Economics: Socio-Economic Reform:
Quo Vadis Domine: A Blueprint for
by Professor Yang-Taek Lim, Ph.D.
College of Economics and Finance,
While the following paper specifically addresses the case of the
◦ President Fichte’s ‘Reden an die Deutsche Nation’, Shin Chaeho’s ‘The Hope of Daehan’ and Ahn Changho’s ‘The Theory of Korean Reform’
The author has quoted Fichte’s ‘Reden an die Deutsche Nation’ (1807) in his book Overcoming Foreign Exchange Crisis and Challenge to Sustainable Economic Development (1985). :
“An ethnic that has lost autonomous independence has also lost the ability to decide the flow of the period freely. If the state continues, the external power will dominate the fate of the ethnic as well as the fate of the times.”
President Fichte inspired national
determination under the domination of French Army in the late 1807 and
During this time,
Under such circumstances,
However, Fichte’s ‘Reden an die Deutsche Nation’ provoked a new trend of literature of Romanticism in Germans who were suppressed by the external forces. The trend also brought about the era of Romantic Economics of Germany and it again looked to Friedrich List to advocate for German national economics (Volkswirt schaftslehre).
after Fichte’s ‘Reden
an die Deutsche Nation’ (1807), there was a bloody
Shin Chae-Ho (1880-1936), a journalist in Chosun Dynasty, wrote ‘The Hope of Daehan’ in the monthly report of Daehan Association in April 1908 :
“An ethnic obsessed in the old mind and material will be destroyed by the Western powers with developed civilization and strong power. Dear people of Daehan, focus on creating a New National getting abreast of strong nations in the 20th century.
The force of national competitiveness in the 20th century relies not only on a few people but on every person. When everyone builds a strong national basis and expands the civilization to the world, the nation will stand high within East Asia and flutter the flag of a strong nation on the global stage – oh, people why not try harder?
Ah, what do we have in Daehan today? It is a nation without a sovereignty, people without freedom, currency without the free right of coinage, law without ownership, mine without ownership and railroad without ownership.
Work hard. Motive is
created by hope, diligence is created by motive, business is created by
diligence and the nation is created by business, so work hard. People of
Shin Chae-Ho was the most righteous and
independent pioneer in the history of Korean society. He shouted out loud that
people need to be hopeful about their future and live diligently to achieve
independence from the Western forces and become a strong nation within
Meanwhile, Ahn Chang-Ho, an ethnic teacher,
gave a lecture in
“Ladies and gentlemen! We need to reform our nation. A
nation without happiness! Uncivilized
Let bygones be bygones and we should get started to reform our Daehan. It should not be delayed after one or two years but it should be started right now. If we lose time, it will be forever.
Do you sincerely love the nation? If you and
100 years after Shin Chae-Ho’s ‘The Hope of Daehan’ (1908), Ahn Chang-Ho’s
‘The Theory of Korean Reform’ (1919), what hope does the
Professor Arnold Toynbee (1889-1975) said there had been a period of self-examination for a developing ethnic before the period of development. Now, in 2012, we need a modest self-examination and a strict self-reform for development. The author suggests the following four points as a national task :
a developmental strategy to specify it, how should
3. What should be a rational role of government, business and household to promote the strategy efficiently?
Global Economic Crisis
and the Crisis of
The world is facing a historical transition. After the 9·11 terrorist attacks in 2001, the global financial crisis began in the second half of 2008. It seems that this crisis is provoking a revolution in the world’s political and military order and economic paradigm.
As a penalty for the terrorism, the
According to S&P’s report of downward
adjusting of the
In fact, Professor Joseph Stiglitz’ book, under the title of Freefall : Free Markets, and the Sinking of the World Economy (2010), gives the author of this paper a shudder with a low groan. This author misses and fully respects Professor Joan Robinson (1903-1983) who criticized Liberalism and appealed to The 2nd Crisis of Economic Theory (1971).
As the Great Depression (1929-1939) was a contributing factor to World War II (1939-1945), the author truly hopes that the Korean peninsula should not be in the ‘eye of the typhoon’ as the global economic crisis further intensifies the ‘Global Imbalance.’ In world history, the American economy reached the highest times in prosperity during the Korean War (1950-1953) and the Japanese economy was resurrected by becoming a major supplier of military equipments during the wartime.
