Deregulation, innovation key to sustainable growth
A private think tank has warned that Korea's economic growth could come to a halt within a decade from now. The Korea Economic Research Institute (KERI) said in a report released Wednesday that a low-growth trend has already become the norm due to the country losing its economic vitality.
KERI said that major economic indicators related to production, consumption and investment have been deteriorating over the past 10 years. The economy grew by 6.8 percent in 2010, but suffered a contraction of 0.9 percent last year. Private consumption contracted 5 percent in 2020 compared with 4.4 percent growth a decade ago. Exports also shrank 1.8 percent against a 13 percent rise in 2010.
It appears somewhat irrelevant to compare the current economic situation to that of 2010, as South Korea is still grappling with the economic fallout from the COVID-19 pandemic. Yet, the country could not have avoided the overall low-growth trend, if not a recession, even without the pandemic. Therefore it can be said that the public health crisis has only added insult to injury.
More seriously, the potential growth rate ― a measure of the growth capacity of an economy ― has recently dropped to 2.2 percent from 8.3 percent before the 1997 Asian financial crisis. KERI said the rate has fallen by 1 percentage point every five years since the late 1990s, adding that the rate is likely to slide further to near zero within 10 years.
No one wants to see such a gloomy outlook turn into reality. But it is difficult to rule out the possibility of Korea lapsing into a long-term economic stagnation resembling the "Lost Decades" of Japan. That's why the country should mobilize all possible means to expand its economic potential to maintain growth momentum. Otherwise, we cannot achieve sustainable growth.
Now, the Moon Jae-in administration should admit its economic failure. President Moon's "income-led" growth policy has seen little progress in reviving the economy. He has only focused on increasing the minimum wage sharply, hoping that increases in income would expand private consumption, the production of goods and then investment. But the government has failed to create such a virtuous cycle. The spread of the coronavirus has aggravated the situation. Moon must scrap his ill-conceived policies, and instead push for deregulation and encourage innovation to revitalize the economy. He must take bolder action before it is too late, as his presidency ends next May.
We also call on presidential contenders of the ruling and opposition parties to present policy visions aimed at speeding up an economic recovery and boosting growth potential. For whoever wins the March 9 presidential election, the top priority will be to create more jobs, encourage corporate investment and explore new growth engines. However, it is disappointing to see most presidential aspirants engaging in partisan struggles and smear campaigns without paying much attention to the important economic issues that could improve the people's livelihoods.