The Global Economic Crisis

and It’s Impact on the Korean Society - Part II


by Professor Yang-Taek Lim

College of Economics and Finance, Hanyang University

Seoul, Korea


Editors Note: This paper is divided into two segments, the first of which, presented in the previous November-December 2011 edition of the Journal, offered an overview of the recent and on-going global economic situation (c. 2008-present). The second segment, which is presented below, specifically addresses the current economic situation in Korea and the challenges thus presented.


IV. Korea’s Socioeconomic Crisis


Nowadays, Korea is going through Ideological, regional and class conflicts. The leadership of Today’s society, who is in charge of solving these problems, is busy maintaining their vested interests. Especially, the Korean society is filled with distrust and conflicts due to lack of consistency in policies, which is a result of absence of firm philosophy in state affairs.


1. ‘MBnomics’ Missing


When the financial crisis hit Korea in 2008, authorities in economic affairs at that time attributed the cause of all economic problems in Korea to the global financial crisis, originating in the States, and failed to suggest effective policies. Furthermore, authorities failed to notice a fundamental cause of the economic situation in which stock prices and exchange rates moved opposite to each other.


Examples of disagreement among financial departments are as follows: first, the process of the government’s intervention on exchange rate fluctuations. Second, the process of a negotiation on a take-over of Lehman Brothers Holdings Inc. by the Korea Development Bank. Third, the process of HSBC’s giving up on a take-over of Korea Exchange Bank. Fourth, failure to issue foreign exchange stabilization bonds.


The reason why authorities could not make smooth agreements like the examples given above was that each authority had different perspectives on the economic situation at that time. Even President Secretary for Economic Affairs Byoung-Won Park made a statement that the global economy could actually turn into a big opportunity, for it may be able to lower the price of oil, invigorating domestic demand. In contrast to Park’s statement, the president of BOK Sang-Tae Lee said, “The crisis of the real sector has just begun”. Words of Man-Su Kang, Minister of Strategy and Finance, were beyond misconstruction. When he was asked a question of when he thought the financial crisis would end, he answered, “I have no idea. Some say it’s just a beginning while some say it has ended”. (Cho-Sun Ilbo, September 19th, 2008)


Because authorities had thoughts about the economy so different from one another, it was obvious that economic policies were incoherent as well. For instance, the government asked the BOK to purchase 25 trillion won of bank bonds to lower interest rates. Minister Kang at the time said that the government was planning to discuss a purchase of bank bonds with BOK at the government audit. BOK quickly clarified their statement, saying “The purchase of bank bonds is just one of plans we have in case the recent crisis worsens”.


Even personal opinions of authorities differ from one another. In case of regulations on loans on real property, Minister Kang called LVT and DTI ‘appropriate’ at inspection of the administration. However, the government made it known that it would relax regulations only 15 days later. Minister Kang also said, “Domestic financial companies are maintaining a sound level of international liquidity” at a briefing after a meeting with financial ministers concerning the financial crisis on September 20th, 2008. Unlike Kang’s statement, many banks at the time were busy searching for overnight money due to a shortage of foreign currency. About 2 weeks later, Kang ordered banks to seek measures to save themselves to solve the problem of liquidity deficit. (October, 27th, 2008)


Head of the Monetary Policy Committee Kwang-Woo Jun predicted that the financial market would become stable anytime soon at the state affairs committee held shortly after the break out of the crisis. The ground on which this prediction was based was the fact that the liquidity was relatively sufficient. In the end, Jun changed his words and admitted the ripple effect of the crisis may be more severe than that of 10 years ago. President Lee and Minister Kang also showed their relatively positive perspective on the current situation, saying “It is not too serious”. President Lee even said during a speech he gave on a radio, “Things may be tough, but it’s a lot different from the crisis in 1997”. Then he as well changed his words and said at a luncheon with police commanders, “Now is more serious than the IMF crisis”.


