Well played, President Moon Jae-in. Well played.
Cynicism is required as geopolitical wags gush over the latest détente between Pyongyang and Washington. As US Presidents Bill Clinton, George W. Bush and Barack Obama can attest, trusting the Kim dynasty is an exercise in Albert Einstein’s definition of insanity—doing the same thing over and over again and expecting different results.
Donald Trump, a leader as ahistorical as they come, doesn’t know Washington has been here before. South Korean President Moon’s team, meantime, understands that flattery gets you everywhere with Trump.
Moon’s men masterfully fawned their way into Trump’s good graces, raving about his “wonderful" national-security operation and how “his leadership and his maximum pressure policy" brought “little rocket man" himself, Kim Jong-un, to his senses.
Only time will tell whether Trump and Kim meet, perhaps as soon as May. Either way, it’s hard not to marvel at how the soft-spoken and globally underappreciated Moon played these two firebrands off one another—and how that might augur well for South Korea’s economy.
Moon deserves credit for convincing Trump to lighten up on the “fire and fury" threats and the mad tweets. His decision to welcome North Korean athletes—and Kim’s sister—to last month’s Olympics was a brave gamble that may be paying off. By acting as mediator and adult, Moon managed to herd two of the globe’s wildest personalities into a shared orbit of potential negotiation.
When he gets a moment, he should unleash a similar strategy on Korea Inc. The reference here is to the unwieldy family owned corporate beasts that lord over Asia’s No. 4 economy and hog up all innovative oxygen and wealth best shared with households.
Moon has indeed begun to shake things up. In December, seven months into his presidency, Moon engineered the first corporate tax hike since 1991. Not a huge one, but the increase to 25% from 22% is aimed at top-earning companies—the earlier-mentioned family conglomerates known as “chaebols".
The tax hike was a signal that business-as-usual is no longer an option for the handful of giants such as Samsung, Hyundai, LG, Daewoo, Lotte and SK. Granted, Korea’s 50 million people have a love-hate bond with chaebols. These national champions played a pivotal role in Korea’s rise from the ashes of war into the ranks of the top-12 economies. Koreans also are plenty proud of the ubiquity of Korean cars and gadgets around the globe—and the giant neon advertisements towering over New York’s Times Square.
Yet ambivalence reigns, too. In 1997, excesses among chaebols—massive borrowings, indiscriminate overexpansion, extreme opacity—nearly toppled the entire economy amid the Asian financial crisis. Since then, a succession of governments pledged to pull power away from the conglomerates. Presidents Kim Dae-jung, Roh Moo-hyun, Lee Myung-bak and Park Geun-hye all talked big about supporting small-to-midsize companies, inspiring entrepreneurship and prodding chaebols to become more productive and transparent.
Each flinched at the magnitude of the task and stuck with the status quo. Park, president from 2013 to 2017, went a step further and got co-opted. At present, she’s sitting in a jail cell on charges of shaking down Korea Inc., through an emissary, allegedly to the tune of $70 million. The scandal ensnared Samsung head Lee Jae-yong, who spent a year in prison on bribery charges (he was released last month).
Enter Moon, a former student activist elected on a platform of democratizing economic opportunity. Moon’s experiment centres on “trickle-up economics"—making Korea more about creating jobs from the ground up than protecting them from the top down. That transformation is key to increasing innovation and raising wages. Chaebols are sitting on as much as $2 trillion of idle cash that’s better spent fattening paychecks. Their cash-hoarding ways are a major reason why incomes are stagnant, despite a roughly 3% growth rate and household debt is a record $1.3 trillion.
Productivity needs to rise, too, in the age of China. Look no further than General Motors threatening to yank as many as 16,000 high-paying jobs from Korea. The standoff highlights the urgent need for Seoul to boost efficiency, productivity and innovation to justify high labour costs in China’s backyard.
The key to everything, though, is reining in the giants running roughshod over the economy. Moon should step up anti-trust enforcement, mandate more international governance practices and roll out tax incentives for entrepreneurs hanging out a shingle and modernize education and training. Granted, it doesn’t take an Einstein to see Moon’s government is plenty preoccupied trying to keep Trump and Kim from coming to blows. Yet, by easing tensions on the Korean peninsula, Moon may have won Trump over and defused a trade war, while making some friends in Beijing. If Moon displays even half of the skill to domestic retooling he has on Trump vs Kim, Korea’s economy will be a buy.
William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.
His Twitter handle is @williampesek.