Jeongpyo Choi, President of the Korea Development Institute (KDI), on the afternoon of the 26th of last month, at the Korea Development Institute, Bangok-dong, Sejong City. <한겨레>I am interviewing with. By Sejong/Kim Myung-jin, staff reporter [email protected]
Where should our economy go in the era of’post corona’? Jeong-pyo Choi, president of the Korea Development Institute (KDI), said, “There is consumption and jobs in the service industry. The government’s industrial policy should shift away from the manufacturing industry.” He also emphasized the need for tax increases. As the Korean economy has entered the stance of “low growth in the 1% range”, it is said that “we cannot maintain fiscal sustainability without a tax increase”. Although the Moon Jae-in administration’s response to the corona crisis was positively evaluated, he pointed out that the chaebol and tax reform were very insufficient. Regarding the concern about the liquidity bubble, he said, “We need to induce the liquidity channel toward the industry through the New Deal policy.” Choi, who has led a representative think tank in Korea for the past three years, is about to retire at the end of this month. He advised, “The task is to deviate from the growth paradigm and design a Korean-style developed country model.” Director Choi is a scholar who has been working on chaebol and conglomerate issues for a long time, and has actively participated in civic movements, including co-representing the Citizens’ Alliance for Economic Justice. The interview was held at the Korea Development Institute in Sejong City on the 26th of last month. ―Gross domestic product (GDP) increased by 1% due to the corona crisis last year. How do you rate it? “I think you were very good at it. Although private consumption was severely stagnant and investment decreased, negative growth was minimized by expanding finances and easing finance. The financial role was the biggest. Exports were also supported.” -There is a lot of controversy over the’fiscal role theory’. The side that is lacking and the side that is too much are constantly encountered. On the 4th, an additional budget for corrections for the payment of the 4th disaster support fund will be submitted to the National Assembly. “What we did well in the corona crisis was possible because of our strong finances. Until now, the level of response to the crisis in the national fiscal crisis is not too excessive or insufficient. The problem is jobs, but the limits are clear only with finances. Jobs must ultimately be absorbed by the private sector. You can’t put too much money on it. After the corona crisis passes, it will improve in the process of restoring the vitality of the private sector. Until then, finances must ensure that jobs are defended and retained as much as possible through disaster assistance and damage compensation. From an economic point of view, fiscal expenditure is considered appropriate at the level of overcoming the crisis. We wouldn’t know if it were more difficult for us than other countries, did we not well defend the corona crisis last year.” -The national debt burden is increasing due to the expansion of finance. At what level is it appropriate to manage financial soundness? “The corona effect will reduce tax revenues and widen the fiscal deficit. The problem is that the rate of increase in the national debt ratio (relative to GDP) is too fast. It is currently in the late 40%, but if it stabilizes at the 50% level, it can be tolerated, but if the trend continues to increase, it is difficult. You should be able to control it at the current level. In the long run, it is also necessary to think about the fiscal requirements for progress in inter-Korean relations. It is necessary to maintain fiscal soundness in order to be able to respond.” -The theory of increasing taxation for stable finances is being raised in the politics. Several proposals are also coming out in the academic world. “It must be said that the Korean economy has entered a period of ‘1% growth rate’. The level of technology improvement and capital accumulation has now passed a period of rapid growth. We have also entered the ranks of the traditional capitalist developed countries. Under the premise that the trend of low growth is inevitable, it is necessary to find a solution to how to maintain financial sustainability amid a low birth rate and aging population. So the symptoms are inevitable. It cannot be solved without symptoms. The tax increase issue is an issue that is difficult to bring out from the political world, but it is a must. If it is difficult in this government, the next government must reform the tax system and budget and change the frame to meet the trend of low growth.” ―In what direction and content do you think the increase should be made? “Both the tax burden rate and the national burden rate in Korea are lower than the average of the Organization for Economic Cooperation and Development (OECD). Financial efficiency should be improved and taxation should be fairer, such as adjusting unnecessary expenditures. It is also necessary to increase tax transparency and prevent taxation blind