The Financial Services Commission has also worsened the situation. When the world’s largest bank, HSBC, offered a take-over of KEB, the commission rejected it on the pretext of the Lone Star Funds, which it did not have anything to do with. Moreover, it permitted the establishment of eight stock firms in spite of the plunging stock market. President of KDB Yu-Sung Min at that time said, “We proceeded M&A of Lehman Brothers Holding Inc. in partnership with the financial services commission under a judgment that it would promote the national interest”. He added, “Although the M&A this time did not turn out to be successful, we will be more aggressive about acquisition of foreign investment banks”. (Joong-Ang Ilbo, September 17th, 2008) Unfortunately, his ambition to take over foreign investment banks was just dangerous arrogance, considering the unstable capital structure of Korea.


It would not be an exaggeration to say that misjudgment and ever-changing statements of authorities have been generating distrust. Authorities have damaged trust themselves by making thoughtless remarks and easily changing them.


Functional integration and rational management of financial departments are urgently needed. Functions of economic policies are being divided into parts and separated under a purpose of heightening the efficiency of financial supervisory operation. International financial policy has been allocated to the Ministry of Strategy and Finance, establishment of domestic financial monetary policies and inspection of financial institutions were put in charge of the Financial Services Commission. Also, monetary policy, adjustment of interest rates, and exchange control have become a responsibility of the BOK. Even in times of capital decontrol, international finance and domestic finance are working independently rather than working together.


For stable monetary function of both domestic and foreign finance, the three policies mentioned previously need to be integrated. In addition, the role of the Deputy Prime Minister for Economic Affairs is essential for maintenance of harmonious policies. Government financial departments must devote all their energy to set and operate a complementary circulation structure of real and financial sector.


Economic policies of the Korean government are in a dilemma right now; choosing between long-term supply and short-term demand, increasing and decreasing interest rates, and increasing and decreasing exchange rates.


In this situation, the Korean government chose price control, which could not work. Enforcement of a ‘MB price index’, which controls 52 kinds of daily necessities, makes me feel like I have gone back to 1970’s.


Neither a sharp drop nor a rise in exchange rates are desirable. It’s because rising exchange rates can heighten competitiveness in exports, but deepen inflation. A fall in exchange rates, on the other hand, can reduce prices but weaken competitive price of export businesses. Therefore, exchange rate policy has to focus on reducing the rage of fluctuation.

Nevertheless, Minister Kang devastated the economic situation at the time by enforcing a high exchange rate policy in times of high oil prices. As a result, raising the exchange rate ultimately led to a decline in growth.


The government quickly reduced petrol taxes by 10 percent to stabilize the prices, but this only ended up having no effect as the oil price jumped later on. Despite the upswing in exports, the stagnation in investment continued. The rate of increase in equipment investment for the first quarter was minus 0.4 percent compared to that of the previous quarter.


The government is claiming that the high exchange rate policy turned the balance of trade positive. In fact, it was because of ship exports which hit a new profit record of 49 billion dollars. So it is hard to say that the high exchange rate was the actual cause.


The effect of a high exchange rate on inflation is clearly showing; the rise in the exchange rate accounted for 10 percent of import price increase in April, which was 31 percent. Consumer prices reported on June 2nd, 2008 reached the highest record in 6 years and 11 months.


The high exchange rate was partly responsible for GNI for the first quarter which dropped to minus 1.2 percent compared to the fourth quarter of 2007. Although GDP for the first quarter of 2008 was 205 trillion won, the actual national income was 180 trillion won as a loss in trade amounted 27 trillion won due to aggravation of trade conditions. That is, a rise in the exchange rate intensified the reducing effect of income by heavily raising the price of imports.

Declining real incomes result in a fall in consumption, which ultimately leads to stagnation of domestic demand. Private consumption for the first quarter of 2008 only rose 0.4 percent accelerating decline in private consumption.


Another problem that follows the high exchange rate policy is that it widens a gap between the rich and the poor by increasing the burden on the people.


In the end, the government belatedly became aware of side effects of the high exchange rate and intervened in the market to lead to a fall in the exchange rates. As a result, the exchange rate of the won against the dollar has been decreased to 1,022 won per dollar.


Finance Minister Man-Soo Kang made an announcement that the government would pay between 60 thousand won and 240 thousand won to 13.8 million workers and small businesses under the name of ‘tax refund.’ 9.8 million workers and 4 million self-employed were targeted for the cash payment. The benefited workers comprised 78 percent of total workers (13.8 million workers) and 57.5 percent of the total economic population (24 million persons), and the benefited self-employed comprised 98 percent of the total number (4.6 million persons).


