[OUTLOOK]A Swiss Korea? Not likely

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[OUTLOOK]A Swiss Korea? Not likely

The government recently released its plan for a welfare package program. The plan aims to boost the gross domestic product per capita to $49,000 by 2030. This means our country will become a welfare state, just like Switzerland.
Some people point out that there are limits to the concept of gross domestic product, but one can see that any index that indicates a country’s degree of development and quality of life, such as life expectancy, education, welfare, culture, human rights and environment, is roughly equal to the country’s gross domestic product per capita, at least when compared with different countries.
The government showed off its rosy blueprints for many forms of welfare states, but that only confirmed once more that national per capita income is proportionate to welfare.
Many people think that gross domestic product equals national income, but there is a very important economic principle that must be kept in mind: The total income of a country’s people cannot surpass the total value of all products produced in the country. Thus, to become more prosperous, the quantity of a nation’s products or the value of its goods must rise.
How can a GDP figure increase? If a country’s institutions and policies encourage its people to work harder and to constantly make better technology and equipment, the value of all products will increase and thus so will the national income.
The past 40 years of development in Korea is a good example of this process. China and India can continue to develop economically now because they reformed their economic systems in order to transform their people’s mentality and attitude.
New technology and production equipment must be constantly introduced into production processes in order for a country’s economy to remain competitive and productive. However, the increase rate for investments in equipment has been only 1 percent on average for the past five years. There is no bright future for the economy when companies hesitate to invest in technology and equipment.
Growth potential depends on how many people participate in economic activities. In Korea, slightly more than 60 percent of people are engaged in economic activities. In advanced nations, around 70 percent of people have jobs. In Korea, four out of 10 live off of others or live on their savings.
If a country has many people living off others or spending the money they saved, it cannot expect to have a vibrant economy.
Growth potential also depends on how open and competitive a country is. In Korea, however, interest groups that oppose opening their doors to competition are complaining. The labor, capital and land markets are under so many regulations that they do not function properly. If one were to suggest that labor or land be distributed according to their usage under market principles, it might be regarded as antisocial. As a result, Korea’s economy is losing its competitiveness.
Korea’s growth potential has been decreasing for several years now. This is not a temporary matter and this is not due to external factors.
Korea’s system and policies have made its people irresponsible, lazy and addicted to gambling and speculation, instead of leading them to work hard and effectively.
If this trend persists, Korea’s growth potential might fall to near zero. If so, it would be hard to sustain the current national income and quality of living until 2030, instead of achieving a per capita income of $49,000.
People remain perplexed because the government said out of the blue that our country would become like Switzerland in 24 years. A government plan or agenda must sound plausible in order for it to be persuasive and affect people’s minds.
If the administration really wanted to give hope to its people, it should have shown its determination and plans to get rid of the problems that harm and block the economy’s potential and competitiveness.

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

by Kim Jong-seok
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