Same as the old policy
The author is an editorial writer at the JoongAng Ilbo.
A government’s economic policy must be crystal clear because a single word can affect the market. The Moon Jae-in administration’s language is subtly changing. “Income-led growth” is taking the back seat, conceding its position to “inclusive growth.”
“Inclusive growth is a higher concept,” a Blue House spokesperson said. “Income-led growth, innovative growth and a fair economy are its lower concepts.” In other words, inclusive growth is the father, and income-led growth is its child. Is this correct?
Income-led growth is a strategy of growing the economy by raising the incomes of low-wage workers and households. The concept originated from the International Labor Organization’s “wage-led growth” theory and was refurbished in Korea as income-led growth.
The country has more than five million self-employed people, making up a fourth of the entire working population. That is why a broader income-led growth concept was derived. The theory goes like this. When incomes go up, consumption increases. As a result, companies will boost their production and investment. This will create more jobs and higher income. The theory portends a virtual cycle.
No one is opposed to higher incomes. The problem is who will create those jobs and how income will rise. Government-made jobs are only a stopgap measure. It is a temporary way of increasing the income of people with state funds. It is the private sector’s responsibility to create jobs and increase incomes.
The flaw of income-led growth lies in this point. The government cannot pressure private companies to increase wages. It cannot force companies to put their contract workers on a permanent payroll and give more.
The only way the government can intervene is by raising the minimum wage, and that’s why it happened so quickly, but many small business owners are actually cutting back jobs. This is the ramification of income-led growth, an idea based on government intervention as a cure-all.
The Moon administration has become desperate and changed its pitcher. The professor who came up with the concept of income-led growth was replaced with a long-time bureaucrat who worked as an ambassador to the Organization for Economic Cooperation and Development. His inaugural statement as the new senior presidential secretary for economic affairs included the words “inclusive growth.”
Inclusive growth is a concept emphasized by all international institutions including the World Bank, International Monetary Fund and Organization for Economic Cooperation and Development. It is the idea that all economic participants should enjoy the fruits of economic growth equitably.
After the global financial crisis of 2008, the wealth gap in the world grew wider, serving as an obstacle to growth. Trickle-down economics, the idea that raising the income of the upper class would lead to their increased consumption and investment in lower classes, fell out of favor. In its place was “trickle-up economics,” the idea of raising the income of lower classes to improve total consumption and the overall economy.
Growth and distribution of wealth are not separate. They are seen as two wheels that must move together. Income-led growth and inclusive growth appear similar, but that’s only on the surface. Their theoretical backgrounds and goals are completely different.
The key to inclusive growth is no intervention of the market order. The government does not determine wages and prices and accepts that competition is unavoidable. In this process, the government steps in to minimize inequality and the wealth gap.
During the G-20 Summit in Germany last July, the International Monetary Fund submitted a report called “Fostering Inclusive Growth,” which argued that government money should be spent on guaranteeing education opportunities for the lower classes that have fallen behind in the competition and improving access to health and financial services.
Yet the Moon administration is making primary interventions such as raising the minimum wage. How can we say this is a policy of inclusive growth? The economy will not get better if income-led growth is merely repackaged as inclusive growth.
The mandatory condition for economic growth is improved productivity. What we need right now is not changing the adjective that comes in front of growth in the title of a government policy. Efficiency-boosting innovation such as deregulation and labor reform are urgent tasks.
JoongAng Ilbo, July 30, Page 28