[Interview] "Cash Welfare Stopped Even in Europe... Jobs Are the Only Solution"

'New Schumpeter School' Lee Geun, Vice Chairman of the National Economic Advisory Council

Lee Geun, Vice Chairman of the National Economic Advisory Council, is being interviewed on the 1st at the office of the National Economic Advisory Council in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

Emphasizing Long-Term Economic Growth Through Innovation

GDP at 70% of the U.S.: The 'Advanced Developing Country' Trap

Building Networks for Childbirth, Childcare, and Education Services to Enable Women to Work

Korea Must Avoid Being the 'Shrimp's Back' Between the U.S. and China

Separating Economy and Politics… The Core G7 Agenda is a 'Rules-Based Transparent International Economy'

Need for Digitalization in Education, Health, and Labor

[Interview = Choi Il-gwon, Head of Economic Department, Asia Economy; Summary = Reporter Kim Eun-byeol] "Europe realized it had fallen into the 'welfare state disease' by focusing on cash welfare and shifted its direction toward job creation through expanding social services. We are also close to the welfare state trap. During the current administration's term, it is necessary to publicize how to harmonize growth and welfare and to establish the concept of 'what form of welfare' to pursue."

Lee Geun, Vice Chairman of the National Economic Advisory Council (Advisory Council), a presidential economic advisory body, recently emphasized in an exclusive interview with Asia Economy that "Korea must be cautious not to fall into the 'welfare state, advanced developing country trap'." He expressed concern that Korea, having escaped the middle-income trap after rapid growth, could face stagnation in growth rate even in its status as an 'advanced developing country,' not a developing country. Attention is focused on the possibility that the current government, which sharply increased spending to respond to COVID-19, may shift policies during the remainder of its term. This is Vice Chairman Lee's first media interview since his appointment in January.

Vice Chairman Lee, classified as a leading figure of the new Schumpeterian school in Korea, holds the view that job creation should take precedence over cash support not only in innovation growth but also in welfare. He emphasized, "Rather than handing out cash, ultimately, building various social service networks such as childbirth, childcare, and education, and creating jobs through these is one solution to welfare." Increasing jobs leads to higher productivity and contributes to economic growth. He particularly stressed the need for women's participation in economic activities. He insisted, "Social safety nets should be provided not in cash but through social services like childcare and nursing so that women can work."

Vice Chairman Lee also revealed the economic agenda expected at the upcoming G7 summit in June. Korea has been invited by the UK, the G7 chair this year. Lee will attend the expert meeting next month as Korea's representative among the panels preparing the summit agenda. He stated, "The core agenda of this G7 is to create a transparent international economic system based on rules, free from arbitrary influence or actions by the U.S. and China." The intention is to avoid the worst-case scenario of having to choose sides between the U.S. and China by establishing rules and minimizing diplomatic and economic impacts. Lee emphasized, "This means the G7 aims to restore multilateral free trade."

He identified the tasks for the remaining year of the Moon Jae-in administration as △publicizing the agenda of virtuous cycle between growth and welfare △checking excessive Anglo-American style shareholder capitalism △reshoring and establishing an efficient global value chain (GVC) △short- and long-term industrial innovation.

"Korea Has Escaped the Middle-Income Trap but Is Close to the Welfare State Trap"

-You led the International Schumpeter Society (ISS) for two years.

△John Maynard Keynes and Joseph Schumpeter are the two towering economists representing the 20th century. Keynes mainly advocated short-term macro fiscal policies to boost demand, while Schumpeter emphasized long-term economic growth by creating new markets and jobs through supply-side technological innovation. The long-term solution lies in breakthroughs through innovation. The Schumpeterian school does not only emphasize innovation but proposes a model of creating jobs and providing efficient workfare. Europe initially adopted Keynesian welfare states but later realized it had fallen into welfare state disease and the advanced developing country trap, shifting toward Schumpeterian approaches.

-Do you mean that money should be spent on creating social services rather than cash?

△Yes. Korea is transitioning from a developing country to a welfare state, but there is a high risk of falling into the welfare state trap, also known as the 'advanced developing country trap.' The purchasing power parity (PPP)-based GDP per capita stagnates at about 70% of the U.S. Korea's labor shortage problem can be solved by increasing women's employment participation. The state must provide a system that 'raises children' so that women can work. Europe also saw increased female employment participation as the state provided social services. According to the OECD, as of 2019, Korea's female labor force participation rate was 60.0%, about 20 percentage points lower than Sweden (81.1%), Switzerland (80.2%), New Zealand (76.8%), the Netherlands (76.7%), and Denmark (76.0%). Improving this area is the most necessary thing in Korea.