The above-mentioned countermeasure of high oil prices is populism that is hard even for leftists to come up with. This seemingly-generous policy can be interpreted as a measure to settle the public sentiment, however, even communist nations would not waste as much money as 10.5 trillion won.


Meanwhile, an official from the Ministry of Knowledge and Economy said, “It takes 2.5 trillion won to build one nuclear power plant. 10 trillion won could have better been used to build 4 more nuclear plants in times of skyrocketing oil prices”. Korea’s participation in development of energy is 4.2 percent, far behind 19 percent of Japan and 26 percent of China. One official said, “Considering that is usually costs more than one trillion won to buy a foreign oil field, it’s too bad that the government has appropriated only 1.1 trillion won for development of foreign oil fields”. (Cho-Sun Ilbo, June 11th, 2008)


[Table 1] What can be done with 10 trillion won


Nuclear power plants

Construction of 4 nuclear plants (2.5 trillion won per one plant)

Steam Power Plants

Construction of 9 Bo-Ryeong fire plants (1.2 trillion won per a plant)


Aid of 28.7 billion won for 200 four-year institutions and 148 community colleges


Construction of more than 3 roads connecting Chun-Chun to Yang-Yang (2.8 trillion won per a road)

National Defense

Purchase of 100 F-15Ks (10 billion dollars per plane)

Foreign Oil Fields

Acquisition of 10 oil fields in the Gulf of Mexico (1 trillion won per field)


The biggest factor of President Lee’s victory in the 2007 election was a pledge to revive the economy, which was falling into recession after having gone through the left-leaning government for 10 years.


Lee’s administration has been established claiming to stand for new liberalism and pledging to revitalize economy. However, as the international economy and new liberalism have been confronted by the crisis, the government appears to have become bewildered and lost philosophy and strategy for management of the nation.


The reason why the financial department seems so lost is that they do not have a macroeconomic blueprint based on firm philosophy in state affairs. Not surprisingly, MBnomics, the economic blueprint of the Lee’s administration, seems to have become stuck at the crossroads of life and death. It’s hard to tell whether the government is going for growth or distribution, laissez-faire or government intervention. Neither ideology nor philosophy of a policy is clear. (Cho-Sun Ilbo, June 14th, 2008)


Meanwhile, President Lee defined ‘pragmatism’ as follows at the inauguration on May 25th, 2008: pragmatism is a rational principle that penetrates history of west and east and practical wisdom that plows thoughts the waves of globalization. He added, “We have to go beyond the age of ideology and head for the ages of pragmatism”. He also made a promise to resolve conflicts between classes and approach the issue concerning North Korea in a perspective of pragmatism. Where has his philosophy of pragmatism gone? Pragmatism pursues ‘the greatest happiness of the greatest number,’ not utilitarianism.


Recent confusion in economic policies was not caused by changing domestic and foreign affairs. Rather, it was caused by lack of vision and philosophy for state affairs, which led to the loss of consistency in policy making. For example, a report titled ‘Designing a Brand Image for the President: The Search for an Ideal Leader based on a strategic President and the Social Consensus’ showed an ironic result that the more a ‘fair society’ is discussed the more the real society is corrupted. The more working class-friendly the government claims to be, the wider a gap between the rich and the poor becomes.


The key is a ‘president who deserves to be a president.’ People want a president who offers a vision, shares social values with people, and tries to have a sincere conversation even with people who take an opposite side. To make a reference to the mentioned report, people no longer perceive the president as only a 7th grade civil servant. They want a president of their own, not of a particular group.


On the other hand, on July 10th 2011, the ruling Grand National party agreed on lowering college tuitions, deregulation on firms, and withdrawal of reduction in the corporate tax. This shows that the key policies of the MBnomics, deregulation of firm and the corporate tax cuts, have been rejected by the leaders of the party. Careful discussion and new, systematic economic policies are required prior when the ruling party changes an economic policy line of the administration. Otherwise, it would be an action disrespectful of both the president and 11.5 million voters.


However, what the author is saying is far from advocacy of President Lee’s economic policy. Rather, I have been raising my voice against the absence of consistency in philosophy for state affairs and a narrow view of the current economic policies. In fact, the author is pointing out that it’s the decision procedure for policy that has gone wrong.


