Economics: Economic Reform:


Quo Vadis Domine: A Blueprint for Growth·Welfare·Unification – Part III


by Professor Yang-Taek Lim, Ph.D.

College of Economics and Finance, Hanyang University

Seoul, Korea


Editor’s Note: While the following paper specifically addresses the case of the Republic of Korea, given the recent and continuing economic turmoil in the United States and the Eurozone – and the resultant ripple-effect of this economic trauma around the globe – the essence of this paper is of interest and pertinence regardless of nationality or location. Presented below is Part III of three parts, the first two of which were presented in the previous May-June and July-August 2012 issues of this Journal. – JP.



Devising ‘Korean Welfare Society’

Korea needs to become a ‘welfare society’ not a ‘welfare state’ at this point because it is the path of survival and prosperity of the Korean society. It is not to deal with the general people’s flooding desire on welfare as the nation is reaching a national income of about 20,000 dollars per person. Here are the following reasons:


First, as much as the South·North division is painful, we need to observe the seriousness of the ‘socioeconomic division’ caused by income polarization / inequity within the South Korean society. We also should be serious about the high wave of aging population · low birth rate, which is even far scarier than North Korea’s nuclear weapon. That is the harmony of growth and welfare.


Jeffrey Sachs, an economic professor at Colombia University in the U.S., said in his book Common Wealth: Economics for a Crowded Planet (Common Wealth: Economics for a Crowded Planet) that” not fact but ideology is dominating the dispute" and "a thick social safety network secures faith for the future and allows people to put up with risks." Moreover he said "Capitalism can integrate high income level, growth, improvement and high level of social protection. Northern Europe made it and the experience is shining a bright light on the other countries' choices."


The aforementioned perspective is a Gosta Esping―Anderson’s (1985, 1990, 1996, 1999, 2002) conclusion on years of research. Speaking plainly, welfare state is a tool for reproducing capitalism (O'Conner, 1985; Gough, 1981 and 1991). In the case of Korea, ‘welfare society’ can induce the conflict between conservatives (the Right) and progressives (the Left) to social integration when it is frequently confronting with North Korea’s military right beyond the ceasefire line.


Second, social security system is required because it is a survival principle that confronts the change (aging / low birth rate) of population structure. To be specific, we call a period that economically active people (15-64 years old) increasing faster than the supported population a ‘population bonus period.’ It is when the economically active people increases the real GDP also increases. In case of Singapore·Hong Kong·Taiwan·Thailand·China·South Korea, they all pass the ‘population bonus period’ between 2010 to 2015 and enter ‘aging society.’[1] If there is no solution (i.e. improve total factor productivity) for this, the population structure of the Korean society will become ‘the old nation’ of a reversed triangular shape and the state economy will eventually collapse.


Be attentive that right after 'population bonus period' ended in 1990 Japan, the bubble was destroyed and at the same time Japan met the period of Zero growth. It can be assumed that the end of 'population bonus period' troubled Japan's reconstruction. Even Japan, a technologically strong nation, was troubled with economic growth. The future of other Asian countries including Korea is dark as they can no longer enjoy 'population bonus' in the condition of low national income and welfare. The future of Korea, which is facing the world's lowest childbirth rate and super-aging of population structure, is even more dark.


It is important to focus on human resource development policy that can improve total factor productivity in the trend of low birth rate·aging (Yang Taek Lim, 2007). Fortunately, women’s participation in the labor market relieves the reduction of economically active population (15-64 years old). In Europe, a nation with high female labor participation rate succeeded in preventing birth rate decline. Therefore, it is necessary for governors and people to cooperate and establish a systemic security where women can continue to work after childbirth.


Third, social security system is not only the state’s survival principle in counteraction to aging / low birth rate but it can also largely contribute to economic growth depending on its management. The reason is that expenditure on health (including child care), Active Labor Market Policy and unemployment contribute to accumulating human capital and raises productivity in the knowledge-based economy. Old age·survived family·disability·family ·residence·others (public pension·employment insurance·industry related insurance·public assistance) tend to be ‘insuring, indirect investment.’ It contributes on the economic growth through the accumulation of ‘Social Capital’ like promoting human resources investment and social integration.


Therefore, Korean social security system is not a simply system to share the blunder of economic growth but a survival principle counteracting the changing population structure and an economy development strategy to switch from exogenous economic growth to endogenous economic growth.


Then where does ‘Korean welfare model’ belong among ‘Esping Anderson’s three welfare types: 1. universal welfare (Netherlands·Norway·Denmark·Sweden·Finland), 2. liberal type (United States·Swiss·Australia·Japan·Canada), 3. conservative·unionist type (German ·Belgium·Austria·Italy·France)? The author answers: social security system cannot be judged only by the economic ability but it is a historical outcome of cultural · social · political struggle and challenge. Under Korea’s current socioeconomic / cultural condition, not one of the three welfare models can be transplanted into Korean society. We need to establish and execute ‘Korean welfare model.’


