Toward symbiotic growthThe Korean economy has made remarkable strides over the past seven decades. Among countries with a population of over 50 million, Korea is seventh highest in terms of per-capita income. The only countries that are ahead of us are the United States, Japan, Germany, Britain, France and Italy. We have good reason to be proud of ourselves.
But today, we find ourselves being more apprehensive and insecure than confident. Inequalities in income have deepened. Economic concentration has worsened. Revenue from the four chaebol names - Samsung, Hyundai Motor, LG and SK - now takes up 60 percent of the country’s gross domestic product. About 10 years ago, the share was 40 percent.
We should not take this number lightly. Over-concentration of power - whether it is political or economic - cannot last forever. Our worries go on. The annualized economic growth rate that reached 9.9 percent in the 80’s slipped to 7 percent in the 90’s, 4.4 percent in the 2000’s and now cannot even maintain 3 percent. This obviously bodes badly for employment.
The government has tried hard to reinvigorate growth. The president seems to have forgotten her promises of symbiotic growth and economic democratization made on the campaign trail. Her first deputy prime minister in charge of the economy, Hyun Oh-seok, tried to stimulate investment through deregulation. Her next deputy prime minister, Choi Kyung-hwan, ensured that consumption would increase through stimulus measures. Both did not work. Regulations are not the primary stumbling block. An uncertain future and unpredictable government policies are. Returns in dividends and rents cannot help improve income and livelihood for most households that rely on monthly wages, whose average annual rise even lags behind the pitiful increase in productivity. Even if there is slight improvement in income, it won’t spur spending because households have to use any extra money to pay off debt first.
What the local economy needs is balanced and symbiotic growth. It may sound far-fetched, but it is still the most workable and effective solution. The goal should be creating a society where growth is balanced and shared so that no one is left out. It does not mean taking away something that is someone else’s. The ultimate goal is to make the pie of the economy bigger and divide it more fairly.
What is the principle behind a symbiotic economy? In free-market capitalism, perfect fit-for-all fairness is neither possible nor desirable. But the nutrients from prosperity must not stay in a certain sector and must be able to flow into other parts of the economy. The rich waters at the upper stream should not be restricted to benefit just the wealthy, large companies and vibrant industries. They must trickle down to the lower stream. The Korean economy has been jammed by a bottleneck that hinders the flow. The trickle-down mechanism can only be reactivated when economic clustering and injustices between large and smaller companies are fixed.
There should be more purposeful and aggressive support for the less powerful - subcontracted small and mid-size manufacturers, non-salaried workers and self-employed people. A trickle-up effect is essential as much as trickle-down. The prosperity-first growth model of the last half-century has built a structural wall between the strong and weak too high. There must be more effort to increase jobs and income for the greater masses. Only then will household lives be stable enough to spend more, and contribute to the strengthening of domestic demand to generate jobs and investment by small and medium-sized companies and self-employed businesses.
The concepts behind a symbiotic economy could be used to stimulate investment. Companies must invest. Large companies sit on astronomical hoards and yet lack the inventiveness and flexibility to use their money wisely. Korea’s spending on research and investment is the world’s fifth largest and tops against GDP. But Korea’s R&D investment mostly goes into development that can be immediately commercialized through some tweaks and refinement of work that has already been tested and tried by advanced countries. To spur more investment by large companies and make the economy vibrant again, spending should be focused on more basic research.
Meanwhile, small and mid-sized companies have many ideas for investment, but lack funding. They are adventurous enough to start a business if they have the funds. In the early industrialization days, under the rule of authoritarian governments in the 60’s and 70’s, they would have collected taxes or printed money to raise funds for promising companies. But that kind of state-led industrialization no longer is permissible in today’s world. It is not easy to raise taxes. The Bank of Korea also cannot be forced to print money. The economy has become too big and intricate, and no one can be sure of what businesses can work and who is competent to run the business.
There is, however, a way out. Large companies should be encouraged to use some of their colossal cash reserves to invest in smaller counterparts. When there is more industrial activity in the small and mid-sized sector, jobs will increase and later, so will income. Bigger income can stimulate consumer spending. Then the economy will be able to gain momentum and strength to continue to grow. Polarization could also be eased because the growth energy is being generated by the small and mid-sized sector.
To stimulate capital to flow into small and mid-size companies, the government must encourage sharing the extra profits, select the right group of investment-worthy small and medium-sized companies and allocate public procurements more preferentially for smaller businesses. Economic policies should be shifted to give more attention to smaller business, and lead new and innovative industries. A symbiotic economy means we must renovate our old pattern of thinking. That is the only viable path to sustainable growth for our economy.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, July 25, Page 27
*The author is the head of the Korea Institute for Shared Growth and former prime minister.
by Chung Un-chan