[Opinion] Let`s Revive Economy by Increasing Investment in IT Industry

Recently, the government proposed a two-step measure to stimulate the domestic demands. The government seems to be worried that the situation of both domestic and overseas would not improve for a while due to the aftermath of terrorist attacks on top of the serious situation of the U.S. IT industry adjustment process, which is having difficulties due to the excessive facilities. Actually, the current IT industry is on the verge of crisis.

Since this year, earnings of most companies have worsened. Especially, new venture firms are at the risk of bankruptcy since they cannot supply not only investment fund but also operation fund. However, a clear fact is that although IT industry is facing difficulties now, it should play the role of developing our economy in the ear of knowledge and information in 21st century.

However, the government`s measure to stimulate the domestic demands has been focused on the revitalization of the domestic economy centering the consumption. Although interest rate cut and expansion of finance have contributed to prevent the sharp slowdown of economy from a macroscopic view, they had limitations in overcoming the crisis of IT industry. Therefore, the government`s three-step measure to boost the economy should include more direct and microscopic policies to open the domestic markets for the domestic IT companies by inducing companies` investment in IT, while the world economy is swamped in stagnation.

The level of information technology in the nation is much lower than that of developed countries in the field of large companies and financial organizations as well small-medium companies. Although IT industry has grown as export industry due to the expansion of investment since the foreign currency exchange crisis, most South Korean companies have not reborn as `digital company` yet. There are only a few companies whose level of productivity reaches the developed nations` competitive companies, through the complete computation of business operation. Level of information technology of the financial organizations falls much more behind. Financial organizations of the developed countries have reborn as gigantic financial organization through merger since 1990s in order to lessen the burden following the large-scale computation investment designed to adjust to the globalization.

The amount of computation investment by our financial organizations for the reform of productivity falls short of that of the financial organizations in the developed countries. Banks`s ROE (Return On Equity), which is an average 1 percent, is only one tenth of the developed countries. Moreover, financial organizations are more stingy in the information technology investment that aims at strengthening security or preparing for disaster. The financial organizations` disaster relief system, which has attracted attention since the terrorist attacks, in the developed countries, was perfect. For example, since Morgan Stanley has been operating `back-up` system at a remote place, it could normally operate the business within a few days despite the complete loss of documents and facilities in retail department due to the breakdown of the World Trade Center. Compared with this, the disaster relief system of our financial organizations still remain at the beginner`s level. Only two banks and four security and insurance companies have their own back-up center at a remote place, while most financial organizations rely on incomplete back-up system or outside commission.

Therefore, an epoch-making incentive on taxation designed to expand the companies` investment in information technology should be proposed in terms of boosting the domestic demands. The government should expand the benefit of tax deduction in the investment in the information and technology, which is currently applied to the small-medium companies, to other companies regardless of size and business item, and should allow the accelerated repayment. However, such a system should be enforced only when the economic situation is difficult, thus, inducing the maximum investment of companies in information and technology.

Such a direct tax benefit may become more effective economy stimulation measure than the reduction of fixed corporate tax in every industry, which is currently mentioned. Moreover, the investment in information and technology for the safety and security may not be affected by such a taxation incentive because the investment may not improve the productivity right away, but rather has strong characteristic of expense. In this case, the government should use the rod. For example, the government can obligate the private and the government facilities or financial organizations to establish safety and security systems. Borrowing Prof. Paul Krugman of Princeton University, what we need the most now is `decisive policy that is intellectual and courageous`. We need such a policy not only in terms of finance but also taxation as well as appeasement of regulations, and true leadership that can put such a policy in practice.

Chung Moon-Gun (Senior Managing Director of Samsung Economy Research Institute)