In a transitional circumstance, ‘
The Korean peninsula -- surrounded by the big
powers of the
However, the ‘tornado’ of Northeast Asian region that
makes the Korean peninsula an ‘eye of the typhoon’ can break the power balance
of the South and North relationship. With the possibility in consideration,
President Lee Myung-Bak developed a ‘Pragmatic Four Power Diplomacy’ in August-September
2008 through the sequential summit with the
The author considers the year 2012 as the most important
time in Korean history and closely observes it because the
The South Korean economy depends highly upon foreign economy (export-dependent on the United States and China and import-dependent on Japan) as it lacks natural resources and has a small-sized domestic market, holds a ‘hot potato’, which is North Korea and is exposed in the hegemonic competition of the U.S., Japan, China and Russia due to its geological importance. Squeezed between the big powers, it is the fate of the Korean people to find a perilous way out for the survival and prosperity of the Korean people.
◦ National Task of
The crisis of Korean society is getting extreme. The conflict between classes and that between labor and management are intensifying as if ‘the war of all against all of Thomas Hobbes’ (1588-1679) is occurring. Moreover, ‘war-conflict and vague impulse’ indicated by Arthur Schopenahuer (1788-1860) is shocking. The psychopathic murder on unspecific majority for no reason is often reported in the media.
The current size of household debt (household
loan and selling on credit, i.e., the total of credit sale of the card company
and installment financial company) in June 2011 is 876 trillion 300 billion won,
which is over 1.5 times the disposable income (Bank of Korea, reported in 2011.
The astronomical size of the household debt
is no different than being a ‘time bomb’ of the Korean society. When the real
estate market continues to remain in economic recession and the interest rate
is raised for stabilizing the market price, increasing households cannot pay
back the debt. The financial companies will weaken and it may lead to financial
crisis which is started from
The astronomical size of the household debt will incapacitate the currency policy because the household cannot cope with the increase of the interest rate. The saving rate of Korean households is rapidly declining. The saving rate in 2010 was 2.8%, only 2/5 of the OECD average and the lowest among the OECD countries. Its declining speed is the fastest among the OECD countries since 1990.When the household saving rate decrease 1% point, economic growth rate slows down 0.15% point. Total fixed investment rate declines 0.36% point and the ratio of private consumption to GDP also decreases 0.25% point. As a result, employment will decrease even more.
Considering the 1.2 million mass unemployed people and
330,000 youth unemployment, the author is very anxious about the possibility that ‘London Riot’ (2012. 08. 06) could also happen in
Notice that the participants of the ‘London
Riot’ were the young generation coming from the poor class and revolting
against the older generation. In contrast, the youth of
The youth are the main character of the next generation and a national pillar as well. However the greatest victims of the financial crisis are the youth. The door to employment actually became a ‘narrow door’. Youth unemployment itself is a big pain for individuals and their families but it is also a waste of human resources and damage to potential growth nationally. The future of a nation can never be bright when the young people, who should be working hard with brilliant ideas and fierce passion, wander around to get a job and resign on their situation. Nevertheless, the universities are annually throwing out the graduate students.
In fact, human’s ‘anxiety and desperation’ rebuked by
Soren Aabye Kierkegaard (1813-1855) is further being intensified. The author has
spent a whole lifetime at the college podium since 1979 but he is embarrassed
to see his students in the recent years. He is sometimes entrapped in the
fantasy that a storm gusts from Emily Jane Bronte’s
To make matters worse,
Under the aforementioned background, the author (Yang-Taek Lim, 2007)
suggested three national goals of Korea : (1) domestically,
establishment of a human-capitalism society that pursues ‘the Greatest Happiness of the Greatest Number’ ; (2) externally, joint
development of the energy-resource of East-Siberia / Far-East Russia and
execution of a leading role in Northeast Asian economy ; and (3) ethnically,
unification of the Korean peninsula and prosperity of the Korean community.
Achieving ethnic / external national goal is to turn the
Now, the author attempts to fulfill his duty of the time
as an economist and suggests the following solutions for the substantial
problems the Korean society is facing, in consideration of “the Greatest
Happiness of the Greatest Number” for the survival and the prosperity of
The ten tasks above can be analyzed in the two axes of national development, the first axis being economic growth and the second being social development. The main purpose of the former is improving the nation’s competitiveness for sustainable economic growth whereas that of the latter is reforming the social security system with a sound financing system for a minimum living standard.
Economic and social development is to solve the four-conflict structure consisting of 1. ideological conflict, 2. conflict between classes, 3. conflict between labor and management, and 4. regional conflicts. For this purpose, ‘Job-Creating Growth’ should be maintained to pursue sustainable growth, equitable distribution and stability at the same time. Employment is a basic means of survival and a basic condition to protect human dignity. If a head of household cannot have a job, can he or she adequately and normally educate their children or have even a proper conversation at home?
