South Korea’s new administration is shifting gears to achieve a fair and labor-friendly economy after decades of export-driven growth led by big businesses left many behind in economic prosperity.
In a five-year economic plan released Tuesday, the finance ministry said South Korea will boost household incomes and fortify its social safety net to address growing concerns about inequality. Under the plan, South Korea plans to sharply increase the minimum wages and unemployment benefits and impose bigger fines for unfair business practices, among other measures, Yonhap reported.
The plan also calls for improving transparency and governance at South Korea’s family-controlled big businesses and fixing unfair dealings between big companies and their small contractors. There are also a set of measures aimed at improving labor conditions, such as reducing long working hours.
The announcement marks “a complete paradigm shift” in the South Korean economy, President Moon Jae-in said during a cabinet meeting, according to the presidential office’s pool report. Citizens should feel during their daily economic activities that South Korea has become a fair and just country, Moon told ministers earlier in the day.
Recovery Picking Up
The ministry raised its growth forecast for Asia’s fourth-largest economy this year to 3% from its earlier outlook of 2.6%, citing a recovery in exports and the government’s stimulus plans. Next year, increased household income and more jobs will help support the economy to achieve 3% growth, it said. Those forecasts are more optimistic than other domestic or international institutions, which predict an upper 2% growth for the economy.
South Korea’s economic recovery has been picking up steam in recent months thanks to the global improvement in trade and its big exporters, in particular tech companies like Samsung and SK Hynix that saw record profits amid tight supplies and strong demand for computing memory chips.
But individual Koreans are feeling left out. They have thin social safety nets to help them when they lose jobs or when they become too old to work. Young college graduates are fretting about jobs amid high youth jobless rates while the elderly poverty is the highest among developed countries. The country has also struggled with stubbornly low birth rates for more than a decade.
Household Debt Burden
“The beginning of the new paradigm will be the people,” Finance Minister Kim Dong-yeon told reporters. “To shift the paradigm, the future economic policy will focus on four directions: income-driven growth, jobs-focused economy, innovation and fairness.”
With heavy household debts and increased gaps between full-time regular jobs and irregular jobs and also a wide gap between those employed by the big businesses and those working at small companies, South Korean household incomes did not increase as fast as corporate income, and consumption has not picked up as much as corporate spending.
Also, the government will put risk management on the front burner to bring mounting household debt, which amounted to nearly 1,400 trillion won ($1.25 trillion), under control through the tightening of bank loan screening procedures.
Kim said the new government’s economic policy plan is focused on people, not businesses, which have led the economic development for the past decades in Asia’s fourth-largest economy. This shift, he said is to make it possible for the country to deal with the current trend of low growth and polarization of wealth.
Exports in Positive Territory
The country’s exports, a key economic driver, have remained in positive territory for eight straight months since November last year on booming trade and rising oil prices, a dramatic turnaround from an 8% plunge in 2015 and a 6% fall in 2016.
Overseas demand for Korea-made semiconductors pushed up not only the numbers of exports but also corporate facility investment, while construction investment has been on a roll thanks to the demand spike in the real estate market.
At the same time, political uncertainties that had clouded the country for months sparked by the impeachment of former president Park Geun-hye were diminished after liberal President Moon took office in May.
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