Published on November 26, 2019.
Using former Prime Minister Yasuhiro Nakasone’s four principles of diplomacy, this article examines how South Korea under the Moon Jae-in administration was deviating from sound diplomacy, economic rationality, and security realism.
It discusses the worsening performance of South Korean companies, corporate flight overseas, labor policy failures, instability in U.S.–South Korea relations, and the growing country risk surrounding the Korean economy.

November 26, 2019
One must not conduct external activities beyond the strength of one’s nation.
Diplomacy must not be gambling.
Domestic politics and diplomacy must not be confused with one another.
One must not stray from the orthodox current of world history.
This happened last night when I was watching TV Tokyo’s WBS.
Ryomaru Kumagai, chief economist at Daiwa Institute of Research, who appeared as a commentator, concisely stated a sound view rarely heard on recent news programs.
When asked by the host about South Korea’s conduct, Kumagai cited the following four diplomatic principles of former Prime Minister Yasuhiro Nakasone, and pointed out that South Korea had deviated from all four of them.
In other words, he pointed out that South Korea’s conduct was beyond salvation.
The only other news program I watch on television is NHK, but this was a splendid observation that one would never hear on NHK.
Needless to say, on Watch 9 in particular, it is an absolute fact that one could never hear it or come to know it.
The four principles that Kumagai cited, based on Nakasone’s four principles, when he declared that “South Korea is violating all of them, has deviated from all of them, and therefore Japan–South Korea relations will not improve while the Moon administration remains in power,” are as follows.
In other words, these are the four principles of diplomacy from which South Korea has deviated.
One must not conduct external activities beyond the strength of one’s nation.
Diplomacy must not be gambling.
Domestic politics and diplomacy must not be confused with one another.
One must not stray from the orthodox current of world history.
The following is from Diamond Online, as published on MSN.
The country risk swelling under South Korea’s Moon administration, with major companies also fleeing abroad.
The deterioration of South Korean corporate performance becomes even clearer.
At present, the deterioration of South Korean corporate performance is becoming even clearer.
According to the Korea Exchange, operating profits of South Korean listed companies from the beginning of this year through September fell by about 39 percent from the same period of the previous year.
What deserves particular attention is the sharp decline in earnings among the large chaebol companies that may be called the backbone of the South Korean economy.
Samsung Electronics and SK Hynix alone account for about 80 percent of the overall decline in profits.
The influence these two companies exert on the South Korean economy as a whole is enormous.
Conversely, unless a clear recovery trend emerges at these two companies, it will be difficult for the entire South Korean economy to regain brightness.
Despite the fact that the South Korean economy has been driven into such a corner, President Moon still appears to be charging straight ahead with his two flagship policies of “North–South unification” and “anti-Japanese nationalism,” without looking aside.
One even wonders whether President Moon is truly thinking about the South Korean economy.
Already, unemployment appears to be remaining high, especially among the young, and dissatisfaction with President Moon seems to be accumulating considerably among those generations.
Moreover, if the stagnation of the South Korean economy continues, the risk of South Korea as a nation—that is, its country risk—may rise.
If that intensifies, the possibility that South Korea’s cost of procuring foreign currency will rise also increases.
Furthermore, in the future, more companies may move their bases from South Korea to other countries in order to avoid country risk.
If the corporate exodus overseas continues, concerns over the outlook for the South Korean economy will also increase.
The worsening earnings of South Korean companies become more serious.
There is no sign that the deterioration of South Korean corporate performance is coming to a halt.
Starting with semiconductors, which are South Korea’s main industry, deterioration in performance is becoming clear in many sectors, including chemicals, steel, and shipbuilding.
In addition, all six airlines fell into final losses.
One major factor behind this is the effect of the Chinese economy, South Korea’s largest export destination, reaching the limits of growth.
South Korean companies, which had achieved performance expansion mainly through exports, have been directly hit by the slowdown of the Chinese economy.
Within South Korea, the deterioration in the performance of major companies has caused transaction prices for materials and other goods between companies to fall.
For four consecutive months since July, the year-on-year rate of change in South Korea’s producer price index, or PPI, has been negative.
This suggests that companies are carrying excessive personnel and production capacity.
Because it is difficult for corporate operating rates to rise, the employment environment is also considered to be deteriorating.
Although the unemployment-rate data itself has declined, this has been pushed up by the rapid increase in short-term employment for the elderly, mainly in work such as monitoring cultural assets.
On the other hand, according to data released by Statistics Korea, in October the unemployment rate among those aged 15 to 29 was 7.2 percent, far exceeding the overall unemployment rate of 3.5 percent.
South Korea’s employment and income environment should be seen as worsening.
This can also be confirmed from the performance trends of South Korean companies related to domestic demand.
At present, domestic new-car sales by South Korea’s five major automakers are on a slowing trend.
In addition, performance at E-Mart, which operates discount stores, is also rapidly deteriorating.
