Published : 2013-02-19 20:19
Updated : 2013-02-19 20:19
When President-elect Park Geun-hye nominated Hyun Oh-seok, president of the Korea Development Institute, for the post of finance minister and deputy prime minister for the economy, she signaled that the incoming government would pursue pro-growth policies.
During the campaign period, Park’s two main themes were economic democratization and welfare expansion. She did not view economic growth as a top policy priority ― so much so that she did not even suggest a specific growth target that her government would aim for during its term.
Park’s dismissive attitude toward economic growth caused concern among many of her supporters as the economy showed clear signs of losing growth momentum.
Last year, the Korean economy grew 2 percent, way below its growth potential, which is estimated at around 4 percent. This year, it isn’t expected to grow much faster, either.
Yet by naming Hyun, an advocate for growth with expertise in macroeconomic management, Park has somewhat eased these worries. As head of the state-run think tank, he has repeatedly called for measures to shore up the sagging economy and beef up the nation’s growth potential.
Upon nomination, Hyun said that he would, if endorsed by the National Assembly, seek to realize Park’s vision of restoring the middle class by setting in motion a virtuous circle of economic growth and welfare expansion.
To achieve the vision, he should overcome a host of short- and long-term challenges. Firstly, Hyun will have to take measures to help the economy grow its way out of the prolonged slowdown.
Amid global weakness, Korea’s economic growth has slowed to a crawl. The economy has grown at a snail’s pace ― below 1 percent for the past seven consecutive quarters.
The outgoing administration, however, refrained from taking any initiatives to stimulate the economy. It limited its role to crisis management as uncertainty prevailed in the global economic environment.
Yet the incoming administration needs to throw away this passive approach and shift into expansionary mode. The first thing Hyun needs to do is to inject vitality into the economy by jump-starting the real estate market and tackling the household debt problem.
Last November, the KDI called on the government to play a bigger role in stabilizing the economy. It said the government would do well to create an extra budget to increase fiscal spending.
However, Hyun was averse to the government attempting to boost demand with fiscal spending. Yet the ruling Saenuri Party is moving to create a supplementary budget to prop up the economy. Hyun is advised to embrace the idea.
A more important task for Hyun is to reverse or at least halt the downward trend of the nation’s growth potential. Earlier this week, the Hyundai Research Institute warned that should the nation’s growth potential fall to the 1 percent to 2 percent range, Korea would only be able to attain per-capita GDP of $30,000 in 2020 and $40,000 in 2032. Its per-capita GDP in 2012 is estimated at $22,705.
One answer to the problem suggested by Hyun is to enhance the productivity of the service sector. He has consistently called for deregulation and investment in R&D to make service industries more productive.
He also noted that an increase in service productivity would boost that of the manufacturing sector and help create more jobs.
Now he needs to practice what he has preached. But it is surely easier said than done. Improving service productivity has been, in fact, the goal of the incumbent and preceding governments. They tried to deregulate the service sector but failed due to resistance from those with vested interests.
Service sector reform is a challenge that Hyun can hardly meet alone. The entire government should come together around it. The president-elect also needs to throw her weight behind these efforts.
Regarding welfare expansion, Hyun has so far advocated a selective approach. When debate raged last year over selective versus universal welfare, Hyun came down on the selective side. Yet he may have to put aside his personal view and embrace the universal approach of the president-elect.
Park has demonstrated her commitment to welfare expansion by naming Chin Young, one of her close aides, as minister of health and welfare. To ensure that economic growth and welfare expansion form a feedback loop, the two need to be linked through job creation.