spots. The priority is to increase the progressive rate a little further and strengthen fair taxation. And by lowering the tax-free shop, I think it is the right direction for more people to pay their taxes even if the tax amount is small. That way, you can persuade the tax increase while maintaining tax equity. As you know, VAT has a retrogressive character. The key is whether you can persuade the people.” -In the process of responding to the corona crisis in each country, the gap between the real thing and finance has widened. There is also a high concern about liquidity bubbles. Some say that an exit strategy is needed due to the recent rise in interest rates. “Although liquidity is abundant, prices are stable. The real economy is growing negatively, but stocks and real estate are rising. It is not an easy matter to determine whether the bubble in the asset market and the abnormal gap between the real and the finance. Even during the 2008 financial crisis, major countries responded to the crisis by using the Keynesian method to defend against the recession with state fiscal input. The question is how to make a soft landing during the liquidity recovery period after Corona. When the corona crisis is over, the policy of normalization should be written in a timely manner. The liquidity channel should be diverted to the industry through the New Deal policy, and should be attracted to consumption and investment. There is nowhere for money to go, but I think the flow of money will change once the real thing comes to life.” ―As apartment prices have soared, they are becoming a major factor in public anxiety. There is also a view that it is not a problem to be approached by micro-policy. “Real estate is a special good. We talk about shortages a lot, but I think the liquidity impact is the biggest. The temporary side is strong. Housing became a means of finance, not residence. It is only now that we are looking at the stock market. It is a global phenomenon that money is concentrated in real estate due to liquidity and financial easing that were released during the corona crisis. It’s not just our policy authorities to blame, but it’s a huge burden and an unusual situation for the homeless people. There is a thing that all prices are relative, but now house prices have risen too much compared to other goods. It is difficult to keep the balance point broken for a long time. Japan also had a big market shock as the real estate bubble burst, and we are also concerned that it will be difficult if we enter the liquidity recovery period.”
Jeong-pyo Choi, President of the Korea Development Institute (KDI), on the afternoon of the 26th of last month, <한겨레>After interviewing with, he is posing. By Sejong/Kim Myung-jin, staff reporter [email protected]
-Last year, the total fertility rate dropped to 0.84. This is half of the OECD average (1.63). The vicious cycle of low birth rate, aging population, and population decline has seldom been reversed. “In the age of the baby boom, 300,000 people have collapsed from 1 million births per year. If this trend is the case, both social and economic systems will face a crisis. When crossing a population cliff, tremendous pain and conflict will be induced between generations. It’s hard to bear. Japan also has a population policy of 100 million people on the Maginot Line, but we should also make 50 million people on the Maginot Line. Honestly, I wonder if the low birth rate problem can be solved with only money and policies. Unlike in the past, most of them are double-income, but they have not been able to socialize parenting and childcare. In addition to this, there are too many factors that make life anxious due to childbirth. Child care, education and housing should be supported as much as possible to the level where they perceive childbirth as a benefit to them.” ―How do you see the competitiveness of domestic industries and companies revealed in the course of the corona crisis? “I think our manufacturing industry has reached the level of advanced countries. Even in the coronavirus crisis, export industries such as semiconductors and automobiles were doing well. Other flagship companies, such as shipbuilding, steel, and petrochemicals, are also facing reversal opportunities while maintaining their competitiveness. After the corona, the manufacturing industry and the 4th industry are now going to compete in digital technology. Major companies are well prepared for the fourth industry, such as artificial intelligence, electric vehicles, and Internet of Things, in line with the changes in the global market. Contrary to concerns, when Japan regulated exports last year, did you not overcome it well with its own global value chain (supply chain) and network?” ―In the post-corona era, where should I focus on industrial policy? “Compared to developed countries, the service industry is also significantly lagging in the proportion and productivity. I believe that upgrading the service industry is the path to a practically developed country. There is consumption and jobs in the service industry. The digital-centered fourth industry, which is the direction of the manufacturing