Korea's Economy in the Global Economic Crisis
Published in Hankyoreh
(South Korea) on 18 September 2011
by Kim Su-haeng, Chair of Sungkonghoe University (link to original)
In the current global recession, which began in August 2007, global capitalism is driving itself to collapse from lack of collaboration, which is needed for the globalization of capital among nations. If an alternative solution to the gap between the rich and the poor, unemployment, trade and currency conflicts and armed conflicts is not found, the rosy future promised by advances in science and technology will experience a setback.
The great recession was set off when various financial institutions became insolvent: the ones that created all sorts of mortgage products to lure people who could not afford traditional mortgages; the ones that created all sorts of worthless securities backed by such subprime mortgages and sold them at high prices; and the ones that either purchased or insured these worthless securities. In the beginning, the government provided emergency bailouts, believing that the recession would be resolved if financial institutions were stopped from going bankrupt. However, the financial institutions that evaded bankruptcy ungratefully called into question the increasing government debt and its repayment ability, and lowered America’s credit rating, pressuring for austerity measures.
Since May 2010, people in Greece, Portugal, Ireland, Spain, the U.K. and France have been staging public protests against the sacrifice made in people’s standards of living and public services in order to make up for the increased budget deficit from the emergency bailouts. Also, in August, a large-scale riot broke out in London and spread across the country.
In January 2011, people in the Middle East and Africa started revolting against decades of repression and exploitation and, with support from international forces, overthrew neoliberal authoritarian regimes in Algeria and Egypt. The revolutionary movements have spread out to include Libya, Syria, Yemen and Bahrain.
Since February, each American state has been pursuing deficit-reducing measures such as layoffs and wage cuts, closing and downscaling public services (including schools, public health centers, libraries, fire stations and parks) and reducing aid for seniors and low-income households. In reaction to these measures, people began occupying state government office buildings.
The additional sociopolitical crisis on top of the financial mess is making it very difficult to overcome the whole crisis this time. If the government adopts a fiscal expansion policy to aid the unemployed, it will hurt its balance sheet; on the other hand, if austerity measures are adopted to help the balance sheet, unemployment will grow higher, further aggravating the struggle of everyday people and slowing down economic growth, causing the deficit to increase further. The government is facing a dilemma against the capitalist class. As such, they put the focus on the security crisis, losing sight of the real causes of the whole crisis, and supported the extreme right-wing, anti-Islam, pro-immigration control and illegal immigrant deportation position by adopting measures suppressing civil rights.
Moreover, to escape from their own recessions, they are implementing the “beggar-thy-neighbor” policy, engaging in trade and currency wars and armed conflicts, causing further contraction of the world economies. Now, the European Union, the European Central Bank and the euro, through the issue of a Greek default, are facing dissolution; the U.S., through quantitative easing (mass printing of dollars) is devaluating its currency; hence, Japan and Switzerland tried to stop their own currencies from appreciating by setting low exchange rates to the U.S. dollar and the euro. The international powers involved in the merciless bombing and shooting of the family and supporters of Libya’s Gadhafi are clashing over the division of oil interests. Also, the two world economic powers, the U.S. and China, are clashing on almost everything.
The best method to get out of the global recession, thereby dodging international calamities, household bankruptcies and riots, is to provide the unemployed suitable jobs. According to the recent projections by the Economic Policy Institute (EPI), a liberal organization in the U.S., the U.S. has been in a recession since December 2007, with 6.9 million jobs lost and 4.3 million people entering the labor force, amounting to the present shortage of 11 million jobs. In order to erase [the increased unemployment rate] within the next five years, 280,000 jobs need to be created every month (taking into account an average of 100,000 people entering the labor force each month). However, in the three-month period from June to August 2011, only an average of 35,000 jobs a month were created; at this rate it will take 15 years to reach the pre-recession unemployment rate of 4 percent.
President Obama’s “American Jobs Act,” which he presented at a joint session of Congress on September 8, is completely different from Roosevelt’s New Deal. In Roosevelt’s program, the government led attempts to relieve unemployment through public works, unemployment benefits and Social Security, and income tax rates were greatly increased — notably, the highest rate of 25 percent was raised up to 80 percent. On the other hand, Obama’s plan will leave Bush’s tax cuts for the rich (the reduction of the top tax rate from 39.6 percent to 35 percent) untouched;* the funds for job growth will be obtained by cutting back on social programs (for example, Medicare, Medicaid and Social Security**). Small businesses will be given tax cuts in order to encourage hiring. In the end, Obama’s policy will only make the government spend more on subsidies as businesses exploit it to hire more workers cheaply, and the cut in social programs will reduce people’s purchasing power, further slowing down economic growth and increasing the budget deficit.
