Toward fair distributionHumans make constant efforts to create a free and equal society. But it is not easy to make society equal for all. In George Orwell’s “Animal Farm,” pigs seize power and claim that “all animals are equal but some animals are more equal than others.”
Economically, it is not easy to have fair distribution that everyone can be satisfied with. The concept of “fair” is not clear in economics.
German social psychologist Erich Fromm said, “Men are born equal but they are also born different.” People are born with different capabilities and grow up to have different educations and professions. Many people agree that the law and system should provide equal starts and fair competition. However, there are different opinions on how economic outcomes should be distributed.
It is clear that Koreans experience wealth and income disparities. According to an IMF report earlier this year, the top 10 percent of income earners in Korea make 45 percent of the total income, the highest percentage among 22 Asian nations. The income share held by the top 10 percent grew rapidly from 29 percent in 1995 to 45 percent in 2013. Wealth inequality is also serious. According to Dongkuk University economics professor Kim Nak-yeon’s research on inheritance taxation, the top 10 percent of the adult population owns 66 percent of total assets.
When inequality of distribution aggravates, various social and economic problems arise. Household spending does not increase, and the economy cannot get out of a slump easily. Fertility rates and investment in education decreases, negatively affecting economic growth.
Populist politics increases, and the government makes unproductive policies. Discords between classes would grow, crimes would increase and politics become unstable.
French economist Thomas Piketty wrote in “Capital in the Twenty-First Century” that the inequality of income and wealth is growing in many countries around the world. All nations are contemplating how to improve distribution. Piketty advocated increasing the highest income tax rate and introduction of global capital taxes to prevent hereditary succession of wealth, but it is debatable whether raising the tax rate was the best policy available. While inheritance certainly affects the income gap, structural issues such as education, technology development, industrial aspects and the aging of the population also play crucial roles. Many countries are suffering from both income inequality and low growth. A comprehensive plan to improve income distribution without undermining growth is needed.
Korea’s economy needs to tackle the structural issues first as they hinder both income distribution and economic growth. Nurturing small and medium-sized enterprises, creating quality jobs in the service industry, labor reform and population policy should be pursued consistently. Conglomerates’ dominance should be reduced, and competitive small and venture companies should get support. The IMF report pointed that the labor market comprises irregular and regular employment aggravated income distribution in Korea.
According to the research on labor conditions by employment type by the Ministry of Employment and Labor, non-regular workers at large companies were paid 64 percent of the regular workers salary in 2015. In small and medium companies, irregular workers were paid 35 percent of the regular pay. The social insurance coverage rate for irregular workers is also low. Labor reform should focus on reducing excessive protection for the regular workers and converting irregular positions to regular employment. The work and performance-oriented compensation system should be expanded and retirement age extended. Women’s participation in the labor market needs to be increased as well.
By expanding the chances of success through education and start-ups, upward mobility between classes can happen. The younger generation is discouraged because of the succession of income inequality. It is like the Red Queen’s race in Lewis Carroll’s “Through the Looking Glass,” where Alice is constantly running but remains in the same spot. We need to change society so that one can live the life they want and be successful without an inheritance.
We should review whether the public school system is really capable of educating our children to become competent members of the society. The youth unemployment rate is the highest in history. Universities produce jobless graduates for expensive tuition, and college reform should focus on helping students acquire knowledge and skills to find jobs and pursue careers of their choice. The labor market should be flexible so that young people can continue to develop and display their potential.
State finance should play a more active role. Compared to other developed nations, the government makes little efforts to redistribute incomes through taxation and transfer system. The social security net for the underprivileged needs to be expanded, and welfare spending for them needs to be expanded. We must begin discussions on tax system overhaul to secure tax revenue for social welfare spending and enhance income redistribution.
Restoring the middle class and building a society where people have hope is the challenge of our time. Through social consensus, we must make a new development model for Korean economy’s fair distribution and sustainable growth.
Translation by the Korea JoongAng Daily saff.
JoongAng Ilbo, July 18, Page 3
*The author, former chief economist at the Asia Development Bank, is a professor of economics at Korea University.