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Economic Analysis

2018.10.01
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Investment, the Key to Success

No other economic issue in Korea seemed to pique the public’s interest than the recent minimum wage hike. The country’s minimum wage was raised 16.4 percent in 2018, and another 10.9 percent for 2019. Up until 2017, the minimum wage was KRW 6,470 per hour, but next year it will be KRW 8,350, an approximate 29 percent hike in the span of two years. Immediate effects of the wage raise were felt in the labor markets, with the reduction in the number of workers as well as working hours.

The government is persistently claiming that the increase in disposable income following the wage hike will induce higher spending, leading to more opportunity for creating new jobs. So, it believes, hopefully so, that better employment statistics will emerge sooner than later, optimistically by the end of this year.

Against this backdrop, one of the core economic policies of President Moon Jae-in, also referred to as J-nomics, includes income-led growth. For this to happen, however, investment is critical.

Investment serves an engine for future growth and the power for innovation. Investment is the key for sustained economic growth and the stepping stone for an upgrade in the economy. Statistical research showed that a 1 percent increase in investment translates to a 0.16 percent growth for Korea. In other words, a 10 percent increase in investment contributes to a 1.6 percentage point increase in economic growth.

In this sense, investment is the creator of jobs, income and technology. Investment is the most powerful contributor to employment. With that said, the success of J-nomics will go hand-in-hand with good investment policies.

Currently, Korea’s economic growth does not look particularly bad at almost 3 percent. The global economy is also doing fine, and there seems to be no peculiar external reason to implement stronger investment policies. However, efforts to boost investment must be continuously made with consideration to the internal situation.

Although Moon’s government has been emphasizing the creation of new jobs, it was clear in its intent to focus on the public sector and create new jobs for fields such as the police department, social work, education, and public health. Businesses might have hoped to be a partner in creating new jobs, but perhaps have yet to find their place under the new policies.

Additionally, under the grand slogan of wiping-off old evils or eradicating long-standing vices in society, the Fair Trade Commission and the Prosecutor’s Office have conducted a series of investigations to promote an increasingly fair and transparent business environment. Although the process of eradicating old-evils is quite unavoidable and very long over-due, it must not hamper investment.

Government sectors should understand and appreciate the positive role of the business sectors in the past as well for the future, because they are the true power of growth and engine for new jobs. Otherwise, the Korean economy is bound to fall into a prolonged slump of distrust and despair. Additionally, all of the requests from the business sectors should be carefully heard and taken into consideration by policymakers.

Above all, government policies should be predictable and consistent. Business sectors should be able to forecast the future with a fair amount of certainty. The government should not change its policy direction frequently or abruptly. For government policy to be predictable and accountable, they should be prudent and careful about the consequences that the newly introduced policies may produce. Reckless and haphazard policies are bound to failure, and the consequences will have to be borne by the business sectors and the government. But for the most part, the people will be the final victims. To prevent such a situation, it should be a reminder once again that investment is the key to the success of J-nomics.




By Professor Se Don Shin
Dean, Sookmyung Women’s University
seshin@sm.ac.kr


The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA

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