The Pandemic Depression
The Global Economy Will Never Be the Same
Moon Jae-in, a human rights lawyer who formerly served as chief of staff to President Roh Moo-hyun, will be South Korea’s next president. He defeated two other candidates, winning roughly 41 percent of the vote on May 9 in a snap election, which was called in March after former President Park Geun-hye was removed from office following a corruption scandal. Moon, the liberal candidate, campaigned to clean up corruption, give minority shareholders of conglomerates more power to elect board members, create jobs, and promote small- to medium-size businesses. He also promised to open a dialogue with North Korea, repair relations with China, and continue strengthening South Korea’s alliance with the United States.
But given the political mess he will inherit from Park, it is unclear whether Moon will be able to make good on his promises. On top of the domestic crisis, he faces a tense regional security situation, with an aggressive North Korea and a heavy U.S. military buildup ordered by President Donald Trump. That is why, among the many high-priority items on Moon’s desk, two should take precedence: cleaning up corruption at home and improving inter-Korean relations abroad.
ROOTING OUT CORRUPTION
For a country that prides itself on its rapid economic development, South Korea lags far behind on government and corporate transparency. In the World Economic Forum’s 2016 annual corruption index, South Korea ranked ninth most corrupt among the advanced economies of the Organization for Economic Cooperation and Development. Even where laws exist to combat corruption, such as the sanctioning of firms that produce “substandard or fraudulent audits,” enforcement is sporadic and unpredictable. Moon must therefore work to ensure that, going forward, there is consistent application of the rule of law. As a start, the practice of presidential pardons or the relaxation of prison terms for corporate executives who were convicted for corruption must come to an end. Moon promised this during the campaign and needs to institutionalize it as law for his administration and those that follow. The rationale that such individuals are too valuable to the national economy, which Park and some of her predecessors had claimed, is absurd. Large-scale corruption is detrimental to the economy. It chips away at social capital, erodes public trust, tarnishes South Korea’s international reputation, and drains government coffers through bailouts, misspent resources, expensive investigations, and lengthy court cases.
In recent years, the Ministry of National Defense has also come under fire for corruption. Military contractors tend to be owned or led by retired military leaders, which allows for “inbred” procurement practices. In 2015, it was revealed that the ministry gave Samyang Comtech preferential treatment, nearly leading to the outfitting of 300,000 servicemen with faulty body armor that would have jeopardized their safety. As a candidate, Moon promised to stop military corruption and called such behavior “a traitorous act aiding the enemy, which ought to be punished severely.”
Another way that the government can avoid conflicts of interest is to reduce its share of investments in corporations. According to data from 2015, South Korea’s National Pension Service (NPS), which was implicated in the scandal involving Park and her friend Choi Soon-sil, was the largest investor in the country. It had 75 percent of its holdings in domestic stocks. This imbalance, and the conflicts of interest it has created, came to a head in 2015 when the NPS, as the largest shareholder of two Samsung affiliates, cast the deciding vote on consolidating the two subsidiaries. It was later discovered that Samsung Vice Chairman Jay Y. Lee had allegedly bribed associates under Park to support the merger. In February 2017, Lee was arrested and charged with bribery, perjury, and embezzlement. Moon Hyung-pyo, the former health and welfare minister and head of the NPS, was also arrested for allegedly having ordered the NPS to cast the deciding vote on the merger.
A SLOW SHIFT ON NORTH-SOUTH RELATIONS
Although Park’s hard-line moves toward North Korea won her support, in general, her approach exacerbated inter-Korean tensions. Moon looks poised to take a softer stance. He emphasized prior to the election that he would not only reopen but expand the Kaesong Industrial Complex, a North-South joint venture that Park had shut down in February 2016 to punish Pyongyang for a nuclear test and rocket launch earlier that year. Moon said he considered the complex a “small form of unification.” But his policy is also misguided.
Opening the complex would be illegal under South Korea’s current unilateral sanctions and the UN sanctions regime. Domestically, such a move would risk widening the already large chasm between liberals and conservatives who are divided over whether to take a soft or hard line on North Korea. On top of that, Moon would face the impossible task of ensuring that the millions of dollars in revenue that Pyongyang receives from Kaesong will not fuel its nuclear program. In February 2017, the South Korean government discovered that since the complex’s opening in 2004, as much as 70 percent of North Korea’s annual earnings from Kaesong was funneled into the regime and its nuclear program.
