A contradiction at the heart of the Lee administration’s economic agenda

 

Lee Sang-ryeol


The author is a senior editorial writer at the JoongAng Ilbo.
 
 
Chey Tae‑won, chairman of the Korea Chamber of Commerce and Industry, recently described the state of Korean manufacturing as having “lost a decade.” But it’s not just manufacturing. The past 10 years — spanning the Park Geun-hye, Moon Jae-in and Yoon Suk Yeol administrations — have been marked by political paralysis, populist policies like income-led growth and a lack of forward-looking industrial strategy. While Korea stalled, China caught up and surpassed it.
 
The Korean economy now finds itself in an emergency room scenario. But efforts to perform critical surgery are being hindered by deep-rooted contradictions — most notably, a rigid egalitarianism and a policy environment that claims to support growth while tightening constraints on businesses.
 

Chey Tae-won, chairman of the Korea Chamber of Commerce and Industry (KCCI), delivers opening remarks at the 48th KCCI Summer Forum held at the Lahan Select Hotel in Gyeongju, North Gyeongsang, on July 16. During a meeting, Chey remarked that the manufacturing sector has “lost ten years.” [YONHAP]

 
The Lee Jae Myung administration has set a national goal of becoming one of the world’s top three AI powers. Yet, the country’s research and development (R&D) sector is still bound by a universal 52-hour workweek. This limitation raises questions about how Korea intends to compete with countries like the United States and China, where leading AI firms such as OpenAI, xAI and DeepSeek operate with far more flexible labor structures. In those ecosystems, intense work is incentivized with high rewards. Can Korean firms, already lagging behind, catch up while strictly adhering to rigid labor rules? At the very least, sectors like advanced technology R&D should be exempt from such blanket regulations.
 
In both the United States and China, the leading AI nations, the logic is clear: Concentrate support where performance excels. In the United States, the market drives this. In China, it’s the government. In contrast, Korea’s education policy reflects its most deeply ingrained egalitarianism. President Lee has promised to create “10Seoul National Universities” by funneling funds to regional national universities. But even Seoul National University (SNU) lags behind global standards — ranked 38th in the QS World University Rankings and 133rd by U.S. News & World Report for 2025.
 

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Over the past four years, 56 professors have left SNU for overseas positions, citing poor compensation and research environments. In an era when top institutions set global standards — especially in AI — Korea needs to prioritize the development of at least one world-class university. Expanding second-tier schools won't close the gap. Doing so will require dismantling the standardized funding and compensation system shaped by egalitarian ideals.
 
The second major contradiction lies in the government’s simultaneous rhetoric about growth and its tendency to stifle businesses. While officials tout economic revitalization, they continue to roll out policies that constrain companies. The first round of commercial law revisions was justified as a way to boost stock prices. But if so, there should also be safeguards to ensure management stability and prevent hedge funds from disrupting long-term strategy.
 
Perhaps the most glaring contradiction is the push to raise corporate taxes. During the Lee Myung-bak administration, the maximum corporate tax rate was lowered to 22 percent. It was raised to 25 percent under Moon Jae-in, then adjusted slightly to 24 percent under Yoon Suk Yeol. The current government is now proposing to raise it again.
 
Minister of Economy and Finance Koo Yun-cheol stated during his confirmation hearing that “cutting taxes did not stimulate investment as expected,” noting that corporate tax revenue fell from nearly 100 trillion won ($72 billion) in 2022 to about 60 trillion won last year. He concluded that this decline contributed to weaker growth, consumption and investment.
 

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol speaks to reporters at a briefing held after an economic policy meeting at the Government Complex Seoul on July 22. [NEWS1]

 
But this interpretation ignores the broader economic context. The tax shortfall was largely due to a severe downturn in business performance, not tax cuts. In 2023, Samsung Electronics, a major taxpayer, posted more than 11 trillion won in losses amid the semiconductor slump — and paid no corporate tax that year.
 
If the government’s top economic official holds such a narrow view, hopes for recovery will remain dim. Economics 101 teaches that tax revenues should rise in good times and fall in bad times. It is also a longstanding principle that tax audits by the National Tax Service are scaled back during recessions. Proposing a corporate tax hike during what many describe as a downturn worse than the 1997 Asian financial crisis is akin to cutting open the goose for its golden eggs.
 
Breaking free from rigid egalitarianism and business-stifling policies is essential for revitalizing the economy. Now, with a progressive administration branding itself as pragmatic, Korea has a rare chance to correct these internal contradictions.


Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.