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[Editorial] Tailored Deregulation to Invite Investment

Posted September. 03, 2008 09:39,   


President Lee Myung-bak has defined his administration as business-friendly. Unlike this moniker, however, corporate investment has dwindled since he took office. Capital investment, for example, has risen just 1.1 percent this year, a paltry increase compared to the rises of 7.8 percent in 2006 and 7.6 percent last year due to the recovering domestic economy and flying exports. A precursor to investment, the increase in orders for equipment purchases in Korea dropped to 5.8 percent in the second quarter from 25.2 percent in the first, forecasting a dismal outlook. Jobs are not created without investment. The Lee administration aims to create 200,000 jobs this year, but gloomy investment prospects make this doubtful.

Excessive regulation poses the greatest threat to investors, and the government understands this well. The Lee administration raised expectations for overall reform even prior to Lee`s inauguration, given his support for the removal of an electrical pole that had obstructed traffic to and from a port. Shocked by the anti-American beef protests, however, the Lee administration turned its back on its business-friendly policy by delaying deregulation in the Seoul metropolitan area. Instead, it chose to develop the provinces first.

Previous administrations banned corporate investment in the Seoul region to encourage investment in the provinces. Most corporations, however, have fled to foreign soil or just abandoned investment plans altogether. Since 2000, 31,002 Korean companies have moved abroad, 44 percent of them to China.

Over the same period, 8,366 companies have left Gyeonggi Province, which surrounds Seoul. As a result, the province created 250,000 jobs in 2004, 180,000 in 2006 and 170,000 last year. Though the Shihwa Industrial Complex is a national complex, large corporations are banned from moving into it. According to Gyeonggi Governor Kim Moon-soo, central government regulations have stalled investment in the province worth 25 trillion won, or 22 billion U.S. dollars. The presidential office said the country`s top five groups have 200 trillion won in their corporate treasuries, and that they want to invest much of that amount in the Seoul area including Gyeonggi. But the administration has abandoned its two goals of growth and job creation in pursuit of the myth of balanced national development.

Previous administrations chanted deregulation while decreasing the overall number of regulations but passed new ones to replace the old. Excessive regulations cost Korea an estimated 78 trillion won in 2006, a figure equal to 9.2 percent of the GDP. In other words, each household wasted 4.88 million won in 2006 because of government regulations.

Approaching the problem from a corporate viewpoint, President Lee should abolish or amend regulations to offer pragmatic incentives for investment. Surely, it is also necessary for the National Assembly to speed up the legislative process. At the same time, the administration should overhaul implementation rules and orders. Key regulations should also be overhauled for each industry in accordance with global standards. One regulation smothering the Seoul metropolitan area might as well be 100 general regulations given the consequences. Should the administration sincerely wish to increase investment, it must know where to start.