2. Impoverishment of the Korean Society


1) Five Million Poor


The poor in Korean society are more and more growing in number. The Korea Institute for Health and Social Affairs reported that the poor of Korea are estimated to have exceeded 5 million in ‘A Study on Classes.’ About one-tenth of Korea’s total population of 49 million lives in poverty.


The poor can be defined as sum of the following three strata: welfare recipients whose monthly income is less than the minimum cost of living, the second income class whose income is lower than 120 percent of the minimum cost of living, and the poverty class with no social security benefits who are paupered due to some asset possession and their dependents.


As of May, 2005, welfare recipients in Korea numbered 1.47 million, which was an increase of 103-thousand. Estimates of the second income class range between 1.7 million and 1.9 million, and the poverty class with no social security benefits was estimated at around 1.9 million.


According to the Korea National Statistical Office, the monthly income of the top 10 percent of households was 10 times higher than that of the bottom 10 percent. The top 10 percent spend 590 thousand won a month on education, which was about 7 times that of the bottom 10 percent and twice that of the top 40 percent. The top 10 percent’s monthly expanses on private education was 250 thousand won, 6.3 times that of the bottom 10 percent. Also, there was a huge gap in expenditures for reading, recreation, and dining out among classes. Expanses that the top 10 percent spent on entertainment was 7.6 times that of the bottom 10 percent and 3.2 times that of the top 40 percent.


On the other hand, households that are unable to pay for a health insurance increased from 1.56 million in the late 2003 to 1.72 million in July, 2004 due to a decrease in income. Also, out of 9.8 million health insurance holders, 2.4 million have been unable to pay premiums for 6 months. According to the Ministry of Education and Human Resources Development, in 2004, there were 29-thousand high school students who could not pay quarterly tuition fees.


Those who are incapable of paying taxes due to a loss of job or a business failure are rapidly increasing. In June, 2004, overdue loans of financial firms and households were 12 trillion won in total, which had increased by one trillion won compared to 2003. People who are unable to pay off a rental house and land they have purchased from the Korea Housing Corporation and Korea Land Corporation are increasing as well. In July 2004, overdue housing payments were 200-billion won, an 80-billion won increase compared to the year 2003.


2) Increase in Personal Bankruptcy


According to ‘Money flow trend’ reported by BOK, financial liabilities of individuals in 2005 totaled 602-billion, which was 1.36 times the disposable income that year. This means a person has to spend money that is about 1.36 times his income to pay off his financial debt. Also, individual financial liability compared to GDP sharply rose from 67 percent in 2002 to 74.7 percent in 2006. Insolvency of household is worsening due to an increase in consumption, lending rates, and a fall in mortgage value cause by a decrease in asset prices.


Increase in the number of individuals filling for bankruptcy has emerged as a new threat to the Korean economy. The number of individuals who declared personal bankruptcy has already doubled in number from the year of 2005 to 2006. According to BOK, potential bankruptcies, those who haven’t yet declared bankruptcy, are estimated to be 790-thousand. (Cho-Sun Ilbo, October 25th, 2006). Looking at the society as a whole, personal bankruptcy may create insolvency of financial institutions and another credit card crisis.


According to a report by the Financial Supervisory Service in Korea in 2006, 120-thousand people declared personal bankruptcy in 2006 and a total debt of 10-trillion won became insolvent. Measures to strengthen risk control on small-scale financial institutions are urgently needed. The personal bankruptcy rate is about 20 people out of 10-thousand, exceeding the rate of personal bankruptcies in Japan for the first time.


Looking back, the Asian financial crisis in 1997 can be considered a result of the over-borrowing fund management of big companies. To elaborate, a temporary shortage of foreign currency was caused by firms incapable of paying off external debts. Fortunately, the Korean economy got out of the crisis with the bail-out of the IMF and the patriotic sales of the possessed gold of the Korean people to pay off some foreign debt. Later, the successful securing of foreign investment and a rise in exports helped the economy strengthen its foreign exchange reserves. The recent crisis is chronic and long-term, whereas the Asian crisis in 2007 was acute and short-term.


