosedive. Piecemeal and stopgap measures will not solve the problem. Korea needs unprecedented macro- and microeconomic measures through coordination of all government agencies, including the Bank of Korea.

Other malignant tumors in the economy include the widening economic polarization, a rapidly aging population, a low birth rate, the poverty of the elderly, unemployment, a crumbling middle class, income inequality, chaebol’s domineering and predatory practices, and soaring rent amid falling housing prices. The economy is currently without a guiding hand or a strong vision. The can-do spirit is on the wane. A growing public demand for welfare benefits will further jeopardize fiscal health.

Noted economist Jwa Seung-hee, president of the Gyeonggi Research Institute, predicted that the Korean economy will face an extended period of zero growth unless the economy undergoes a massive retooling. He says that this is not the time to talk about the democratization of the economy; it is a time to chart a roadmap for an economic takeoff. According to him, the democratization of the economy (a euphemism for taming high-performing conglomerates) would not create equality of wealth. Seeking equality of wealth, he believes, runs counter to the basic tenet of capitalism. In his view, the economy has lost vitality as winners are penalized or bullied by losers.

Another major cause of the ailing economy is the fact that it is currently run based on personal bias and greed rather than institutional wisdom. Just a few months ago, for instance, major banks were caught tampering with the benchmark market interest rate that sets interest rates on all debts. The Korea Fair Trade Commission detected the manipulative practices and issued warnings to the banks. However, according to the commission earlier this week, 20 securities companies colluded with each other in order to buy government and public bonds cheaply from home and car buyers. Manipulation of the key interest rates seems to be a rule, rather than an exception. Consumers thus plan to launch a collective lawsuit against these manipulative bankers and brokers.

The interest rate manipulation is the natural result of the loss of oversight power among the financial regulators. The Financial Supervisory Service is malfunctioning, so the Korea Fair Trade Commission is forced to intervene to regulate the financial market. The financial regulator needs immediate surgery to prevent it from destroying the economy.

As is well known, greedy financiers on Wall Street engendered the 2008 U.S. economic crisis. The greedy and manipulative fraudsters in Yoido, Korea’s Wall Street, may trigger a similar economic crisis today.

There are so many ideologists, political economists, and partisan politicians that the nation is unable to chart solutions for its rudderless economy. Technocrats have little room for maneuver in trying to get the economy back on course.

The current economic woes are so complex that even a Keynesian fiscal stimulus, unlimited printing of banknotes, and the lowering of the interest rate to near zero will not suffice to kick-start the economy.

Uncertainty is deadly to the economy. Policymakers and CEOs are unable to chart policies and business plans as they do not yet know what the next president will do for the economy.

Indeed, the leading presidential candidates, Park Geun-hye, Moon Jae-in, and Ahn Cheol-soo, have lost track of the priorities the Korean economy needs as they politicize and “ideologize” the economy. They are fighting over the issues of growth, welfare, democratization, justice, and liberty.

Even more worrisome is their apparent underestimation of the seriousness of the economic malaise. Their economic philosophy is sometimes dogmatic and populistic. Like blind people describing an elephant after touching only its trunk, they seem unable to talk about the full picture of the economy.

The candidates spout ideological catchphrases such as creativity in the economy, fairness in the economy, and innovation in the economy. However, these abstract and confusing slogans are not enough to put the derailed economy on track again. It is a fantasy to expect a quick economic recovery, but the next president must be prepared to take on the role of a surgeon and remove the cancerous tumors that are bringing Korea to the verge of paralysis. <The Korea Times/Lee Chang-sup>