[Column] Fiscal integrity matters more than the reforms

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[Column] Fiscal integrity matters more than the reforms

Yeom Jae-ho
The author is professor emeritus and former president of Korea University.

About 10 years ago, I met with Jeremy Rifkin at a hotel café in Milan, Italy, for an interview. The author of many bestselling books, including “The End of Work” and “The Hydrogen Economy,” asked me not to call him “a futurist” but “a social reformer.” He said he just got interested in the future while trying to find some ways to create a better future for humanity. Thanks to his interesting stories, the one-hour interview ran for two more hours.

After finishing college, Rifkin took the path as a social reformer rather than a salary earner. As his vehement opposition to the Vietnam War during his college days suggests, he wanted to objectively analyze society and change it.
Former President Moon Jae-in, second from right, presides over a meeting on state fiscal strategy in the Blue House in July 2017. The slogan on the background says, “We’ll return the state coffers to the people with jobs and growth.” [BLUE HOUSE]

One of the many intriguing narratives was his prediction that people’s working hours will decrease to three days a week by 2030 or 2040. In the 1940s, Americans worked 70 hours per week. Today, they work less than 40 hours a week, while their counterparts in northern Europe work about 30 hours per week. Rifkin predicted that if they work three days per week, they will spend two days doing hobby activities and the other two days doing social services or religious activities. Though the paradigm has shifted from a work-hour-based system to a digital knowledge-based one, our political circles regrettably are still battling over work hours.

Rifkin was an activist by nature but was passive to aggressive government spending to address social problems. In an advanced society, individuals with common sense must take the lead in addressing social problems, he thought. Therefore, a number of civic groups should be run by citizens’ voluntary participation, not by the government budget.

In the same context, we should resolve the lowest birth rate in this country by creating a new environment where society itself can raise children instead of relying on state coffers. Day care centers are open from 9 a.m. to 4:30 p.m. in Korea, but if you want to extend the hours, you can leave your children at the centers from 7 a.m. through 7:30 p.m. But many young couples pressed for time end up asking their parents to take care of their children.

How about operating day care services 24 hours a day? If you borrow Rifkin’s idea, grandparents can care for grandchildren other than their own in the evening and get credit for their service hours, just like with blood donation. When the grandparents need day care service at a later age, they can use the credit for a free daycare service. We can create such an innovative system where you can record such voluntary services onto a non-fungible token to be used when needed later in your lifetime. But such social services for children and senior citizens are being provided by the government.

As the still-active Keynesian fad shows, developed countries suffer chronic fiscal deficits due to their aggressive spending to address their own social problems since World War II. A government even spends one-third of its budget paying back the debt. Politicians are busy trying to buy votes through populist campaign promises while bureaucrats are splurging government money. If that money came from their pockets, they would never spend like that.

Amid the global recession, Korea’s fiscal deficit already exceeded 30 trillion won ($22.7 billion) in February. The country’s national debt has swelled to over 1,000 trillion won from 660 trillion won in 2017, largely due to the hefty spending from the pandemic. While Korea’s net debt-to-GDP ratio is going down in the United States and France, the figure has doubled in Korea since 2019.

The government’s tax revenue has increased from 283 trillion won in 2018 to 384 trillion won in 2022, primarily thanks to soaring real estate prices and growing corporate tax. But during the period, its debt snowballed by 400 trillion. The increase in national debt, despite increased tax revenue, can be attributed to populist policies under the past liberal government.

The Ministry of Economy and Finance must focus more on reducing fiscal spending than on collecting more taxes. Saving money is more important than making it. I am concerned about the possibility of the government adhering to such a populist approach to get votes in the parliamentary elections next year. What is more urgent than the touted labor, pension and education reforms is fiscal reform.

Translation by the Korea JoongAng Daily staff.
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