The
future of wealth and welfare in
Korea By Yong Kwon
With
Ahn Cheol-soo bowing out of the presidential race,
the next leader of the Republic of Korea will
either be conservative Saenuri Party's (New
Frontier Party's) Park Geun-hye or liberal
Democratic United Party's (DUP's) Moon Jae-in.
Unlike Ahn, the remaining two candidates are
firmly entrenched members of the political
establishment. As seasoned veterans of Korean
politics, Moon and Park claim to have the
necessary leadership experience to lead the
country through the global economic slowdown.
Indeed, their political resumes, which include a
cabinet position and party chairmanship, are
impressive enough.
Unsurprisingly, both
candidates characterize the other as being
unprepared for the task of handling issues of
national concern such as the rising cost of
healthcare, burdensome tuition fees, and
fluctuations in property prices. Responding to the key
concerns of the public,
each candidate has presented a fairly conventional
policy in line with his or her party's traditional
stance. However, the fundamental problem
underlying the people's cost of living remains
largely untouched.
Neither candidate
appears to acknowledge that until the national
economy reverses its industrial structure,
individuals will have to contend with increasing
burdens on their cost of living and social
welfare. Since no policies contributing to the
solution of Korea's current jobless growth have
been presented, one must ask if either candidate
is truly ready for economic leadership.
Recognizing the rising share of healthcare
in relation to GDP, the most pronounced difference
between the two candidates are their approach to
reforming the healthcare institution. Park
contends that priorities must be given to the
elderly and that the state will target key health
concerns including cancer and heart disease.
Meanwhile, Moon is promoting universal healthcare,
vastly expanding government spending in this area.
The principle philosophy behind this
debate closely resembles the two party's conflict
over free school lunches in the Seoul mayoral
election last year when independent candidate Park
Won-soon, who criticized the ruling conservative
party's reduction of funds for underprivileged
children, won with strong support from the DUP.
However, many experts who examined the two
parties' stances on healthcare note that DUP's
plans, which will cost three times more than what
Park is proposing, are unrealistic while Saenuri
Party's policies fail to elaborate on long-term
funding and only address short-term issues.
Less debated but nonetheless a serious
concern for the people is the state of South
Korea's housing market. Devaluation of homes and
rising rent cost are forcing people into serious
debt and pushing people out of Seoul. (See Korea
feels housing shock, from July 4, 2012 ) The
ruling Saenuri Party points to the policies of the
liberal Roh Moo-hyun administration (2003-2008),
which drove up property prices and induced people
to take on debt to secure homes, as the key
catalysts of the current problem. However, liberal
legislators argue the opposite, noting that
cutting regulations and property taxes during the
current conservative Lee Myung-bak administration
have not reversed this trend.
What both
parties ignore is how all these issues are
intrinsically connected to the shift in the
industrial structure of the economy at large. This
may be because the national economy appears
healthy - South Korea currently ranks eighth in
the world in volume of trade, recently surpassing
Italy. Furthermore, Korea's relatively strong
performance during the financial crisis gave the
impression that the economy stood on firm ground.
However, these indicators failed to fully
express the real condition of the market. The Bank
of Korea estimated in 2011 that 52% of the GDP was
derived from exports, making South Korea the most
export-dependent economy in the G20. To meet the
demands of the increasing export-industry, share
of manufacturing in the total supply of goods
increased while services declined. Compared to
service industries, manufacturing requires less
hires to increase output.
Reflecting this
shift in the structure of industry, the employment
inducement coefficient (measured by jobs created
per billion wons) dropped from 15.8 in 2005 to
12.3 in 2010. [1] Decrease in employment directly
corresponded with diminishing average income
growth which was estimated at only 0.19% from 2010
to first quarter of 2011. In the same time period,
domestic price of goods rose by 4.5%. [2]
One might see this as a temporary
difficulty induced by volatility in the cost of
raw materials such as oil and the overall
difficulties facing the global economy, but the
employment inducement coefficient has been
diminishing long before the financial crisis hit
the global market.
This jobless growth,
and in turn decreased tax revenue from
unemployment, directly impacts the welfare
policies of both the Saenuri Party and the DUP.
The current Lee Myung-bak administration has
focused on making South Korea the hub of
international trade, creating a web of free trade
agreements (FTA). The idea is straightforward:
induce economic growth and in turn jobs by
reducing barriers to trade.
However, as
Paul Krugman points out from his brief commentary
on the Korea-US FTA from the US point of view,
free trade not only increases exports but also
imports, yielding the same GDP. In addition, "if
the jobs [US] gain[s] are higher value-added per
worker, while those [US] lose[s] are lower
value-added, and spending stays the same, that
means the same GDP but fewer jobs." [3] The same
macro-economic principles apply to South Korea
when discussing the relations between
manufacturing and service sector jobs. The current
policy of decreasing barriers to Korean export
will not eliminate areas of domestic concern. The
new administration must pursue a different policy.
Coming back to the election, it is easier
for DUP's Moon Jae-in to attack Saenuri Party's
Park Geun-hye at a time when social welfare
appears on the line because of her familial ties
to the country's authoritarian past. Many liberal
supporters of Moon's policies see Park's support
for conglomerate-driven investment and job
creation as a legacy of president Park Chung-hee's
inequality-driven economic growth enforced by
political repression. However, long time observers
of the Korean government have commented that
change has been stymied as much by the liberal
parties' lack of will as opposition from
conservative legislators.
Both sides have
frequently utilized the term "economic
democratization," but little has been done to
bring their ideals to practice. Meanwhile, the
increasing burden of social welfare has begun to
race against the people's income and the nation's
economic growth. Maintaining the status quo is not
an option for the next government and whoever wins
the popular mandate on December 19 will take on
the difficult task of working within a constrained
global environment and restrictive domestic
factors to ensure both enhanced growth and quality
of life for the population at large. Yet with less
than a month left until the final vote, neither
candidate appears to display economic leadership
worthy of much confidence.
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