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Eureka: Fixing the Korean economy
by Jay Gutman
2018-03-28 09:38:29
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The Korean economy in Q and A format.

Question: Does reducing the number of work hours fix the unemployment problem?

Answer: I find explanations given so far by economists on the relationship between working hours and unemployment rates incredibly confusing. So I've found a simpler explanation.

Ikor0001_400magine a world where every factory and job operated 24 hours a day and you always needed someone at the desk or seat. So you would have three people working exactly 8 hour work shifts, not a minute more. Three times eight equals 24. Now in a world where every single job operates 24 hours a day and you have three people working 8 hours shifts, that would also mean you would need three presidents, three prime ministers and three ministers of defense working 8 hour shifts each. Now in that world, I could say, OK, let's reduce the work hours to 6 hour shifts, where we could hire an additional person to work on each six hour shift. So instead of three presidents working 8 hour shifts each, you would have 4 presidents working 6 hour shifts each, 4 prime ministers working 6 hour shifts each, 4 Samsung CEOs working 6 hour shifts each.

Now we don't live in that world. We live in a world where jobs have a lot more flexibility, where job descriptions are not clearly defined, where there are unexpected workloads, where your boss can give you a ton of orders one day and no orders the next. We live in a world where a lot of jobs are seasonal, meaning you have higher work loads one month and no clients during the winter months for example, or where special events can lead to painful workloads while lack of events can lead to lots of free time for employees. Let's take election commissions foe example, where employees are busy during election months and free when there are no elections, except say when there's a by'election of sorts. Or electricity which is in high demand in the summer but no so much in the winter. Or gas in high demand in the winter but not so much in the summer.

So reducing working hours will unfortunately have very little effects on hiring tendencies, because of the seasonal nature of most jobs. Perhaps 7-11 will hire more people because they do operate on 6 hour a day shifts, or coffee houses or McDonalds, or perhaps hospitals but most companies won't hire more people, because most jobs are not of a 24 hour day nature.

Question: Finding a job in South Korea is incredibly difficult. How do you fix the unemployment problem?

President Moon Jae In made a mistake of sorts. At the height of his popularity when he got elected in May 2017, his first measure should have been to remove all the unnecessary job market regulations that were put in place by his predecessor. Unnecessary regulations included mainly the mandatory pension schemes that force workers to cling on to jobs that they hate because they have their pensions.

Pensions have had a catastrophic effect on the economy at large and the job market in particular. Workers who are confident they will have retirement pensions to live on no longer save money for a rainy day, and even go in debt. Pensions have made workers stay at jobs they would have otherwise left. And pensions have made bosses and owners behave towards workers in ways they otherwise would not have, because they know workers are obsessed by pensions. The old lump-sum scheme worked better, and if employees want pensions, they might as well get private pensions.

Other than that South Korea is a world leader in manufactured goods, but the worldwide consumer trends for manufactured goods has shifted. It used to be a few brands competing, now it's several brands competing. It used to be middle classes buying manufactured goods, but most countries have lost their middle class. Families used to be big consumers of manufactured goods, but marriage is being delayed worldwide. Plus in South Korea manufactured goods are mainly made, sold and exported by a few companies. Diversifying products to include goods other than manufactured goods, such as agriculture and services, and diversifying the producers of agriculture, manufactured goods and services to include small and medium sized companies would be a huge plus.

Finally, in longer term planning, South Koreans are overprepared for the job market. Most jobs don't require four years of training, when a lot of Koreans actually train 10 years for a job, if you include college education, skills training, language training and internships. Koreans need to prepare less and work more, as their work will drive consumption up and create other jobs.

Question: The birthrate is in constant decline and marriage is also in decline. How do you fix that?

Well in the old days children were a necessity, if not an obligation, because boys worked outside the home and girls did all the house work. Now machines do all the house work and few families need their children to work. The structure of the economy has changed.

Now in Europe or North America where the birthrate is also declining, people have children because they fall in love and have children out of love. So in Europe the problem is a lot of people are choosing sex, drugs and rock n'roll over falling in love. Same goes for Korea, except that in South Korea falling in love is also socially discouraged and starting a family involves a lot more social responsibility than in Europe. In Korea if you get married you're also responsible for unemployed brothers and sisters, parents who don't have pensions to live on and sometimes family members who are highly in debt. So love is not an option for many, who would rather choose between the lonely life and the sex, drugs and rock n'roll lifestyle.

Question: The real estate bubble is about to burst or some say has burst. How do you fix that?

Now the real estate market kind of works like the 1,000 dollar bottle of whisky bars put up for sale. You won't get patrons drinking 1,000 dollar bottles of whiskey every day, but when they do, you make a 900 dollar profit on that bottle.

The problem is when bars put up 1,000 dollar bottles of whisky and no one is buying it, peoplel are binging on beer. In the South Korean real estate market, people are increasingly renting smaller flats when they're not living with their parents. But people still build and buy apartments speculating that someone else will buy the apartment, like people will buy the 1,000 dollar bottle of whisky. So the idea is to build a realistic market, and to explain that few people have 1,000 dollars to spend on a bottle of whisky, and even if they have 1,000 dollars, they might as well drink a few beers insead.

Final question: Exports are stagnant and the media is announcing trade wars. How does South Korea compete in that?

In trade wars as in any war you need to choose your path. Do you become Costa Rica, or do you become Al Qaida? Trump's trade wars are based on this fact:

Free trade deals have been signed around the world but the trade balance has been in favor of a few countries. The trade balance was in favor of South Korea because South Korean companies can get as much debt as they like and keep producing to export, no serious trade representatives have been representing foreign brands in South Korea, and it's almost impossible for foreign representatives to represent foreign brands in South Korea, due to complicated visa issues, no access to loans, cultural barriers, lack of cultural training and legal advice to sell foreign brands in South Korea, awkward sales representatives of foreign brands who can't sell on the local market, among other non-tariff trade barriers.

So South Korea can be the good boys and ease representation of foreign brands in South Korea to compete with Korean brands, or nix the trade deals all together. Not to mention patent law infringement and copyright infringement, along with unfair competition.

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