Widening wealth gap
The author is a professor of economics at Korea University.
The pandemic resulted in tremendous human and economic losses last year. More than 100 million people have been infected, and more than 2.2 million people died. Many people lost jobs and struggle to make a living due.
We have hopes that once vaccines are available, the virus can be defeated, and economy will be restored. In 62 countries, more than 100 million people have been vaccinated. In Israel, 58 percent of the population have been vaccinated, 14 percent in the UK and 10 percent in the United States, according to an Oxford University study. As many countries will have herd immunity by summer, things will likely go back to pre-pandemic “normal.” The IMF predicts a V-shape rebound from minus 3.5 percent growth rate to 5.5 percent growth this year, thanks to the vaccines and economic boost measures.
However, even as the coronavirus is defeated and the economic slump ends, the crisis is not over. The serious global economic disparity and inequality before the pandemic only aggravated by the pandemic. Not everyone suffered, as many high-income households benefitted. Large IT companies enjoyed a boom. As asset prices surged due to large fiscal spending and low interest rates, the wealth of asset owners grew. In a report titled “The Inequality Virus,” Oxfam said that assets of the top ten richest people in the world increased by $540 billion. Hundreds of millions of people lost jobs or were pushed to poverty due to reduced incomes worldwide.
While Korea’s economy had tough times last year, it suffered relatively less than other countries thanks to its increased exports of IT products such as semiconductors, displays and medical supplies. As vaccinations speed up this year, the economy is expected to return to normal. The Bank of Korea expects the economic growth to rebound from minus 1 percent last year to 3 percent this year. However, concerned voices on economic inequality and aggravated disparity are growing. Small businesses and low-income earners suffered from tough social distancing measures and business operation restrictions. According to a research by Statistics Korea on household income, the monthly average earned income of the lowest quintile was 550,000 won ($490), and its business income was 280,000 won, down by 10.7 percent and 8.1 percent, respectively, from the same period of the previous year. The top quintile had an average 7.44 million won of earned income, similar to a year before, and 1.94 million won of business income, up by 5.4 percent.
Policies pursuing both economic recovery and resolution of disparity are needed. As improved distribution cannot be attained only by the market, it requires the government’s role. Direct income supplement for the vulnerable is needed while public support is needed to enhance productivity, such as medical services, childcare, education and vocational training, should be reinforced. Real estate prices should be stabilized so that anyone can own a home if they try hard. While reinforcing the redistribution function of government through tax and spending, the desire to work and invest should not be undermined to seek a virtuous cycle of growth and distribution.
Moreover, we need to respond to the fast digital transition and reorganized industrial structure in the post-Covid age. Depending on the utilization of technology, the gap between households and companies will grow wider. As many existing jobs will disappear, “economic growth without employment” is also possible. Policies to reduce the digital divide and enhance technical skills are needed. Over-protecting the labor market could have an adverse impact on growth and distribution. An open labor market and deregulation would help create quality jobs in the private sector.
The government cannot solve all problems. Citizen participation to care for the darker side of the society is necessary. Richest people in the world who founded technology giants donate a considerable part of their wealth on philanthropy. In Korea, many corporations engage in social contribution, and recently, self-made businessmen donated their savings to education and medicine. Last year, the donations to “Fruits of Love” totaled 846.2 billion won, a record. While the society went through serious internal discord and political confrontation, people had compassion to care for those who are less fortunate.