[Inside Chodong] The Pitfalls of Pragmatism

"Mom says I should try it, but Dad says no."

In parenting, what confuses children the most is when there isn't a single standard. When they don't know whose instructions to follow, they start to watch for cues. If this confusion repeats, they learn to avoid situations rather than understand them. This is exactly what is happening in the market right now. The government is making it difficult for companies to make decisions, forcing them to be cautious.

Amid high interest rates, tariff pressures, and shrinking global demand, the government is trying to find solutions together with businesses. Ahead of tariff negotiations with the United States, the heads of major conglomerates held consecutive meetings with the president. However, the tax law amendments announced soon after sent the opposite signal. Measures such as increases in the corporate tax rate and securities transaction tax, stricter criteria for major shareholders, and the introduction of a new top rate for dividend income tax have led companies to reconsider their financial structures and prompted investors to start withdrawing their funds.

The same is true in the labor market. Not long after the government announced regulatory reforms, the ruling party in the National Assembly introduced a bill to limit damage claims against striking workers and expand the definition of employers to include prime contractors. In addition, the parallel push for amendments to the Commercial Act, which would make separate election of audit committee members and cumulative voting mandatory, has raised concerns on the ground that the scope of application is excessively broad and the intensity of regulation is too strong.

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What is most frustrating on the ground is not the intent of the monthly flood of policies, but the confusion over their direction. Many companies typically outline their business plans for the following year by June or July, and finalize the major framework through executive meetings before the summer holidays. However, this year, even in August, quite a few companies have not been able to finalize their plans. Whenever an announcement raises expectations, an opposing measure soon follows, leading to temporary responses rather than clear plans.

The government may argue that each policy has a valid justification. Tax reform is aimed at increasing revenue and ensuring tax fairness, and changes to governance and labor regulations are the result of long-standing discussions. However, the real issue is not the content but the timing and context. If taxes and regulations are tightened immediately after pledging to support struggling industries, the market cannot help but be confused. In the context of global competition, companies and capital markets, driven by a survival instinct, are more accustomed to reading the signals sent by policy than the government's stated justifications.

Pragmatism has become an important principle for this administration. The attitude of prioritizing reality over ideology and the field over abstract principles can send a positive signal to the market. The fact that the president listens to a variety of opinions is a strength in terms of flexibility. However, for pragmatism to work, policies must be coordinated, consistent, and timely. If each policy is pushed forward simultaneously, each with its own logic, as is happening now, pragmatism becomes not an asset but a source of conflict.

Citi Bank downgraded its view on Korean equities from 'overweight' to 'neutral,' analyzing that the tax reform package conflicts with the goal of improving corporate value. Hong Kong-based CLSA commented that "there is only a stick and no carrot," evaluating that both tax and regulatory policies diminish market incentives. JP Morgan also diagnosed that "there is a lack of momentum to drive further gains."

It is natural for a new administration to have many things it wants to accomplish. However, if domestic policies lose direction while the external environment is already challenging, companies will have nowhere to turn. The president's willingness to listen to diverse voices is valuable. But it is also necessary to have insight into the overall industrial structure and economic trends. A leader who responds immediately to the pain on the ground?that is Lee Jaemyung. However, to embrace this and also devise future strategies, meticulousness, insight, and precise timing are essential.