industry, has many limitations in job creation. Just as the heavy and chemical industry and information technology (IT) industries were nurtured at the national level, now is the time to grow the service industry. China is already shifting its focus to domestic demand and services. However, the industrial policy of the Korean government is still buried in the manufacturing industry. Because of the corona, the face-to-face service industry is shrinking so much, but when the corona is over, the service industry is the fastest place to focus. Manufacturing is gaining an edge in the digital competition, and new opportunities have to be found in the service industry.” ―It is the fourth year of the Moon Jae-in administration. What would you rate the last four years in terms of economic policy? “In general, the economy was well operated, but reforms were inadequate. In particular, they had little hands on chaebol and tax reform. The most positive outcome is to respond to the corona crisis. This is the best case among OECD member countries. Of course, it is thanks to the strong foundation of K (K) quarantine. It is also a good thing to have the financial expansion done in a timely and appropriate manner. Foreign countries evaluate Korea as an exemplary case for crisis response, but domestic evaluation seems to be too tight. The reform of the chaebol is lacking and unfortunate. I barely touched it.” ―What specific parts do you think were inadequate in the chaebol reform? Can’t you notice the change flow as you go to the 3rd and 4th generation management? “The key to chaebol reform is to ease chaebol dependence and concentration. To this end, it is important to break the chain of hereditary emperor management. However, there have been few policy and legislative approaches to solving this problem. Unlike American, Japanese, and European companies, Korean conglomerates have a nearly 100% owner inheritance management system. Now the 3rd and 4th-year-olds have succeeded, but there are 20 to 30 years left for the current heads to manage, and their descendants are still taking business classes. I don’t see any signs of improvement. There is not enough money to inherit a stake in management control, and there is a repeat of taking advantage of illegal or illegal activities. Great professional managers in Korea use up all their abilities to serve as a young, hereditary owner, rather than to run a company.” ―How should I change the chaebol system? Last year, a commercial law was revised to ease the owner’s war. “You can follow the global trend of separation of ownership and management. During the founding days, the founder himself was a professional manager. This is the same in foreign countries. However, it is common for the second and third generations to split their inheritance shares and naturally go to a professional manager system. Management should go to a system of professional managers, and the power of the owner should be greatly reduced. Like the German management committee, stakeholders such as minority shareholders should participate in the board of directors to strengthen transparency and check the decision-making rights of owners. Although the Commercial Law was revised last year, it was greatly weakened by going to the National Assembly. Previous governments said they were reforming the chaebol, but they failed. When the game was good, he was good at it, and when it was bad, he practically didn’t touch it as an excuse to save the game. The number of people who benefit from reform is an unspecified majority, and social benefits appear over a long period of time. Therefore, the forces that agree with the reform are passive, while the forces that resist are bound to be strong and active.” -This year marks the 50th anniversary of the Korea Development Institute. It is a think tank representing Korea. What kind of national task do you think should be undertaken in the future? “The Korea Development Institute is a successful model that has faithfully served as a theoretical traction vehicle by collaborating with the government during the period of rapid growth, and has risen to the ranks of an international think tank. So far, I see it as a success story. Now, Korea has become the seventh member of the ’30-50 Club’ (per capita income of $30,000, population of 50 million). There is something like the ’40-year rule’. Japan’s period of rapid growth began in the 1950s and reached a zero-growth period after the 1990s. China’s rapid growth after reform and opening up in the 1970s is now entering the maturity phase of single-digit growth. In Korea, from the 60s to the end of the 90s, the rapid growth of 40 years ended after the financial crisis. It is an empirical rule that if capital, technology, and labor accumulate during a generation, the limit of growth is reached to some extent. Now is the time for us to think about which developed country we will go out of the growth paradigm. The Korea Development Institute is an institution that designs the future of such a country. We should focus on designing a Korean-style developed country model towards the big goal of’quality of life’.” [email protected]