Dark Threatening Fog is covering up the Future of the Korean Peninsula

Dr. Joseph H. Chung (정희수) Professor of Economics, Quebec University in Montreal (UQAM)

(지난 호에 이어)

What is frightening is the possibility of importing the Japanese model of decades-long economic stagnation. The fundamental reason for the Japanese decades-long economic stagnation was Japan's failure to overcome the shock of the 1989 asset bubble busting.

 But, it is important to find out who were responsible for the asset bubble. In 1985, the value of stocks was 60% of GDP but in 1989, it represented 250% of GDP. In 1989, the real estate value of the Japanese territory was four time that of the U.S. territory, although the area of the Japanese territory was 3.7% of that of the U.S.

 Then, in 1989, Bank of Japan raised the interest rate from 2% to 6%; it was too much. The bubble exploded. The value of stocks fell by 60%; the value of real estate had a free fall of 80%.

 Japan tried all the known policies to overcome the shock of the bubble explosion but failed. The GDP which had a growth rate varying between 4.5% and 20% before 1990 fell to 1.72% in the period 1990-1995 and to 1.1% in the period 1996-2018.

 This is the horror story of the saga of the falling Japanese economy. There were many years of minus GDP growth. The per capita GDP fell from USD 44,674 in 2010 to USD 39,295, a fall of 12%.

 The important question is this: "Who were responsible for this crime of destroying the Japanese economy?" It was the greed of the Golden Triangle referring to the oligarchy composed of bureaucrats, politician and large corporations.

 True, the oligarchy has made major contribution to the Japanese economic miracle, but over the years, it transformed itself into closely knit corruption community and appropriated the bulk of the national wealth through bribe money and real estate speculation money.

 The real estate speculation has produced two harmful results

. First, it has enforced illegal or immoral activities of the oligarchs thus expanding the community of corruption.

 Second, it is so easier to make money that the large corporations have invested more funds in real estate than in technological innovation. As a result, leading Japanese corporations have lost their global share. For example, in the period 2005-2011, Toyota's global share dropped from 51% to 41%; Honda's global share fell from 39% to 29%, the Share of DRAM decreased from42% to 9%

 Third, the Japanese model has worsened the inequality income distribution, caused under-development of SMEs and decreased regular jobs. Despite the injection of astronomic amount money in the economy it did not revive. The amount of fiscal money injected was 250% of GDP; the money created in the name of Quantity Easing (QE) as almost 90%of GDP.

 But, there was no demand for goods and services, because the ordinary Japanese had empty pockets; there was no job creation, because the SMEs had no demand for their goods. Moreover, they could not get bank money, because they had little collateral. At the end of the road, decades-long economic stagnation was waiting.

 In a word, the saga of the falling Japanese economy was due to the greed of the corrupted elite.

 This can happen in Korea under the pro-Japan corrupted conservative government of Yoon Suk-yeol.

 In fact, the Korean GDP maintained annual grow rate of about 9.00% for three decades 1960s, 1970s and 1980s dropped to 7.22% in the 1990s and 4.60% in 2000s. It fell to 2.92% in the 2010s. The sudden drop of the GDP growth rate was due to the poor performing of Korean exports of goods and services.

 In the latter half or the 1970s, the average annual rate of Korean exports was 22.3% to decrease to 14.74% in the 1980s, then to drop to 11.0% in the 1990s; it rose to 12.47% in the 2000s and finally it had a free fall of 5.26% in the 2010s.

 However in the 2010s, if we except 2011 (24%), 2013(14%) and 2017 (10.0%), for 7 years, the rate of exports growth was below 1.0%. In other words, the downward trend of Korean exports became accelerated since the second half of the 2000s.

 The sustained trend of declining GDP growth and the drastic slowdown of exports is largely due to the increase access to financial resources of the 1980s allowing wide spread real estate speculation by the Korean oligarchy.

 In the 1980, the housing price increases by 17% per year. The large corporations being able to make money easily through real estate speculation did not invest funds for the development of technology and the improvement of global competitiveness. In fact, since 1980, the favoured pass time was "Jae-taek" (technique of making easy money); this is the "Zaitech" imported from Japan

 The real estate speculation has continued despite the efforts of the government of Moon Jae-in. In Seoul, the ratio of housing price to income is 33 which was 15 in the 1990. In Seoul, an apartment of 100 m2 is sold for more than 2.5 million USD.

 Remember this. The Asian financial crisis of 1997-98 in Korea was due to the abundance of money around and the access to easy and quick money which could be made by real estate speculation. The large corporation borrowed so much money to make speculation money that the average of corporate debt ratio was 600%.

 This is just incredible. The corporate debt ratio exceeding 100% is a sign of alarm. The crisis of 1997-98 was due to the impossibility for the Chaebols to pay debt in a situation where foreign funds were fleeing.

 This was the first financial national crisis for Korea. To overcome the crisis, millions of ordinary Koreans gave their golden wedding rings and other golden items to pay the national debt.

 Fortunately, the crucial measure taken by the Kim Dae-jung government was the structural adjustment designed to discipline the Chaebols, make their accounting system more transparent and induce them to be more specialized so that their global competitiveness be improved.

 However the most powerful measure was the non-bailing-out of insolvent Chaebols, banks and businesses. This was the major difference between Japanese model which bailed out insolvent companies who were friends of the oligarchs and the Korean model in which insolvents companies were not bailed out.

 These Korean measures were possible because Korea had the leadership of Kim Dae-jung of the Democratic Party as president. If Korea had a conservative president, Korea might have had the long-run economic stagnation like in Japan.

 The failure of Abe Shinzo's Abenmics was due to the absence of the Kim Dae-jung's model of corporate structural adjustment.

 There is the danger that Yoon repeat the failed model of Shinzo Abe of Japan

 To conclude, the election of Yoon Suk-yeol casts dark menacing fog on the future of the Korean peninsula. It is our duty to watch out so that one of the rare democracies in the world would not disappear with the fog. 

<저작권자(c) Budongsancanada.com 부동산캐나다 한인뉴스, 무단 전재-재배포 금지 >