South Korean economic growth has enriched corporations, but not the public at large

Posted on : 2017-02-12 13:39 KST Modified on : 2019-10-19 20:29 KST
Professor’s parsing of data finds South Korea with exceptionally high inequality and unevenly distributed gains
Korea University Professor Jang Ha-sung
Korea University Professor Jang Ha-sung

The scathing conclusion of a senior South Korean economist is that while the South Korean economy has grown over the past 25 years, the country has failed to create “economic justice, where everyone prospers.” “We have forgotten the goal of helping the people prosper and have betrayed the belief that individuals prosper when the national economy is strong,” the economist said.

In a lecture titled “What Kind of National Economy do Koreans Want?” during the plenary session of an economic conference held at Sogang University on Feb. 9, Korea University Professor Jang Ha-sung criticized the fact that economic growth is not improving the lives of South Koreans. According to figures cited by Jang, GDP grew 249% between 1990 and 2015, but average household income increased just 90.5%. Over the same period, jobs (that is, the total number of people employed) increased by 43.3%, which reflects a huge gap with economic growth.

Until the Asian financial crisis in 1997, Jang said, there was not a significant gap between economic growth and the increase of gross household income. Between 1990 and 1997, the economy grew by 70.7%, while gross household income increased by 63.2%. This means that families’ standard of living, including workers’ wages, improved proportionally to economic growth. Subsequent to this, the gap increased noticeably. Between 1997 and 2015, economy grew by 104.4% while real growth in household income was just 68.4%.

But as the income gap widened between classes, gross household income in the national economy has been overestimated relative to the change in the actual living conditions of average South Koreans. When a comparison is made not with gross household income but rather with average household income, which is tracked by Statistics Korea, the gap between economic growth and the share taken by households is even wider. Per capita GDP growth between 1997 and 2015 was 85.6%, but average household income grew by just 19.7%.

“When viewed from the circumstances of the average South Korean since the Asian financial crisis, economic growth has been completely divorced from improving their lives,” Jang said.

So who has received the benefits of that growth? Households’ share of gross national income has fallen from 71.6% in 1990 to 62.0% in 2015. In contrast, companies‘ share has increased from 17.0% in 1990 to 24.6% in 2015. In effect, the share of companies and stockholders with capital has continued to increase.

An international comparison makes immediately clear the particular severity of the distinct drop in households’ share of growth in South Korea. Between 2000 and 2015, the South Korean economy grew by 94.3%, which was the highest of the 32 OECD (Organization for Economic Cooperation and Development) member countries. Over this period, household net disposable income grew by 54.6%. The gap between these two indices (39.7 percentage points) is the highest of any OECD member state.

“In terms of the rate of increase of household income relative to the growth rate, South Korea is ninth from the bottom among OECD member states. There are even 17 countries in which the rate of increase of household income is more than 80% of the economic growth rate, in contrast with South Korea,” Jang said.

Another index that shows the gap between economic growth and the finances of ordinary households is income inequality. Even the decreased share of household income has been distributed very unequally among classes. In 1990, the share of gross household income that went to the top 10% of earners was 37.1%; by 2015, this had shot up to 48.5%.

“The South Korean economy is not a just an economy in which people prosper together. We are witnessing a bizarre phenomenon in which economic growth is only enriching corporations without bringing prosperity to the public,” Jang said.

“Jang’s presentation showed how the ailments and symptoms in our economy have been getting worse over the past few decades. It’s not because of the economic downturn, since there has been growth, though admittedly not much, but more of that growth has gone to corporate income, which can be described as the unrealized income of the upper class, rather than to the middle and lower income brackets. This is causing the lives of ordinary Koreans to get worse,” said Yu Shi-min, former Minister of Health and Welfare, who participated in a debate on Feb. 9.

By Cho Kye-wan, staff reporter

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