[Initial Insight] A Good Country to Do Business vs A Bad Country to Do Business

[Asia Economy Reporter Oh Hyung-gil] It has been just over a month since the Yoon Seok-yeol administration took office. It is true that it is premature to evaluate the performance of a government that has just begun its term. However, the business community, which had appealed for the creation of a business-friendly country, cannot help but ask the new government for solutions, given that they are facing a harsh situation where they cannot see even a day ahead.

The new government declared that it would boldly reform regulations and provide full support to revitalize investment. President Yoon Seok-yeol, who firmly expressed his will to improve the regulatory sandbags tied to the ankles of companies, received a response from businesses pledging to invest 1,000 trillion won in new growth industries over five years. It seemed as if a hymn celebrating the overcoming of the long COVID-19 period and the joint efforts of the government and business community to elevate our economy to the next level was resounding.

However, with overlapping domestic and international variables, a global supply chain crisis has emerged, and amid the escalating conflict and confrontation between the U.S. and China, North Korea continues military provocations using ballistic missiles and multiple rocket launchers. The era of the three highs?high inflation, high interest rates, and high exchange rates?has opened, and warnings are sounding that economic growth is faltering, with production and consumption slowing down.

What about the corporate field? The burden of costs has increased due to rising raw material prices and logistics costs, but companies cannot pass all of these onto product prices, resulting in deteriorating profitability. According to a recent survey by the Korea Chamber of Commerce and Industry targeting 304 manufacturing companies on the impact of soaring raw material prices, 66.8% of respondents expected operating profits to decrease this year.

Labor-management conflicts are also spreading. Following a recent Supreme Court ruling, a wave of lawsuits from labor unions against the wage peak system is anticipated, and the crisis of logistics disruption caused by the Cargo Solidarity strike is expanding. Steel mills have stopped their factories, and construction sites have halted work. During the six-day strike, major industries such as automobiles, steel, petrochemicals, and cement suffered production, shipment, and export disruptions amounting to approximately 1.6 trillion won. As the strike prolongs, the impact on production is spreading to other industries, and the scale of damage is expected to increase further.

[Image source=Yonhap News]

Soaring prices have also made next year’s minimum wage negotiations a management hurdle. More than half (51.8%) of self-employed people complain that the current minimum wage of 9,160 won per hour is a significant burden on their management.

Companies are facing a reality where every step is a matter of life and death. An executive from one of the top 10 conglomerates recently said, "We have announced large-scale investment plans, but that means we cannot survive in the future with the current business," adding, "If there is growth potential, we are jumping into anything first." This reflects their concerns.

To revive corporate investment capacity and competitiveness, the government’s role is crucial. Corporate tax systems that are less favorable than those of foreign countries and do not align with global trends must also be improved. There are demands to lower the current corporate tax rate of 25% to the OECD average of 21.5% and to abolish investment and win-win cooperation promotion tax systems that increase additional tax burdens without policy effects.

Although challenges have been accumulating since President Yoon Seok-yeol’s early days in office, the reality of our economy stands at a crossroads, shifting from a business-friendly country to a business-unfriendly one at a time when it should be moving toward the former. Success or failure depends on listening to the voices from the industrial field, actively reflecting them in economic policies, and demonstrating strong leadership early in the term. We hope to see accelerated private-sector-led innovative growth through regulatory reform.

This content was produced with the assistance of AI translation services.