[VIEWPOINT]Anti-polarization policies backfire

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[VIEWPOINT]Anti-polarization policies backfire

The topic of conversation nowadays is social polarization. It is certainly important to try to achieve social integration by extending helping hands to people hidden in the shadow of growth. But pulling down people who are doing well is the worst kind of remedy.
It makes everyone unhappy and worsens the effects of social inequality.
Since President Roh Moo-hyun came into power, the prices of land in the Seoul area and the prices of housing in Seoul’s Gangnam area have skyrocketed, but there is a rush to cancel housing sales contracts for units in the provinces.
The result of various real estate policies is a paradox that defies description. President Roh has promoted the transfer of the nation’s capital and balanced development of national territory even as he risks impeachment by pushing forward stricter regulations on real estate transactions. He went so far as to name Gangnam residents as “public enemies.”
This means the policy the government has pursued to minimize social polarization has deepened it. The economy, by nature, works that way.
There are many more voters outside Seoul than in the Seoul metropolitan area and in non-Gangnam areas than in Gangnam. Roh’s policies might be understandable from a political standpoint.
The standardization of education has accelerated, rather than eased, education polarization.
Before the introduction of the egalitarian education system, the improvement of social status through education made up for the gap created by the inheritance of wealth and status and gave vitality to the economy.
After the standardization of education, however, the problems of private education, departed families (so the children can study abroad) and the popularity of housing units in Daechi-dong in the Gangnam district have become aggravated.
Children of poorer classes face a harder time getting admitted to top universities. The best policy is returning universities’ right to choose students and reinstating the right for students to choose their universities.
The polarization of income shows a different trend.
Per capita income grew continuously from the 1970s until the foreign exchange crisis in late 1990s and, in line with the income growth, the distribution of wealth has improved consistently.
Especially during between the later part of the 1980s and early 1990s, the income gap fell due to the economic boom created by three lows ― low oil prices, low interest rates and low foreign exchange rates.
Drastic wage increases, which were restricted until then, and the introduction of a generous welfare system helped the boom as well.
But we should not forget the fact that the unprecedented economic prosperity was the base for the overall boom. This shows the solution to polarization lies in growth and active investment.
The positive cycle of growth and improved distribution abruptly reversed when the Korean economy was hit by the foreign exchange crisis in 1997.
Real income was reduced and the conditions for equal distribution fell suddenly. With the recovery of income to the level it was before the foreign exchange crisis, however, the conditions for equal distribution have improved consistently in the past six years.
In the era of fierce global competition, one might say that people in the middle class are having a hard time, but it is a bit too much to call it “the collapse of the middle class.”
The gap between the wealthiest and the poorest classes had been narrowed gradually in the past. Ironically, however, it has regressed markedly under the participatory government.
There is very weak evidence that income disparity in the past 30 years has obstructed mid- and long-term economic growth.
Rather it has had the effect of enhancing short-term growth. Also, the current increase in the long-term growth rate will improve income distribution.
In practice, the high growth rate aggravated income distribution until 1986. But the high economic growth since then brought about an improvement in income distribution.
The solution to bringing up the middle class and easing polarization lies in activating private sector investment.
That could be done by sending warm encouragement to Korean businesses that struggle at the forefront of global competition and by concentrating our effort on restructuring and consolidating infrastructure to help the market function properly.
The worst prescription at this stage is enlarging the scale of welfare benefits by raising taxes.
Restraining consumption and the will to work only dampens the economy, which is showing signs of improvement after a long time.
The increase in government-sector consumption will worsen the loose operations of the public sector and economic inefficiencies will ultimately wither the private sector.
In a political game, raising the polarization issue first could be seen as an advantageous strategy because it kills two birds with one stone.
By initiating a controversy over social polarization and supporting the downward standardization policy, the party that has raised the issue first will win the favor of the majority voters.
If the polarization gets deeper, the base of its support would be consolidated.
But the reality is not that simple. According to a survey on various elections held in the past 20 years, radical political parties got more votes when the economy went bad and the wealth distribution got worse.
On the other hand, the support and the possibility of winning the presidential election by a progressive party more or less depended upon politico-social factors rather than that of economy.
The implication this analysis suggests to the ruling party is clear. The ruling party is better to stop driving the polarization issue as political rhetoric or lip service.
Because it will only create a situation favorable to a radical party, if the social polarization gets much deeper.

* The writer is a professor of economics at Yonsei University. Translation by the JoongAng Daily staff.

by Kim Young-se
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