[The Editors' Verdict] Respond to the LH Scandal with Public Sector Reform

The shock from LH (Korea Land and Housing Corporation) is not limited to real estate speculation in the Gwangmyeong and Siheung new towns. President Moon Jae-in tried to soothe the situation by stating that the new town development would proceed without disruption, and the Minister of Land, Infrastructure and Transport, who is from an LH president background and the supervisory authority, tried to downplay the issue. The police delayed investigations, and people who appeared to be LH employees mocked citizens protesting against real estate speculation. The public was outraged not only by the skyrocketing housing prices and rental chaos caused by the failure of real estate policies but also by the government's unscrupulous attitude. A senior LH executive left a suicide note apologizing to the public and jumped to his death, and another executive also took his own life. That is not all. An LH employee who was disciplined for trading 15 LH houses is working as an audit director at a public enterprise under the Ministry of Land, Infrastructure and Transport, and public land developed by LH was reportedly sold to a paper company with no real substance, allowing some construction companies to reap huge profits.

Few seem to view the endless corruption as a problem unique to LH. The Moon administration increased the public sector, citing welfare states like Sweden, but neglected oversight of public institutions. This is a typical problem in developing countries, and related studies show that 44% of public sector expansion in developing countries is politically motivated. The Moon administration also sought to expand its support base by increasing public sector employment and offering generous wages. If the goal was to strengthen public services, the accountability of public institutions and the morality of their employees should have been reinforced. Although there had long been criticism that there were too many public institutions monopolizing public services and wasting money, the Moon administration did not listen. Employees of public institutions, protected by legal job security and strong unions, became powerful entities capable of even replacing presidents.

South Korea’s public sector unions are among the strongest in the world. The unionization rate is about 70%, seven times higher than in the private sector, and under the same conditions, public sector employees earn over 30% more. Despite this, the public sector was deliberately expanded, causing the private sector to shrink further. According to the “2021 Korea Public Institutions” report recently released by the National Assembly Budget Office, the number of employees in public institutions increased by 23% between 2017 and 2020. Meanwhile, total employment showed 0% growth according to Statistics Korea data, and employment in the private sector decreased. The wage level in public enterprises is more than twice that of the private sector, and the wage growth rate was nearly twice as high. According to the National Assembly Budget Office, the average monthly wage in public enterprises was 6.62 million won in 2019, a 6.2% increase from the previous year. In contrast, Statistics Korea data shows that the average monthly income of wage earners in 2019 was 3.09 million won, increasing by only 3.4%.

The government must respond to the LH scandal with public sector reform. Countries following a social democratic path, such as Sweden, have pursued public sector reform to maintain their welfare states. To increase productivity in the public sector, they completely changed the public sector’s wage and employment practices, which were based on lifetime employment and pay determined by length of service. Market principles were applied not only to public enterprises but also to educational and medical institutions. For example, individual schools decide on teacher recruitment and salaries, and salaries for science and math teachers, who are in short supply, are higher than those for other subjects to encourage recruitment of new teachers. Government support for hospitals is proportional to medical services, nurses’ salaries are linked to performance, and salaries are higher in regions with nurse shortages. Although unions in Sweden are strong, the government pushed reforms despite opposition. The unions had to comply because the reforms enhanced the professionalism and authority of specialized occupations. Public sector reform is the demand of the people.

This content was produced with the assistance of AI translation services.