Shrinking biz investment`s effect on job creation

With the presidential election approaching, many Korean companies have withheld new investment. Shrinking investment has cast a dark cloud over the domestic economy. With the investment decline in the third quarter, facility investment dropped for the second consecutive quarter for the first time since the third quarter of 2009, when the fallout from the U.S.-led financial crisis swept the globe. Contracted investment adversely affected Korea’s economic growth in the third quarter, posting minus 0.6 percent of its contribution to growth. Experts say smaller investment hinders growth. If this sluggish corporate investment continues, Korea`s business slump is likely to linger over the long term as well as prevent the economy from achieving its growth goal of 2.4 percent this year.

The global economic downturn has raised uncertainty in corporate management, and this has caused companies to cut new investment. Except the car and electronics industries, all other major sectors of Korea such as shipping, shipbuilding and steel have seen performance worsen. As a result, their capacity for investment has declined. To make matters worse, all three presidential candidates have announced plans to achieve "economic democratization," but this has frozen investor sentiment.

The presidential hopefuls have announced pledges designed to fundamentally change the way owner families of Korean conglomerates maintain control, including a ban on cross-subsidiary shareholdings, stronger prevention of manufacturers from owning financial companies, and a proposed system that forces companies to split off. To stop cross-subsidiary shareholdings, billions of dollars will be necessary. How can a company invest when nobody knows what the corporate climate will be like after the presidential election?

According to a survey, corporate investment significantly drops in a presidential election year but begins to increase after Election Day. This is because candidates talk of how to regulate conglomerates before an election. A source in the financial sector said, “If a company starts a new business at the end of an administration, it could end up losing money due to policy changes or controversy over alleged preferential treatment...It is safer for companies to begin investment after a new administration announces its policies for industry and the structure of conglomerate ownership.”

If businesses refrain from initiating new investment for fear of political variables, they might miss the proper timing for investment, adversely affecting economic recovery. True economic democratization means creating an investment-friendly environment according to the market situation without fear of political influence in the election period.

Should companies stop spending, business output will decrease and job creation will stop, leading to economic stagnation. If business investment decreases even 1 percent, GDP drops 0.1 percent. The contraction of corporate investment and economic sluggishness will cause higher youth unemployment and problems for small business owners. Therefore, companies must fulfill their social responsibility by conducting more rigorous investment to create jobs and new growth engines. As the old saying goes, a crisis can also present a golden opportunity for growth. Companies should pay attention not to capricious politics, but to consumers at home and abroad.