-You have advocated following the Nordic model for several years, but it seems difficult to implement.

△There has been a tendency to focus excessively on cash welfare, which has not worked properly. Cash welfare spends money but does not create quality jobs and tends to reduce work motivation. Public jobs are necessary, but it is a priority to have a blueprint aiming toward social services and consider the direction of promotion accordingly.

-What means are there to benchmark European-style stakeholder capitalism?

△Granting dual-class voting rights upon venture company listings and providing additional dividends and voting rights proportional to the holding period. If founders or investors receive dividends and voting rights proportional to their holding period, it will contribute to enhancing long-term corporate value rather than short-term investment.

Lee Geun, Vice Chairman of the National Economic Advisory Council, is being interviewed on the 1st at the office of the National Economic Advisory Council in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

"G7 Aims for a Rules-Based World Order Free from U.S.-China Influence"

-The global economy has problems after COVID-19,

△Externally, it is important that the 'shrimp's back' does not break in the hegemonic struggle between the G2 (U.S. and China). In this regard, at the June G7 meeting, 11 countries (G7 + Korea, Australia, India, South Africa) will submit a proposal report on 'economic resilience.' The last expert panel meeting before the summit will be held next month, and I will attend as Korea's representative.

-Are the 11 countries discussing a 'new GVC' after COVID-19?

△Yes. After COVID-19, countries have pursued reshoring policies, and to reduce risks of overseas production, there is a trend to produce domestically even at a loss. The hegemonic struggle between the U.S. and China has led countries to be swayed by arbitrary influence or actions of major powers. Looking at the four countries invited by the UK besides the G7, all share the commonality of having suffered economic damage from the U.S.-China conflict. The message to be sent is to avoid politicizing economic issues, whether by the U.S. or China. The core agenda is the need for transparent international regulations based on rules, free from arbitrary actions by major powers. This corresponds to the last of the G7's four areas (health, climate change, democracy, new international economic order).

-Could Korea's special situation lead to an ambiguous position between the U.S. and China?

△Fundamentally, we have separated politics and economy, following the principle of 'economic ties with China, security with the U.S.,' but after the THAAD incident, separation has become difficult. This opportunity is to call for Korea and other similarly positioned countries to raise their voices together to separate economic and political issues. If this declaration succeeds, Korea's burden will be significantly eased. In the process of creating a resilient yet efficient GVC after COVID-19, Korea's partner is the European Union (EU). This is why Korea needs to pursue the New Southern Policy, New Northern Policy, and additionally a New Western Policy. The EU, which used to follow the U.S. as 'big brother,' has recently declared an independent path based on values of democracy, human rights, and free trade. These values align best with Korea. It is not about choosing the U.S. or China but declaring the values Korea pursues and basing diplomatic and economic policies on those values to avoid becoming the 'shrimp's back' in the whale fight. This is a policy to survive among major powers. We have shared these values with the Blue House and the Ministry of Foreign Affairs.

"We Must Achieve Innovation Growth 2.0… Korean Capitalism Should Shift from Anglo-American to Nordic Model"

-What special requests did President Moon Jae-in make after your appointment as Vice Chairman?

△We discussed Innovation Growth 2.0. In the past, the government developed technology and supplied it to the private sector, but nowadays, since the private sector's level is high, we talked about changing innovation policy to a 'demand-oriented industrial policy,' including public procurement. The government buys innovative products from companies with high technology but lacking initial demand. If Innovation Growth 1.0 was a 'manufacturing renaissance' (manufacturing-centered, expanding smart factories), the importance of digital platforms has increased after experiencing COVID-19. When Korea became an IT powerhouse during 'Digital Society 1.0,' ultra-high-speed internet played a big role, but now that alone is insufficient; digitalization in education, health, and labor markets is necessary.

-What have you proposed to the President at the Advisory Council?

△After my appointment, I presented at the plenary meeting that 'Korean capitalism should shift from Anglo-American to Nordic capitalism.' Korean capitalism overcame the middle-income trap in the mid-1980s through innovation-driven catch-up capitalism and grew into mixed capitalism (East Asian + Anglo-American) after the financial crisis. However, recently, growth rate, employment rate, and distribution have all worsened, resembling Anglo-American capitalism. In the worst case, corporate investment may be sluggish, and foreign-centered shareholder capitalism may dominate. Financial asset ownership polarization worsens distribution, and domestic industry and employment effects may decline. If left unchecked, it will inevitably become 'bad capitalism.'

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