Rich Firms, Poor Families

Nation Should Strive to Correct 'Domestic Imbalance'

Formerly, households saved part of their income for the future and businesses borrowed the money from banks to make investments. The tables of the domestic fund flow have been turned now, however, as firms save idle money at banks and families borrow it to make up for deficits.

The reversal would matter little as long as the total sum of money in the nation remains unchanged, some might think. Nothing could be further from the truth ― and nothing more dangerous.

According to the Bank of Korea, corporate savings at banks swelled to 215 trillion won ($186 billion) last year, an increase of 38 trillion won, or 21 percent, from 2008. Considering the bulk of these savings are time deposits whose interest income drop to less than half when canceled ahead of the agreed date, the firms don't seem to intend to use them for more productive activities at least in the next few years.

The same statistics also showed that domestic households' average yearly income increased a mere 1.5 percent to 41.3 million won in 2009, falling way short of the inflation rate of 2.8 percent, which means their real income fell from the previous year. Not surprisingly, the Korean families' average debt increased 5.1 percent to 43.3 million won, showing their income was not even enough to repay debts. For many, saving has long become a rather alien idea.

Behind this imbalance between cash-rich businesses and debt-ridden individuals is the vicious cycle in which rising unemployment, dwindling income, moribund consumption and sluggish investment form a snake biting its own tail. The national debt also increases due to heavier fiscal burdens to bolster collapsing families. Japan in the 1980s was called a nation of ``rich government and poor people,'' but Korea of today might as well be a nation of ``rich businesses but poor government and people.''

The problem is, unless this vicious cycle turns into a virtuous one, the entire economy, including the business sector, could end up a loser amid sharply weakened growth potential. Corporate Korea cites economic uncertainty as a reason for reluctance to invest, but the nation's leading corporations, such as Samsung and Hyundai, have already shown investments during the business slump pay most handsomely when the economy picks up.

These businesses, especially the big ones, must spend more on new products and technology to develop the new engine for growth, and hire far more workers in the process. It was when the Japanese firms began to throw out their lifetime employment and replace regular workers with temporary ones that the mighty Japan Inc. slipped into a lost decade, from which it has not fully escaped yet.

President Lee Myung-bak, who entered into his third year in office just now, has switched from his initial pro-business policy to a ``worker-friendly'' course ― in slogan only so far ― as shown by the survey results that showed people's greatest complaint about Lee's governance the past two years is the ``aggravating economy,'' which they personally feel.

Two years should be long enough for Lee to realize he can no longer resort to the so-called trickle-down effect of having prospering large businesses benefit smaller firms and households in a chain reaction. He must redirect limited fiscal and financial resources to job-creating small businesses and languishing individuals who need far wider and finer social safety net.

It is also time for large businesses, which have grown thanks in large part to people's savings and labor, to give part of the favors back to the latter ― like successful children have done for their parents for a long time in this country.