In South Korea, with a gross per capita income of $20,000 (about 200 million won), one should be able to live very well. After taking out last year’s cost of manufacturing, machinery and raw materials, there is still 20 million won left per citizen per year. If a household of four has 80 million won a year available, families will not need to worry about money and suicide incidents stemming from money worries will completely disappear. However, this is not the case, so where is the problem?
If democracy means sovereignty of the people, governing themselves, then a situation where a rich minority holds a monopoly on freedom and represses a majority of the population, or where a rich minority holds a monopoly on wealth and leaves a majority of the population on the brink of starvation, is not really democracy. If overthrowing political dictatorship to give freedom to all citizens is called democracy, eliminating large-scale unemployment is also a way to establish democracy. As unemployment arises not because the job seekers lack qualifications, but instead because businesses cut their work forces to turn a profit, it follows that if businesses set their goals not on the pursuit of profits, but instead on satisfying people’s needs, unemployment will naturally disappear.
For example, if financial giants and industries were to be democratically managed and turned into citizen-owned companies, they would provide jobs instead of being focused on making profits, provide low interest loans to those in need and therefore promote progress of household finances. Also, if work is shared to reduce each worker’s working hours, it would not only create more jobs, but also give more free time to workers to improve their family lives, factories and society. Also, if housing, education, health care and pensions strengthen the community and save costs through economies of scale, then people would be able to live without worries and many jobs would be created from these sectors. As welfare policies create jobs, income will be generated, inducing economic growth, thereby making the notion that welfare and growth contradict each other unfounded.
By maintaining peaceful relations with other nations, the completely unproductive defense spending can be sharply reduced. Also, the draft system, which induces suicide and pulls youth to military service at the time they should be focusing on their studies, will naturally be revised. Furthermore, trade wars and currency wars are intensifying like in the 1930s, with the possibility of developing into armed conflicts in this global recession; therefore, serious consideration needs to be given to developing the domestic market, not the foreign market. Following this logic, the welfare system needs to be expanded, whereas the simple U.S.-Korea free trade agreement, which is dependent on the U.S. government and capital, should not be pursued.
Translator's Notes:
* According to the speech (http://www.whitehouse.gov/the-press-office/2011/09/08/address-president-joint-session-congress), there is a plan to increase taxes for the rich through tax code reform. An increase in tax paid can be accomplished through other ways than increasing the marginal income tax rate.
** The speech mentions health care reform (Medicaid and Medicare), but not Social Security.
The great recession was set off when various financial institutions became insolvent: the ones that created all sorts of mortgage products to lure people who could not afford traditional mortgages; the ones that created all sorts of worthless securities backed by such subprime mortgages and sold them at high prices; and the ones that either purchased or insured these worthless securities. In the beginning, the government provided emergency bailouts, believing that the recession would be resolved if financial institutions were stopped from going bankrupt. However, the financial institutions that evaded bankruptcy ungratefully called into question the increasing government debt and its repayment ability, and lowered America’s credit rating, pressuring for austerity measures.
Since May 2010, people in Greece, Portugal, Ireland, Spain, the U.K. and France have been staging public protests against the sacrifice made in people’s standards of living and public services in order to make up for the increased budget deficit from the emergency bailouts. Also, in August, a large-scale riot broke out in London and spread across the country.
In January 2011, people in the Middle East and Africa started revolting against decades of repression and exploitation and, with support from international forces, overthrew neoliberal authoritarian regimes in Algeria and Egypt. The revolutionary movements have spread out to include Libya, Syria, Yemen and Bahrain.
Since February, each American state has been pursuing deficit-reducing measures such as layoffs and wage cuts, closing and downscaling public services (including schools, public health centers, libraries, fire stations and parks) and reducing aid for seniors and low-income households. In reaction to these measures, people began occupying state government office buildings.
The additional sociopolitical crisis on top of the financial mess is making it very difficult to overcome the whole crisis this time. If the government adopts a fiscal expansion policy to aid the unemployed, it will hurt its balance sheet; on the other hand, if austerity measures are adopted to help the balance sheet, unemployment will grow higher, further aggravating the struggle of everyday people and slowing down economic growth, causing the deficit to increase further. The government is facing a dilemma against the capitalist class. As such, they put the focus on the security crisis, losing sight of the real causes of the whole crisis, and supported the extreme right-wing, anti-Islam, pro-immigration control and illegal immigrant deportation position by adopting measures suppressing civil rights.
