World Economy

In South Korea, new president faces a tangle of economic problems

Motoko Rich
South Korea's new President Moon Jae-In speaks during a press conference at the presidential Blue House in Seoul.
Jung Yeon-Je | Pool | Reuters

The day after South Korea elected a new president, the mood on the campus of Yonsei University in Seoul was bleak.

Many students, who might have been expected to celebrate the victory of a liberal, Moon Jae-in, to the presidency on Tuesday, instead spoke of fears about their prospects in a country plagued by corruption, household debt and other economic ills.

"Unfortunately, because we ourselves do not see the future of Korea as so rosy, I do not want to bring up children in this unpromising society," said Bang Seong-deok, 26, a civil engineering Ph.D. student taking a break with a friend outside a classroom block on Wednesday. "I think that mentality is persistent among many of my peers."

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Anger at the collusive ties between government and business was at the heart of the protests that led to the impeachment of Mr. Moon's predecessor, Park Geun-hye. During the election campaign, Mr. Moon vowed to end that corruption, but he also promised to address other factors that had fueled the revolt: skyrocketing household debt, high youth unemployment and stagnant wages, all of which are hobbling the economy.

[Moon] is a very sincere person, and I think he will try his best, but it's a much bigger problem. It's not something that you can fix by tweaking one or two issues. They are all related to each other.
Gi-wook Shin
director of the Shorenstein Asia-Pacific Research Center at Stanford

He faces daunting obstacles as he tries to overhaul entrenched practices and deliver on ambitious campaign promises in a country that has yet to complete the tough transition from tiger economy to developed society.

Mr. Moon, whose party spent nearly a decade in opposition, "is a very sincere person, and I think he will try his best, but it's a much bigger problem," said Gi-wook Shin, director of the Shorenstein Asia-Pacific Research Center at Stanford. "It's not something that you can fix by tweaking one or two issues. They are all related to each other."

In the food court of a student lounge at Yonsei, Lee Ji-won, 23, a public administration major, said her friends often described the moribund state of their country as "Hell Chosun," a reference to the last dynasty of Korea, which lasted for five centuries.

Ms. Lee, who aspires to be a lawyer, said she worried about eventually having to take care of her parents and grandparents. Although just over half of voters in their 20s and 30s cast their ballots for Mr. Moon, according to exit polls, Ms. Lee did not vote for him. She said she was not convinced that he would be able to pay for his economic policy prescriptions.

During the past decade when conservatives were in power, they tried to recapture the high-growth years that characterized South Korea's dynamic postwar rise from poverty. Much of that growth was turbocharged by chaebol, the family-controlled conglomerates like Hyundai and Samsung that dominate the economy and in which vast wealth is concentrated.

Because the chaebol tend to guarantee lifetime employment to an elite group of employees, those who do not secure these jobs have grown disaffected. And since the chaebol effectively wield monopolistic powers over their suppliers, workers at smaller businesses that depend on the large companies for their revenue often suffer from depressed wages and tough working conditions.

Those factors have exacerbated income inequality in South Korea, and young people in particular are affected as they scramble to compete for a small pool of prestigious jobs at the chaebol or accept lower-paid work at smaller companies. In many cases, they cannot find jobs at all. The youth unemployment rate here is nearly 10 percent.

In a country with one of the lowest birthrates in the world and a rapidly aging society, improving conditions for young South Koreans is vital.

"Koreans really have to think hard about how to motivate young people and meet them part way, not only with job opportunities but better working environments," said Katharine H. S. Moon, a professor of political science at Wellesley College.

They are "the backs on which the middle-aged and elderly people are going to be eating, sleeping and surviving for the next few decades," she added.

Some economists have also expressed skepticism about how Mr. Moon's administration will finance his plans, which include pledges to create 810,000 public sector jobs and subsidize living expenses for young people during job searches.

Some measures could work in the short term, economists said, but would not be sustainable.

"If we do not have a sufficient financing plan, it will be hard to maintain that system for the long term," said Taeyoon Sung, a professor of economics at Yonsei University.

Kim Sang-jo, a professor of economics at Hansung University in Seoul and an adviser to Mr. Moon, said creating government jobs and offering subsidies were just early steps.

"It is the role of the government to stimulate the market in the first stage to fix the market that hasn't been running smoothly," Mr. Kim said in an interview shortly after the election. He said the "trickle down" model of the chaebol was no longer working. But, he added, "Of course the government cannot solve all problems."

Mr. Moon's public job creation plan met with mixed reviews even among students studying for the exams that are required to land jobs in the bureaucracy.

In the Noryangjin neighborhood of Seoul, which is home to several cram schools dedicated to preparing for the exams, Yoon Bo-mi, 26, a nutrition major, said she was studying for the test because she did not think private corporations offered enough good opportunities.

"To be honest, I don't think that young people all learning to become bureaucrats is so desirable for society," she said.

Economists say that for South Korea to create many more private sector jobs, it needs to open up the market for entrepreneurs and prevent the chaebol from taking over start-ups before they have the chance to expand.

The government needs to nurture "a business ecosystem that is more ably disposed to start-ups protecting their intellectual property rights and giving them better financial access and incubating and supporting them," said Lim Wonhyuk, professor of economic development at the KDI School of Public Policy and Management in Sejong City.

For now, many entrepreneurs are concentrated in the retail and restaurant sectors. The fate of Reo Sushi Maguro, a cozy restaurant in the heart of Seoul, is a sobering illustration of the challenges facing Mr. Moon.

Around the corner from several government office buildings, Reo Sushi, which specialized in premium tuna sashimi, enjoyed a bustling business as corporate executives treated civil servants to expensive meals.

But in September, the legislature passed an anticorruption law barring public servants from accepting a meal worth more than 30,000 won, about $27, to avoid a potential conflict of interest. Reo Sushi's business took a dive.

To cover costs as well as replace lost income, the owner, Oh Sung-min, 39, began borrowing money at high interest rates, until the debt spiraled to about $266,000.

Mr. Oh's wife, Chung Sora, 35, a beauty salon owner who only learned the extent of the debt two weeks ago, blames the antigraft law.

"I think it's ridiculous," she said. "The politicians may have thought we will try to regulate people's bad behavior, but so many shops closed as a result."

Mr. Oh, who decided to close his sushi place after a government counselor agreed to help him develop a 10-year debt-repayment plan, is in a familiar situation. Economists say small-business owners have taken out a large portion of the country's about $1.19 trillion in household debt.

Mr. Oh, the father of a toddler, will depend on Ms. Chung's beauty salon to support the family for now. Ms. Chung, who recently took on her own debt to expand the salon, said she was determined to pay off her husband's debt in a year.

As Mr. Oh served final customers this week, he said he had plans to start fresh with a new restaurant, this time offering chicken ribs and cheaper tuna dishes. Still, he was not quite as optimistic as his wife.

"Of course, it is most Korean people's wish to tell the president and the next administration to revive the economy," he said. "But I think that is actually a very difficult task."