Piketty and Korea
Professor Lee is inspired by Thomas Piketty, professor at the Paris School of Economics. For over 15 years, Piketty collected and analyzed data on income and wealth in Western capitalist countries over the last three centuries and wrote “Capital in the Twenty-First Century.” In the book, he used history, politics and literary imagination. In order to describe society more vividly, Piketty cited novels by Honore de Balzac, Jane Austen and Margaret Mitchell, as well as television dramas. Professor Lee claims that Piketty raised a red flag about economists who neglect important realistic issues and focus on abstract problems.
Piketty concluded that when the capital return is higher than the rate of economic growth, capitalists accumulate wealth and income disparities increase. In order to correct “patrimonial capitalism,” he proposed an 80 percent progressive income tax on the top 1 percent earners and a global wealth tax as high as 10 percent on the assets of the wealthy. The additional tax revenue should be used to expand welfare and improve the incomes of the poor. His ideas may sound radical, but his stance is completely different from that of Karl Marx, who denounced capitalism, as Piketty advocates preserving capitalism through democratic control.
Francois Hollande of France’s Socialist Party won the 2012 presidential election with a campaign pledge to impose a 75 percent income tax on earners of 1 million euro ($1.28 million) or more, which Piketty had proposed. When Piketty visited the United States in April, he met with the Secretary of the Treasury and gave lectures to the White House Council of Economic Advisors and the International Monetary Fund. He proposed income redistribution through tax reform, which President Barack Obama is contemplating. Among his global followers, the 43-year-old economist is as popular as the Beatles were among screaming teenage girls of 1964. The conservative London-based weekly The Economist described him as “Bigger than Marx.”
The economist who stirred up Europe and the United States is also coming to Korea. His message of imposing heavy taxes on the wealthy to correct so-called patrimonial capitalism will surely trigger an intense debate in an economy dominated by the chaebol and their owner-families.
Even before his visit, liberal economists in Korea issued critiques. They stand by the inequality that Piketty considers a problem. They argue that a certain amount of income disparity is unavoidable and that inequality actually boosts the motivation to succeed. Many think the problems of patrimonial capitalism don’t apply to Korea. The Roh Moo-hyun administration raised the inheritance tax to 65 percent when management is kept within an owner-family, and that is twice the average inheritance tax rate of other OECD member countries. President Hollande’s wealth tax plan was ruled unconstitutional, and rich citizens left France. So Piketty is considered an agitator and his solution for inequality is criticized as radical and unrealistic.
Despite the brickbats, “Piketty syndrome” is still very powerful. Saenuri Party chairman Kim Moo-sung said, “While there are supporters and opponents worldwide, I personally believe Piketty’s ideas are right.” Bank of Korea Governor Lee Joo-yeol said, “It is desirable to ease inequality to reinforce growth potential.” He is concerned that “aggravated inequality may have a negative impact on reproducing the quality human resources that made Korea’s economic development possible in the past.”
The problem is that no one in the Park Geun-hye administration speaks up on the inequality issue, even when resolving inequality and raising taxes are hot potatoes in Korea and worldwide. It was confusing when the government announced raising local taxes, including the residential, automobile and tobacco tax. They are indirect taxes, which all citizens pay at the same rate regardless of their income. As a result, those tax hikes hit low-income earners harder. Korea is one of the lowest-ranked countries in the OECD in terms of resolving income disparity through taxation, as its proportion of direct taxes, including income tax, is low. It is problematic to increase regressive tax, which goes against resolving inequality.
President Park’s promise not to raise taxes during her term is already broken. The government badly needs to decide who is going to pay for increased welfare. Park needs to make clear how she will deal with the tax benefits that conglomerates and the rich have enjoyed. She should keep her promise to decide the level of welfare and taxation by sounding out public opinion through a council of citizens. The greater promise should be reviving growth, which determines the future of all Koreans.
As inequality worsens in the 21st century, the moment to decide what kind of state we want to pursue is approaching. Whether Piketty is right or not, we must not hesitate to join the debate he ignited.
JoongAng Ilbo, Sept. 17, Page 35
* The author is the chief editorial writer of the JoongAng Ilbo.
BY Lee Ha-kyung