President Moon Jae-in told a cabinet meeting on Sept. 26 to immediately draw up strategies for “innovative growth,” calling for the nurturing of new industries and creating an SME/venture ecosystem. “As it comes to the new government’s growth strategies, innovative growth is no less important than income-oriented growth,” President Moon said.
Many discussions within the government have been done and several briefings have been given to people on income-oriented growth and fair competition economy, but the concept and the direction of detailed policies have suggested relatively less, he said. President Moon’s latest direction may be construed as his government’s attempt to reflect the criticism of the new government’s growth strategies that focus on short-term, demand-oriented economic prescriptions, but ignore supply-led fundamentals.
In reality, the President Moon government, for less than the past three months, has been scrambling to come up with a series of economic policies, most of which are based on an income-led growth paradigm, but lack conviction on the creation of a virtuous cycle for sustainable growth.
As representative policies, the government has dramatically raised the minimum wage despite outcries from SMEs and self-employed businessmen, pushed for the conversion of non-regular employees into regular workers, increased government officials and medical and pension benefits and imposed more taxes on high income earners and large-sized companies. Chances are high that these economic policies will not lead to increased domestic consumption and increase production and investments would lead to the creation of more jobs.
President Moon’s latest move may indicate a shift into a two-track economic policy paradigm to secure new growth engines to explore new markets. The current government has come under fire for being engrossed in economic policies lacking growth strategies. It also faces criticism for splurging on welfare benefits. In an effort to differentiate it from previous governments, the President Moon government has focused on an economic paradigm shift to implement job-led growth, income-oriented growth and fair competition. Economists, including Prof. Sung Tae-yoon of Yonsei University, said the government’s income-led growth amounts to income redistribution and economic management, not an economic growth-oriented paradigm.
But President Moon’s direction of drawing innovative growth strategies may herald a change in the government’s economic policy paradigm. To this end, the government has appointed Jang Byung-gyu to head the 4th Industrial Revolution Committee. In this regard, Cheong Wa Dae and the Ministry of Strategy and Finance (MOSF) are poised to make a pitch for innovative growth.
Presidential economic adviser Kim Hyun-chul said in an interview that innovative growth strategies are designed to create jobs in the supply perspective. He said the government plans to come up with innovative growth strategies after creating the Ministry of SMEs and Startups and the Committee on the 4th Industrial Revolution 100 days or later after its inauguration, but the plan was relatively put on hold due to the pending urgent issues like the North Korean nuclear arms issue. Kim said people have been informed of income-led growth in which a raise in wages could boost businesses and sales as well as investments to ensure growth in the demand perspective.
The government now turns to innovative growth strategies for creating jobs in the supply perspective, a field to which President Moon paid keen attention to during his presidential campaign. The government plans to release innovative growth strategies on a gradual basis, such as the lifting of regulations to ensure new industry growth and the introducing of a negative regulation system. While speaking in a seminar hosted by the opposition Liberty Korea Party, Deputy Prime Minister and MOSF Minister Kim Dong-yeon emphasized human-oriented investments for sustainable growth and an economic policy paradigm shift into innovative growth.
President Moon’s call to implement innovative growth on top of income-led growth, albeit belatedly, is considered to be essential, industry analysts shared the view. Innovative growth should be the most significant axis of President Moon’s economic policies, known as J-nomics, said analysts, adding that the government needs to take an insight into the limits of the income-led growth theory and set in motion innovative growth strategies in earnest.
The current government should not repeat the errors of the previous government, which had touted its economic paradigm as the “creative economy,” but spent too much time clarifying the concept and vision. They shared the view that Korea needs to seek most dynamic economic growth through genuine innovation by creating new values via creative destruction. If the nation fails to solve the dual structure of the labor market and ensure labor reform, innovative growth may end up as “a hollow slogan.”