Rep. Chang Byoung-Wan of the Democratic Party (chief policy maker) said that the revenue of the businesses have increased but the family income has decreased with the result that consumption fell and this, in turn, brought about slow domestic economy. He also stated that the government has levied more tax from the consumers and wage earners but less from the businesses, which caused an economic deformation where assets of the businesses increased while the family income fell--adversely affecting the continued balanced growth of the Korean economy.
Rep. Chang made the remarks in a speech he delivered at a breakfast meeting hosted by Chairman Park Young-Man of the Chamber of Commerce and Industry of Korea (KOCHAM) at the International Conference Hall of the Chamber in Seoul on March 20, 2014 on the topic of ‘Policy direction for the recovery of Korean economy.’ Rep. Chang spoke before a congregation of about 300 representatives of the Korean business community. Excerpts from the speech follow:
Excerpts from the speech of Rep. Chang:
Due to the slow economy of the world, the Korean businesses are having a tough time. The Korean government has announced a three-year economic development plan seeking to attain the economic growth of 4%, employment rate of 70% and a per-capit GNI (gross national income), and is making an effort to attain the goals.
However, it is doubtful if the government plan is really effective because the plan does not have any reference to the increase in consumption or income which is essential to the vitalization of the economy.
The Democratic Party agrees with the government on the point that recovery of the economy is important for the improvement of the quality of living of the people. For this purpose, the Democratic Party has set the policy priority at the vitalization of the economy and improvement of the living of the people.
The Democratic Party is making an unreserved effort for the rapid development and growth of the small-medium business companies for the creation of jobs and economic growth of the country.
Last year, the Democratic Party declared that it would travel together with the small and medium industries.
However, there are some people who view the Democratic Party as being an unfriendly political organization to the business community. This is not true.
We have always been emphasizing that creation of jobs is the best welfare for the people and we have never belittled the importance of the businesses although we have pointed out the problems related with the big business-centered operation of the national economy.
On this basis, the Democratic Party has continuously been stressing the importance of nurturing and development of the small and medium businesses.
The economic democratization sought by the Democratic Party is not a control or restriction on the businesses as such control and restriction come in the way when the businesses want to and should grow.
On the contrary, the Democratic Party has been looking for ways for both big and small-medium industries to grow together so that consumption will increase among the people as a result of growth in the revenue of the people.
Increased consumption by the people will contribute to the promotion of sales by the businesses.
The Davos Forum held in the Switzerland last January discussed various problems on the topic of “Impact of the Reorganization of the World on the Society, Politics and Businesses” and the participants agreed that aggravating income disparity was the most serious global problem.
In Korea, too, we should make effort to find a solution to the income divide among the different strata of people. I think that solving of this problem will eventually contribute greatly to the vitalization of the economy.
The consumption in the private sector in Korea is over 50% of the GDP and creation of jobs is very important for the vitalization of the economy. When actual consumption increases by 1 billion won, it creates about 19 jobs. However, the private consumption in Korea vis-?-vis GDP is the lowest among the member countries of the OECD (Organization of Economic Cooperation and Development). The primary reasons for this situation are the reduction in the family income.
Before 2011, the increase rate of the income and that of consumption was more or less on a par. However, from that time, the family income decreased which also brought down the increase rate of consumption. While the domestic consumption rate of 2012-2013 was about 2 to 4%, the increase rate of consumption recorded a minus growth. This reflects a situation where the assets of the businesses increased while the family income increase rate stood still.
The rate of downturn of the share of the family income in Korea after 2000s placed third among the member countries of the OECD after Hungary and Poland. The Labor Income Distribution, which shows the rate of distribution of the profits of the businesses to the income of the workers, dropped from 61.3% in 2006 to 58.9% in 2010 and it has never recovered since.
In other words, the fruit of economic development and growth went to the businesses but not to the family income. This is posing an obstacle in the recovery and vitalization of the economy. This is why the economic policy of the Democratic Party centers around increasing the family income for the vitalization of the economy.
The present economic policy of the government is based on ‘Supply Priority Economics’ which is aimed at vitalization of investment by the businesses, increase in employment and expansion of consumption. This policy is aimed at reduction and removal of restrictions from the businesses to induce increased investment by them. However, many experts recommend an approach to the problem through stimulation of consumption. In particular, investment expenditures need more time than the consumption expenditures do in causing economic vitalization.
In 2012, while the labor income tax rose by 11.7% (2.3 trillion won) compared with the preceding year, the corporate tax of the businesses dropped by 4.5% (2.1 trillion won) to 43.9 trillion won, which is the largest rate of decrease.
Thus, income of the businesses increased while the family revenue dropped. In contrast, the government levied more tax from the families than from the businesses, which shows a deformed state of the revenue sharing.
These problems cannot be left unattended. It is because it could reduce the family income which, in turn, will bring reduction of consumption and stagnation of the economy.
To solve this tuition, the corporate tax must be increased although it could come temporarily as a burden on the businesses.
What we need most at this time is cooperation among all economic entities for fair sharing of the fruits of the economic growth. The economic democratization sought by the Democratic Party is not imposition of restrictions on the businesses. What we seek is a well-balanced growth for sustained economic growth and vitalization.
I hope that the businesses will lead this effort for the sustained growth of the economy in cooperation with labor.
Photo below shows Rep. Chang Byoung-Wan of the Democratic Party (chief policy maker) is flanked by Chairman Park Young-Man of the Chamber of Commerce and Industry of Korea (KOCHAM) on the right and Chairman Shim Bak-Jae of NXP Semiconductor.