Flimsy platformsIn its first year in office, the administration of former president Park Geun-hye concentrated most on ignoring her campaign slogan of “economic democratization,” a promise to bring greater equality and balance to the economy. After the job was hers, she realized that plank in her platform was pure pipe dream.
The government certainly couldn’t afford to take on that challenge on top of all the welfare promises Park made during the campaign. “Our economic policy was to silently and discreetly kill that pledge,” one official from the presidential office said. Otherwise, the government could not realize her paradoxical desire to deliver social welfare programs without raising taxes.
Of her two main economic agenda items, economic democratization was chucked away while welfare without tax hikes was adopted — without a lot of success. The government struggled throughout the first year and got nowhere in trying to find the financing for welfare programs. A year later, the government came up with an entirely new economic direction under the flabby slogan of “creative economy.”
Our current presidential candidates appeared to have learned little from Park’s failures. The two leading candidates, Moon Jae-in of the Democratic Party and Ahn Cheol-soo of the People’s Party, both promise generous packages, but do not specify how they will finance them. It is estimated that Moon’s 190 campaign pledges would cost 35.6 trillion won ($32 billion) a year and Ahn’s 153 promises 40 trillion won. Both of them promise subsidies and allowances to seniors, couples with infants and young people. An official from the Korea Manifesto Center estimated the bills would probably go higher.
Both candidates are vague on the means to finance their promises. They repeat the dubious ideas that tax reforms and efficient budgeting will do the trick. Other ideas are a higher levy on the rich and more steeply progressive taxation. That would only worsen the tax imbalance. In Korea, the top 19 percent in terms of income are responsible for 90 percent of income tax revenues, while the bottom 47 percent does not pay a cent.
In fact, broader tax sourcing and lower rates are the keys to achieving a fairer society. The candidates should know this, but still call for higher taxes on the rich because they must win over votes.
The campaign platforms for the May 9 election are flimsier than usual because candidates had less time to prepare. Anyway, the race is largely two-way between opposition candidates Moon and Ahn. They are busy echoing each other’s ideas. When Moon pledged to build 850,000 homes to rent out to low-income people, Ahn said he would deliver 750,000 homes.
Neither, of course, say where they would find money for the land or to build the homes. For every new home built by the state housing authority, LH, its debt on average grows 110 million won. The LH could run into a liquidity crisis as in 2010, when it had to pay 10 billion won in interest per day on its total debt of 142 trillion won.
To combat air pollution, candidates promise to stop constructing nuclear reactors and coal-fueled power generators. If the four reactors under construction are stopped, the damage would reach 1.9 trillion won. To shut down nine coal-fueled generators (as pledged by Moon) or six (as pledged by Ahn), the cost could reach 2 trillion won to 3 trillion won. Replacing them with more environmentally friendly LNG, another 1.36 trillion won would be needed. The cost would either translate into a spike in utility fees or could send Kepco to the brink of bankruptcy. They are out to overthrow a 30-year outline on national energy supply through half-baked ideas.
At the current rate, the next administration will be heading down the same path of the last four years, hardly a good sign if one considers what happened to that president. The media will again call upon the president and government to give up the campaign pledges. Ambition to gain ruling power has prevailed over their common sense. An overly generous government would wreck public finances and the nation.
We may be headed for the demise of capitalism as Joseph Schumpeter had warned. He predicted capitalism would gradually weaken and eventually collapse as its success would bring about corporatism and values hostile to capitalism, especially among intellectuals. The growing number of people with higher education from capitalism would also cause unemployment and a lack of fulfilling work, leading to intellectual critiques and discontent and protests, he argued. As a result, legislative elections will bring to power social democratic parties and the democratic majorities will create social welfare systems that restrict entrepreneurship. Schumpeter’s warning could hit home in Korea.
JoongAng Ilbo, April 27, Page 34
*The author is a columnist of the JoongAng Ilbo.