Plan for a perfect storm
The author is a senior editorial writer at the JoongAng Ilbo.
“The minimum living cost for a four-member family in a city was 83,480 won ($64.6) a month that year. Income from three of us (in the family) amounted to 80,231 won, and we were left with just 62,351 won of that after paying fixed expenditures of insurance premiums, savings and other expenses. For these earnings, we had to work hard at the factories. Our mother was always anxious,” according to “A Dwarf Launches a Little Ball,” a novel by Cho Se-hui published in 1978. The novel poignantly describes how harsh life had been and how difficult it was to maintain human dignity in South Korea in the late 1970s. “It was like surviving a war each day, where we lost every time.”
On the opposite side of the society, real estate speculation was at its peak. The sudden rich paid heavily to educate their children. They hired private tutors for more than the disposable income the three siblings earned from working day and night. The Park Chung Hee military regime boasted the country’s per capita income broke $1,000 for the first time. As it is often the case, an average cannot fully reflect reality.
The wealth disparity only got worse since the late 1970s as the fruits of industrialization were not doled out evenly. “Wealth went to a few, while the low-income population in urban areas increased faster since that time,” wrote Choi Jang-jip, a liberal scholar at Korea University. The global wave of stagflation from the mix of low growth and high inflation following the two oil crises helped deepen wealth polarization. The inflation rate exceeded 20 percent. Recession had been harder on the poor. Tragic deaths were reported at labor sites of Dongil Textile and YH Trade. The social unrest triggered the downfall of strongman Park Chung Hee.
The biggest problem of economic crisis is that it deepens social polarization, as seen in the Asian financial crisis in 1997. The number of jobless neared 2 million, a 32-year high. Out of 8,000 employees at Korea First Bank, over 3,000 were laid off. Many wept upon watching a teary video by the employees of the branch in Teheran-ro in southern Seoul before the branch shut down. In the wake of the national default crisis, neo-liberalism based on market principles flourished in Korea. The wealthy got wealthier and the poor poorer.
The 2008 global financial crisis added more traction to polarization. The Wall Street meltdown was the result of greed and arrogance of major investment banks. Morgan Stanley and Goldman Sachs indulged employees with big bonuses from their tax-financed relief funds. The severe moral hazard capitalized on the poor.
Occupy Wall Street protests sprouted across Manhattan in 2011 as the 99 percent raged against the 1 percent rich and speculators who were further fattened by the ultra-loose monetary policy to fight the financial crisis.
A perfect storm that could wreak bigger havoc than in the past global crises is looming over Korea. The 40 difficult years after the Great Depression in the 1930s and stagflation in 1970s may be in the making. The economic slump will first land on the socially weak this time, too. It will hit harder on the working class than the rich, the small and mid-sized or self-employed businesses than big companies, the irregular work force than the regular salary earners, tenants than homeowners, and borrowers than lenders.
Not many can survive when inflation increases by 5 points to 10 percent. The lower-income households whose earnings mostly go to covering their living costs are fearful of their livelihoods. The bottom 20 percent spent 350,000 won — or 20 percent of their monthly disposable income of 840,000 won — on food in the first quarter, according to Statistics Korea. Job-seekers live off instant food in convenient stores and elderly citizens move around free meal centers.
Bank of Korea Gov. Rhee Chang-yong worried that high inflation would aggravate polarization. Symptoms already show. While disposable income of a family with monthly income of more than 5 million won increased 3.8 percent on year in the final quarter of 2021, disposable income of a household earning less than 1 million won a month fell 0.5 percent. Rising interest rates also worsen disparities. The low-income households and the self-employed cannot afford the heavier interest costs. What if the central bank balks at raising the interest rates now? No doubt higher prices will directly affect the vulnerable.
The Yoon Suk-yeol administration must address the dilemma. Pains are inevitable. Attention and policy priority must go to lessening social polarization. President Yoon must be more caring and understanding towards the weak. If he goes by the Milton Friedman-like recipe of free market, competition, growth and efficiency, he would lose public confidence. Milton Friedman’s “Free to Choose,” a favorite of the president, has been gathering dust in the West for a long time. What if Yoon changes his mind? We will see low-rate politicians who feed on ideological battles, populism and fandom politics.