Pork-Barrel Chips and an Inner-Party Civil War
Why it matters: As President Lee’s honeymoon abruptly ends in one year, his administration is subordinating macroeconomic strategy—most notably by weaponizing critical semiconductor investments to secure regional votes—to brutal inner-party survival tactics.
The Honeymoon is Over
One unexpected consequence of the latest election is the rallying of conservative voters. This resurgence comes despite the conservative party lacking a clear standard-bearer and still reeling from President Yoon’s self-destructive coup attempt.
It is difficult to pinpoint a single cause, but fundamentally, the electorate likes to check and balance those in power. Moreover, the president and the ruling party began employing divisive rhetoric and undermining the rule of law.
Whatever the exact reasons, one thing is abundantly clear: the honeymoon is over.
Mr Lee’s approval rating dipped immediately following the election. While his numbers remain solid compared to his predecessors at the same stage in their terms, a downward trend has undeniably begun. The situation is far worse for the ruling party; one poll even showed the Minjoo party falling behind the conservative PPP. Someone needs to reverse this trajectory, but the talent pool surrounding Mr Lee—an outsider to the Gen-86 mainstream—is notably shallow. The only person capable of fixing this, Mr Lee believes, is himself.
Consequently, he has personally spearheaded several recent PR initiatives. Beyond an interview with The Economist, he volunteered to hold a press conference debriefing his European visit. Such briefings are typically handled by a senior aide, yet Mr Lee conducted this one a mere 11 days after holding a press conference to commemorate his first year in office.
Deciphering the next Lee Agenda
Gauging the Lee administration’s trajectory from the president’s own words requires caution. His street smarts often conceal his true beliefs, leading him to feed audiences exactly what they want to hear. (Some might recall I once likened him to Sam Altman.)
Take universal basic income for example. While Mr Lee told The Economist it is a “useful option,” he dismissed it before the Blue House press corps, warning that its implementation could be “very unstable and unpredictable”. He was apparently reacting to the severe public backlash after his policy chief floated the idea.
Nevertheless, a few key priorities have emerged from his recent works. First, Mr Lee made it explicitly clear that he and his party will seek to cancel his prosecutions. Although the Economist correspondent appears oblivious to these machinations, the ruling camp has finished paving the way for something entirely unprecedented, which we will soon watch unfold. (I remain quite sure this will become his Oedipus trap.)
Second, the housing market will take center stage in the Lee administration’s economic policy. Mr Lee has touted the AI windfall and the ensuing stock market boom as a victory for everyone, but the reality is starkly different: while a select few—chaebol exporters and their employees—feast on this AI windfall, everyone else is suffering from the KRW’s free fall and a stagnant broader economy. Last month, for instance, South Korea lost tens of thousands of jobs for the first time since Mr Yoon’s martial law fiasco.
Given the historical premium Koreans place on real estate, much of this newfound corporate wealth will inevitably flood the housing market, particularly in Seoul. Mr Lee intends to put a stop to this. Raising property taxes appears to be his only short-term lever, but historically, this has been insufficient to curb price hikes and has easily backfired.
The Semiconductor Gambit and Inner-Party Civil War
Mr Lee’s social media posts perhaps offer the best glimpse into his current mindset. During his visit to Italy, he published a lengthy critique of the ruling party. Although his points were deliberately abstract—he even summoned Max Weber to preach about a politician’s responsibilities—he was blaming party chief Jung Chung-rae for their pyrrhic victory in the local elections.
The post sent the ruling party into a frenzy, as many interpreted it as a further endorsement of Kim Min-seok, the Prime Minister. Mr Kim recently announced he will step down to challenge Mr Jung for the party leadership. Supporters of Mr Jung quickly began playing Among Us, hunting down “imposters”—hidden allies of Mr Kim who might be undermining the incumbent chief. Several Minjoo lawmakers even felt compelled to publicly disavow any allegiance to Mr Kim.
