The ‘inclusive growth’ chimera
The author is an economics professor at Korea University.
In 2006, the Indian government officially announced “inclusive growth” as its economic development goal. India had over 8 percent economic growth at the time, but the fruits of the growth were not enjoyed by all classes. In 2004, China proposed a “harmonious society” as a development goal. While Deng Xiaoping’s reforms brought rapid growth, the gap between regions, urban and rural areas and classes grew, and national integration became important.
Economic growth and fair distribution are important policy goals for any country. Economist Simon Kuznets analyzed the correlation between the two and published a paper in 1955 saying that income disparity increases in the early stage of economic growth and then decreases. In 1993, the World Bank published “The East Asian Miracle,” a report that concluded that emerging economies in East Asia, including Korea, attained “growth with equity” in the course of industrialization, rebutting Kuznets’s prediction. Since the mid-1980s, income and wealth inequality aggravated worldwide. Many studies analyzed the impact of international trade, technological development, economics, politics and educational systems on growth and distribution.
International organizations like the World Bank and Organization for Economic Cooperation and Development have long emphasized the importance of inclusive growth. The Asia Development Bank, where I once worked, drafted a “Strategy 2020” report containing goals and strategies for Asia’s development in 2008. The three key tasks were to have a sustainable environment, regional economic integration and inclusive growth. Dozens of meetings were held to set specific action plans and budgets and standards for evaluation. International organizations have proposed helpful policies for both growth and distribution, such as social indirect capital investment, education and training, childcare support, finance, improved public governance, anticorruption and productive welfare. Countries have different growth rates, income disparities and different conditions in terms of fiscal status and openness, so the policy effect would vary from place to place.
The Moon Jae-in administration has promoted an unfamiliar economic policy called “income-driven growth,” but it hasn’t delivered much in the way of success. Investments are sluggish, and economic growth and job creation have slowed down. Income distribution has not been notably improved. The government also announced a plan to pursue inclusive growth. However, the policy direction has been particularly confusing. Some argue that inclusive growth is a concept that contrasts with the “exclusive growth” of neoliberalism, and income redistribution policy should be reinforced for inclusive growth.
I am concerned that the flawed policies that were called income-driven growth are simply being rebranded as inclusive growth, and provide an excuse for more pork-barrel welfare spending. While redistribution of income and expansion of welfare are needed, they can interfere with the accumulation of capital and technology development, discourage the motivation to work and harm economic growth. If the economy doesn’t grow, inclusive growth is not possible. A restaurant that has a bad cook, bad food and a bad menu won’t do much better by changing its name and offering freebies. It needs to offer better food to customers instead.
The Korean economy needs to enhance its growth potential and create quality jobs. At the same time, the fundamental causes of economic inequality must be addressed, and inclusive and sustainable development should be pursued. The government needs to play a necessary role to help all citizens live up to their full potential and be happy. In the second year of the administration, the government has set a new economic policy frame for inclusive growth. Old policies need to be reconsidered to implement effective policies and systems with minimum adverse effects, and each economic agency needs to decide what outcomes they are aiming for.
The reality Korea is facing is different from India, China or other developed countries. Structural challenges of low birth rates, aging of the population, decline of major industries, low productivity of small businesses and services and youth unemployment are combined with trade protectionism, escalating discord between the United States and China and external uncertainty due to an unstable international finance market. It is not easy to improve both growth and distribution. Korea needs to establish specific strategies for our situation.
The Moon administration’s economic policy seems like a speeding vehicle turning left. The driver needs to maintain a more stable speed, watch the road and adjust his direction toward a new goal.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Aug. 2, Page 31