To be specific, ‘Universalistic Welfare System’ is desirable in philosophical perspective and ‘Selective Welfare System’ is appropriate in the welfare finance aspect under the government finance deficit[2]. ‘Selective Welfare theory’ is more defensive to ‘Universalistic Welfare System’ because it cannot solve the problem of mass unemployment. If full employment can be achieved, ‘Selective Welfare theory’ is reasonable. Currently, mass employment is a global problem not the type of welfare.


Nevertheless, the developed welfare states perceive the possibility of state finance bankruptcy due to the long wave (prevalence of mass unemployment and accumulation of national debt) of the recent global economic crisis and are all focusing on reforming the welfare system.[3] For instance, ‘universalistic welfare nations’ like Sweden, Norway, Finland, England, and France have all performed the welfare reform from ‘Defined-Benefits Plan’ to ‘Defined-Contribution Plan.’[4]


Especially England, the original of ‘universalistic welfare state’, who advocated ‘from cradle to grave’ to cure the social impoverishment after WWII, selected the ‘Selective Welfare’ model that mainly focuses on securing the old age lives of low income classes to reduce the burden of state finance.


In contrast, the United States, the ‘Selective Welfare State’, chose the reduction of medical cost burden through active government intervention and performing health insurance for all people as its highest priority in medical reform. The health insurance reform bill was approved in the Senate in December 2009 after a year of fierce battle and passed in the House of Representatives (although the entire Republican membership opposed) in March 22nd 2010. President Obama signed the bill (2010. 3. 24). As a result, 32 million American citizens could join the medical insurance by government assistance and 95% of American citizens below the age 65 hold medical insurance mandatorily. Thus the age of medical insurance for all people is actually opening its curtains from 2014. Now, could we tell America’s social security system as ‘Universalistic Welfare Model’?


In conclusion, the author thinks German ‘conservative·unionist welfare model’ is an ideal welfare model that Korea can benchmark. First Korea’s labor market should be enhanced with the law-abiding spirit and solidarity philosophy as in Germany. How can a true welfare society be established in a society where roads are covered with terrible protests swinging steel pipes and cutting their own fingers and people are fleeing in horror of the combat police, who are the symbol of governmental authority!


As Korea develops into German welfare model, it should first reform the current welfare system into a sound social security system considering socioeconomic / cultural factors. The direction of reform is to pursue full employment, establish a society where people can prepare old-age living expenses and medical cost during their service period and switch the current ‘Defined-Benefits Plan’ to ‘Defined-Contribution Plan.’ It is also to supply the finance of National Pension system / National Health Insurance system and expand support for child care and old-age security of the low income classes.


The author makes his position clear on the pressing matter of free meals[5] · free childcare[6]: the author agrees on free meals · free childcare under the assumption that decent jobs are created, mass unemployment problem is solved and full employment is achieved. Moreover in the aforementioned assumption, to prioritize between free meals and free childcare, the author believes that free childcare is more urgent and important than free meal considering the population reduction due to the career life of young generation and low birth rate. If the assumption is not established, free meals and free childcare induces ‘free’ populism and is very likely to ruin the state finance so the author disagrees to both free meals and free childcare. The problem of free meals should be dealt not by the government but by heartwarming neighbors and religion organizations. Recently, it is more urgent to expand the finance of National Health Insurance. The finance went to red of 1 trillion 299.4 billion won in 2010, bankruptcy with 1 trillion 300 billion won in 2011 and National Health Promotion Fund will be completely depleted in 2012. Despite the urgency, both the ruling·opposing parties are silent on the solution but are disputing over free meals · free childcare · free medical care · ‘half tuition.’ The author is very much concerned about the fate of our nation. The author’s aforementioned opinion means the fundamental problem of structural reform of welfare system / supplying rational welfare finance should be performed in advance.


This research sought the solution for mass unemployment not from the original traditional macroeconomic policy (fiscal policy, finance policy) but from Schumpeterian Techno- Economic Development Model. It focused on expanding basic scientific research capacity → improving the total factor productivity → enhancing state competitiveness (Yang-Taek Lim, 2007; Yang-Taek Lim, 2006).

To establish a virtuous circle of growth·employment·distribution, low economy growth can be solved by ‘Endogeneous Growth Model’ improving the total factor productivity, increasing unemployment can be solved by ‘Job-creating Growth’ on expanding human capital, the inequity of income distribution can be solved by previous income distribution improvement according to employment increase and income polarization can be solved by expanding the middle class.


