The government unveiled a set of measures to boost the ailing economy of the nation's second largest city, Pusan. The cornerstone of the plan is the revival of the footwear industry in the city by 2003. The government has also offered to upgrade its harbor facilities by 2006 and provide tax breaks and other financial benefits to suppliers of the bankrupt Samsung Motors. In addition, the plan calls for relocation of Samsung's home appliance production facilities from Suwon to Pusan.
The government estimates that, through these measures, the manufacturing industry in Pusan alone will see a 3.36 trillion won rise in sales, a $1.85 billion rise in exports and the creation of 17,600 new jobs.
The mecca of the nation's once thriving footwear industry, Pusan fell into an economic slump long before the financial crisis hit the nation one and a half years ago. The local footwear industry experienced severe decline as it was unable to compete with nations with lower wages, especially China. As the city failed to find new industries to substitute for the loss of footwear business, Pusan citizens became accustomed to economic pain long before the 1997 crisis.
In fact, it was this very dilemma that motivated the administration of President Kim Young-Sam to issue licenses to Samsung Motors. The government allowed the establishment of the firm on the condition that Samsung build a plant in Pusan, which was Kim's political base. As things have turned out, however, the plant has not helped the local economy much. The unemployment rate still remains the highest in the nation. To make matters worse, the new fisheries agreement between Korea and Japan dealt another blow to the Pusan economy, which according to government statistics will cost fishermen living in the city about 100-500 billion won in lost income.
Thus, it is understandable that Pusan citizens have become increasingly angry at the government. Samsung's decision to liquidate its auto production line in Pusan has added fuel to the fire. Predictably, political forces intervened to exploit the legitimate grievances of Pusan citizens to their own benefit. The latest government package to help the Pusan economy naturally has the dual purpose of reviving the local economy and silencing the ruling parties' critics.
The concern is that politics may override the dictates of economic sense in the government's plan to help the Pusan economy. As� have been seen in the case of Samsung Motors, an economic decision made out of political considerations would not only hurt the economy in the long run, but also sets dangerous political precedents. If the measures are only aimed at gaining the hearts of voters in Pusan ahead of the general elections next spring, then politicians have learned nothing from the debacle of Samsung Motors.
There are also concerns that politics may decide the fate of the Samsung auto assembly plant in Pusan. It is known that keeping Samsung Motors alive in its present form is a step back in the corporate restructuring that we have been undertaking to salvage the national economy. It is also a breach of the country�s promise to the International Monetary Fund.
In addition, the government should take note of the growing complaints about the Pusan economic stimulus package from people in other regions. The package is open to the criticism that it benefits a politically powerful region at the expense of others. In fact, the plan to relocate the home appliance unit of Samsung to Pusan has already invited protests from citizens of Suwon and Kwangju.
While residents of Suwon are strongly resisting the plan to move the plant from their town, citizens of Kwangju argue that Samsung's home appliance division should be moved to their city as was originally planned. The Kwangju city government and citizens have announced to form a committee to work to reverse the decision. Even Pusan citizens are not content with the plan, as many say the government package will not end their plight. With the local elections only months away, it won't be easy for the government to balance the demands of people from different regions. The only lasting solution is for the government to find the courage and the sense to remove regional politics from economic policy.
References:
Ministry of Economics and Finance, Seoul, South Korea