The Korea Herald


[Editorial] OECD’s advice

By 최남현

Published : June 23, 2011 - 19:43

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A random glance at newspaper front pages shows that few encouraging stories are making the headlines these days. Instead, they are filled with corruption scandals involving public officeholders, never-ending animosity among ostensibly irreconcilable political adversaries, looming economic disasters ― you name it, it’s there.

Few bright spots are in sight at a time of political transition. Instead, more dirty linen and skeletons in the closet will be brought into public view when rival political parties start to engage in fierce battles ahead of parliamentary and presidential elections respectively in April and December next year.

But people in leadership positions may well take a step back from the depressing daily news. In this seemingly chaotic transitional period of time, they may take time in pondering what the nation needs to do if it is to avoid falling into an abyss, as it did during the Asian financial crisis, and maintain the course of sustainable economic growth.

Decision makers in the administration, policymakers in political parties and leading opinion makers in society may think about what the nation needs to do when a new political structure is established. They have a critical role to play in mapping out a future course. It would be of no use to wring their hands over what now appear to be intractable problems, such as the demand for half-priced university tuition.

So the advice from the Organization for Economic Cooperation and Development is timely. The OECD’s proposal covers seven areas ― employment, income distribution and poverty, gender equality and fertility, social protection, education, entrepreneurship and tax policy. The Paris-based club of well-to-do countries recommends that Korea give top priority to promoting social cohesion, which is being eroded by a widening income gap and gender inequality.

As noted by the OECD, sustainable rapid economic growth demands an increase in labor productivity, with labor inputs set to decline as the population fast ages and the low birthrate refuses to pick up. An answer to this problem, it says, lies in encouraging competition in the service industry, where productivity is dismal, by promoting deregulation.

The OECD finds regular workers are overly protected at the expense of non-regular workers. By promoting greater flexibility in employment, it says corporations will be encouraged to put more regular workers on their payrolls. At the same time, it recommends a greater social safety net for non-regular workers as a means of narrowing their income gap with regular workers.

But the recommendation of overriding concern to the nation undoubtedly is a proposed remedy to the moribund national pension program, which is often referred to as a ticking time bomb. According to a new post-global-financial-crisis estimate, the national pension fund is projected to be depleted by 2050, not 2060 as previously assumed, if no action is taken. The main culprits are losses incurred during the financial crisis and a low annual return of 5 percent or so.

Against this backdrop, the OECD recommends raising the age at which the payments of pension benefits begin from the current 60 to 65 and that corporations phase out their retirement ages, which stand below 60. Simply put, it says pension subscribers receive less ― a prescription that is politically unpopular but necessary for a nation whose fertility rate is well below the replacement level and whose life expectancies is rising.

Another proposal is to cut individual income and corporation tax rates and increase the value-added tax rate, which stands at 10 percent. The OECD also proposes to raise the rates of property and environment-related taxes. But most controversial is the proposal to raise the value-added tax, which would have a direct impact on consumer prices. Few politicians would choose to alienate the electorate by taking the initiative in raising the value-added tax rate.

Of course, it is out of the question to implement the OECD policy recommendations in their entirety, though they cannot be politically biased as they are undoubtedly made from the perspective of an apolitical outsider. Still, they are worth studying meticulously as a potential reference of great importance for post-transition policymaking.