Unlike Japan and the United States, the South Korean economy lacks depth in domestic demand.
Because its dependence on exports is high, the base of personal consumption has not expanded sufficiently, and it is not easy to absorb the magnitude of deterioration in the external environment.
Given that disruption in global supply chains is expected to continue due to U.S.–China trade friction and other factors, downward pressure is likely to remain on South Korean exports for the time being.
Along with that, domestic demand is also expected to cool.
It is difficult to imagine a scenario in which the South Korean economy recovers autonomously.
Companies leaving South Korea to avoid risk.
In the future, South Korea’s economic foundation may become even more fragile.
One reason for this is that more companies are leaving the country because they dislike the risks in South Korea.
It goes without saying that, for companies, it is advantageous to operate businesses in an environment that is freer and more stable.
For that reason, an increasing number of companies are beginning to place importance on “escaping” from South Korea.
One reason companies are leaving South Korea appears to be the policies of the Moon administration.
Even when one interviews South Korean economic experts, they say that many corporate managers are becoming increasingly uneasy and distrustful of Moon’s policies.
To begin with, labor unions have strong power in South Korea.
Under the administration of President Moon, a genuine left-wing politician, labor disputes in South Korea have intensified more than before.
Along with this, despite the fact that the economic slowdown has become clear and corporate performance is deteriorating, there are increasing cases in South Korea, especially in the automobile industry, in which labor unions demand wage increases.
In addition, the Moon administration is also increasing restrictions on corporate management.
President Moon, with little thought for economic growth, sharply raised the minimum wage and caused labor costs to increase.
President Moon has also implemented a system that shortens the upper limit of weekly working hours, including overtime, from 68 hours to 52 hours.
Already, South Korean small and medium-sized business managers are said to have expressed concerns that shortened working hours will make it difficult to continue business operations.
Under this environment, companies seeking to reduce labor costs and to secure personnel who can work obediently according to management instructions are rapidly increasing their emphasis on overseas expansion and investment outside South Korea.
In the January–September period, the number of investments by South Korean companies in Vietnam increased by 10 percent from the same period of the previous year to 1,164.
This placed South Korea at the top, ahead of Japan.
Samsung Electronics has also strengthened its overseas expansion, including transferring smartphone factories from China to Vietnam.
Lotte is also strengthening its hotel business and other operations overseas.
It also appears that more foreign-affiliated companies are considering withdrawing from South Korea.
Diners Club, the major U.S. credit card company, ended its partnership with the Hyundai Group and decided to withdraw from South Korea.
In the automobile industry, against the background of labor disputes and other factors, cracks appear to have emerged in the partnership between Renault and the Samsung Group.
Some observers even foresee the dissolution of that partnership.
Country risk pressing down on the South Korean economy.
There is a possibility that more companies will seek to leave South Korea in the future.
The fact that companies must respond to South Korea’s country risk cannot be taken lightly.
A certain cost burden will be necessary.
Signs of instability have already begun to appear in part of South Korea’s security structure.
U.S.–South Korea relations are one such example.
On November 19, the United States and South Korea held negotiations over defense cost sharing, but the talks ended earlier than scheduled.
The United States demanded that South Korea increase its burden.
However, there is also speculation that South Korea rejected this.
It appears that the United States asked South Korea to reconsider and then left the table.
The United States has expressed strong concern toward the Moon administration, which has turned its back on security cooperation among Japan, the United States, and South Korea.
Calmly considered, South Korea’s maintenance and strengthening of its security framework with Japan and the United States has an influence on the stability of the South Korean economy that cannot be ignored.
In particular, South Korea’s ability to procure dollars is significantly affected by its security structure.
In the past, during the Asian currency crisis and the Lehman shock, South Korea was unable to secure dollar funds on its own.
For financial institutions around the world and others, it is not easy to provide long-term funding to South Korea, which confronts North Korea.
Considering how to respond if North Korea’s military provocations intensify, that is only natural.
South Korean companies have had an aspect of resolving latent funding concerns through transactions with Japanese financial institutions.
The fact that, in July, Samsung Electronics and Lotte prioritized visits to major Japanese financial institutions in order to secure funding over economic policy meetings with the government is a good example confirming this.
North Korea likely wishes to secure the protection of China and Russia while possessing nuclear weapons and maintaining its regime.
The Moon administration places emphasis on reconciliation with North Korea.
As long as that stance continues, companies will have no choice but to remain wary of the situation on the Korean Peninsula.
Furthermore, it is difficult to imagine that President Moon, a genuine left-wing politician, will adopt a policy line capable of enhancing corporate vitality.
In South Korea under the Moon administration, it may become even more difficult for companies from each country to invest funds and conduct business from a long-term perspective.
At present, it is difficult to foresee how the Moon administration can avoid this development.
Gradually, the stagnation of the South Korean economy appears to be moving in the direction of becoming prolonged.
Akio Makabe, Professor, Hosei University Graduate School.