In this blog post, I will look at the structural problems of neoliberalism that have deepened the polarization of South Korean society and examine why the welfare state can be the only alternative.
I learned that neoliberalism is the core paradigm that has been driving the Korean economy since the IMF crisis in 1997. I will now look at the origins and characteristics of neoliberalism, the impacts it has had on Korea, and alternatives to neoliberalism. In particular, I will discuss measures that can be implemented at the national level and measures that individuals can take.
First, we need to look at the birth of neoliberalism. Liberalism, which emerged before neoliberalism, began with the French Revolution, advocating the freedom of all people who were liberated from the power of the monarchy. In terms of the economy, liberalism sought deregulation and freedom, which widened the gap between the rich and the poor, which was the cause of the Great Depression in the 1930s. After the Great Depression, there emerged two schools of thought: “ordoliberalism,” which acknowledged the government’s role in the economy, and “neoliberalism,” which sought to reduce the government’s role and restore laissez-faire capitalism. Ordoliberalism contributed to economic growth, but the system of full employment gave unions excessive power, and excessive wage increases led to a stagnation of growth due to inflation. As a result, neoliberalism emerged in the United States and was introduced in many other countries.
Neoliberalism claims that the maximization of corporate freedom based on private ownership and individual freedom can improve welfare. The role of the state in neoliberalism is to promote economic activity by relaxing regulations, liberalizing trade, investment, and finance, and privatizing public enterprises. The core of neoliberalism is supply-oriented economics, which states that if economic activity is stimulated through tax cuts, the lower-income class will also benefit. However, neoliberalism has widened social inequality as economic benefits have been concentrated among a small number of capitalists.
Neoliberalism has not been successful in the United States and its allies (the United Kingdom, Canada, Australia, etc.), and by the late 1990s, it was excluded from the main models of capitalism in most countries except the United States and South Korea. After the IMF crisis in 1997, Korea introduced neoliberalism in accordance with the IMF’s policy, and many problems arose in the process. Korea’s economy has been reorganized around large corporations in a weak economic structure of small and medium-sized enterprises. In particular, the power of labor unions has been weakened through the flexibility of the labor market, and workers’ rights have been greatly reduced. In addition, the introduction of performance-based pay has exacerbated the income gap between management and workers, and the development of financial capitalism has rapidly widened the gap between the upper income class and the rest of the population. In the end, neoliberalism has created a structure that takes the concentration of wealth at the top for granted, and the lower classes are forced to depend on the mercy of the upper classes.
However, in neoliberalism, which is premised on human selfishness, it is unlikely that the winners will show compassion. Rather, the winners will strengthen their monopolistic structures and continue to concentrate their wealth. This trend is evident in the polarization of wages at large companies and in the restructuring of companies during economic downturns. While the company’s management remains intact, lower-level workers are laid off, and the government’s efforts to secure a social safety net for the laid-off workers are accused of being leftist policies. As a result, it becomes difficult to strengthen the welfare system, and the victims of restructuring are the workers.
Polarization in Korean society is intensifying in the economy, industry, labor, and consumption. This all-round polarization is a major cause of deepening social conflicts and hindering sustainable growth. The economic crisis of 1997 and later led to a shrinking middle-income class and income polarization, which in turn led to consumption polarization. The upper-income class has expanded its spending power as global consumers, but the lower-income class has not been able to escape debt-driven consumption. The polarization of income and consumption leads to the polarization of education, which forms a structure that reproduces polarization. Many studies show that a parent’s income and social status determine a child’s academic achievement and educational level.
The introduction of neoliberalism in Korea has resulted in the polarization of the industrial structure and the abuse of non-regular workers. Predatory subcontracting practices have concentrated profits in large corporations, while stifling the innovative capacity of small and medium-sized enterprises, undermining the long-term growth potential of the Korean economy. Non-regular workers suffer from low wages and unstable employment conditions, and these problems show that the labor market has become distorted by the fixation of a very flexible labor market. The issue of non-regular employment is a typical example of polarization, which widens the income gap and deepens social inequality. This leads to a shrinking domestic market and a weakening potential for sustainable growth.
The national solution to these problems is to introduce a welfare state system. This requires more radical change, not gradual change within the neoliberal system. A welfare state is not just about providing welfare, but also about growth policies that lead to technological innovation and knowledge work, which can promote economic growth through a virtuous cycle. To do this, it is appropriate to provide welfare benefits first and then restore balanced finances through tax increases. Many people already have a positive perception of the welfare state, and more than 60% of people in opinion polls prefer the European model, which provides greater welfare benefits even if they have to pay more taxes. Such welfare should be expanded to universal welfare, including the middle class, in order to overcome the middle class’s opposition to tax reform.
At the individual level, students and ordinary citizens have limited ways to counter neoliberalism. However, they can express their opinions through rational voting as voters. Instead of blindly voting for a specific region or political party, we should choose candidates who align with our interests and demand policy change. In a democracy, the transfer of power is achieved through elections, so we should not give up voting even if we lack trust in political parties and politicians. We should express our opinions on the problems of neoliberalism through democratic procedures and seek alternatives.
As we have seen, neoliberalism has concentrated wealth in the upper classes and deepened polarization in Korean society. This polarization has persisted across the economy, society, and education, and is likely to be passed on. To solve this, it is necessary to build a welfare state at the national level, and at the individual level, active political participation and voting play an important role.