A Rational Method to Supply Welfare Finance: Levying ‘Social Security Tax’ and Expanding Social Security Fund on the businesses’ non-business purpose land and household’s non-business purpose land

It is difficult to evade the ‘welfare disaster’ unless we immediately reform National Pension System and National Health Insurance System to overcome the finance crisis of public security system (National Pension · Health Insurance) that can support the ‘the time of expected life span of 100.’ The importance is well shown in the examples of Japan, Greece that went bankrupt and West / North Europe that are readjusting the welfare benefit level and recipient. Especially the examples of Japan and Greece (‘financial crisis’ and ‘accumulation of state debt’) will be a good lesson to Korea.


Considering Korea’s aging population, National Pension system cannot sustain under the current pension finance system. Moreover when the medical cost expenditure continues in the current level, the Health Insurance balance of payment will exacerbate uncontrollably. Therefore Korea’s social welfare should be reformed in the direction from ‘low burden · low benefit’ to ‘high burden · high benefit.’ Related to the ‘high burden’ problem, we need to analyze and determine which income class will burden how much more, which welfare service is more urgent related to ‘high benefit’ or ‘vertical increase / horizontal expansion of benefit’ and which level of benefit is optimal.


The main point of the welfare problem is not the type of social security system but a rational method to supply finance and increase employment and national consent on the matter. That is, the conversion from low burden to high burden is a mandatory task to switch from the current level of low benefit to high benefit. We can raise a question at this point which income class can manage how much welfare finance burden for Korea’s internal and external integration. 


Notice that the welfare level of a nation is the level of the people and the political leader. For reference, social welfare nations like Denmark, Finland, Norway and Sweden have a high tax burden rate but they achieved higher income level, lower poverty rate, higher technological level and an equal income distribution than the free market society. They accomplished a spirited and smooth democracy that secures a high level of social welfare benefit to their people. Their average poverty rate (the rate of people living with only half an income of average household income) in 2004 was only 5.6% of all households whereas Europe’s was 9% and the free market nations’ was 12.6%. The United States, whose GNP per capita is the highest in the world, had an overwhelming relative poverty rate, at 17.1%.


The entrance to developed welfare society depends on whether national consent can be drawn out on the burden ratio of individuals and the government and especially the ratio between the young and old generation. However there is a big emotional gap between generations on the issue.


The level of consciousness of general people as well as generational conflict is clearly shown in the survey result of Chosun Ilbo (January 4th 2011) inquiring at Gallup Korea asking 1000 men and women. Here is the analysis result of the survey. First, in case of National Health Insurance system, 8 out of 10 people (77%) responded that government support ratio (medical insurance) on National Health Insurance should be raised. However over half of ten people (52%) opposed to increase health premium (5.4% in contrast to current income). Moreover, in case of National Pension system, more than half (52.4%) disagreed to the argument on ‘reform to pay more and receive less’ and there were only 2 out of 10 consents (24%). By ages, 7 out of 10 opposed (68.9%, 69.4%) in the 30-40s when only 26.1% disagreed in people aged over 60.


Notice the young generations are refusing to burden the old age living plans of the old generation. However the author firmly believes that Korea’s young generations are not a thankless child. They are merely not even able to take care of themselves. For instance, there was coverage on Seoul inhabitant’s poll (2011. 08. 24) that they young generations reproached ‘free meals’ when they cannot gain a room and get married.


Korean youths are presently losing identity and ambition. There are increasing suicides (average 34 people per day) and people with depression. Korean suicidal rate is 21.5 people per 100 thousand persons (OECD health data in 2008), which reaches double of OECD average (11.2 people per 100 thousand persons). Moreover, suicide is the prime reason for the death of 20-30s youths who should be still dreaming and enterprising. This fact is, as watching “an eye of the deer dying in front of the hunter’s muzzle”, ‘things that make us sad’

(Jugendlegende Begegnungen am Abend, Anton Schnack, 1941).


Expansion of ‘Social Security Fund’ by ‘the second Land Reform’

The author would like to apply Henry George’s (1839-1897) economic idea and ‘Land Value Tax’ / ‘Tax Shift’ in the case of Korea to generate social security fund. In other words, respecting the Constitutional Court’s judgment that the taxation on the aggregated real estate value per household is unconstitutional (2008), the author suggests to abolish the current ‘comprehensive real estate tax system’ (state tax) of houses, divide fixed asset possession into two: building possession and land possession, impose a constant rate of ‘optimal social security tax’ on the increased amount of net present value of nonbusiness-purposed land owned by firms and livelihood-purposed land owned by households, and reduce the financial burden of corporate income tax and exempt the property tax imposed on building possession and the transaction taxes. Hence it is important to note that ‘net present value’ above is defined gross present value of land price during the time period of land possession minus the principal of land purchase and its interest payments.


