[Editorial] Wrong Political Logic Results in Prolonged Recession

According to a recent survey by the Korea CEO Forum, 44 percent of surveyed corporate leaders and bank presidents assessed the Korean economy is currently in the early stage of a prolonged contraction, while 27 percent said the contraction is already going on. It is serious that more than 70 percent of corporate CEOs accept a prolonged recession as a reality. However hard the government may say that the economy will soon pick up, the chance of vibrant investment is slim if CEOs, the major decision makers, expect a protracted recession.

It is hard to avoid the vicious cycle of “worsening economic recession and resulting damage to growth potential,” if there are an increasing number of companies which give up or suspend domestic investment. If this happens, it would be hard to achieve growth that makes distribution possible, however hard the government may emphasize the “improvement of distribution for the vulnerable.” Most of the CEOs surveyed predicted that the growth rate of this year and next year will stand into the three percent range. Such low growth is the result of insufficient jobs and sluggish consumption as well as the continuing difficulty in finding jobs and the contraction of consumption. In short, under the structure, the public will suffer the most.

About 40 percent of the CEOs mentioned “increasing economic uncertainties resulting from spreading political logic” as the reason for slow domestic investment. This means that the logic of political circles which divides the public into “the haves” and “the have-nots,” and economic policies which stick to logic have dampened the enthusiasm about investment. The talk of a coalition government, which President Roh Moo-hyun and the ruling Uri Party have raised to change the political landscape, also runs the risk of serving as a new element which increases uncertainties in economic conditions.

Other reasons for sluggish investment that CEOs pointed out were “difficulty in ensuring profitability stemming from high wage and prices of land for plants (31 percent)” and “investment-related regulations, including location regulation in the Seoul metropolitan area.” As land prices across the country skyrocket thanks to the “land reconstruction project” that the government is recklessly driving forward, there is growing concern over worsening investment conditions. Furthermore, deregulation remains on the lips of government officials, falling short of becoming a reality.

Around 45 percent of the CEOs polled mentioned “management of state affairs centering on economic growth” as the most badly needed task for revitalizing investment. Also, they required consistent corporate policy, stable labor-management relations and drastic improvement of investment restrictions. If the government turns a deaf ear to these calls and insists on distribution, balance and equality, which produce aggravated results, it will be hard to lift the economy out of a prolonged recession.