National income growth fails to improve Koreans' wellbeing

GNI tops $35,000 but gov't urged to tackle demographic challenge for sustainable growth

By Yi Whan-woo

Korea's gross national income (GNI) has surpassed $35,000 per capita for the first time, setting another economic milestone for what is perhaps the most rapidly industrialized nation in the last century.

GNI is the total amount of money earned by a nation's people and businesses and is used to measure and track its wealth.

The milestone, announced by the Bank of Korea (BOK) last week, is receiving little public attention because this wealth is “not trickling down to the lives of everyday people,” according to analysts.

The experts attributed the country's GNI per capita, which amounted to $35,168 in 2021, to factors that do not necessarily improve individuals' actual income or quality of life.

They also pointed out the increased wealth is not distributed equally across society.

According to the BOK, the GNI per capita for 2021 was made possible due mainly to five factors ― a 4 percent growth in GDP, a 3 percent year-on-year decrease in the won-dollar exchange rate, a 2.3 percent GDP deflator expansion, surging inflation and a dwindling population.

The first three especially were behind the reversal in the country's GNI per capita after it broke the $30,000 mark in 2017 for the first time.

The GNI per capita rose from $31,734 in 2017 to $33,564 in 2018, but retreated to $32,204 in 2019 and $31,881 in 2020.

The year-on-year increase of 10.3 percent in 2021 was the highest since 2010 when it surged by 20.9 percent.

“This is certainly something to celebrate, but you can't when considering income per capita increased because the prices went up quickly and the population decreased,” said Kim Sang-bong, an economics professor at Hansung University.

He also noted much of 2021's recorded growth resulted from the base effect of 2020's pandemic-triggered economic woes as well as a sharp increase in government spending to stimulate the economy.

“Under the circumstances, it remains uncertain whether each citizen is enjoying the fruit of the nation's wealth as indicated by the data,” Kim added.

The leading conglomerates are behind robust exports that contributed to the country's gross national income (GNI) surpassing $35,000 per capita for the first time in 2021. Korea Times file

Small business owners hit by economic effects of the COVID-19 pandemic demand compensation from the government during a protest in front of the Seoul Administrative Court in southern Seoul, March 4. Yonhap

Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI), analyzed that changes in economic structure from the past can deepen the gap between statistics and reality.

“As a country's economy grows and fully matures, the share that can be taken by workers tends to shrink because the economy is no longer labor intensive and relies more on capital intensity,” he said.

He went on to say that economic growth driven by exports, not domestic consumption, causes a wealth gap between large firms and small business owners.

“The economic polarization is inevitable in virtually all advanced economies, but even so, this is something that should be tackled to ensure GNI per capita reflects quality of living correctly,” Lee said.

Chun So-ra, a research fellow at Korea Development Institute (KDI), voiced a similar view. “The havoc wreaked by the pandemic has been more far more severe to low-income earners than high-income earners,” she said.

It remains to be seen whether Korea can overtake Italy for two consecutive years in terms of GNI per capita among nations with populations of more than 50 million.

In 2020, Korea exceeded Italy in income per capita, becoming the first country to outperform at least one of the G7 members_ the United States, Japan, Germany, the United Kingdom, France, Canada and Italy.

Regarding when Korea's next GNI goal of $40,000 will be achieved, the BOK speculated that, despite factors related to high volatility, it can be achieved “in a couple of years as long as the economy overcomes the pandemic and continues on an upward trend in growth.”

Citing the KERI study, Lee forecasts the country will meet the goal by 2028, as long as essential prerequisites are fulfilled.

Among the prerequisites are maintaining an annual growth of at least 2.2 percent, keeping the GDP deflator at 1.3 percent, keeping the exchange rate at 1,180 won per dollar and ensuring the population remains unchanged.

Chun placed equal importance on external factors, such as stabilization of global supply chains, U.S. monetary policy and global inflation.

“This economic achievement has been linked closely to exports, and the GNI will depend on how we can cope with outside factors that remain outside our control,” she said.