The author suggests to expand the tax revenues in terms of ‘Social Security Fund’ and make it up for enlarging the finance of social security system such as National Pension and National Health Insurance[7]. The expected effect that can be created by the introduction of ‘land value tax’ to create ‘social security fund’ and the tax reform is:


First, the author is not an expert of tax law so he quotes the estimation result of Nam Kiup (2007, 2010, 2011). When raising the real tax rate of land possession tax (territory possession tax of national tax + property tax of local tax) to 1.5%, 74 trillion won of tax finance can be acquired annually (Nam Kiup, 2011). When calculating as the appraised value of land in late 2009, ‘land possession tax’ can collect about 74 trillion won [(3,464 trillion won/0.7) × 0.015] and it is estimated to be about 40% of the land rent (Nam Kiup, 2011). The total amount of annual land rent value becomes 104 trillion won or 173 trillion won annually depending on the ratio of exchanging the wealth to income in 2009. The former applied conservative standard of 3% and the latter applied 5%, the current standard of Ministry of Health and Welfare.


Second, privatizing unearned land income is the fundamental reason for inequity and polarization of income distribution (Lim Yangtaek, 2007). According to the data of the Ministry of Government, only 10.7 million households, 60% of the total 17.85 households possess a private land in present December 2005. Looking at the household distribution of land price standard, 10 million-50 million won showed the highest concentration of 7.28 million households (40.8%), land owners of 1 billion-5 billion won were 140,000 households (0.778%), 50 million-100 million won were 6600 households (0.037%) and land owners over 100 million won were 1,900 households (0.01%).


For reference, according to “National Asset Statistical Estimation Result in Late 2007”, reported by the National Statistical Office in 2008, Korea’s total land value in 2007 was 3.7 times GDP. It was higher than any other major countries such as France (3.0 times), the United States (2.8 times), Australia (2.8 times), Canada (1.1 times), Japan (2.4 times based on 2006 data). According to the report, Korea’s total land value (as of 2007) was 3 trillion, 578 billion dollars; this amount was 2.3 times the land value of Canada – the land area of which is 100 times larger than that of Korea -- and 77 times the total land value of Australia, the land area of which is 1.4 times that of Korea.


On the other hand, the Gini Coefficient, which shows how concentrated land possession distribution is, is 1 when extremely unequal and 0 when completely equal. The Gini Coefficient (calculated mainly on the households with land possession) is very high with 0.81 when based on size and 0.64 when based on price. The statistics shows how concentrated households are in land possession. Thus when adding the total households that do not own land and calculating the Gini Coefficient of land possession distribution per households, it is even higher with 0.89 based on size and 0.79 based on price.


Under an extremely biased land possession, the land value rapidly increased. When calculating the land value increase rate of the past 30 years with the data of Korea Land Corporation, the land value increase rate is 24.6% within the recent 5 years (2001~2005). Total appraised value of land is 2176 trillion won in 2005 so the amount of land value increase within the past 5 years is estimated to be 430 trillion won.


The extravagant amount of money returned as an unearned income to the land owners. As land possession is extremely biased, unearned income returned as an additional income to the upper classes and we can assume how income polarization between classes could be exacerbated due to land[8]. As a result, considering the gap of real estate asset income, the very upper 5% (about 500,000 households) possessed 2250 trillion won of real estate possession, which is about 50% of the total real estate market price or 4500 trillion won.


It can be verified in the “Statistics of Current Land Possession in 2006”, as reported by the Ministry of Government (October 2007), that based on the late 2006 data, the upper 1% (500,000 people) among Korea’s land owners owned 57% of the private land and the upper 10% (about 5 million people) owned 98.4% of the private land. For reference, Samsung owns 18 trillion, 700 billion won worth of real estate, Lotte owns land worth 9 trillion, 500 billion won, Hyundai Motors has land holdings worth 8 trillion, 700 billion won, LG owns land worth 6 trillion, 100 billion won and SK owns land valued at 7 trillion, 700 billion won (“Kookmin Ilbo”, 2005. 9. 25.).


Let’s estimate the unearned land income depending on an excessive concentration of land possession. The total size of unearned land income was about 2002 trillion won created for 10 years (1998-2007) after 1998 in South Korea, whereas the collected unearned land income through tax / burden charge (acquisition tax + possession tax + transfer tax + individual burden charge) was about 116 trillion won (that is, the returned ratio is only 5.8%) (Byun Changheum · Ahn Kyuoh, 2009; Nam Kiup, 2009). Therefore we can understand that the astronomical amount of unearned income (total 1886 trillion won) is the main reason for the gap between the rich and the poor in Korean society.


Therefore when ‘land value tax’ or ‘social security fund tax’ is levied, the benefit is all collected as tax and not returned as unearned income to the land owner even if the land value increases. Thus it can prevent the distribution of income and wealth exacerbating unearned land income[9].


