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[OUTLOOK]Vested classes and the economy

Published: 22 Sep. 2006, 21:36

The gross domestic product per capita of Thailand, where a military coup just occurred, was $2,682 in 2005. That is one-sixth of Korea’s $16,291 dollars last year. But in the 1960s, the situations of Korea and Thailand were quite the opposite. In late 1966, Korea was named as the host of the 6th Asian Games in 1970. But a couple of months later, Korea had to give up hosting the games. Back then, for a country with a GDP per capita of around 100 dollars, it was too burdensome to build the necessary sports stadiums and other facilities. So the 1970 Asian Games were held in Bangkok, Thailand, instead. Bangkok, the host of the 1966 Asian Games as well, became the host city twice in a row after Korea withdrew.
Economists explain why countries have different rate of economic growth using many reasons, such as the education levels of the people, social systems, productivity, political stability and leadership.
The American economist Mancur Olson had an interesting theory. He dug into the reasons why, during the 1960s, West Germany’s economy was prosperous but Britain’s was languishing. His research started with the question of why the defeated nation, West Germany, had a better economy than the victor in World War II, although the two countries’ economies were similar before the war.
His conclusion was unique. The difference between Britain and Germany was whether there were vested classes within the society that damaged the whole society by pursuing only their interests and hindering smooth competition. Mr. Olson argued that as time goes on, these interest groups become a vested class. In World War II, German bombing leveled only British buildings but not the vested interests. In Germany, even those vested classes were swept away. Therefore, he reasoned, Germany’s economy was vital with full, normal competition; but Britain’s entire economy started to wither with the tightening competition only between interest groups.
This was the end of Mr. Olson’s research, but by 1990, the situation of Britain and Germany had changed once more. After the “Iron Lady,” Margaret Thacher, the prime minister of Britain, started to fight against the labor unions and vested classes in the mid-1980s, the British economy began to revive with the restoration of the “Principle of Law and Competition.”
But Germany, the giant economy in Europe, was the butt of cynical remarks like “the sick man of Europe.” The huge reunification expenses were one reason for the economic slump in Germany, but applying Mr. Olson’s theory, the accumulated damage of strong labor unions, strong enough for the country to be called the “republic of labor unions,” and vested classes were other reasons. Germany, with strong labor unions, was unable to free itself to take its place as a low-unemployment economy.
From 2001, Germany started labor law reforms and the new chancellor, Angela Merkel, inaugurated last November, is raising the stakes in labor reform. Because those efforts are already showing visible effects and the economic growth rate rising, Chancellor Merkel was emboldened to announce on Aug. 21 that Germany was no longer the sick man of Europe.
The democratic opposition in Korea in 1987 was trying to correct a distorted social structure. In the Constitution, Article 119,Clause 2, there is a phrase “economic democratization through harmony between economic subjects.” Economic democratization is a term placing equality at the front.
Competition through differentiation is not in accordance with the principle of economic growth. Some scholars say that ever since the democratization of the economy was stated in the Constitution, Korean economic policies put too much emphasis on balance and the motive power for economic development was damaged.
In any case, the reason that term was put in the Constitution was to make a reference to distribution, trying to overcome the previous image of pursuing just growth, even oppressing the basic legal rights of labor. From that time on, labor unions became a strong interest group. Distribution has gone beyond the level appropriate, and the voices of progressive political ideas are heard from demonstrators occupying the streets. There are many organizations including the Korean Teachers and Education Workers’ Union, demanding equality.
The Korean economy has been in shaky condition recently. We can’t put all the blame on the progressive groups and labor unions, but according to Mr. Olson’s theory, they are the interest groups creating an obstacle to the vitality of the Korean economy.
Observing the Vision 2030 plan put out by the government, maybe we should add the government to that list of groups creating obstacles.

* The writer is the business news editor at the JoongAng Ilbo.

by Lee Se-jung