By Lee Chang-sup
President Lee Myung-bak may lament over a lack of domestic enthusiasm over Fitch’s positive outlook on Korea’s credit rating. The upbeat assessment came out while nearly all of the OECD countries had their ratings downgraded.
Then the next question is ― why are Koreans so cynical over Lee’s economic performance? Why do 25 lawmakers of his own Grand National Party press him to apologize for his maladministration? They also urged Lee to scrap his 7-4-7 economic program. His campaign pledge features a 7 percent growth with the objective of realizing per capita income of $40,000 and making the G-7.
The governing party is in disarray for fear of losing in the parliamentary and presidential elections next year. The GNP believes that what they call ‘economic failure’ is responsible for their possible defeat in the forthcoming elections.
By Fitch’s yardstick, the Korean economy is in solid shape. Its gross domestic product (GDP) has been growing. Korea has more than $300 billion in foreign exchange reserves. It can also draw additional foreign currencies from the central banks in the United States, Japan and China. The country is capable of withstanding external shocks, namely a sudden and massive capital outflow. Its fiscal debt, although growing fast, is manageable as it is above the OECD average. The rising inflation is also not threatening the economy. A strong Korea-U.S. alliance reduces the North Korea risk.
Koreans have different yardsticks in gauging their economic life, however. The GDP does not tell whether more than 8 million Koreans are non-regular workers. Individuals perceive the GDP is inadequate data to gauge well-being. A GDP sometimes reflects a mirage, namely profits created by a bubble. Real household income has fallen despite the rise in the GDP.
Citizens perceive unemployment and inflation are higher than the official statistics. They see the growth rate is less robust than the official statistics although the government does not manipulate them.
Per capita GDP will reach $23,000 this year. It does not reflect large changes in income inequality as household income has grown differently from per capita income. The increased use of gasoline and traffic jams fueled the growth of the GDP but the GDP expansion does not improve the quality of life.
President Lee may scratch his head with puzzlement over the people’s underestimation of his achievement of making the economy more dynamic now than in 2007. His tax cuts raised revenue for the government. He drew jeers for slashing taxes for the rich. He was successful in putting the brakes on housing prices. This made many middle-class people become house poor. In other words, they own a home but have to recycle the bulk of their earnings to pay off interest on mortgage loans. Despite the fall in housing prices, home rentals shot up to 60 percent of the home price.
The government boasts of improved productivity, but consumers complain of rising inflation. Conglomerates have posted record earnings, but individuals contend the poverty rate has risen.
Record corporate profits became possible by a high won-dollar exchange rate. This does not make consumers happy as they have to import inflation linked to the undervalued currency. The nation has been in the current account surplus, but Koreans held record high debts.
The country is the world’s 13th largest economy. People complain that the country is below the OECD average in health, medical and social security services. The government trumpets an improved corporate environment through bold deregulations. People contend that the rich-poor gap has widened. Korea is a heavy spender in R&D but students protest the steep rise in tuition.
President Lee failed to understand the traditional production-oriented economic measurement system means little for the well-being of consumers and social progress. He was unable to read the shortcomings of existing macroeconomic data.
Former Grand National Party Chairwoman Park Geun-hye is to unveil what she and her advisors call the Economic Happiness Index. This is to solve the current statistical dilemma.
The idea is her government would prioritize employment over the GDP. They will monitor the well-being data on topics such as social security, medical and health services, the income disparity index, quality of education services, household debts, savings rate, inflation and poverty rate. This is in sharp contrast with the Lee administration which still believes in the universal appeal of such macroeconomic data as per capita GDP, global ranking, foreign investment, degree of deregulation, state investment in R&D, current account trends, foreign exchange rates, corporate profits and labor productivity.
Park’s advisors borrowed the Economic Happiness Index from Columbia University professor Joseph Stiglitz. The Nobel laureate in economics has expounded the irrelevance of the macroeconomic data such as GDP, per capita income and inflation for gauging the progress in people’s well-being.
The professor said well-being is multidimensional. For example, people feel economic insecurity when they are unable to vent their political voice and lack in social connections and relations. He advises policymakers to take steps to improve measures of people’s health, education, personal activities and environmental conditions. He says their well-being will improve when they have a decent job and housing and can make an active participation in the political process.
The time has come for the economic measurement system to move the emphasis to gauging people’s well-being from measuring economic production. The only problem is it is difficult to establish the economic well-being index.
Lee Chang-sup is the chief editorial writer of The Korea Times. His email address is editorial@koreatimes.co.kr.