Paved with moral intentions
The author is a professor of College of Business at Korea Institute of Science and Technology and head of FEN, Fact based Economics Network.
With the possible exception of the tenants of the Blue House, most people in Korea are concerned about the future of an economy being badly affected by ideological policy experiments. The president insists that macro-economic indicators remain strong, but figures measuring domestic demand — investment, employment and consumption — all point to an economy in an alarming downturn.
The government has been railroading through its so-called equalizing agenda, claiming that our economic disparity is the most serious in the developed nation category due to a deepening wealth polarization as a result of over-concentration on growth. But there is no data backing the argument that Korea’s inequalities have reached such a dangerous level or the argument that the economy mass-produced poor people while rewarding a restricted class with the fruits of growth.
A comparative study by the Organization for Economic Cooperation and Development (OECD) places South Korea at a relatively balanced level in terms of equality. In fact, the income gap narrowed during the period of rapid growth from the 1970s to the ‘90s, with wealth disparities being eased even in the recent two conservative governments — except for the 15 years before and after financial crises in 1997-98 and 2008-09.
In the scale of Human Development — a United Nations measurement of achievements in the areas of life expectancy, health, educational standards and per capita income — Korea was ranked 17th in 2018. Korea came 18th in the Social Progress Index, a measurement of the well-being of a society in terms of social and environmental outcomes based on studies by liberal economists like Joseph Stiglitz.
A more recent Human Life Index — which shows the level of satisfaction with living standards from disparities in the economy, health and education — also put Korea at 14th this year, higher than such traditional welfare states as Luxemburg, Finland, Germany, Austria, Belgium and Denmark, as well as Canada and the United States in North America. The rankings suggest Korea is a relatively equal society where economic benefits are evenly distributed. But these statistics are shunned by ideology-driven economists and decision-makers obsessed with the cause of distribution.
The liberal Moon administration attributes our economic problems to so-called ‘past evils.’ As a result, the government toughened its watch and control over the market while devising economic policies in a black-and-white context, provoking conflict between big and small companies, employers and employees, and rich and poor. This campaign has ended up wasting our nation’s resources through unnecessary struggles that come close to being an economic civil war.
The fundamental reasons for our economic woes can be found elsewhere. In its report “Poorer Than Their Parents,” the McKinsey Global Institute found that incomes in all advanced economies were flat or fell between 2005 and 2014 due to stagnant household incomes and high jobless rates. In other words, growth was shifting to developing economies, as most economists and the World Economic Forum pointed out. Developed economies’ contribution to the global gross domestic product (GDP), which accounted for 65 percent in the early ‘90s, plunged to 40 percent in 2017. During the same period, the share from the developing nations soared from 35 percent to 60 percent as populous nations like China, India and Russia, as well as Eastern Europe and Vietnam, became liberalized and expanded.
The United States has dominated the post-war economic order, accounting for 42 percent of global production. Growth in the global economy was still fueled by a select group even after Western Europe, with Japan, South Korea and Taiwan joining the manufacturing front.
However, as developing nations play a bigger role in global production they have emerged as strong competitors for the developed group. Richard Freeman, an economics professor at Harvard University, noted that the number of workers in open economies doubled from 1.5 billion to 3 billion in just five years from the early 2000s. A McKinsey report also showed how rapidly jobs were migrating to emerging economies as studies showed reductions in factory jobs when a country’s per capita income exceeded $5,550 and its manufacturing sector’s share in national GDP hit around $20,000.
Korea has the front-runner in the emerging nation category — China — as its neighbor. China stole labor-oriented jobs around the time of the 2008 financial crisis. Even Korea’s capital-intensive big industries — such as shipbuilding, liquid crystal displays, tires, heavy industries and automobiles — have been shaken by Chinese competition.
The all-out war U.S. President Donald Trump is waging against China suggests how big and challenging the Chinese economy has become. Yet our government’s policy is entirely internally focused. The economy is fast losing global competitiveness and is being defeated by bigger-sized emerging economies. The government must learn the lessons of history. A morality driven economic theory trying to control the invisible hand of the market in the name of justice spells doom for the local economy.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Dec. 17, Page 33