Lee Eonju: "If We Continue Like This, We Face an Industrial Hollowing-Out Crisis?Rapid Industrial Transformation Is Needed" [So Jongseop’s Sogteoview]

"Livelihood Recovery Support Fund Is an Emergency Measure"
"Regional Balance Policy Has Failed, Regulations Must Be Eased"
"Tax Increase Issue Must Not Be Taken Lightly"

Lee Eonju, Supreme Council Member of the Democratic Party of Korea, appeared on Asia Economy’s current affairs YouTube channel ‘AK Radio’ on the 19th. As a three-term lawmaker and an expert in economics, Lee currently serves as the chairperson of the Democratic Party’s Future Economic Growth Strategy Committee. Lee diagnosed, “The Korean economy is currently standing at the edge of a cliff, about to plunge,” and emphasized, “We must rapidly restructure our key industries.” She also stated, “We must not recklessly raise taxes,” and argued, “The livelihood recovery support fund must be implemented quickly. Now is not the time to worry about rising prices.” The following summarizes the key points of the interview.

Lee Eonju, a Supreme Council Member of the Democratic Party of Korea, is being interviewed by Asia Economy's 'AK Radio' on the 19th.

How do you assess the Korean economy?

The decline in potential growth rate is extremely serious. Even this year, there are concerns that we might see negative growth. There is a growing sense that our growth engines are running out. The period of industrial transition arrived some time ago. After the 2007-2008 financial crisis, we entered an era of transformation. However, we neglected this. More than ten years have passed without proper preparation. Now, it is already too late.

We are still strong in semiconductors, but in areas like AI, we have fallen far behind. The service sector is also underperforming. After the industrialization led by former President Park Chung-hee and the informatization under former President Kim Dae-jung, there should have been another transition during the administrations of Lee Myung-bak and Park Geun-hye, but it did not happen, and political turmoil has continued ever since. There is no more time. We must achieve industrial transformation quickly, or else we will face an industrial hollowing-out crisis.

You seem to have a strong sense of crisis.

The crisis has been ongoing for a long time. Now, we are right on the verge of collapse. We are at the very edge of the cliff. A chain reaction of hollowing out is expected, and we have even less time. If we do not restructure our key industries at a very rapid pace, we will face a situation of collective ruin.

Lee emphasized, "We must rapidly restructure the key industries."

What should be done?

Because we are facing a comprehensive crisis, we need to come up with all-encompassing solutions. First, we must accelerate growth across all sectors. Existing key industries must be restructured and rapidly shifted toward advanced, high value-added sectors. In terms of domestic demand, mid-sized companies must fill the gap and provide some breathing room. Currently, we are in a state of oversupply. It is a situation where everyone is suffering. Production levels need to be adjusted. In the service sector, there is also excessive oversupply centered on small self-employed businesses. The sector must be reorganized into high value-added and knowledge-based service industries. In addition, AI must be applied across all industries to boost productivity. This is a grand AI transformation. To enable this transition, regulations must also be comprehensively eased.

Until now, growth has been centered on large corporations, hasn’t it? While global conglomerates have grown, this has not been integrated into the domestic ecosystem. As a result, domestic demand has stagnated. There seems to be plenty of money, but it is not circulating. The growth of large corporations must be connected to the growth of the entire industrial ecosystem. Also, while regional balanced growth has been promoted by regulating the Seoul metropolitan area, it has not worked. The regions have become more difficult, and so has the capital area. In short, it has failed. That approach will not achieve balanced regional development. We must move toward easing regulations in the regions. At the same time, we need a paradigm shift to provide significant incentives and promote regional growth centered on regional hub cities.

Isn’t there a risk that concentration in the capital area will intensify?

No. For example, in the case of electricity rates, there could be measures to supply industrial electricity at lower prices in areas where power plants are located. For data centers, it should be made easier to build them in regional industrial complexes. In any case, we must move toward providing benefits. Until now, it was thought that regulating the capital area would drive people to the provinces, but that was not the case. People will only move to the regions if there are real benefits?who would relocate otherwise? And in any case, there must be hub cities where the regional economy can grow. For that, there must be an anchor and some industry must develop there. There needs to be precise design and planning for clusters.