Third, ‘land value tax’ is a very useful system to solve the housing shortage. When levying ‘land value tax’ or ‘social security fund tax’, tax capitalizes as land prices increase or decrease. Thus the land development seeker can easily acquire land, and land development can be promoted. Especially, the common people can relatively easily achieve their dream of ‘preparing my own house.’ The price of housing sites surpasses 50% of the overall housing price, thus when ‘land price tax’ is levied, the price of housing site almost becomes 0. Thus the house price will be lowered greatly, to around half its original price.


According to Real Estate Bank, the information enterprise of real estate, the total value of apartments in the nation was 1,439 trillion won in late 2006. Prices had rapidly increased by 334 trillion won (30.3%) from a value of 1,105 trillion won in late 2005. Along with the increased land price, house prices also increased to such an extent that it is becoming more difficult for the homeless to purchase a house.


Over the course of a single year, the total market price of apartments in Seoul increased over 153 trillion won (34.7%), increasing 593 trillion won from late 2005 to late 2006. It is about 41.2% of the total market price of the entire apartment inventory. According to “the present state of parcel price per pyeong[10] by years” the supply price of Housing Corporation apartments tripled within four years: from 4,130,000 won per pyeong in 2002, to 5,210,000 won in 2003, to 5,360,000 won in 2004, to 6,100,000 won in 2005 and to 12,180,000 won in 2006. As a result, common people have to save 1 million won monthly for 24 years to purchase a house that costs 3 hundred million won (based on a simple annual interest rate of 5%); in more expensive areas, in Gangnam it would take 80 years to purchase a house costing 1 billion won.


Fourth, the aforementioned tax reform (levying social security fund tax on unearned land income) can eradicate a fundamental cause of inequality and polarization in income distribution structure as well as consolidating the base of welfare finance. Furthermore, the social capital can largely contribute to the economic growth as it is inserted to increase the human capital quantitatively and qualitatively (Yang-Taek Lim, 2007). In other words, we need an economic growth paradigm led by human capital or ‘Job-Creating Growth.’ What is most crucial in building a welfare nation and promoting the economic growth is to provide a job opportunity for the female labor force that has been increasing due to youths achieving high academic standards coupled with the low birth rate, as well as for an aging labor force resulting from the increase in the average national age.


To be specific, the government should carry forward an ‘Active Labor Market Policy’ that intervenes in training the unemployed people and creating public jobs. It also should expand the budget for education training in the labor market to help the aforementioned classes to climb the ladder to middle class status. The budget of the Korean government for this plan is only 0.1% of GDP, which is only 1/5 of the OECD average of 0.5%.


Fifth, the social security fund composed of ‘land value tax’ can be a valuable finance source to pursue ethnic social integration by supporting the South Korea’s welfare system and providing the minimum living expenses to the North Korean people after unification.


For reference, the Korea Institute for National Unification / Korea Institute for International Economic Policy announced that assuming unification in 2013, at least 553 trillion won of social integration costs will be incurred. If the social security level of the North Koreans is to equal the minimum living expenses of South Koreans, the nation will need about 249 trillion won (Chosun Ilbo, 2011. 07. 12). It is said by South Korean government that such an astronomical amount can be financed by 585.3 billion dollars (about 633 trillion won) forecast through the gradual reduction of military expenditure due to the confidence building of South and North Korea during the period of 2015-2040, as well as by foreign borrowing though the enhancement of national credibility after the South and North Korean reunification. Is it possible to build confidence between South and North Korea going forward from 2015? Even if confidence-building is possible, can Korea’s national security expenditures be reduced?


The author sincerely hopes the ‘rosy’ blue print can be achieved. If the aforementioned scenario is difficult to accomplish, considering Korea’s breakup and social context under such uncertainty, the author hopes that a ‘social security fund tax’ is established and it fuels Korean society to mature into a developed welfare society.


Despite the expected effect, there can be criticism on the author’s tax reform on levying ‘social security fund tax’ on both the businesses’ non-business purpose land and households’ non-livelihood purpose land and at the same time, reduce the property tax / trade tax (acquisition tax and registration tax) / corporation tax. The author predicts criticism on whether levying ‘land value tax’ is in violation of private property rights; the land taxed, however, will be the land of businesses’ non-business purpose and households’ non-livelihood purpose holdings.


First, the author will reflect on the legitimacy of the aforementioned tax reform from John Locke’s (1632-1704) Two Treatises of civil Government (1690). As a ‘proviso’ of ‘private property rights’, Locke emphasized “The private ownership can be justified only if the relevant asset of the same or better quality should be sufficiently remained for others.” According to this ‘proviso’, land cannot be eligible for private ownership.[11]


‘Locke’s Proviso’ has been revised a bit by the liberalist Robert Nozick (1938-2002). To be specific, Robert Nozick, who pursued the maximum freedom by minimizing government intervention and emphasized that private ownership of land can be justified because unearned land income is the main culprit that exacerbates inequality in income distribution (Nozick, 1974, p178).


