Korea’s exports last year reached an all-time high of $559.7 billion for a record trade surplus of $44.2 billion. But this remarkable performance in external commerce did little to boost the livelihoods of many working-class families. Domestic consumption remained sluggish, with the rate of unpaid debt rising to the highest level in three years.
Large manufacturing exporters have been investing more in automation or moving their plants abroad to improve productivity and competitiveness. This means that the domestic market is experiencing less of a trickle-down effect from export profits.
Increasing domestic consumption is a more effective way of galvanizing industrial activities at home and creating more jobs. Essential to boosting consumer spending are measures to induce high-income earners to open their wallets.
A recent report by a local research institute made this point with an estimate that was certain to have caught the attention of economic policymakers.
If high-income households had spent 10 percent more of their spending capacity from 2006-2012, it would have resulted in 168,000 new jobs and generated an additional 7.2 trillion won ($6.7 billion) in gross domestic product annually, according to a study by Hyundai Research Institute. Spending capacity is measured by subtracting consumption expenditures from disposable family income.
The average monthly disposable income for high-income households ― those earning 150 percent or more of the median income ― rose from 5.38 million won in 2006 to 5.87 million won in 2012. But their average consumption spending per month inched up from 3.1 million won to 3.23 million won over the cited period. As of 2012, their spending capacity stood at 2.64 million won, compared with 730,000 won for middle-income families.
Separate figures from the central bank show that the number of wealthy individuals with more than 1 billion won in financial assets increased by nearly 15 percent from a year earlier to 163,000 in November last year, with their combined fortunes amounting to 366 trillion won.
The rich may be concerned about growing economic uncertainties and prolonged postretirement life, paying more heed to saving money. But this tendency cannot explain why high-income earners have increased their spending abroad over the past few years, while reducing domestic expenditures.
According to the research institute’s report, their spending on overseas travel averaged 50,000 won per month in 2012, up from 16,000 won in 2006. In contrast, their monthly expenditures on domestic trips shrank from 15,000 won to 10,000 won.
The government is now urged to work out and implement a range of effective measures to increase spending by the rich at home.
The plan recently announced to boost the local tourism industry focused on helping workers and students make more trips. But more drastic efforts need to be made to get wealthy people to turn to local destinations. Regulations should be lifted to facilitate the construction of world-class resort complexes, shopping malls and entertainment parks.
Unrestricted spending by affluent people at home should not be met with jealousy and other negative responses but welcomed and encouraged as contributing to activating the economy and creating more job opportunities.
Policies are also needed to offer more incentives for rich families to become homeowners and deduct taxes on early inheritances from wealthy parents to their children.
Government and central bank officials have an increasingly narrow scope of options for stimulating the economy, which shows flickering signs of recovery, amid volatile market conditions and a shortage of tax revenues. At this time, increased domestic spending by the rich is all the more needed to ensure sustained growth and, in turn, the creation of new jobs.