Korea at a loss over inequality

By Kim Tong-hyung

All countries are unequal, but Korea seems to be among those that are more unequal than others.

And as the scourge of inequality worsens by the day, the nation appears to be at a loss in attacking the problem: Policymakers here are reluctant to introduce dramatic changes to the country’s tax and benefit systems, claiming that the risk would be a bankrupt government, while schools and businesses continue to be woefully inept at educating and training a quality workforce.

The massive gulf between the society’s richest and poorest is alarming as the recent downturn provided an audacious reminder that Korea needs a growth engine other than exports.

A recent study by the state-run Korea Institute of Public Finance analyzed that the richest 1 percent of Koreans control nearly 17 percent of all household income.

And that was an analysis based on figures of 2006, when the stars had yet to align for the collapse of the Lehman Brothers. Considering that recessions have a proven effect of turbo-charging the growth in inequality, Korea’s concentration of wealth is likely to be even more profound now.

Worsening global conditions have hit the country’s mighty exporters in the teeth, but credit-crunched consumers are unable to pick up the slack. In putting a squeeze on consumer demand, the soaring wealth gap looks to have closed the country off an important route toward recovery.

Yoo Gyeong-joon, a senior researcher from the Korea Development Institute (KDI), points out that Korea has a higher proportion of households living below median income than most other developed economies.

In explaining Korea’s growing wealth gap, Yoo claimed that the globalization and technological progress, which resulted in the dearth of well-paid blue collar jobs and shifted production in favor of skilled labor, were in play.

The rapid aging of the country’s population, the increasing number of workers relaying on low-paid service sector jobs, and an ineffective social security net, which has been stoking post-retirement poverty, were among the domestic factors suggested.

``To put it precisely, the bigger problem for Korea is not inequality but poverty,’’ Yoo said.

``While Korea’s indicators in wealth concentration are actually in line with the Organization for Economic Development and Cooperation (OECD) average, it has a much higher proportion of families living below median income than most OECD countries. The weak social safety net stings as Korea has a worse old-age poverty problem than just about any other rich economy.’’

The concentration of wealth is now only a problem among households, but across the business sector as well, Yoo said.

Korea’s only way out of the mess is finding a way to boost incomes more broadly, which would require the focus of economic policy to be shifted from large businesses to entrepreneurs and small-to-medium-sized firms. There is also an urgent need for stronger anti-trust rules as the country could ill-afford to continue allowing a few number of highly-profitable conglomerates to dominate the rewards of economic progress, like a fat kid does a cookie jar.

Income growth among the poorest 10 percent of families was significantly slower than households in other brackets last year, according to data from Statistics Korea, further splitting the wealth gap that is now broader than it was in 2008 when the financial crisis took hold.

The Gini coefficient, a broadly-used measurement on the concentration of wealth, with zero indicating perfect equality and 1 signifying complete inequality, worsened slightly from 0.310 in 2010 to 0.311 in 2011.

Disposable income among the richest 20 percent of people was 5.73 times larger than that of the poorest 20 percent last year, indicating stronger disparity than in 2010 when the richest 20 percent earned 5.66 times more and marking the starkest gap since Statistics Korea started keeping related data in 2000.

The country's failure to plug the income gap proves that the Lee Myung-bak administration’s talk about trickle-down effects was never more than a hollow promise and highlights the public's growing frustrations.

Critics have accused the government of ignoring sharp falls in real income for most workers.

According to government figures, households with two or more members earned an average of 3.84 million won (about $3,370) a month last year, compared to 3.63 million the previous year. However, when factoring in inflation, the annual growth in household income last year was measured at 1.7 percent and the improvement in consumption at just 0.6 percent.