In the case of Korea, legitimacy can be found in the equal tax / equal land concept asserted by Yi Yik (1681-1763) and Jeong Yakyong (1762-1836)[12]. Along with the ideological / philosophical statement, the author would like to explain the legitimacy of levying a ‘social security fund tax’ on unearned land income in the aspect of Korea’s historical experiences. As Korea’s Land Reform (1949) contributed greatly to Korea’s existence and prosperity, it now needs a base to ‘developed welfare society’ as ‘the second land reform.’


On June 21st 1949, ‘farming land reform’ was enacted, which followed the principle of ‘farmers owns the land’ by enacting “farming land reform law” and stipulated a limit of farmers’ land possession. It is notable that Korea’s ‘land reform’ was executed under national division and the Korean War. ‘Land reform’ was quickly promoted in North Korea after the liberation. In counteraction, the United States actively intervened in the ‘farming land reform’ process of South Korea[13]. It needed the farmers’ support to build a stable anti-Socialist state in East Asia during the Cold War. In fact, it is supposed that the farmers did not respond to the North Korean People’s Army during the Korean War (1950-1953) because they had land.


By then, President Lee Seungman revealed the purpose of ‘farming land reform bill’ in March 27th 1950 that “he will nourish the farmers as an independent farmer by providing a farming land and the land owners as an industrial capital by compensation”.


‘The Land Reform’ dissolved the outdated land owner classes. The children of farmers liberated from the caste system could get access to education opportunity and get a career along with industrialization as equal citizens of South Korea. If land reform had not happened, the vested rights of the land owners would have hindered democratic development and would have stood as an obstacle to socioeconomic development as much as the nepotistic system of today’s chaebol[14]. Moreover, ‘land reform’ created industry capital, prepared the basis of modernization and democracy, and opened a path for Korean society to develop from a traditional agricultural state to a modern industrial state.


As a viable option to finance a social welfare program, a cumulative income tax and corporation tax has been under discussion in some quarters as a vehicle to finance a strong welfare program. However Korea’s income tax · corporation tax is already more burdensome than that of Taiwan, China or Singapore. Therefore, there has been a continuous argument to reduce income tax · corporation tax. In particular, the question of lowering the corporation tax has been a constant topic of discussion, as by doing so would help to improve national competitiveness. However the possibility is bleaker as ‘balanced finance’ and ‘symbiotic growth’ are setting in as the government keynote. The Grand National Party actually selected ‘tax reduction abolishment’ in order to garner votes in the 2012 election.


The problem is that even if income tax and corporation tax can be raised to expand social security fund, economy contracts when tax is levied, production and employment reduces and market price could increase. However the ‘social security fund tax’ on unearned land income can be a tax source of welfare finance which both the progressives and conservatives can agree upon.


Generally, the conservatives oppose welfare expansion because they believe an individual’s ‘effort income’ is infringed upon and the market loses its efficiency. However, using the ‘unearned land income’ as a welfare finance source in fact promotes ‘effort income’ and market efficiency. In a long-term perspective, supplying ‘social security fund’ is a shortcut to maintaining and flourishing the liberal market economy of South Korea.


The Leadership and Role of the National Leader

Neopragmatic philosophy values process more than the final goal so it emphasizes the leadership (inflammability · education · productivity) of a national leader. ‘Inflammability’ can be defined as the quality that imbues a leader with the ability to bring differing factions together and transform strife into harmony. ‘Education’ means to show new behavior models and practice will. ‘Productivity’ means a leader can suggest a vision to his people and encourage them to be purposeful, willing to rise to meet challenges, and achieving.


Inflammability is the most important in the above three virtues. In the modern society with deepening conflicts where ‘war against all’ is happening, inflammability is the most needed leadership quality regardless of the West and the East. It means the concept of one serving in the role of ‘Servant Leadership.’ Moreover, the Wangming doctrine in China argued that benevolence is the object of all pursuits and one’s ultimate goal should be to achieve the ‘true knowledge’ or yangji. In addition, Jeong Yakyong’s (1762-1836) Mongminsimseo (1818) emphasized love of people and for people. Ahn Changho, the teacher of our nation, taught to try hard to be sincere and substantial.


However leadership is defined, it is definitely a power to draw a change in social behavior. The people have pride for what they do and live diligently so that they devote themselves to self-improvement and state development. Therefore a national leader should first be able to give vision and stability to the general people, confidence to the confused intellectuals, and consolation to the isolated class. Let me introduce you a global leadership:


National leadership is most important to solve social pathological conflict structure, integrate the people’s energy, find a new growth motive, raise the state competitiveness and further save the economic capability for unification. Especially, Korean leadership must strive to build a foundation for survival and prosperity of our nation with Pragmatism.


