Korea’s lost decade

It’s been a chaotic time. The country’s governing style has been single-minded and state administration slack. Conservative politicians have relied on the halo of industrialization and tricked people with their rhetoric of “economy first.” If the past 10 years of conservative rule had truly reformed our social infrastructure, Korea’s per-capita income would be far more than $30,000.

Koreans are known for their dynamic energy. But conservative politicians have only used economic rhetoric. We had to pay a painful price for ignoring the proposition that growth engines are created through social reform. Polarization and inequality are our punishment. It is a lost decade for Korea.

Other developed countries changed their agenda from economy to society when they reached per-capita income of $20,000. They reached the consensus that economic engines would collapse if they did not cure themselves of the struggle for profit in the era of globalization. Twenty years ago, Joseph Stiglitz and Dani Rodrik warned the world that winners and losers should coexist and that asymmetry of resources should be corrected.

Developed countries focused on their labor market and social security reform, but Korea remained unchanged. If the government’s bailout of the shipbuilding industry had been used to boost employment and improve conditions for contractors, our economy would have found its dynamic energy again.

“Let’s make up for the lost decade,” I thought after reading the Moon Jae-in administration’s 100-point plan. Finally, the country has come to its senses after a decade of erratic behavior. The government is determined to fill the gap made by previous administrations’ lax management and has presented a road map to change the social paradigm.

The administrative philosophy of creating economic engines from social reform was once controversial in Europe, but in the end, the left and right agreed on it. This led to the rise of welfare politics. The proposition confirmed in European welfare states is that the leftists start new initiatives and the rightists maintain them. When inequality decreases and social solidarity increases, the economy gains vitality.

More economic outcomes were attained than welfare costs. Governments carefully planned to enhance welfare’s contribution to growth, and mature citizens were willing to pay higher taxes and prevent the production of losers. A Keynesian welfare state largely intervened in the labor market. This good cycle of welfare, finance and growth is called the “golden triangle.”

The Moon administration could have set a more ambitious target than the OECD average, but we nevertheless have taken an important step forward. There are two stages in a social paradigm shift. The first is fixing holes in the social security net, already a big challenge for the current administration. Consideration for low-income citizens and expansion of public welfare to meet the demands of different age groups is a tough job. The government has raised basic pension, child care subsidies and youth benefits, enhanced unemployment and medical protections, and eased qualifications for poverty subsidies.

New parents have welcomed the expansion of preschool programs that previous administrations were reluctant to fund, and compulsory high school education is never too late to enforce. This is not a matter of creating new initiatives but a matter of enforcement. While opponents worry about funding, these are costs that we should have paid.

Concerns about funding welfare services are not justifiable. In order not to leave a divided society to the next generation, we must pay our dues. Expecting quality welfare for a small cost is simply an illusion. A 3 percent corporate tax increase and 2 percent raise on the super rich are just the beginning. We need to share the responsibility of enjoying our rights, and we all need to contribute more. Who will pay for the cost of reducing risk from unemployment and shake off the uncertainty of the future? Companies are responsible because public welfare mitigates social costs for businesses.

The second stage of a social paradigm shift is labor market reform, and that is not easy to attain. Correcting the lopsided contractor structure and wage polarization is nearly revolutionary. It is a verified rule that when the barrier for guaranteed employment at major corporations is high, temporary jobs at small and medium-sized companies drastically increase. Portugal and Spain are two cases, and without exception, corporate costs and social discontent grew in those countries.

Meanwhile, Belgium, Denmark and the United Kingdom gave companies the authority to fire regular employees. Their governments successfully reached a social agreement with unions on the welfare net. This point is missing in the national tasks of the current administration. If reducing the gap between big and small companies is the key to income-driven growth, a political showdown with the Korean Confederation of Trade Unions and Federation of Korean Trade Unions will determine the fate of reforms.

The administration faces a plethora of challenges, from reducing work hours to raising the minimum wage. Jobs cannot be created without reducing the burden on companies. The entities that will help Korea achieve the golden triangle are companies and unions. Let us work together to make up for the lost decade. We all need to participate in the march toward a fairer society. The citizens have many responsibilities to shift the social paradigm. Tax increases on all members of society, concessions and leadership from the rich and powerful make up the core of fairness.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, July 25, Page 31

*The author is a professor at Seoul National University and columnist at the JoongAng Ilbo.

Song Ho-keun