In the penumbra of crisis
The author is an economics professor at Seoul National University.
A latest domestic box-office hit is is set during the period when Korea had to seek an international bailout to avoid national default in late 1997. According to a national poll in 2015 — the 70th anniversary of Korea’s liberation from Japan’s colonial rule — the so-called 1990s foreign exchange crisis was ranked third in a list of the most critical events that have affected the Korean people after the 1950-53 Korean War and the nation’s independence from Japan on Aug. 15, 1945. The event’s significance and the turmoil it set off cannot be overstated. The aftershocks portrayed by the movie still affect many lives.
At the time, the Korean government thought it was past its humiliation, having fully paid off its loans. But the crisis was more than a warning of our debt-financed growth — especially foreign debt. It also revealed the fragility of East Asian corporate governance. Companies were not profit generating machines, but were geared to guaranteed employment. Korea should have used the moment to study the kinds of welfare systems that would be sustainable for the nation and how much flexibility would be needed in its labor market. The government should have presented a far-sighted roadmap on the role of the public and private sectors in the transition based on social consensus. As the government neglected to do so, Korean society became increasingly polarized and the economic system a confused mix.
The Korean people who willingly donated their gold rings and jewelry to help the nation get through the crisis were divided into survivors and losers. Before the crisis, workplaces ensured paychecks and security until retirement age. That paradigm was shattered and many found themselves out of work at the peak of their working age. Their futures were insecure as there was no clear blueprint for a social security system. Politicians used the sense of insecurity to sell welfare promises in exchange for votes. Welfare promises turned into a dangerous and tempting tool to get both elected and re-elected.
Survivors felt insecure too. Their incomes were secure for the moment, but they became fretful over the future. To ensure their safety, they fought to make layoffs difficult and complicated new entries into workplaces. Members of labor unions bargained to keep jobs for their families: either you were in or you were forever outside. The insiders — or permanent salaried workers — pressed employers to raise salaries and keep them longer, while the outsiders — contract workers — had to endure all the disadvantages. Young people found it increasingly difficult to break in to the full-time job market.
Despite numerous free trade deals with countries, the Korean labor market stayed rigidly closed. Korea has arguably the most FTAs of any country in the world. As a result, global developments affect the Korean economy to a larger extent and our industries become increasingly vulnerable to global cycles. The FTAs and globalization can bring benefits when fast capital movements are allowed. But Korea became mired and blocked by labor rigidity. Due to the global market’s interconnectivity, Koreans’ security only deteriorated.
The price of division and confusion has been costly. The most desired jobs are those that can guarantee long-term security in a society and economy muddled in uncertainties. In the 2010 World Value Survey, more than half of Koreans — or 57 percent — cited security as their top priority in seeking jobs, whereas only 23 percent of Americans, 30 percent of Chinese and 35 percent of Japanese cited the same. An economy’s outlook is questionable if young people prioritize job security, particularly in sectors that do not help raise an economy’s long-term growth prospects.
The president’s role is to present a vision for a nation and heal society’s divides. But our presidents mostly govern the country based on political interests. They have failed to connect and communicate with the people in order to win their support and demonstrate persuasive leadership on behalf of the weak. One president tried to stimulate the economy through massive pork-barrel projects, while another helped generate inefficiency in public administration by moving government offices and public corporations’ headquarters. As a result, society has become increasingly polarized and disillusioned.
The Moon Jae-in administration has been determined to correct discrepancies and dysfunction in both society and the economy. Its intentions are noble, but success is not easy. Society must agree on the kinds of economic models it envisions for its future. The leadership must show connections, cooperation and expertise. Despite his promise to be an engaging president, Moon has mostly bulldozed his agenda through. He is losing public confidence. Amateurish policymakers have made matters worse by confusing cause and effect in the process of pushing through their untested income-led growth model.
Society is still in a transitional period even though two decades have passed since the bailout. Korea is still unclear about the direction of its future. It might be doomed if it drifts much longer. Businesses, academics and the government must wake up to the gravity of our situation and find solutions fast.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Dec. 26, Page 31