[VIEWPOINT]What GDP leaves outThe Bank of Korea recently announced that our economy grew 4 percent last year based on gross domestic product. Although this is a very disappointing figure compared to previous high-growth periods, it is rather fortunate given the slowdown to date. The government contends that this growth rate is a clear sign of economic recovery. But most people do not seem to feel a particular sense of recovery. The economy the index shows and the economy the public feels are different altogether.
The first reason for the difference could be a problem with the statistics themselves. In any country, the gross domestic product figure fails to reflect the exact national income and the level of production. In Korea, the value added by the wholesale and retail industries, restaurants, hotels and individual services, in particular, seems to be excessively underestimated.
Specifically, per capita value created by workers in these industries is estimated to be a mere 27 percent of that of workers in the manufacturing sector. However low the productivity of our country’s service industry may be, this figure is excessively low compared to 78 percent in the United States and 68 percent in Japan. If the service sector is underestimated in the statistics, then the proportion of the service industry to the economy decreases when calculating our national product. As a result, the sluggish economy, which is due to a sluggish service sector, which, in turn, is due to sluggish domestic spending, is not properly reflected in the gross domestic product figure. Naturally, the economy the public feels and the economy the index shows are different.
The second reason for the difference in the economy the index portrays and the economy the people feel is Korea’s worsening trade conditions, particularly the exchange ratio of export goods and import goods. This figure indicates the overseas purchasing power of exports, or how many goods we can import in return for exporting our goods. Import prices have continued to rise due to increases in international raw materials prices since 1995 while export prices have dropped due to fierce competition. This has caused our country’s trade conditions to worsen. In other words, even if we export the same amount, the amount of goods that we can import with the foreign currency gained from those exports has gradually decreased. The actual income of the nation has dropped.
As the importance of exports and imports in the economy has greatly expanded since the foreign exchange crisis of 1997, our country’s trade conditions have been more adversely affected. As trade conditions become worse, the payability of businesses becomes lower. This makes it difficult for businesses to increase wages and employment, which naturally become unstable. Also, as import prices rise, domestic prices rise, which aggravates the economic conditions felt by the people. Last year, the gross domestic product grew by 4 percent, but the growth rate of gross domestic income adjusted to reflect trade conditions was just 0.8 percent. This indicates that the aggravated trade conditions had a great impact on figures.
The third factor is the impact of polarization. Lately, polarization has been underway between the export sector and the domestic demand sector, between the information and technology industry and traditional industries, between large companies and small and mid-sized companies, between large-scale discount stores and conventional small shopkeepers, and among income brackets and levels of job seniority.
The economic performance of sectors that a majority of people belong to ― domestic demand sectors, traditional industries and small- and mid-sized businesses ― has not been good. The proportion of employment of irregular workers with low wages has become very high, causing national income to become polarized. More workers at small and mid-sized enterprises, irregular workers and self-employed people are becoming poor. This process of polarization makes many people unable to feel the growth shown by the GDP figure.
As such, there are several reasons why there is a difference between what many people feel and the index announced by the government. It is difficult to diagnose policy and indicate a standard of living based on the gross domestic product alone. Aren’t we ultimately interested in economic growth because we expect the average standard of living will improve? If this is the case, it is unreasonable to discuss the performance of a policy based on gross domestic product, which has limitations.
The government should be able to judge comprehensively the real state of the national economy in order to formulate policies that can help improve the livelihood of the people in practical terms.
* The writer is a professor of economics at Kyonggi University. Translation by the JoongAng Daily staff.
by Lee Ki-young