[Viewpoint]Why are prices so high in South Korea?

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[Viewpoint]Why are prices so high in South Korea?

The high prices of commodities and services in South Korea became the topic of discussion at a recent New Year’s party with Japanese correspondents in Seoul. There were a lot of complaints that hardly anything here is cheaper than it is in Tokyo ― whether it is food, liquor, clothes or the cost of playing golf. Why have prices climbed so high in Korea? There are many explanations ― some say it is because wages have increased too much, businesses have made excessive profits or because the real estate prices have skyrocketed ― but none sufficiently explains the phenomenon. Of course, I agree with the assertion that high wages have been behind the high prices. However, putting the blame on high wages as the sole culprit for high prices misses something.
Although Korea’s wage levels have risen high enough to be compared with wages in other advanced economies, it is limited to a few big businesses that can afford to pay high wages.
Polarization has become a serious problem in wages, too. The minimum wage, for example, is 3,480 won ($3.70) per hour in Korea, while in Japan it is 673 yen ($5.54) on average.
If high wages caused high prices, why are the prices higher in Seoul than in Tokyo? There must be reasons other than high wages that caused the high prices.
The excessive rise in the value of real estate in Seoul sounds like a reasonable explanation, but there are points that cannot be explained upon closer inspection.
Even if the prices of land and rental housing in Seoul have risen in the past couple of years, they are not yet so expensive as to surpass the prices of real estate in Tokyo.
There may be some cases where the price of land and rentals in Seoul have reached Tokyo’s levels because of the drop in the exchange rate of the Japanese yen, but Tokyo’s housing is still more expensive than Seoul.
Therefore real estate cannot be held fully responsible for the high prices in Korea.
The theory that prices have climbed because businesses take too much profit seems doubtful as well.
After all, isn’t it a trend in Korea that people rush to any business sector with the scent of money and make it into “a red ocean” immediately?
But high prices are not a phenomenon caused by the lack of supply, either. Except for a few expensive apartments and memberships in golf clubs, in most cases there is more than enough supply.
Furthermore, the only items that are expensive because of heavy taxes are gasoline and some other goods on which special added taxes are imposed.
At the rate of last year’s consumer price increases, which was 2.2 percent, the lowest in seven years, there has been no extraordinary inflation, either.
If things go on like this, it becomes even more difficult to pinpoint anything as the culprit behind the high prices.
If the price of a final commodity is high, although the prices of major factors are cheaper than in other advanced economies, it means that there is a problem in the input-output process.
Therefore, we should look for the fundamental reasons for this phenomenon in the loss of economic efficiency. This means that the costs have climbed high because our economy’s efficiency has deteriorated: high costs are reflected in high prices, and these high prices are maintained in the form of a “high price plateau.” It’s like a car with bad fuel efficiency.
Let’s look at a simple example from Japan: For the last few years, travelers have seen no need to buy liquor at the airport duty free shops when visiting Japan. It is not because of the fall in the value of the Japanese yen or customs duties, but because prices in Japanese discount liquor stores have become lower than those at duty-free shops. This is due to the success, through restructuring, of Japanese distribution companies in reducing costs enough to offset customs duties. This is the result of enhanced efficiency in business management.
In comparison, there are more than a few variables that harm the efficiency of our economy.
These include: the loose work ethics of our workers; the pre-modern management style of business owners who do not draw a sharp line between private and company funds; complicated distribution structures; the heightened militancy of interest groups to safeguard their vested interests; regulations that choke businesses; corruption; distorted distribution of resources; improper policy priorities; unstable political situations, and policy failures, among others.
The market economy is not a system that can be led by someone willing to take all responsibility. The system works only when all of the participants involved play their respective roles with the proper responsibility.
For the same reason, we cannot blame anyone in particular for the abnormally high prices in Korea. Each economic player has its own responsibility.
Therefore, the first step for solving the deadlock in our high price structure is for each player in our economy to realize their common responsibility.

*The writer is a business news deputy editor of the JoongAng Ilbo.

by Nam Yoon-ho
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