By Ahn Choong-yong,
Distingushied professor at ChungAng University

The Korean economy is now addressing two distinct and challenging objectives aside from the matter of how to overcome the immediate and far-reaching impacts of a rapidly weakening yen on Korea’s exports: One is a deep permeation of “economic democratization” and the other is the establishment of a creative economy as a new engine of growth and job creation.

The two policy orientations could be mutually reinforcing in the long run but appear to be contradicting each other in the short term given the serious downside risks of the Korean economy.

Ernst and Young’s growth forecast for the Korean economy was a mere 2.2 percent in April, down 1.1 percentage points from a 3.3 percent forecast in January.

The Asia Development Bank also forecast an exceptionally low growth outlook for Korea this year, ranking it at the bottom level of growth prospects among Asia’s 11 largest economies.

There is also a ticking bomb in the mounting household debt, which amounts to 1,100 trillion won. To resolve these immediate challenges, Korea must act quickly to first ensure sustainable economic recovery and job creation.

Korea’s pessimistic economic outlook may be aggravated by seemingly conflicting and confusing policy signals, which are harmful to private investment psychology.

Economic democratization involves basically the redistribution of economic rewards to various stakeholders.

But the promotion of a creative economy requires largely voluntary private investment and effective voluntary financing schemes, although it could be triggered by government initiatives with special funds.

If the two policy objectives cannot be achieved together, we need to tone down policy measures for economic democratization relative to the growth objective.

Against this backdrop, and amid high-performing economies around the world, Korea needs to reinvigorate stagnant investment by the private sector.

A key for investment by the private sector is purifying some of the popular caveats contained in the proposed series of legal enactments for economic democratization by the National Assembly.

Lawmakers have already passed some significant economic democratization measures, such as the Subcontracting Act Strengthening Punitive Damage System, the extension of the retirement age to 60 years from the current 58 and public disclosure of annual salaries above 500 million won of registered corporate board members.

Whether a regular bonus or extra payment should be included in the ordinary wages of workers is another major issue surrounding a case ruling by the Supreme Court, which is different from the existing guidelines of the Ministry of Employment and Labor.

Obviously, firms, domestic and foreign, see the ordinary wage issue as a great uncertainty in mapping out investment strategies.

Also awaiting National Assembly deliberations are an act to revise the fair trade rule to strengthen punishments for conglomerates giving favorable treatment to their affiliates and an act regarding substitute holidays.

It is true that some of these measures could be justified to a great extent to ensure fairer inter- and intra-firm trade transactions and a more transparent economic system. However, there is an excessive element out of proportion to meet the popular demand that prevailed during the presidential campaigns.

At present, Korea’s top 10 chaebol are reported to hold investible cash funds amounting to 231 trillion won, but they are taking a wait-and-see approach to grasp how these economic democratization measures are eventually to be shaped by the National Assembly and the government.

Recently, it was very encouraging that President Park Geun-hye chaired the first trade and investment promotion meeting, which was attended by business people and relevant ministers, to focus more on growth and job creation.

The government is also pursuing comprehensive deregulation to promote venture business by allowing active mergers and acquisitions with some tax benefits.

In this regard, the rule that dictates that a grandchild company must invest 100 percent shares of the fourth-generation subsidiaries of conglomerates needs to be deregulated.

At this critical juncture, it should be emphasized that creativity and sustainable economic recovery can be achieved in the most robust way by providing a predictable investment environment to enhance the investment psychology of domestic and foreign firms.