In fact, unlike firms, inventories and machine equipments of which banks can take as security, households have nothing left when asset value drops. This situation holds the possibility of resulting in a more complex crisis. Thus, in order to save insolvent households, business investment should be revitalized. If the market rebounds due to deregulation, floating money will rush to stock markets, increasing employment. This will also increase household income, reducing debts.


3) Increase in Divorce and Suicide


Poverty does not simply mean economic insufficiency. Poverty destroys families and leads people to suicide. Divorce and suicide are increasing day by day. Financial stress is responsible for a sizable proportion of divorces, increasing from 10.7 percent in 2000 to 16.4 percent in 2003. People who committed suicide because of business failure and poverty have sharply risen as well. Suicide rates have been steadily increasing since the Asian crisis in 1997, and worsened lately. The year 2003 broke the 1997 record with 731 people who took their lives out of despair for poverty. Suicides triggered by business failures reached the highest record in 2003 as well, breaking the record of 595 in 1998.


35.5 people a day committed a suicide in 2006. The number of suicides in 2006 was 12-thousand, which was as twice as the number of deaths from traffic accidents in the same year. One thing to notice is that out of the number of suicides in 2006, people over the age of 61 were 33 percent, and 31.9 percent were women.


Since the financial crisis in 2008, the number of suicide deaths in Korea in 2009 increased 19.9 percent compared to the previous year. The fact that the number of suicides in 2009 greatly exceeds those in 1998 clearly prove that how cruel the recent crisis is. According to Daily Joong-Ang, 40 people commit a suicide a day in Korea.


Comparing an age distribution of suicides of the year of 2009 with that of the 1990’s, 5.4 times more men who are over 65 and 1.6 times more people aging from 25 to 44 committed suicide. It shows that suicides of the aged are rapidly increasing, tripling those of the young. Old women are also showing the same aspect. The poor and sick aged are choosing to kill themselves to lighten the burden on their children.


Suicides triggered by depression are increasing as well. 20 out of 100-thousand Koreans kill themselves – this is double the average rate of OCED countries. Especially, it is a tragedy that suicide is the number one cause of death of young people aged from 20 to 30. It’s a reality that saddens us, like watching eyes of a dying deer. (Jugendlegende Begegnungen an Abend, Anton Schnack, 1892~1961)


What’s worse, psychopathic murders continue to rise. Ho-Soon Kang, a serial killer who expressed his wish to make profits by writing a book about the murder he had committed, reflects one side of the Mammonish (i.e.: materialistic) age we are living in today.


Families are becoming smaller, lives are getting longer, and the income gap is widening. If we do not deal with the current problems of the aged, Korean society will be in danger of breaking up.


Furthermore, more and more people are likely to die in solitude. According to population consensus data of 2011, single-person households account for 23.7 percent of the total households. In other words, one out of four households comprise a single individual who lives alone. This means single-person households have increased 20 years faster than NSO had predicted. What is so serious about this is that an age group of single-person households is expanding to people ranging from twenties to fifties; people in their 40s and 50s were 29.9 percent, and 20s and 30s were 23 percent of the total single-person household population.


4) The Lowest Level of Social Safety Net and Social Indifference


Korea ranks 34th place among 35 OECD nations in social expenditures. Mexico ranks 35th. Korea’s social expenditures compared with GDP is 7.5 percent, a rate significantly lower than that of European countries and even Mexico.


With the world’s worst level of social safety, nuclear families are accelerating the neglect of the aged. The aged have become the weakest class in Korean society. In elderly society, increase of the aged is unavoidable. If no measures are taken to solve this problem, suicide among the elderly will likely continue.


Korean society should be apologetic to all those who were swept away defenselessly by the rush of the currency crisis in 1997, the recession in 2003, and the global economic crisis in 2008. Koreans should also reflect on an absence of a social system that prevents an economic crisis from causing social problems and takes care of those in need.


Although the income gap in America is severe, in contrast to Korea, the dynamism and health of America society is the best among developed countries. It is because of an American value that prevents wealth from being inherited and leads the middle class to sharing with the unfortunate. The world’s third-richest man, Bill Gates, has contributed over 4-billion dollars to the world so far. Rensslaer Technology College in New York was given a donation of US$46.8 billion a few years ago and is still keeping the benefactor’s name a secret to comply with his request to do so. An anonymous benefactor who had been contributing hundreds of millions of dollars to a social welfare facility was found to be the owner of a newsstand nearby Kennedy airport.