The office of the president of Republic of Korea is not simply the president of South Korea, but of the Korean peninsula and also Northeast Asia. Moreover, the president is a man of great administrative ability and a performer who can suggest vision and strategy or ‘big picture’ (peace in Northeast Asia, Korean unification, constructing social community with the greatest happiness of the greatest number) for survival and prosperity of the nation.


We Koreans are aspiring for a ‘green ground’ to leap again, in a way reminiscent the semi-finals of the 2002 World Cup. The president should develop a nationwide ‘productivity movement’ like the past ‘New Village Movement’ and integrate the people’s energy to promote endogenous economic growth attributed to the increase of total productivity, and vigorously pursue full employment and equal income distribution.


The president should give people hope for tomorrow and comfort them to bear the pain of today. At the same time, the president should teach the people of short-sighted obstinacy and ignorance. We need to give serious thought and careful consideration to Shin Chaeho’s “The Hope of Daehan” (1908) and Ahn Changho’s “The Theory of Ethnic Reform” (1926), who devoted their entire lives to the independence movement against Japanese imperialism and greatly performed the role of Korea’s masters.


This third installment concludes Dr. Lim’s paper, “Quo Vadis Domine: A Blueprint for Growth·Welfare·Unification”.

[1] According to Japan Economic Research Centers prediction in 2007, national income per capital  (purchasing power estimation expanded based on 2000) at the end of population bonus period (2010-2015) was expected to be 32,000 dollars in Hong Kong 2010, 30,000 dollars in Singapore whereas Korea was 28,000 dollars in 2015, China 9,700 dollars and Thailand 8,700 dollars.

[2] United States, the typical ‘selective welfare’ state, has been managing a ‘liberal’ welfare system. However it fell as a ‘weak finance state’ with excess military expenditures, the former President George W. Bush’s mass reduction policy and the side-effect of the global financial crisis in 2008. The reason of financial crisis is excessive military expenditure and reduction of tax by New Liberalism. The United States has been spending an extravagant amount of military costs annually to solve the war problems including the global terrorism. In 2007, the budget of the Pentagon was 572 billion dollars, which is 1.6 billion dollars per day. The world problem has never been solved. Moreover the United States performed an extensive tax reduction based on New Liberalism after 1980s. As a result the ratio of ‘general government in contrast to GDP’ is presently 36.6% in 2007. The ratio of England is 45.7% in the same period, the average of entire Euro-zone was 46.9%, Sweden was 56.3%. Eventually, America’s tax system is stronger in progression but its size of government finance reduced too much.

  For instance, the U.S and England’s income tax / corporation tax until 1980s were much steeper and higher than Sweden’s. For instance, the U.S and England’s income maximum tariff reached 85-90% in the 1950s and 1960 whereas Sweden was 75%. Moreover, the U.S and England’s corporation tax / property tax rate were also much higher and progressive than those of Sweden’s. Moreover, the ratio of income tax, corporation tax, property tax in the total revenue was much higher in the U.S and England than in Sweden.

[3] European developed welfare states also faced a global economic crisis recently that they are going through difficulties like reducing the welfare benefit. However, it is an error in the logical analysis to interpret that the trend shifted from universal welfare to selective welfare. It is also too much a light conclusion lacking an expert analysis to draw a conclusion that their economic recession was triggered by excessive welfare expenditure.

[4] Sweden reformed the universalistic welfare model along with Norway and Finland because it perceived that the welfare system is wrong. It is not refining the system itself but downward adjusting the level of welfare benefit as the state finance greatly exacerbated after the 2008 global economic crisis. For instance, the conservative·unionist countries like France executed a policy that induced an early retirement during 1980s to lower the unemployment rate. It is expected to be the biggest reason for increasing the pension expenditure and exacerbating the finance balance of payment. In case of France, the 2010 pension had been an issue. It adjusted the welfare level within the boundary of ‘universalistic welfare’ because of financial problem like delaying the date of receiving pension or reducing the amount of pension.

[5] As it failed to count the votes for free meals in Seoul citizen poll (2011. 08. 24), the free meal for all elementary students (about 100 thousand people) in 2012 will be performed as planned by the Seoul Education Office-in Local. Currently, there are only 6 places that are performing free meals for all elementary students among 16 cities and provinces like Incheon · Gwangju · Choonbuk · Choongnam · Jeonbuk · Jeju. Choogbook is executing free meals even for the middle school students. To provide free meals for all elementary · middle school students as the Democratic Party asserted, the Ministry of Strategy and Finance estimates that almost 2 trillion 240 billion won will be spent annually (Chosun Ilbo, 2011. 08. 26).

