An alarming exodus
Korean companies' exodus to foreign countries is accelerating at an alarming pace following the launch of the liberal Moon Jae-in administration in May 2017. According to the Ministry of Strategy and Finance, Korea's overseas direct investment (ODI) in the first quarter soared to $14.1 billion, a 44.9 percent increase compared to the same period last year. That figure is the highest since 1980, when the government began to collect the data in its current form.
What attracts our particular attention is a sharp jump — a whopping 140 percent — in our manufacturing sector's direct investment in other countries. The increase partly results from our conglomerates' increased construction of factories in the United States, as seen in LG Electronics' completion of a large home appliance plant in Tennessee, SK Innovation's groundbreaking on an electric battery factory in Georgia and Lotte Chemical's plan to build a $3.1 billion ethylene plant in Louisiana. The Finance Ministry says it is unavoidable for Korean companies to move to other countries for various reasons.
But global strategies do not explain the exodus fully. Our ever-worsening business environment is a big part of the problem, particularly the government's rapid minimum wage hikes and a 52-hour workweek, which companies have trouble complying with or affording.
While companies in advanced countries like the United States are increasingly returning home in the face of a global trade war triggered by U.S. President Donald Trump, Korean companies are moving factories overseas fast. According to the United Nations Conference on Trade and Development (Unctad), the total amount of global overseas direct investment shrank to $1.3 trillion last year — the smallest level since the global financial crisis of 2008. Yet Korean companies continue to move out.
That translates into a critical loss of quality jobs in Korea. If the corporate migration leads to a vicious cycle of income losses, consumption reduction and investment decreases, that will gobble at our growth rate.
The Hyundai Research Institute has singled out our rigid labor market and stifling business regulations as the main cause for companies' exits. The institute expects our economic growth to plunge to as low as one percent annually within the next 10 years. Only when companies provide jobs can our economy survive. The government must review its anti-market policies from the beginning and start to think differently about the economy.