[Editorial] Economic Uncertainties

“The oil prices and exchange rates have moved in unexpected directions and Korea’s economic growth is likely to be lowered,” Bank of Korea governor Lee Sung-tae said yesterday. In other words, it will be difficult for Korea to achieve five percent growth this year due to external conditions. 2006 will be the fourth consecutive year under the current administration in which Korea failed to meet its potential growth rate. Consequently, the ordinary citizens will have to suffer yet again from a lack of jobs and reduced incomes. Nevertheless, high oil prices and a strong won cannot be the only reasons behind the nation’s continued sluggish growth.

According to the International Institute for Management Development’s (IMD) 2006 World Competitiveness Yearbook, the Korean government’s administrative efficiency ranked 47th among 61 countries surveyed. It fell 16 steps from last year’s ranking at number 31. The administration’s poor budget management and inability to integrate the society were cited as reasons. Nonetheless, the government is not realizing its fault, causing greater concern than any other external problems.

Korea ranked 51st in corporate law competitiveness and 43rd in labor market competitiveness. These numbers well reflect what the government should have done to vitalize the economy. However, to our dismay, the government’s first response to the overall national competitiveness ranking, which has fallen nine steps to number 38, was that there must be something wrong with the survey methods.

Businesses are currently suffering from multiple whammies. On top of external factors such as high oil prices and falling exchange rates, there are domestic obstacles, including overlapping regulations and an unstable labor-management relationship, as well as non-management burdens like anti-business sentiment and social contribution pressure. Lost confidence in Korean businesses can be witnessed in the first quarter facility investment, which fell 0.2 percent. Lackluster exports and investment are resulting in worsening consumer sentiment.

The government must accept the reality pointed out by IMD’s survey and restructure itself to become smaller and more efficient. It should also be bolder in enhancing labor market flexibility and relaxing corporate regulations. As long as the government holds businesses responsible for everything, the country cannot improve its competitiveness. Companies, for their part, must help themselves. In order not to lose ground to Chinese or Japanese firms, they must be more active in investing for the future. Of course, the precondition here is that the public should develop friendly sentiment toward businesses so that companies that generate jobs and wealth are fairly assessed.