Lee said, "The regional balanced development policies so far have failed," and argued, "We need to move toward deregulation."

The presidential office’s economic team includes figures such as Policy Chief Kim Yongbeom, who advocate for expansionary fiscal policy. Do you expect the issue of tax increases to arise?

Currently, there is some fiscal leeway. Liquidity has three pillars: corporate investment, private consumption, and government spending. At least one of these must be active for money to circulate. However, due to uncertainty, companies are not investing, and consumers are not spending. In such times, the government must spend to get money moving. If no one is spending, and even the government withholds spending, nothing will change. If circulation does not occur, the economy will not improve.

When the economy is struggling, is there really a need to increase taxes on the people? In such difficult times, rather than raising taxes, it is right to first use fiscal stimulus as a pump primer and then make judgments as the economy recovers. If taxes are raised, disposable income will decrease, which could make things even worse. Currently, the public does not favor the state having excessive power over citizens. There must be strong justification for collecting taxes. Tax resistance is very strong. We must not consider tax increases lightly.

The Democratic Party is pushing for legislation related to digital assets. Expectations are rising. Will the relevant laws and systems be established within this year?

It is already very late. We need to quickly legislate and institutionalize this properly to bring it into the formal economy. It is necessary to ensure that this contributes to economic growth.

Rep. Lee emphasized that "the livelihood recovery support fund is an emergency measure" and said, "Now is not the time to worry about rising prices."

President Lee Jaemyung pledged to usher in the KOSPI 5000 era. What are the prerequisites for making this a reality?

Resolving the Korea discount is crucial. We must modernize and make the capital market more transparent, strictly punish stock price manipulation, and swiftly address issues such as amending the Commercial Act. Unnecessary inter-Korean tensions must also be resolved. Additionally, our stock market’s dividend yields are too low. Since many people invest in stocks for retirement income, we should also review issues such as dividend income tax. Policy should aim to increase dividend income and lower dividend income tax. Fundamentally, Korea’s economic fundamentals must be strengthened. To achieve this, economic stimulus is needed.

A decision has been made to provide a livelihood recovery support fund of 150,000 to 500,000 won to all citizens. To what extent do you expect this to boost consumption?

The effect will be very significant. For a long time, fiscal policy has not played a role in boosting domestic demand. Currently, domestic demand is dried up. The livelihood recovery support fund is an emergency measure. It must be implemented quickly. The economy is so stagnant that it is on the verge of collapse, so now is not the time to worry about rising prices.

Policy Committee Chairperson Jin Sungjoon announced plans to purchase and write off the debts of small business owners and self-employed people incurred during COVID-19, as a way to provide debt relief.

During the COVID-19 pandemic, weren’t small business owners and self-employed people prohibited or restricted from operating to prevent the spread? At that time, Europe and the United States provided cash compensation. Korea should have done the same. However, they were told to survive by taking out loans. From the perspective of small business owners, this is extremely unfair. The state unilaterally shifted the burden. This inevitably raises the debate over whether this is truly an individual responsibility.

A certain portion of the debt should be written off, and another portion should be refinanced at low policy rates?there needs to be a government program to take responsibility and solve the problem. The issue is how far and to what extent this should be done, as it requires fiscal input. We need to revisit the appropriate scope of compensation that should have been provided at the time. If we had compensated like the US or Europe, how much would it have been? There must be a minimum amount that should have been provided as compensation. That amount should be considered the minimum for debt relief, and decisions should be made considering fiscal capacity. It is not a matter of whether to provide relief or not, but rather, since compensation should have been provided at the time but was not, some level of debt relief is inevitable.

The party leadership race is shaping up as a contest between Jeong Cheongrae and Park Chandae. What kind of party leader should be elected?

Now that we have become the ruling party, it would be best to elect a party leader who can share and fully support the new government’s philosophy of governance. I trust the party members will make a wise decision.

*Click the video to watch the full interview.