What is the Korean dream?
The American dream is neatly symbolized by a house in the suburbs with a white picket fence, while President Xi Jinping recently tried to articulate the Chinese dream as a combination of national ambitions with the individual ability to benefit from China’s ineluctable rise.
But is there a Korean dream?
If so, it’s closer to the American version, anchored in a national obsession with real estate. Korean households hold more of their total assets in real estate than virtually any advanced industrial country, nearing three-fourths of all household wealth. And this has had another unfortunate consequence: a high level of debt. Even if mortgages account for only a portion of total debt, the way housing is financed in Korea is a recipe for anxiety, with the need to raise large down payments followed by exposure to floating rates, short maturities and large balloon payments.
Which brings us to the even more important psychological dimensions of the Korean housing market. In an interesting new work, Myungji Yang, from the University of Hawaii, pointed out that entry into the Korean middle class has historically been associated with owning an urban apartment.
Park Chung Hee pushed this process along through the apartment lottery system. Private investment in real estate not only paved the way to the immense riches at the top of Korea’s income pyramid, it also provided the route to security for those smart enough - or lucky enough - to invest at the right time and in the right place.
Therein lies a tale of foreclosed opportunities, deepening inequality and growing resentment and disappointment. For those locked out of the housing market - including not only the young but the middle-aged - participation in the Korean dream is looking more remote.
But it is the sense of unfairness - of the random nature of participation in the middle class - that is most worrisome. It is a virtual cliche that Koreans work hard and are devoted to education and a belief in merit. But if wealth is the outcome of what looks like a lottery, how will these values be sustained? And will social polarization be followed by increasing political polarization?
Thomas Piketty’s book, “Capital in the 21st Century,” details the extraordinary growth of inequality in the United States, driven in particular by business income and wages at the top of the pyramid. We know somewhat less about what is driving inequality in Korea, and it appears less extreme than in the United States. But according to data from Piketty’s team, income inequality has been rising rapidly here, too.
Their favored measure is the share of all income going to the top 1 percent. By one measure, this group captured about 7 percent of total income in Korea at the time of the 1997-98 financial crisis. In 2010, this group earned over 100 million won a year and accounted for 12 percent of total income. The top one-tenth of 1 percent - earning nearly 290 million won ($250,000) a year - now take home over 4 percent of all income in the country.
But these gaps are compounded by the capacity of those at the top to invest heavily in a real estate market that seems to head only in one direction: up. Wealth inequality is always greater than income inequality, and this is undoubtedly more true in Korea today than it was even five years ago. According to the Global Wealth Report, the top 10 percent held 60 percent of Korea’s total wealth in 2010; today, that number is reaching a staggering 75 percent.
Wealth inequality - and particularly the highly visible wealth that is held in real estate - has a variety of other adverse outcomes. Again, these are not only material but psychological.
Living in the right neighborhood is associated with better schools, participation in a self-affirming consumption culture and exposure to networks that entrench advantages. But the fact that wealth is transferred across generations - particularly in Korea - adds to a sense of unfairness in the distribution of income, wealth and power.
In part, we anticipate that these problems will take care of themselves. Korea could indeed soon face quite the opposite problem: that those who bought into the Korean dream at great sacrifice could see their real estate investments stagnate or devaluate.
It would be exciting to see those priced out of Seoul to consider taking their skills to other cities. Greater geographical mobility would generate a different Korea, spreading innovation. But in the meantime, a robust debate is needed about the future of the middle class and the Korean dream.
This debate needs to look hard at taxes - and tax evasion - and building up a more robust social welfare system for the downwardly mobile as well as reforming the mortgage market. But it also needs to ask the question of whether the Korean dream should be anchored so strongly in a large apartment in Seoul or whether different, and wider, ambitions would make for a happier public.
*The author is a Lawrence and Sallye Krause Professor of Korea-Pacific Studies at the University of California, San Diego.
by Stephan Haggard