[6] Currently, childcare is supported in two ways. For 0-5 years old child using the day care, child care expenses are supported for 70% of low income classes (4.8 million won based on 4 per family) and if children are nourished at homes, nourishing allowances are supplied to the children of 0-2 years old of the second lowest class (100-120% of the minimum living expenses). In the former case, 760 thousand people receive 177,000-394,000 won monthly whereas 90 thousand people receive 10-20 thousand won monthly in the latter case. In 2012, the standard of ‘childcare is 70% of lowest income and nourishing allowance is the second lowest class’ applied. It was announced in May 2011 that a 5-year-old child would receive free childcare from 2012 so there is still a problem of 0-4 year-old childcare. The Grand National Party representative Hwang Wooyeo argued that “There is a need to expand infant childcare of 0-4 year-old compared to the mandatory education to relieve the childbirth problem.” The Democratic Party estimated that it will cost 4 trillion 100 billion won annually to supply nourishing allowances to 5 year-old children who do not use the daycare facilities (Chosun Ilbo, 2011. 08. 26).


[7] The author confesses that his tax reform (levying social security tax on unearned land income) was greatly inspired and encouraged by Nam Kiups (2007, 2010, 2011). The author will compare the two.

First, the tax reform of Kim Yoonsang (2009 and 2010) and Nam Kiup (2007, 2010, 2011) is mainly focused on introducing ‘land value tax’ for returning the unearned land income. That is, a person who owns and uses the land is made to pay the user fee in proportion to the land value but he is reduced of other taxes that burden the economy. It is a package tax reform.

In deciding the name of the new tax, the author uses ‘Social Security Tax’ whereas Professors Kim Yoonsang and Nam Kiup rentes Henry Georges Land Value Tax and uses land possession tax or territory possession tax. The author believes that the name social security tax is more suitable to its original purpose than land possession tax or territory possession tax.

Kim Yoonsang (2009 / 2010) and Nam Kiup (2007, 2010, 2011) argued that the businesses and households can be persuaded to approve ‘land or territory possession tax.’ They argued to levy tax on business-purposed land as well as non-business purposed land but reduce corporate income tax. The tax should be levied on household’s residence-purposed land and arcade’s livelihood-purposed land but they are exempt from labor income tax.

However the author excludes the residence-purposed land possessed by household, business-purpose land possessed by the business and arcade’s livelihood-purposed land from ‘land value tax.’ The author expects that Professors Kim Yoonsang and Nam Kiup’s suggestion is impossible from the beginning or may be abolished in the middle of the process. As an evidence, we can remember the measles that the Korean society experienced by ‘comprehensive real estate tax’ during the Roh Muhyun administration.

Professors Kim Yoonsang and Nam Kiup state to levy tax on the amount of total present value of annual land rent exempted from the interest payments on the borrowing for land rent or land purchase. However the author suggests to collect tax not only on the amount of money excluding the principal during land purchase as well as the interest rate.

Kim Yoonsang (2009 / 2010) and Nam Kiup (2007, 2010, 2011) suggests to levy ‘land value tax’ on the household’s residence-purpose land and arcade’s livelihood-purposed land and exempt labor income tax instead. However the author’s proposal opposes to their suggestion. Perhaps Kim Yoonsang (2009 / 2010) and Nam Kiup (2007, 2010, 2011) would not have recognized the importance and present state of labor income tax.

[8] The income polarization was much worse before the 1990s when land prices were increasing at a much higher rate. In late 1980s, house prices and monthly·annual rents soared due to nationwide real estate speculation. 17 tenants committed suicide when they lost their houses because they could not cope with the soared monthly·annual rent in April 1990. There was a wife who committed suicide together with her two children; the homeowner only required to pay additional 1 million won but could not obtain the extra money.

[9] Park Seung-wook (2007) announced that increasing tax on land possession lowers the welfare level of the upper class whereas it raises that of the lower class.

[10] The word Pyeong is a unit of area in Korea. One Pyeong is estimated to be 3.954 sq. yds.

[11] John Locke’s statement on legitimizing private property can be summarized in the following: (1) The initial state of natural objects is public ownership; (2) It needs to satisfy the following conditions to establish a private ownership. That is self-ownership: All individuals have an ownership on their bodies, Provision of labor: private ownership happens as self-ownership and one’s labor integrates. However Locke’s ‘Proviso’ is an assumption of ‘private property.’


[12] Lim YangTaek, 2007; 2008).

[13] Counteractive to North Koreas land reform, South Korea calls it a farming land reform.

[14] Mexican hero Emiliano Zapata Salazar (1879-1919) shouted ‘give me death if not land’ in the early 20th century. 80 years later, the descendants of Zapata (Zapatista) rose in arms in the Northern Chiapas of Mexico in 1994. Their first requirement was ‘land reform.’ The land problem still holds the ankle of Latin America to going to their future. The large farm owners (1.6%) take up 53% of the total land not only in Mexico but also in Brazil. Large farm owners exert political influence with their authority. Farmers without land live as a wage workers or become part of the urban poor. Their aspirations are reflected in the rise of leftist regimes in Latin America.

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