[Insight & Opinion] Core 'Policy Brand' Development Is Needed

The Yoon Suk-yeol administration is approaching the latter half of its term after more than two years in office. The economic policies in the first half of the term mostly focused on stabilizing the exchange rate, which had surged due to the shock of U.S. interest rate hikes, and significantly raising interest rates to curb elevated inflation. However, the high interest rates have deepened the economic recession and increased loan delinquency rates, leading to a rise in financial insolvencies. Additionally, industrial competitiveness has weakened due to China's pursuit, causing the economy to fall into a low-growth trap.

To resolve these issues, the economic policy in the latter half of the term should focus on enhancing industrial competitiveness to secure growth momentum. For this, it is necessary to develop a core policy brand for fostering new industries. In fact, most previous administrations created core policy brands to improve public understanding of economic policies and thereby enhance policy outcomes. Examples include Science-led Nation, Green Growth, Creative Economy, and Income-led Growth. The Yoon Suk-yeol administration has emphasized policy goals such as private-led economy, market economy, and dynamic economy since the beginning of its term, but these are broad and lack systematic structure, making it insufficient to raise public understanding.

The need for a core policy brand also stems from the fact that it can improve policy outcomes even in a National Assembly where the ruling party holds fewer seats than the opposition. Although economic policies are formulated by the government, laws and systems decided by the National Assembly are necessary to support policy outcomes. However, under the current minority ruling party situation, no matter how good a policy is, it is difficult to pass the National Assembly without bipartisan agreement, thus hindering results. The only way is to increase public support and responsiveness to overcome the political environment of a minority ruling party, and for this, it is necessary to develop a core policy brand and promote policies so that the public can easily understand them.

Developing a core policy brand related to new industries also has the advantage of enhancing industrial competitiveness. Korea’s industrial competitiveness is weakening as its main industries are transferred to China. If competitiveness in new industries is not secured, there is a high possibility of falling into a long-term recession like Japan. We are now at a major turning point in the industrial structure. The industrial structure is undergoing significant changes with the emergence of new industries such as digitalization, batteries, semiconductors, and biotechnology. Unlike before, growth momentum can be secured not by catching up with existing industries but by fostering new industries. Education reform to cultivate specialized personnel is essential for fostering new industries. However, as seen in the recent medical resident crisis, various interest groups exist in institutional reforms, making it difficult to foster new industries. By developing a core policy brand for new industries and increasing public understanding and support, it is possible to overcome opposition from interest groups and free the Korean economy from the low-growth trap.

Finally, a positive outlook on the Korean economy can increase corporate investment and create jobs. Due to China’s pursuit, industrial competitiveness has weakened, raising pessimistic forecasts about Korea’s economic future. As a result, corporate investment has decreased, and quality jobs have also declined. When the government creates a core policy brand and establishes a roadmap for fostering new industries, positive prospects for the Korean economy can spread. Corporate investment will also increase, reducing youth unemployment. Job creation can decrease welfare demand, thereby reducing fiscal deficits and national debt.

The Korean economy is falling into a trap of high inflation and low growth. If this continues, the potential growth rate will soon fall to the 1% range, and as wages rise due to high inflation, industrial competitiveness is expected to decline further. The Yoon Suk-yeol administration, preparing for the latter half of its term, must find a breakthrough by developing a core policy brand for new industries. By increasing public responsiveness to economic policies and overcoming the minority ruling party political situation, it must achieve policy outcomes and secure growth momentum.

Kim Jeong-sik, Professor Emeritus, Department of Economics, Yonsei University