The economic equality trap
The author is a national news editor of the JoongAng Ilbo.
In his State of the Union address in 2015, U.S. President Barack Obama called income inequality the defining challenge for our times and vowed to tackle it as the central tenet of his economic policy. He proposed raising taxes on wealthy Americans and the minimum wage, as well as balancing the income gap between female and male workers.
Harry Frankfurt, a professor emeritus of philosophy at Princeton University and an influential moral philosopher, disagreed, as he laid out in his 2015 book “On Inequality.” He argued that economic equality was not of any significance, and economic inequality is not in itself morally objectionable. “Our most fundamental challenge, however, is not the fact that incomes of Americans are widely unequal. It is that too many Americans are poor. Inequality of incomes might be eliminated, just by arranging that all incomes be equally below the poverty line. Needless to say, that way of achieving equality of incomes by making everyone equally poor has very little to be said for it. From the point of view of morality, it is not important that everyone should have the same. What is important is that each should have enough.”
In a ceremony last week commemorating the June 10 democracy movement, President Moon Jae-in said, “Sustainable and more equal economy is the practical democracy we must achieve beyond a democracy as a system.” He said “equal economy” is the goal of his economic agenda alongside “income-led growth, innovation-driven growth, fair and engaging growth.”
In his inauguration speech in 2017 describing the society he hoped to build, Moon said, “Opportunities will be equal, the process fair and the results just.” But his vision can hardly be applied to the economics of equality. He suggested that justice would be achieved if opportunities and the process are equal and fair regardless of the outcome. In the economics of equality, however, the absolute difference in the final results matters.
On the following day, the Blue House issued a statement to clarify what Moon said. Kang Min-seok, presidential spokesman, said that what the president referred to as “equal economy” was in the same context as the government’s pursuit of “inclusive growth” and “fair economy.” He reminded the public of Moon’s earlier remark, “We must break the formula that a crisis aggravates inequality.” Kang said that democratization in the economy in the post-coronavirus era would be an economy of equality. He mentioned the introduction of national employment insurance and the Korean version of a New Deal as action plans to achieve the goal.
In the June 10 address, Moon said, “We have the liberty to pursue profit, but we do not have the liberty to take away someone else’s share.” However, outcomes can be unequal even without stealing other people’s wealth. Companies under the same conditions can perform entirely differently. How can one differentiate inequality that can be tolerated and inequality that cannot? Regardless of its explanation, the Blue House’s sudden talk of the economy of equality can lead to unnecessary misunderstanding.
With two years left in his term, it is more efficient for Moon to concentrate on achieving existing goals. The government is in an advantageous position to see progress in inclusive growth and a fair economy through big spending — all thanks to the ruling party’s super majority in the National Assembly.
However, innovative growth is not so easy. A simple example is the collapse of the lucrative Tada ride-sharing service. The van-hailing service folded because of the debate on whether it fell under the new mobility category. Many users were perfectly happy with the comfortable ride-hailing service. The government and ruling party demonstrated a lack of persuasion skills by failing to stop a promising business from going under because of vehement resistance from the taxi industry.
Innovative growth should be employed as a breakthrough for an economy headed to a contraction this year due to the coronavirus. If innovative growth works, quality jobs can be created. Job increases will lead to growth in tax revenue that can again bolster government ammunition for stimulating the economy.
Kim Tae-nyeon, floor leader of the ruling Democratic Party, vowed last week that his party wants the economy to fly on two wings — fair economy and deregulations for innovation. The ruling party must lay the groundwork for sustainable growth.
In a republic of regulation, innovations are stalled. In an equal economy, there is no need to innovate. Innovation is the byproduct of freedom. Pursuit of egalitarianism at a time of slowed growth can trigger conflict in a society. Economic democratization should not focus on reforming chaebol. Making every business free to seek new opportunities is more important. A clever balancing act is needed more than ever.