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Eureka: Advice for the South Korean economy
by Jay Gutman
2017-10-19 10:55:02
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When President Moon Jae In was sworn in, he promised to increase jobs in the public sector and increase salaries of public sector workers. He thought such measures would boost consumption. The problem with such measures, which have populist overtones, is that a lot of public sector workers are middle-aged, not the kind known to be active consumers. Women in public service tend to delay marriage and children to progress in their careers, hours spent on the job tend to be long, and the medium type of income made means workers tend to organize to squeeze in as many savings as they can.

skor1_400Another economic measure President Moon took was innovation-led growth. Innovation-led growth usually means that small companies lead innovation, where bigger companies see potential for larger distribution and buy the company. Unfortunately, in South Korea wealth is concentrated in very few hands and innovation tends to be lead in larger companies, which leads to big profits in innovation-led growth, but such profits are often concentrated within a few hands rather than being spread to the masses.

So I would suggest South Korea use a four-point plan to revitalize the economy which is as follows:

1- Career-growth based job market

2- Debt snowball

3- Cutting useless spending

4- A contract-based economy

So let me break this down

1- Career-growth based job market: this means careers tend to evolve over time and people tend to move from one job to a better one to a better one to an even better one. That's how it was done in the 60s and 70s. People worked for factories then saved enough to start their own factories. People worked on farms then plowed their own land.

Just as collective farms did not work in China and the Soviet Union, collective task-based work does not work in South Korea. The family is still the central unit in South Korea and few South Koreans trust people outside their family, let alone want to spend 12 or 14 hours a day trying to get tasks done with strangers. From an anthropological perspective this question needs to be adressed. How factories and companies employ people cramped in small spaces who all have to work on collective tasks. In the end no one really cares if the tasks are being done, mainly because family's not involved in the task. So you may want to add some flexibility in the way tasks are being divided with collectively-operated task completion systems.

2- Debt snowball

You borrowed 50 million won to get a degree in Ancient Greek history and yet can't place Greece on a map and still expect to find a job that pays at least 50 million won a year. You borrowed 200 million won to buy an appartment when you spend most of the time using the bed at the factory dormitory. Next step in economic planning needs to be debt snowball, repaying the smaller loans, then the bigger loans. That means an economy that is flexible enough to allow employees to work two or three jobs, the kind of jobs that pay by the hour or by the task, without having to give all the hours of free overtime. Work is also a sales transaction, where people are selling their hours of labor in exchange for money. The only way for most people to repay their “stupid” loans is a labor system that enables them to work two or three jobs. Then the policy should be one that encourages people to buy cars, housing and education only if they have the cash. If you can afford to pay for it, you pay for it. If not, you work then pay for it.

3- Cut useless spending

People driving expensive cars because they want people to think their business is successful. People who pay a lot of money to get the kind of education they learn little in. The kind of education that doesn't give them skills they can use in jobs. The kind of education that a lot of times does not even improve their test scores. I talked to some of the Koreans who get high test scores. You know what they told me they did? They didn't go to cram schools. They read the newspaper everyday. And books every now and then. They only took classes for concepts they did not understand or when their was a clear need for a lesson. It was usually private lessons they took from specialists, not cram schools taught by generalists. A 200,000 dollar appartment that doesn't even have a balcony, you can't even enjoy a barbecue in the sunlight. That's an expense that needs to be cut. Unless you have the money to pay for it.

4- A contract-based economy

If I invest a million dollars in a project and don't get paid by the countractor, the Republic of Korea just lost a million dollars. In Keynsian economics the Republic of Korea made a million dollars which shows up in the GDP. But this is when Keynsian economics are tricky. Investment needs a good balance with consumption, money needs to flow both ways. Now imagine I'm your son and I tell you, daddy I just invested a million dollars in a company. You're not going to jump around thinking we're a million dollars richer, are you. We're a million dollars poorer. Now if I say someone paid for 2 million dollars worth of stuff, that's when you can tell me, you spent a million, you made 2, so we have a million dollars. So if contractors don't pay their counterparts, the country's really losing money.

So to wrap up.

Career-growth based job market. A job market where you don't have people who start as wage slaves and end up as lame ducks. Korea is a Confucian nation with strong family ties, companies where strangers work together can still exist, but should not be the best option.

Debt snowball. Koreans need the kind of job market where they can work two or three jobs to repay their debt, before they can settle for an easier job.

Cut useless spending. Teach consumers how to spend. Do research on smart spending. Especially on the big expenses.

Contract based economy. When the consumer doesn't pay, the country's losing money, not making money.

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