Moreover, to escape from their own recessions, they are implementing the “beggar-thy-neighbor” policy, engaging in trade and currency wars and armed conflicts, causing further contraction of the world economies. Now, the European Union, the European Central Bank and the euro, through the issue of a Greek default, are facing dissolution; the U.S., through quantitative easing (mass printing of dollars) is devaluating its currency; hence, Japan and Switzerland tried to stop their own currencies from appreciating by setting low exchange rates to the U.S. dollar and the euro. The international powers involved in the merciless bombing and shooting of the family and supporters of Libya’s Gadhafi are clashing over the division of oil interests. Also, the two world economic powers, the U.S. and China, are clashing on almost everything.
The best method to get out of the global recession, thereby dodging international calamities, household bankruptcies and riots, is to provide the unemployed suitable jobs. According to the recent projections by the Economic Policy Institute (EPI), a liberal organization in the U.S., the U.S. has been in a recession since December 2007, with 6.9 million jobs lost and 4.3 million people entering the labor force, amounting to the present shortage of 11 million jobs. In order to erase [the increased unemployment rate] within the next five years, 280,000 jobs need to be created every month (taking into account an average of 100,000 people entering the labor force each month). However, in the three-month period from June to August 2011, only an average of 35,000 jobs a month were created; at this rate it will take 15 years to reach the pre-recession unemployment rate of 4 percent.
President Obama’s “American Jobs Act,” which he presented at a joint session of Congress on September 8, is completely different from Roosevelt’s New Deal. In Roosevelt’s program, the government led attempts to relieve unemployment through public works, unemployment benefits and Social Security, and income tax rates were greatly increased — notably, the highest rate of 25 percent was raised up to 80 percent. On the other hand, Obama’s plan will leave Bush’s tax cuts for the rich (the reduction of the top tax rate from 39.6 percent to 35 percent) untouched;* the funds for job growth will be obtained by cutting back on social programs (for example, Medicare, Medicaid and Social Security**). Small businesses will be given tax cuts in order to encourage hiring. In the end, Obama’s policy will only make the government spend more on subsidies as businesses exploit it to hire more workers cheaply, and the cut in social programs will reduce people’s purchasing power, further slowing down economic growth and increasing the budget deficit.
In South Korea, with a gross per capita income of $20,000 (about 200 million won), one should be able to live very well. After taking out last year’s cost of manufacturing, machinery and raw materials, there is still 20 million won left per citizen per year. If a household of four has 80 million won a year available, families will not need to worry about money and suicide incidents stemming from money worries will completely disappear. However, this is not the case, so where is the problem?
If democracy means sovereignty of the people, governing themselves, then a situation where a rich minority holds a monopoly on freedom and represses a majority of the population, or where a rich minority holds a monopoly on wealth and leaves a majority of the population on the brink of starvation, is not really democracy. If overthrowing political dictatorship to give freedom to all citizens is called democracy, eliminating large-scale unemployment is also a way to establish democracy. As unemployment arises not because the job seekers lack qualifications, but instead because businesses cut their work forces to turn a profit, it follows that if businesses set their goals not on the pursuit of profits, but instead on satisfying people’s needs, unemployment will naturally disappear.
For example, if financial giants and industries were to be democratically managed and turned into citizen-owned companies, they would provide jobs instead of being focused on making profits, provide low interest loans to those in need and therefore promote progress of household finances. Also, if work is shared to reduce each worker’s working hours, it would not only create more jobs, but also give more free time to workers to improve their family lives, factories and society. Also, if housing, education, health care and pensions strengthen the community and save costs through economies of scale, then people would be able to live without worries and many jobs would be created from these sectors. As welfare policies create jobs, income will be generated, inducing economic growth, thereby making the notion that welfare and growth contradict each other unfounded.
By maintaining peaceful relations with other nations, the completely unproductive defense spending can be sharply reduced. Also, the draft system, which induces suicide and pulls youth to military service at the time they should be focusing on their studies, will naturally be revised. Furthermore, trade wars and currency wars are intensifying like in the 1930s, with the possibility of developing into armed conflicts in this global recession; therefore, serious consideration needs to be given to developing the domestic market, not the foreign market. Following this logic, the welfare system needs to be expanded, whereas the simple U.S.-Korea free trade agreement, which is dependent on the U.S. government and capital, should not be pursued.
Translator's Notes:
* According to the speech (http://www.whitehouse.gov/the-press-office/2011/09/08/address-president-joint-session-congress), there is a plan to increase taxes for the rich through tax code reform. An increase in tax paid can be accomplished through other ways than increasing the marginal income tax rate.
** The speech mentions health care reform (Medicaid and Medicare), but not Social Security.
Next article![]( "Hunting in Troubled Waters")