Rather than dramatically reversing Park’s hard-line policies, however, the new president should make incremental changes, such as reaching out to Pyongyang to facilitate the de-escalation of current military tensions. At the moment, the U.S. Navy aircraft carrier Carl Vinson strike group is parked near North Korea’s doorstep, alongside Japanese navy destroyers and South Korean war vessels. And the USS Michigan, one of the largest submarines in the world, carrying approximately 150 Tomahawk missiles, arrived in South Korea on April 25, to which Pyongyang responded with its “largest ever” live-fire artillery drill.
Moon should prioritize gradually restoring confidence-building measures such as people-to-people exchanges at nongovernmental conferences hosted by third countries. He should also relax the travel ban on South Koreans to the North, as well as restrictions on humanitarian aid. All humanitarian aid, save for aid earmarked for infants and pregnant women, is currently banned. But not even the United States has been that stringent in its unilateral sanctions, which allow for the deployment of humanitarian aid.
At the moment, North Korea is struggling with one of the world’s highest rates of tuberculosis, according to the World Health Organization. The current South Korean sanctions stand to exacerbate the spread of the disease. Since 2016, they have become big obstacles for the shipment of medications and related medical supplies by the U.S.-based Eugene Bell Foundation. Allowing the tuberculosis epidemic to worsen would be detrimental to South Korea, since the disease could spread across the 38th parallel. Seoul’s conservatives argue that Pyongyang would divert any aid to the regime. Although Pyongyang has done so with food aid, tuberculosis is contracted mostly by the very poor who live in unsanitary and undernourished conditions, and therefore such aid would more readily reach its intended beneficiaries.
Given the conservatives’ hostility and suspicion toward both North Korea and Moon, on top of the strict UN and U.S. sanctions currently in place, South Korea will not eliminate its sanctions anytime soon. For the sake of improving inter-Korean relations, however, some modifications should be considered. Although South Korean entrepreneurs are not permitted to conduct business with North Koreans, exploratory trips to the North should be permitted in order to evaluate the considerable expansion of market forces since 2010, as well as to understand the North Korean people’s own vision for economic development. Moon stated in February that reopening Kaesong would be a way for South Korea to “spread the market economy system to the North” and “show the superiority of its system.” That shouldn’t be the only way. In North Korea, market-oriented practices and the creation of new wealth are bottom-up phenomena, given that it is the people who offer creativity, spontaneity, and increased economic participation rather than top-down, large-scale operations such as Kaesong, which is controlled by the two governments.
DON’T PROMISE UNIFICATION
On assuming office in 2013, Park was on a mission to become the healer of the Korean people, to bring together the North and the South, which had been arbitrarily divided by the United States and Soviet Union at the end of World War II. She publicized the idea of a “unification bonanza,” highlighting the positive potential economic gains of unification rather than the costs.
But Park put the cart before the horse in pushing so hard for unification, funding researchers to put a positive spin on it and sending out various elites to convince foreign governments to support the project. She also established the Presidential Committee for Unification Preparation in 2014 and staffed it with high-profile members from the government, private sector, and academia Of course, South Korea needs a committee to coordinate multisector responses in case of a North Korean regime collapse and other contingencies. But elevating unification as a real policy priority was foolhardy. Inter-Korean relations since 2009 have been very poor, and Pyongyang regarded such talk as a threat to bring it under Seoul’s control, even though Park originally envisioned a long-term process starting with a gradual reconciliation.
Domestically, unification is also a hard sell. Although the move was supported by conservatives, mainly the older generation who had experienced the painful division of families and land, younger Koreans have had little interest in carrying the economic burden of rehabilitating impoverished North Koreans. According to a 2015 survey by the Asan Institute for Policy Studies of Seoul, the majority of Koreans in their 20s and 30s oppose a unification tax; only 34.5 and 36.6 percent, respectively, support one. In contrast, those in their 50s and 60s robustly support a tax, at around 63.8 and 49.4 percent, respectively. As a young college student said, “For today’s generation, unification . . . feels outdated.”
Moon should separate the goal of improved inter-Korean relations from the goal of unification. Working on the former is hard enough, and linking the two will lead to unworkable policies based on wishful thinking. South Koreans have too few facts on how people live in North Korea, relate to their government, and envision their future. Assuming that South Koreans have the answer to unification is simply irrational.
There is a great fear among many in South Korea that despite the national drama and trauma that led to a snap election, politics and business will go on as usual. And with the growing tensions in the region, many also fear that war—whether it’s intentional or accidental—might be on the horizon. It is up to Moon and his administration to ensure that those fears do not come true. The voters—and the world—are watching closely.