The Bush administration’s plan to repeal the inheritance tax was severely criticized. At the time, social figures who openly voiced their opposition to the repeal of the tax were billionaires like Warren Edward Buffett, George Soros, and William Gates senior. It was possible because there was a strong social awareness of inheriting wealth.


5) Lack of Noblesse Oblige and Corruption of Public Officials


Despite what the rich in American have shown, noblesse oblige is still the last thing to expect from Korean officials. Following are examples:


I strongly believe that the case of Busan Savings Bank is the most abominable even that has ever happened in history of Korea, because it has made our society skeptical about whether Korea’s economy is working properly. This is a result made by moral laxity of large stockholders, the government authorities, and large depositors.


People have become deeply indulged in an idea that the government should not intervene with the market as new liberalism swept the nation in the early 1980’s. The market can be adjusted by itself, so it has to be left alone. However, the crisis that originated in America, a nation which stands as the center of the world’s capitalism, frankly showed how much anti-market America was behind the curtain. Economic policy makers neglected regulations on derivatives, applying the free-market logic to the field of finance. Investors were becoming more and more morally slackened, even credit-rating agencies, cartelized with corporations that are targets of rating, over-issued Triple A’s. It was no different from what had caused the IMF crisis back in 1997. Cartels between economic units and moral laxity were the causes of the problem.


This crisis resulted from the government’s failure to control the economic system. The role of the government is to create institutional devices to lead economic subjects to making fair transactions and obey the rules of the market. In that sense, terms that are being overused in the Korean society such as ‘business-friendly’ or ‘anti-business’ show how much our society lacks in philosophy of economy. What is really important is not whether or not it’s ‘friendly’ nor ‘anti’, it is how strict the government is on economic units.


A number of the administrators of the tax service, who are in charge of the pursuit of ‘taxation justice,’ resigned or were legally dealt with. For instance, one of the retired administrators of the tax service was arrested for taking bribery from his men. Another administrator resigned under the suspicion that he had bribed his superior administrator for whom he was an assistant.


Three air force officers including the Air Force Chief of Staff were charged with giving away state secrets to Lockheed Martin on August 3rd, 2011. “Koreans just feel so despondent about the fact that the supreme commander of the armed force has been handing over state secrets to foreign companies. It is beyond anger, it is disgrace”. (Cho-Sun Ilbo, August 5th, 2011) In contrast to Korea, America sentenced Robert Kim, a Korean who had worked for the U. S. Marine intelligence section, to nine years of imprisonment for handing over information on North Korea to the Korean embassy.


There are also many welfare dealers who steal subsidies that are given as a budget to build elderly care facilities. The total welfare budget for 2009 was 74.7-billion won. It was found that this budget had been filling the pockets of shameless welfare officials in 130 nationwide districts, instead of going to the poor, the disabled, jobless, and the aged.


On the other hand, it seems to me that Korea has given up on agriculture. The government has invested 130-trillion won to strengthen the competitiveness of the agriculture industry and increase the income of the farming population; however, debt per farm household grew larger than income, and the income gap between city workers and farmer keeps on widening. The reason for this is that the government has been giving away money without a radical measure. Despite the desperate reality of the agriculture industry, Nong-Hyup, the so-called ‘bank for farmers’ is the fourth largest financial agency in Korea. The president of Nong-hyup continues to exercise his power as the ‘president of farmers’ and corruption, of course, continues as well.


Moreover, hoof-and-mouth disease broke out in An-dong, in the Province of Kyoung-sang, is spreading throughout the nation with the exception of Jeolla Province. So far, over a million pigs and cows have been buried, leaving the domestic livestock industry in danger. The government is reported to have spent one-trillion won for compensation and vaccines.


One of the reasons why a contagious disease among animals brings about great losses is lack of communication among the central government, the local government, and the industry. It eventually resulted in a failure to take immediate action on the spread of the disease. Although the environment of Korea is quite different from that of Britain, there are some lessons that we have to learn from the case of hoof-and-mouth disease that happened in Britain, and that is expanding the prompt preventative measures of the central government to all departments.


