Why are Koreans angry over high growth?
By Lee Chang-sup
Catching three rabbits with one stone is likened to the ‘cycle of birdies’ in golf. In addition to a hole-in-one, the cycle ― namely making three consecutive birdies on par 3, 4 and 5 holes ― is a once-in-a-life-time achievement for a privileged few.
In the economy, when a country achieves higher growth, low inflation and a trade surplus, we can say policymakers caught three rabbits with one stone. Under the Chun Doohwan administration before the Seoul Olympics in 1988, the country achieved this.
Even Park Chung-hee failed to realize this goal. Economists and policymakers have long agonized over how to realize these conflicting objectives. High growth usually needs a Keynesian stimulus approach, which usually entails high inflation and imports of more goods. Any attempt to curb inflation stifles economic growth.
Now President Lee Myung-bak has repeated the glory this year, for the first time in more than two decades. Few countries in the world have achieved the three macroeconomic objectives in a year. The achievement is shiny because it took place when other economies are performing poorly.
The economy grew at an 87-month high of 8.1 percent in the first quarter. Korea has achieved one of the fastest recoveries from the global recession among the member states of the Organization for Economic Cooperation and Development (OECD). Inflation is below the target range of 3 percent, and the current account surplus rose to 5 percent of GDP. The country became the ninth-largest exporter in the world in 2009, up from 12th in 2008.
The performance should not be underestimated.
A 7-8 percent growth rate is a distant memory for Koreans, and it is well above the potential growth rate (growth without incurring significant inflation) of 4-5 percent. Such a high-flying rate prevailed from the late 1970s till the Seoul Olympics in 1988.
Then ask you friends around you: Do you feel the benefits of such high growth? Are you happy? Many people scratch their heads whenever the government boasts of the high-growth story.
Until the financial crisis in 1997, when the economy was growing, every citizen benefited from it in a democratic way. Now it is a different story- benefits are undemocratic.
The high-flying rate is puzzling for the majority of Koreans, and there are several reasons why they feel a sense of alienation.
First, the fruit of the growth is not evenly spreading throughout the economy. It is chaebol- oriented growth. Such big names as Samsung, Hyundai, LG and SK are posting doubledigit growth, while many small- and mediumsized firms are struggling to make ends meet.
Second, household debts are at a record high. Koreans have locked 80 percent of their wealth into property. Under the Lee administration, housing prices have been falling. This could be encouraging for the younger generation.
People bought expensive homes on the assumption that they were a bullet-proof attractive investment destination. Those who borrowed heavily to buy homes will not feel the economic boom as long as the property market is depressed.
Third, volatility in the stock market has grown. The KOSPI is down 15 percent from its peak, and on May 25 investors lost 29 trillion won in market capitalization. Money-losing stock investors do not feel that the economy is growing.
Fourth, the economy has been outgrowing wages. In the past, wages grew at least twice as fast as the economy. This is no longer possible.
Fifth, if you look at your paycheck, you will notice medical insurance and social security bills have risen by double-digit figures.
Household income grew by 7.3 percent in the January-March period, lower than the GDP rate. It is quite unusual that the GDP grew faster than household income. Social security bills rose by 10 percent and the tax burden increased by 16 percent, respectively.
Sixth, while the job market has been improving at its fastest pace in eight years, unemployment among the young is still high. About 3 million people are out of work. Last month, as many as 586,000 new jobs were created, but only about 52,000 20-somethings found employment.
Despite booming exports, the capital-intensive chaebol have little reason to hire more. In addition, they outsource much of their parts requirements outside Korea. Their growth does not translate into new jobs at local suppliers. The emerging construction market downturn has deepened the plight of daily workers.
Seventh, the growth was fueled by exports, not by domestic demand. This means exporters are enjoying a boom but the domestic market is sluggish in a sign of economic polarization.
Eighth, since the currency crisis a decade ago, neoliberalism has been prevalent in the economy, and so the more the economy grows, the more the income gap widens. It is no coincidence that the Gini coefficient too has increased.
Ninth, official inflation rate is in the comfort zone of 2.7 percent, well below the 3 percent target range, even though vegetable prices jumped by 17.7 percent. A Chinese housemaid got paid 1.2-1.3 million won monthly in January last year, but now commands 1.4-1.5 million won.
Finally, the number of the self-employed fell by 82,000 in May, as a growing number of family-run mom-and-pop stores and restaurants shut down. The metropolitan area is growing faster than the provinces.
Does this mean that the GDP rate is no longer a credible yardstick to gauge the health of the economy? No, it still provides the most reliable data. Policymakers may sit in an armchair, romanticizing the once-in-a-life-time performance.
Complacency is poisonous. They need to manage micro data more than macro statistics.
Until the ordinary people are capable of sharing the growing economic pie, the highflying economy is an optical illusion.
Lee Chang-sup is the chief editorial writer of The Korea Times. He can be reached at firstname.lastname@example.org.