Narrowing the inequality gapAn apple is divided among ten people. One gets half and five split most of the other half, but not all. The final four people get a bit of juice, about 3 percent of the apple among them. Does that sound unfair? In fact, if you extrapolate those numbers to the 34 OECD member countries, according to a recent report, that is how their total assets would divvy up. Income disparities are just as skewed. In OECD member countries, the income of the top 10 percent is 9.6 times more than the bottom 10 percent. It did not used to be so extreme. Until 1980, the gap was only seven times.
When it comes to income disparity, or the gap between the rich and the poor, Korea is ranked high among the OECD countries. The same income disparity mentioned above is 10.1 times in Korea. The United States and United Kingdom are higher than Korea, with 18.8 times and 10.5 times. But Korea’s poverty rate for the elderly is the highest by far. Half of our senior citizens, or 49.6 percent, earn half the median income of the other senior citizens. The OECD average poverty rate for the elderly is 12.6 percent. The OECD has consistently advised Korea to resolve income inequalities and the dual structure of the labor market, which refers to the lucky people on staff and the unlucky who work on contracts. The division in labor is the main cause of low growth and income inequalities.
“Reduce income inequality and the rich-poor gap” is not a leftist chant anymore. Lately, advocates of liberal market economies constantly address this point. It began in 2008, when the global financial crisis hit. That year, Microsoft founder Bill Gates said at the World Economic Forum that companies needed to make efforts to improve the lives of the poor while pursuing profits. That is called “creative capitalism.” In order to resolve inequalities, charity is not enough and the finer parts of the capitalist system needed to be utilized.
The World Economic Forum (WEF) in Davos is called the Olympics of the wealthy. But since the 2008 global financial meltdown crisis, its main talking points have been “polarization,” “inequality” and “redesigning capitalism.” WEF Executive Chairman Klaus Schwab said that capitalism as it exists today lacks the grand goal of social inclusion. The Davos Forum has been Ground Zero for intense discussions on capitalism’s contribution to society.
The way in which inequality threatens the economy is simple. The rich already have enough resources and can make money without taking risks. The low-income class has lost motivation and makes no effort since there is no class mobility and they will not be able to save no matter how hard they work. The problem is that an economy that does not move is bound to fail. U.S. President Barack Obama pushes for taxes on the rich and increases in minimum wages because the economy needs to get moving, not because he is kind-hearted.
What is Korea doing to make the economy move ahead when we already have a big gap between rich and poor? We are in a vacuum. There has not been any contemplation of inequality or efforts for economic innovation. In the household statistics in the first quarter of 2015, disposable income per household went up while spending decreased. With the elderly poverty rate so high, consumers choose to save for the future. When consumers keep their wallets closed, the government’s market boosting efforts will not work.
The Choi Kyong-hwan team’s ambitious “income-driven growth” is but a quaint memory. Recently, Choi expressed disapproval of the opposition’s demand for tax reform including corporate tax normalization. Businesses have enormous money reserves they are not reinvesting. But they use outdated arguments, and the government is afraid to take them on. The corporate sector has no philosophy and the policy authorities have no direction.
The OECD advises that there is no equal opportunity when disparities are so large: “Tackling inequality through tax and transfer policies does not harm growth,” it says. “The most direct policy tool to reduce inequality is redistribution through taxes and benefits.”
If the authorities do not know where to go, they could follow that advice.
JoongAng Ilbo, May 27, Page 34
*The author is an editorial writer of the JoongAng Ilbo.
by Yang Sunny
with the Korea JoongAng Daily
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