Economic Statesman Speaks on Economy

“The Korean economy has potential. But, to realize its potential to the fullest, people should join forces to check politics. The public should lead politics, rather than being depressed.”

Kim Jun-seong, the 86-year-old honorary chairman of the ISU Group, expressed his concern about the current status of the Korean economy in an exclusive interview with Dong-A Ilbo on December 19 at his office in the group’s headquarters in Banpo-dong, Seoul. But he also said that he believes in the potential of the Korean economy and abilities of its people, stressing that it is time for the public to improve the country’s politics.

Kim had an outstanding career. He served as a governor of Korea First Bank, Korea Exchange Bank, Korea Development bank, the Bank of Korea, and as a deputy prime minister of economy, during the country’s rapid economic growth. After leaving public office, he worked as a chairman of Samsung Electronics, Daewoo Corp and ISU Group. Now, he is showing off his vigor in old age as the honorary chairman of the ISU Group.

Q: The economy in bad shape these days; some even say that 80 percent of Koreans have depression.

A: There is no reason to have depression. The Korean economy has innate potential. It pulled off $300 billion in exports under an administration with such a low approval rating.

He said that people should not lose their motivation just because of temporary confusion in political circles or society, but also emphasized the need for “checking politics.”

“We still have a chance. You suffer depression when there is no chance. You cannot have depression when there is a chance. But we should not be complacent. All Koreans should join forces to check politics. This means that the public should lead, so that political circles would be on the right track.”

He pointed out an “optical illusion” in exports and economic growth rates. He said, “I think it’s not right to overlook the structural problems in the country’s economy and to say, ‘it is fine,’ when something is not fine.”

What are the structural problems that cause the “optical illusion”?

“The economy has an overdependence on exports. This leads to a weak domestic market. Worse yet, a few large companies and a few items account for a large share of exports. It is meaningless to say, ‘it is fine because exports are strong,’ without considering such weaknesses.”

He also went on to talk about concerns over the political circle and labor unions that disregard global competition.

“China and India are chasing Korea rapidly. If this continues, Korea will have a hard time between advanced countries and emerging economies. The problem of industrial relations in Korea is serious. Korea has more labor strikes than any other country in the world. It is not just a strain on company management due to increasing labor costs. It has a large negative impact on the entire economy. Politicians should change this, but they have failed to do so.”

Q: What do think of the exchange rate problem?

A: Companies are suffering losses of five to 10 percent just because of the won appreciation. The situation is getting worse and worse. The exchange rate reflects the value of currencies. I think it is inevitable that the value of the won becomes higher than that of the U.S. dollar because the U.S. runs large financial deficits. However, it definitely is a problem that the value of the won grows higher than that of the Japanese yen. It is a result of the wrong exchange rate policy of the government. The value of a currency goes down when the economy is not good. But the value of our currency is going up. Why does it have to be this way? Korea’s foreign reserves are three times larger than those of Germany and France. Apparently, Korea should have made a lot of overseas investment, but the government failed to create conditions for such investment.

Q: Isn’t there lack of entrepreneurship among business leaders?

A: Companies these days seem to lack entrepreneurship with which they enter overseas markets and invest and develop there. In the past, by contrast, Korean businessmen enthusiastically conducted their business across the world. The problem is that overseas investment is not easy since climate is not good even for investment in domestic facilities. It is not easy for companies to borrow money from the government when they amassed idle money.

Regarding the strong anti-business sentiment, he advised, “Business leaders should make efforts to relieve it.”

He said, “The anti-business sentiment did not emerge overnight. So it is hard to change it overnight. There is little such sentiment in the U.S. and Japan because businesses have contributed a lot to society in those countries. Transparent management should come first. The sentiment will disappear when there is a firmly established practice of paying workers, distributing dividends to shareholders and giving back the rest to society.”

He also offered nurturing of institutional investors in the private sector as the solution to the weak corporate governance.

He said, “It seems that chaebol would not last over four or five generations, although they can be run over up to three generations. That is because their dominance weakens. This means that ownership and management will eventually be separated, as is the case of advanced countries. For this to happen, the ratio of institutional investors should reach 30 to 40 percent. In Korea, the ratio of foreign investors exceeds 40 percent and that of individuals stands at around 30 percent. Institutional investors represent just 18 percent of the total investors. The incumbent government is serving as an institutional investor, using pension funds. This is dangerous because that might allow the government to dominate companies in the private sector. We should change corporate governance by fostering private institutional investors.”

Furthermore, he stressed the importance of real estate measures true to market principles.

“It is fair to say that people’s motivation for real estate investment become stronger as there are low interest rates and many demand deposits. The government’s real estate measures are problematic. It is far-fetched to attempt to reduce housing prices while banning new housing construction. Korea is a rich country with $15,000 of per capita national income and $300 billion of exports, and there is bound to be demand for luxury housing in a rich country. It is a market demand, a real demand. The handling of market demand should be left to the hands of market, but the government tries to curb housing prices with taxes. This produces side effects.”

Kim looked gloomy, hearing that there is a word “igubek,” indicating the situation where 90 percent of people in their 20s are unemployed.

“As we have an economic structure centering large companies, there are not many jobs. The unemployment problem should be resolved by SMEs. Large companies have a large responsibility for how to foster SMEs. For SMEs to develop technologies, large companies should make a bold effort to assist technologies and capital, and the government should also support the effort with related policies. Jobs are created when we increase the number of exporting SMEs. It is also urgent to nurture knowledge service industries and the tourism industry.”

As there is a presidential election next year, would-be candidates are all arguing the need for economic recovery. Asked of leadership for economic recovery, he responded, “Personally, I’m not interested in the presidential election. Whoever takes office, it would not be easy to resolve the economic problems. But I do hope that whoever becomes the next president would create a sociopolitical atmosphere of focusing on devising economic policies. Eventually, the public should create such an atmosphere. Politics cannot ruin the entire economy all at the same time. But politics is responsible for the country’s economic performance. The Korean economy will have a bright future if the next administration trusts potential of the economy and strive to achieve the potential to the fullest.”

A seasoned economist, who has an extraordinary career in the financial sector, government ministries related to economy, and the industrial community, he also published several novels. Also, he is so healthy that he regularly has golf outings once or twice a week.

He has written novels, including The Room of Desire (1998), Paradox of Pigeons (2000) and The Clone (2005). But he said he would publish an economic book in the future.

“As I’m getting older, I tend to think again and again what to contribute to the country. And my conclusion is economy. So, I’m writing a book about how to normalize the stock market and exchange rates. I’m collecting concrete data now.”

swon@donga.com