A speeding car
The author is an editorial writer at the JoongAng Ilbo.
Immanent critique used to be fashionable among scholars of North Korea. It called for inner empirical structural analysis instead of applying common Cold War theory in understanding North Korea.
Song Du-yul, a naturalized German who lectured at the University of Münster, was a pioneer of such a perspective on North Korea. Song, who made multiple visits to North Korea and was tried by South Korea for violation of the national security law, argued that the approach was necessary to narrow the misunderstanding and division between the two Koreas.
The liberal government’s economic policy of driving growth through increases in incomes remains a social and political issue. The mainstream is doubtful about the effectiveness or even the plausibility of the income-led growth theory. The Blue House is totally confident in the idea.
A more subjective look may be helpful to reduce further wrangling. President Moon Jae-in also said he was open to the idea of holding a productive debate on the issue and making amendments to his policy if necessary.
Income-led growth, tweaked from the better-known wage-led growth, was an election slogan of the opposition liberal front during last year’s presidential campaign. The liberals had to sell a new growth framework to replace the tired model of the industrialization period maintained by the conservatives.
According to Jang Ha-sung, the president’s policy chief, the growth model is designed to bolster household incomes through increases in the minimum wage, reduced medical, housing and childcare expenses and an improved social welfare system. In theory, they are all necessary to address social and wealth inequalities and structural challenges from a low birth rate to an aging population. The agenda does not differ much from the policies of former liberal President Roh Moo-hyun.
The criticism of the income-led growth policy was sparked by the steep hike in the minimum wage. Jang in an interview said he, too, had been surprised by the 16.4 percent jump in the hourly minimum wage for this year. The Blue House refuses to admit that the sharp increase hurt many small businesses. It now claims that the minimum wage was just a small part of the income-led growth policy. According to Choi Jeong-pyo, head of state-run Korea Development Institute, it takes up about “1 percent” of the income-led growth policy.
It may play a small part in the overall agenda, but its ramifications have been huge. Apart from the higher minimum wage, the government proposes to increase subsidies to employers who hire young people, expand tax breaks for low-income workers and force cuts in credit card commissions and rents for the self-employed and small shopkeepers. If the spike in the minimum wage has not harmed small businesses that much, none of those measures would have been necessary.
Regardless of how treasured it is, a policy must be fixed if it causes too much damage.
Next year, the minimum wage is going up another 10.9 percent. Increases beyond that should be slowed. Otherwise, even competitive self-employed and small and mid-sized enterprises cannot survive. Workplaces must be able to afford labor without relying on state handouts before accelerating its pace.
Jang, in the interview, said the pledge to make the hourly minimum wage 10,000 won ($8.90) is not achievable by 2020, but can be possible by 2021 or 2022 if the rate increases by 6 to 7 percent from 2020. His comment indicates that the Blue House remains chained to the 10,000-won minimum wage pledge even as it claims it is just a small part, or 1 percent, of its growth policy.
Second, the government should be less rash. Jang argued that the government’s endeavors to improve household incomes could reap fruit from next year. He is not entirely wrong as the government starts increasing monthly allowances for low-income seniors and the disabled and handing out childcare subsidies from this month. Job data could be better next year. Still, he should not have been confident of positive results so soon if the policy has a bigger goals of changing the paradigm of the Korean economy.
Lee Hae-chan, the newly elected head of the ruling Democratic Party, has been more honest in saying in his address at the National Assembly that all transitions are accompanied by pain for a certain period. Former President Roh used to say a car should not speed when there is a person clinging at the rear to say that nobody should be left behind in a society’s advance. The income-led growth policy’s design is to invite everyone into the car. Whether it is income-led or people-led, that kind of growth cannot come suddenly.
The government’s growth agenda includes many welfare policies to improve health, education, housing and other basic needs of the people. The government must increase necessary welfare benefits.
But in the longer-run, the spending must be discussed with the public. Roh’s government disclosed how much welfare funding it needed to meet its agenda, although it could not explain how the money would be raised due to the political situation at the time. Strengthening the social safety net and welfare benefits isn’t populism. But hiding the need for tax increases is.
It is important to ease the yawning gap among wage-earners in large and smaller companies. But the ways of narrowing the gap should be carried out respecting market principles.
The income gap of the classes taxed and receiving transfers of cash payments, or state benefits, is more or less similar to the level of advanced economies. This could suggest that competition in the market may not be that vigorous. Why such comprehensive work needs to come under the slogan of income-led growth is a mystery. During an era of unprecedented inter-Korean relations, it’s a pity that we are still struggling to understand our growth policy.
JoongAng Ilbo, Sept. 7, Page 32