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Finance editor
The Korean economy is reeling from a series of policy failures. As a result, it is losing vitality and resilience.
Despite the government's all-out efforts to reinvigorate the economy, companies balk at making investments and hiring new employees. Consumers, particularly those in middle- and low-income brackets, are tightening their purse springs.
On the surface, the sluggish economy seems to be the result of structural problems, such as a falling population, the weakening competitiveness of manufacturing industry and labor market rigidness.
There is no doubt that those issues are putting a drag on Asia's fourth-largest economy. But there is an underlining factor that is worsening the situation ― economic policies against the principles of a market economy.
Growing risks associated with the Moon Jae-in administration's policies have heightened uncertainty, undermining business and market confidence.
The government claims that it will take more time for its policies to make their way through the economy but various data have already shown that its policies need a major overhaul. Its income-led growth policy was a major step in the wrong direction.
Despite strong protests from businesses and economists, the government has pushed for rapid minimum wage hikes, which has ironically worsened income inequality by killing more jobs for young people and low-income earners.
It has also poured trillions of won into creating jobs in the public sector instead of encouraging private firms to hire more people, a move feared to create a huge tax burden for the future generation.
What is of more concern is that the government is trying to use the finance industry as a tool to support its policies and achieve its ultimate goal of distributing wealth and ensuring a "fair economy."
The financial regulator recently decided to have banks write off debts owed by the vulnerable, which many argue will only create moral hazard. Earlier, it arm-twisted credit card companies to cut transaction processing fees to support small businesses hit hardest by the wage-hike policies.
The real issue lies in the fact that these policy risks are affecting businesses and investors, key pillars underpinning the economy and markets.
Many foreign businessmen living here have started scratching their heads over where the Korean economy is headed. They claim that the Moon administration's economic policies have good intentions but have gone too far and combined to put a damper on business activities.
"I believe that Korea is clearly backpedaling in economic policies," said an executive at a multinational company operating in Korea, on condition of anonymity.
"I understand that the government is trying to fix Korea's structural problems but their good intentions cannot justify their actions against a market economy. If they push for anti-business policies, it will do more harm than good for Korea in the long run."
Concerns over policy risks were well manifested in a recent survey by the European Chamber of Commerce in Korea (ECCK).
In its survey of 129 European CEOs, 65 percent of respondents said that Korea's business environment had deteriorated compared to the previous year, according to a recent report by The Chosunilbo. The figure was 61 percent in 2017, 60 percent in 2016 and 52 percent in 2015.
The Achilles heel of the Korean economy used to be geopolitical risks associated with North Korea's nuclear brinkmanship. Now global investors see policy risks as a major drawback for the Korean economy.
"Korea's economic policies have become a major issue for global investors. We don't see Korea as promising a market as before," said an executive from a global investment bank's Seoul office, asking not to be named.
President Moon and his economic team should take these voices seriously and look for ways to modify their income-led growth strategy and policies designed to support it.
Now is time for the government to admit its policy mistakes and seek a major overhaul. It should acknowledge that if it tries to achieve its goals by directly meddling in the market, it will only worsen the situation.
Distributing wealth and establishing a fair economy is important. But it should be pursued only in a way that the principle and value of a market economy, the foundation of Korea, is not undermined.
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