Friday, May 29, 2020
Needs of the Times
Economic Democratization
Needs of the Times
  • By matthew
  • July 23, 2013, 03:24
Share articles

Park Geun-hye, president of South Korea, is the 11th president and first woman to be elected to the office.
Park Geun-hye, president of South Korea, is the 11th president and first woman to be elected to the office.


Economic democratization was a hot issue throughout the recent presidential election campaign in Korea. Both ruling and opposition candidates made related campaign promises in an attempt to win over voters. It was at this time that Clause 2, Article 119 of the Constitution,which relates to economic democratization through harmony among economic units, became a national topic of conversation. 

These days, more than a few people are thinking that demand for democratic economy is rooted in the relations between big businesses and subcontractors. However, it has more to do with the failure of the Lee Myung-bak administration’s so-called 747 policy, which stood for an annual average economic growth rate of 7%, a per-capita GDP of US$40,000, and joining the ranks of G7 countries. 

The main culprit of the policy failure was the recent global financial crises that began in the United States and Europe, but there is no doubt that it was a tall order from the get-go. Korea’s economic growth rate stood at just 2.3% and 0.3% in 2008 and 2009, respectively. While its aggressive fiscal policy pulled up the percentage to 6.2% in 2010, the figure fell to 3.6% and 2.0% in the following two years. With the exception of 2010, the rate never exceeded 3.0% during his five-year term. 

A bigger problem is that the relative poverty rate, that is, the ratio of those earning less than 50% of the median income of the entire population, is rising. It climbed from 14.8% to 15.3% between 2007 and 2009. Though it fell slightly to 14.9% in 2010, the rate then returned to its 2008 level. 

The wealth divide is considered to have derived from the former administration’s economic policies being more friendly to major corporations. The government increased fiscal expenditure on the assumption that big businesses’ growth would lead to larger profits and income on the part of small and mid-size enterprises (SMEs) and households, yet simply ended up snowballing government debt. National debt surged from 299.2 trillion won to 445.2 trillion during these five years. At the same time, economic indices related to households grew steadily worse. Household liabilities soared from 665.4 trillion won to over 1,000 trillion won in the same period, becoming nothing short of an economic time bomb. 

The former president is a self-made man, one who rose to the top from the rank-and-file position of a construction company. As the head of state, he provided a blueprint for the future based on economic policy revolving around large corporations. 

However, people finally came to realize that this was merely a mirage, with politicians quick to take advantage of the situation by unveiling the concept of economic democratization. 

At present, the ruling and opposition parties are in disagreement regarding the scope of legislation related to economic democratization, with the latter in favor of tighter regulations on large enterprises and the former claiming that such restrictions not be too strict. 

Under such circumstances, Deputy Prime Minister Hyun Oh-seok recently said, “It seems that some of the bills submitted to the National Assembly have the possibility of limiting business activities more than necessary,” adding, “However, I believe that politics should not act as a drag on the economy in any event.” The remark is interpreted as the government’s desire to put a brake on excessive legislative activities. Expectations are being raised regarding what will become of this the provisional session of the National Assembly in June. 

Economic democratization is similar to a creative economy; one of today’s talking points, in that their goal is job creation through economic growth. The notion of a creative economy is to make new business and working opportunities by means of creativity at this time when it is becoming more and more difficult to overhaul the economic structure. At the center of the issue is the rate of employment, which is on a downward spiral. 

President Park Geun-hye recently declared that the government would raise the country’s employment rate to 70% by the end of her term. However, labor market insiders are claiming that the goal cannot be met without drastically reforming the current labor policy which is based on neo-liberalism. 

Students at Chonbuk National University look closely at job boards posted during the yearly Grand Job Fair at their university.The employment rate reached 64.2% in 2012 after remaining around 60% for years. According to the Ministry of Employment and Labor, there needs to be 2.38 million additional jobs for it to top 70%. Allowing for the job creation capacity and decrease in working hours nowadays, the employment rate is expected to rise 1% a year for a while. This means the rate will stand at 65.7% in 2017. The government is planning to add a further 0.6% each year by expanding part-time employment and adding a further 2.2 by creating new jobs in the framework of a creative economy. 

Still, the Korean Confederation of Trade Union criticized the plan as an attempt to increase the flexibility of the labor market under the guise of 70% employment.“The government is moving ahead with wage system changes characterized by the introduction of the ordinary wage, as well as in-house subcontracting laws designed to allow illegal worker dispatch, thus making job seekers more and more vulnerable.”

In fact, President Park Geun-hye recently said that the general public should not necessarily think of all part-time jobs as inferior positions. “What matters is not the numerical value, but the quality of job,” said the Korea Labor Institute, adding, “The government has to present a more sophisticated and elaborate roadmap for job creation instead of being obsessed with numbers.”

The government’s concentration on job creation is because of the trend of jobless growth that first emerged in the 2000s. During this decade, the Korean economy grew at an annual average of over 5%, yet the employment growth rate did not surpass 1.5%.

In 2003, the real GDP increased by 3.1% year-on-year, but the number of employees fell by approximately 30,000. Samsung Electronics relocated its mobile phone manufacturing facilities to Vietnam, while POSCO built its third steel mill in India. 

Furthermore, Kia Motors is running plants in six countries, including the United States, China and India. An increasing number of Korean companies are moving abroad in search of cheaper raw materials and energy resources, better incentives and new markets. 

As of the end of 2007, approximately 70% of the 700 largest Korean companies operate overseas production facilities and offices. According to the Ministry of Strategy and Finance, overseas direct investment, which recorded US$5.94 billion in 2003,quadrupled in the following four years. 

It is inevitable that some sectors decline as the industrial structure changes, and the number of required workers cannot but decrease as automation and mechanization increase. The real problem is that big businesses are refraining from hiring new workers.

Currently, large enterprises with at least 300 employees account for just 8% of total employment, with the figure standing at only 3% for the top 30 companies in the country“Major corporations in Korea maximize their employment elasticity by using a dual strategy, i.e. providing regular employment to key members but indirectly employing others in the form of part-time hiring, subcontracting, etc.,” said a local economist. 

Experts are calling upon the government to strengthen the ratio of the service industry by 10 percentage points in order to create jobs and deal with structural problems in the labor market. Specifically, they are claiming that regulations be eased in the legal,accounting and financial sectors, which have higher employment effects than GDP growth, as well as social service sectors such as medical, welfare and old-age care by tearing down entry barriers. The government can take a leaf from the example of Germany, which raised its employment rate from 64.6% to 70.2% through the Hartz Reform of 2003.