Five Economic Questions South Koreans Should Ask Their Next Presidential Candidate—and Themselves
December 12, 2016
While the anger directed at Park exploded because of her ties to Choi Soon-sil, it is fueled by a deeper sense that the country’s economy is sputtering and that opportunities are not available to all. In the past couple of years, the term “Hell Joseon” became popular among young people to describe the unfairness of an environment in which prosperity hinges on performance on a few tests, access to a handful of colleges, and a relatively small number of employers.
South Korean fairness and growth challenges are at the top of a foundation that would seem daunting to any leader. It is a dense country: a population the size of California and Ohio combined, living in the space of Kentucky or, adjusted for uninhabitable mountainous regions, living in the space of Maryland. It can neither feed nor fuel itself, relying on imports for about 70 percent of its food and nearly all its energy. Its rapid growth from 1960 to 2008 has leveled off dramatically since the global economic downturn. Its giant neighbor China is both its greatest consumer and biggest competitor. And it continues to face a threat from neighboring North Korea that, even with a brief, noninvasive, nonnuclear attack, could destabilize South Korea and its economy for years.
Amid all that, South Koreans built one of the world’s wealthiest and most innovative countries. As they choose a new leader, here are five questions South Koreans should ask on economic matters:
1. How should the chaebol be changed?
The question of how to handle the immense economic power of South Korea’s giant business groups, or chaebol, confronts candidates in every presidential election. In simple terms, it gets at the very nature of the business-government nexus sometimes called Korea Inc. that played a key role in the country’s rapid rise out of poverty 50 years ago. In the 2012 presidential race, the term “economic democratization” was the catchphrase that was considered to mean putting a leash on the business groups. Specifics weren’t discussed, however, and little of consequence happened to them during the Park administration.
Public anger at the big groups rose during the influence-peddling scandal as Choi and Park were accused of seeking payments from the chaebols. The leaders of the nation’s largest chaebol appeared together before a legislative panel just days before Park was impeached to answer questions about their interactions with her, a public flogging of business titans not seen in South Korea since the 1980s. In the coming months, will South Koreans continue to be angry with the power of the chaebols or will they decide that the chaebols’ size and capital is keeping the country a player in the global economy? There are ways to reduce their influence, such as forcing greater payouts to shareholders or ending the interlocking agreements that chaebol create with suppliers. Less government protection for the chaebol and more market exposure would also help. Park appeared to be on that course when she let the troubled shipping company of the Hanjin business group go into bankruptcy earlier this year.
2. How should the country’s safety net be improved?
Poverty and suicide in South Korea are greatest among the elderly, signs that, despite its affluence, the country has not created an adequate safety net and retirement system. The challenge is even more acute because the country is aging as rapidly as its neighbor Japan, though it is not as wealthy as Japan. Just a few months after taking office in 2013, Park backed down on a campaign pledge to create a system that provided a monthly allowance to all senior citizens. She cited high present and future costs. The issue has dwelled on the backburner since. A government pension is not available to elderly people who have children. But government polls show that fewer and fewer South Koreans believe that younger adults should take care of elderly family members. This is a spiral that is trapping more and more South Koreans and will increasingly be a drag on its economic performance unless it is addressed.
3. Should it be easier for employers to fire people?
For all its success, South Korea is one of the least productive members of the group of advanced economies, the countries of the Organization for Economic Cooperation and Development (OECD). One reason is that it is difficult for employers to fire workers. That has led to enormous pressures in the education system and spawned a two-tier labor system in which employers try as much as allowed to hire “irregular” workers who they do not have to provide with as many benefits and can shuffle out after some time. Park tried to pass so-called labor reform legislation that would have tackled this issue, but her measures were held up by the National Assembly even before her party lost control of it earlier this April. Creating more labor flexibility would lower the costs of employment and allow South Korean companies a better chance to find the right people for the right jobs at the right time. But a new president who creates such flexibility would also need to change the social stigma South Koreans attach to firing. South Koreans see it as failure and call companies that fire people “murderers.” Downsized car-factory workers, for instance, do not get hired by other car factories as they would in other countries. The upshot: this change requires not just a sustained policy effort but one focused on changing minds and habits.
4. Should farming continue to be heavily subsidized?
About 1 in 50 South Koreans is directly involved in farming, but the group arguably benefits the most from government assistance. Just under half of farmers’ income comes from government producer supports. That is down from 60 percent a decade ago but still remains among the highest in the OECD, along with Japan, Iceland, Norway, and Switzerland. Meanwhile, policies aimed at supporting rice production in particular—South Korea has excluded rice from its key trade agreements—leave South Korean consumers paying far more for rice than people in other countries do. And farmers wind up sticking with rice instead of adjusting to more lucrative crops that are desired on the world market. As in many countries, farmers in South Korea are a far larger force politically than their numbers suggest they should be.
5. Should university education be reformed, including creating competition for elite schools?
One turning point in the Choi Soon-sil scandal that brought down President Park was the news that Choi’s daughter got a break to enter Ewha Womans University, one of the country’s best. Because it is hard to fire people, the top employers tend to recruit chiefly from the best schools, such as Ewha, Seoul National, Korea, KAIST, and Yonsei universities. South Koreans, as a result, seek as much equity as possible in getting a shot at those schools. Some South Koreans expand their prospects by going to schools in the United States or Europe and returning home with foreign language skills and experience. One way to create a more level playing field for South Korean students and to expand the pool of talent for employers is to end the stagnancy in the country’s education industry. For South Korean elites, walling off the top schools from competition translates into personal status and opportunities. For the presidential candidates, raising the topic risks a blowback from business, political, and media leaders. And it may just upset their college friends, as well. Two likely candidates to succeed Park, Ban Ki-moon and Ahn Cheol-soo, attended Seoul National University, the country’s top school. But two others, Lee Jae-myeong and Moon Jae-in, went to schools in Seoul that are just below the top tier – Chung-Ang and Kyung Hee respectively. And Park Won-soon, the current mayor of Seoul who may also contend, started at Seoul National but after problems during the democracy movement, he ended up graduating from a less-elite school outside the capital before going to graduate school outside South Korea.
Photo credit:ED JONES/AFP/Getty Images