Mr Lee has every reason to be aggressive. His grip on the party has been tenuous from the start, and one pro-Lee lawmaker warned that Mr Jung’s reelection would trigger a “lame duck” period for the President, despite Mr Lee having four years left in his term.
The stakes are remarkably high, and Mr Lee is willing to play every card up his sleeve. What we did not expect, however, was that these cards would include the future of South Korea’s semiconductor industry.
Establishing a secondary semiconductor cluster in the southwestern Honam호남 region had been a fringe idea pushed by local politicians desperate for a slice of the booming industry. That changed last Wednesday when Kim Yong-beom, Mr Lee’s policy chief, unveiled that two Korean semiconductor giants, SK Hynix and Samsung Electronics, will invest in a new cluster in the region.
Mr Kim—whose meandering Facebook posts, which some doubted to be AI-generated, detailing the administration’s policy ideas have previously caused blowback—went on to tease further details of the investment plan on (none other than) Kim Ou-joon’s YouTube show. “The numbers are going to be so huge that they would sound uncanny,” Mr Lee’s point man declared.
The public reaction was far more severe than when Mr Kim previously floated the idea of a citizen dividend. Experts immediately questioned the plan’s feasibility, citing the region’s limited water supply and doubting whether building an entirely new cluster makes better business sense than expanding the existing one. Opposition politicians lambasted the president for hijacking private corporate strategies for political gain—specifically, to court regional party members ahead of the August convention.
Honam residents account for roughly 30% of Minjoo’s card-carrying members. Furthermore, a considerable portion of the party’s membership in the greater Seoul area also hails from the region. This demographic reality explains why Mr Jung has campaigned there incessantly, even after the local elections.
The fact that Mr Kim chose to unveil this grand plan on Kim Ou-joon’s show—a highly influential platform among the Minjoo base—makes the opposition’s accusations of political pandering more plausible. Consequently, Messrs Lee and Kim spent a busy weekend furiously writing social media rebuttals, insisting the region has adequate resources and that the cluster serves the greater cause of balanced national development.
Yet, even if we take them at their word, the reality remains that semiconductor giants are making choices that business logic alone cannot explain.
Admittedly, business logic does not always guarantee the best outcome for the national economy, as the history of SK Hynix demonstrates. When the memory chipmaker teetered on the verge of bankruptcy in 2001, creditors initially tried to sell it to Micron. However, nationalistic appeals—”we simply can’t sell our nation’s wealth and technology to a foreign company!”—ultimately prevailed. After several years of debt rescheduling and restructuring, the SK Group finally acquired it.
This new investment plan will undoubtedly mark a watershed moment for the future of the Korean semiconductor industry. Whether it will be for better or worse, I do not know. What I do know is that this maneuver will be detrimental to the future of Korean politics, and even to Mr Lee himself.
It is difficult to imagine that this colossal regional investment will cleanly boost just one specific candidate—namely, outgoing PM Kim Min-seok, who enjoys Mr Lee’s blessing—in the leadership race. Mr Jung is perfectly positioned to claim credit for it as well, trumpeting his own devotion to the region. After all, Mr Jung has consistently avoided direct confrontation with Mr Lee while convincing hardcore supporters that he is the only one capable of delivering their desired reforms.
Moreover, funneling the lion’s share of this ginormous chipmaking investment into the ruling party’s core stronghold will only deepen the nation’s regional divides. People will not find it coincidental that recent discussions about relocating elite institutions—including the Korea National University of Arts and the Korea Military Academy—have all revolved around Honam.
One does not have to look far back into history to see when people from Honam faced severe discrimination. In the 1960s, landlords often refused to rent to students from the region, and until the 1990s, it was not uncommon for parents to sabotage their daughters’ relationships with Honam men. Just as we have seemingly moved past that era of prejudice, I’m afraid of the ramifications this kind of quick-fix positive discrimination—cannibalizing other region’s pie rather than growing the local economy organically—will leave for future generations.