[OUTLOOK]Who’s really rich and who’s poor?Saying hello to a man in a sauna in the neighborhood, I asked him what he does for a living. He replied that he runs a small business. I just showed customary concern, adding that I heard doing business these days was very hard. As if he had been waiting for me to ask, he expressed great anxieties and concerns about the recent recession. Among others, the following conversation with the president of a small business lingered in my memory.
He said it was more difficult these days than under the stewardship of the International Monetary Fund. Although the IMF may feel unfairly treated/blamed, the IMF is engraved in our memory as the symbol of horrible pain. “Although the country was poor at that time, the people were rich,” he said with a gloomy face. “But now it’s in more trouble because the people are getting poorer.” Although his distinction between the poor country and rich people struck me as strange, I could understand his point. Because there was an outcry over the possible bankruptcy of our economy due to the failure to repay the foreign debt, he was right in saying that the country was poor. Because one of the major factors for overcoming the exchange crisis was consumer spending, he could also say the people were rich then. It was true, indeed. The government asked the people to spend more because spending could boost the economy. And it was true, more or less, that thanks to spending, the economy recovered.
But this interpretation needs further examination. If the word “country” is replaced with “government,” it becomes another story. Although the foreign exchange reserve hit its lowest point due to the central bank’s indiscriminate circulation of foreign currency to repay the foreign debts of business and financial institutions, the government finances were pretty sound. Foreign creditors and the IMF were surprised to open the account books of the business sector, but they were comforted to see the financial records of the government. In the process of drawing up a deficit budget and preparing public funds to boost and restructure the economy, the national debt had tremendously expanded. If so, the part “the country was poor” should be corrected as “the government was rich.”
Just before the financial crisis, the gross national product per capita reached $10,000 and the observation that the people were rich was perhaps right. The man I talked with in the sauna found the reasons behind the sudden degradation from the rich to the poor people in credit cards ― spending with credit cards. He said he could understand the slogan, “Go away, saving! Spending is a virtue,” but it was a great mistake to extend that to “Waste is a virtue. Let’s spend even with borrowed money.” In the aftermath of that mistaken notion, the number of bad credit holders exceeded 3.5 million, and the people became poorer as he lamented. The business community was no exception. He recalled that because of a tax deduction of 5 percent on credit card payments, the job of presidents of small companies, like him, was to collect credit card slips. How strange it is to say that credit sales are better than cash transactions!
Therefore, the statement “the people were rich” should be corrected to “the people acted like the rich.” Now we should bust the bubble. The poor had no bubble from the beginning, and bad credit holders who acted like the rich will no longer have bubbles. The problem is the bubbles of the rich, or the bubbles of real estate enjoyed by the rich. How many people would not go crazy to see the price of a house in Gangnam, south of the Han River in Seoul, skyrocketing 100 million won ($83,000) in a week? Who among the poor would feel comfortable watching the rich speculating in real estate?
Of employees of the 30 largest companies in Korea, 67.2 percent counted real estate as the best means to increase wealth, and only 11.5 percent counted savings as the best method. Since some people even borrowed money to speculate in real estate, are the shrimps (the poor) still behaving like the whales (the rich)? Last week, the government announced strong measures to crack down on speculation in real estate. If it does not work, the government says it will come up with even stronger means.
By whatever means, the government needs to deal with speculation. But a path should be left open for investment. One may say, “Even if the money gathers mold with nowhere to invest, speculation should be stopped.” But this argument cannot last for long, however right it is. To open the path of retreat and prevent money from gathering mold is the role of politics.
Back in the sauna, I couldn’t understand at first when he said, “Politics is the problem.” Why politics? Did he have to contribute some political fund? It was not the case. “I can’t sleep because I am worried whether to shut up the plant or stick with it, because I can’t predict tomorrow at all.” Politics! Let him sleep in comfort and prevent the people from getting poorer.
* The writer is a columnist of the JoongAng Ilbo.
by Joseph W. Chung