The geumchi economy

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The geumchi economy

Published: 03 Oct. 2007, 21:25

In a forthright but penetrating remark, which may hurt the company he owns, Chung Jae-un, the honorary chairman of Shinsegae, Korea’s biggest retail company, said, “The unreasonably high retail prices in Korea are mostly attributable to the distribution industry.”
He went on to say, “A complicated distribution process pushes costs too high. It is also problematic because distributors immediately raise final prices after any increase in initial prices.” He called for distributors to implement extreme countermeasures such as freezing the price of necessities for 10 years.
It is now a well-established fact that the price level in Korea is unreasonably high relative to its people’s incomes. According to The Economist, a British magazine, the cost of living in Seoul is the 11th highest in the world. It is even higher than in New York, where the average income level is more than twice that of Seoul. It is close to that of Tokyo, infamous for being more expensive than any other city.
There are several factors pushing prices up, but as Chung pointed out, the price level in this country is distorted by its distribution system.
In addition, collusion between distributors and unfair trade practices are going unpunished. Markets for oil, sugar, wheat, insurance premiums and ice cream are just a few of the areas where, this year alone, distributors have been caught engaging in price collusion.
And the situation is getting worse. Globally, the price of oil is skyrocketing and prices for corn, beans and wheat have jumped 40 percent to 75 percent from last year.
The inflation pressure is multiplied by the increasing cost of public services in Korea including heating and electricity.
Wheat, whose price rose 13 to 15 percent locally, is now called the “gold crop.”
The days will soon come when kimchi, a fermented vegetable that is a staple food for Koreans, will be called “geumchi.” (“Geum” means gold in Korean.)
Action is required on the part of distributors, not mere rhetoric to stabilize prices.
Their practice of “discounted sales” without any real discount must stop and real discounted sales must begin to take place. That is the only way that the distribution businesses and customers can survive together.
And the trend of buying luxury goods at crazy prices should be reversed.
Without correcting such expensive spending practices, it won’t be easy for Korea to get out of the trap of high prices.