. Concluding Remarks


Since the global economic crisis, all of us on this planet have been going through a long and cold winter. It is expected that such pains shall be unfortunately sustained for as long a time as the Great Depression lasted; that severe and sustained downturn dragged on from 1929-39, and did not actually recover until World War II (1939-1945).


Thus we must find a way to survive ourselves rather than to sit and wait for the world economy to recover on its own. At the same time, we – the people -- must take some time to look back on ourselves and reconsider the philosophy of life. We are witnessing people buying so many clothes that they will wear only a few times, and easily buying a car on the installment plan. The past years might have been the most luxurious period of our time. We will have to change our society from a place in which money and powers are the most important values to a place in which the pursuit of a desirable human character is the top priority. The title of a Gauguin’s piece, exhibited in an art gallery in America, is “Where did we come from? Who are we? To where are we headed?”.


Korea has gone through many historical turmoils; living on ‘roots and bark’ from the 1940s to 1960’s, starting the first industrial development in 1970’s, the pre-democracy movement that led the public to the streets in the 1980s, and opening doors to the world in the 1990s. Korea was also thrown into the Asian financial crisis in 1997, which was just a skirmish compared to the global financial crisis that Korea is facing now. From now on, we have to hold the hand of the needy. Of course, we are all aware of the fact that Korean society is still filled with unwinged angels who sacrifice themselves for others.


The author (Yang-Taek Lim, 2008, 2010, 2011) has recently proposed a new philosophy named ‘Neopragmatism’. He reviewed the philosophy of the East with that of the West and lighted upon the ‘realistic idea’ of the late Chosun (old name of Korea) dynasty. By pointing out and its difference with the existing philosophies, the author has defined ‘neopragmatism’ as such: Unlike John Dewey’s ‘performance-oriented’ pragmatism representing ‘the survival of the fittest’ and Deng Xiaoping’s ‘goal-oriented’ practicalism, ‘Neopragmatism’ is a thought that pursues a humanitarian community valuing human dignity, autonomy, and creativity by satisfying basic needs of humans for ‘the greatest happiness of the greatest number’ based on morality and procedural democracy.


Neopragmatism values consequential performance as well, but puts emphasis on the means and process of reaching a choice, i.e., how democratic the choice is. Thus, it considers ‘morality’ more than ‘state rationality’, and thus, does not consider that truth and utility are identical. No matter how important ‘being full and warm’ and ‘society with well-off middle class’ are, not only should the ways in which to achieve ‘national identity’ be clearly different, but there should also be a clear ‘national choice’.


The strategic goal of ‘a democratic society for the greatest happiness of the greatest number’ in neopragmatism is to follow sustainable growth with full employment, stable prices, and equitable income distribution. This is because, as A.C. Pigou (1952) stated, ‘growth, distribution, and stability’ are the prerequisites for maximizing welfare of a given society as a whole. Consequently, ‘Neopragmatism’ pursues not only ‘freedom’ but also ‘equality’ in opportunity, and furthermore ‘equity’ in income distribution. Freedom, equality, and equity are materialized through economic and social development. And these conflicting values can be harmonized by pursuing sustainable growth with full employment and distribution simultaneously.


The practical method of Neopragmatism is to heighten the nation’s competitiveness through Schumpeterian ‘Techno-Economic Development Strategy’ (Yang-Taek Lim, 2006) based on Joseph Schumpeter (1933 and 1942). In a market economy system, the core of a nation’s competitiveness is enterprise competitiveness, which is created by: resource competitiveness → development and manufacturing competitiveness → quality competitiveness → market competitiveness → customer satisfaction. Competitiveness regarding price and non-price is then heightened, which leads to international competitiveness, a favorable balance of international payments, and then to coexistence and harmony of growth, employment, and distribution.


To promote Neopragmatism, national leader’s leadership is most important, needless to say. Three features are required for a leader. First of all, a leader should lead factions and conflicts between them into harmony. Secondly, through education, a leader should show new behavioral models and a will to accomplish. Lastly, a leader should promote productivity by indicating a vision to the constituents and make them become aware of goals, challenges, and achievements.




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