As written in the Beveridge Report (1948), full employment is the basic condition for a welfare state. Employment creates income, which in turn determines consumption, generates domestic demand available to relieve an exogenous shock of foreign economy. Therefore, we need to first accomplish full employment in order to establish a good welfare society. Radically, a decent job can be considered as ‘the best welfare’ even without an unemployment allowance.
However, full employment is a faraway story in the
reality. Excluding the job abdicants, army volunteers, and study-abroad
students, the government reports that the number of
unemployed people in
Here we can cast a fundamental question : According to the ‘American’ New Liberalism or ‘Liberalism’ called by the American media or even the thought paradigm of ‘Libertarianism’, can we tell the 3.3 million of Korea’s ‘actual’ unemployed that they should admit the ‘natural’ state of unemployment because they lack in a basic capability and have neglected in self-improvement, thereby their specification being inferior. Also can we dare to say that poverty is a just responsibility of an individual, not of the entire society?
If we cannot, then what is a growth mechanism that can create employment for maintaining the livelihood and human dignity of the unemployed? Furthermore, what is the solution to turn 5,370,000 non-regular employees (based on March 2009) into regular employees?
As indicated in John Rawls (1921-2002)’ A
Theory of Justice (1971), the core of fairness is the neutralization of
fortune. That is, it is necessary to nullify the coincident result to make social-natural
condition advantageous for themselves. He asserted that in this case, a ‘fair
society’ can be built. Of course,
Professor John Rawls’ A
Theory of Justice
(1971) could be a too-aloof philosophy to root down in the barren climate of
Professor Michael J. Sandel’s (1953-present) Liberalism and the Limits of Justice (1982) criticizes Professor John Rawls’ A Theory of Justice (1971). However the author believes that Michael Sandel’s criticism is only an attempt to reestablish the notion of justice in practice amidst the conflict between justice and general social phenomenon, not any different from Professor John Rawls’ notion of justice.
◦ Economic Analysis for ‘the Greatest Happiness for the Greatest Number’
The ‘Greatest Happiness of the Greatest
Number’ that this research pursues is not simply a material happiness by social
security wage but a spiritual happiness by freedom-equality (justice) ·philanthropy
(social solidarity) at the heart of the French Revolution (1789) and the
declaration of independence of the
‘The Greatest Happiness of the Greatest Number’ is different from the Utility of the Utilitarianists like Bentham – J. S. Mill – A. C. Pigou. Utilitarianism assumes that Utility or a subjective satisfaction of individuals can be compared with any substantial measurement. Furthermore their Utilitarianism assumes that it cannot only measure the Utility of a same person but also between two different individuals. That is, a subjective satisfaction enjoyed by A and that of B can altogether be measured by a common measurement. Therefore the index of the social welfare is drawn out by summing up every individual Utility.
However Lionel C. Robbins (1898-1984) said in his An Essay on the Nature and Significance of Economic Science (1932) that the comparability of Bentham – Mill – Pigou so he denies it.
Furthermore, John R. Hicks and P.A. Samuelson suggested a hypothesis that it is not required to assume the measurability to analyze the existence or stability of market balance. In other words, a subjective choice of each individual is made to maximize utility but in this case, utility does not need to be measurable, but only learn the ranking of Preference. That is, we need to ascertain whether or not a certain state (X) is more preferred to another state (Y). The consumer’s behavior can be analyzed with the indiscriminate system so there is no need to learn the utility level itself. The utility measure cannot be derived by how individuals choose or by their behavior in the market but the preference sequence that marks the subjective value standard or the indiscriminate curve can be derived from the individuals’ behavior in the market. As a result, the measurability of utility or comparability was excluded from the neoclassical theory of market balance.
However, the Behavioral Economics recently coming to the fore gives an example of ‘common identity’ influencing economic behavior; for example the Prisoner’s Dilemma Game, Ultimatum, Faith Game, Public Property Game. Behavioral Economics thereby asserts that the game participants cooperate more as they strongly feel ‘a sense of belonging.’ The ‘group identity’ and ‘productivity’ depend on how strong an individual feels as a member of ‘we.’
In contrast, traditional economics ignored or excluded human’s ‘basic instinct’ and developed the theory of market balance under the assumption that humans are ‘selfish’ and ‘rational.’ However humans are an ‘economic animal’ and ‘social animal.’ Thus they constantly interact with a social sign in the group. It would be able to pursue a socially desirable resource allotment by including the Solidarity in the market economy theory.
In the aforementioned economic philosophical theory, this research criticized the market balance instability and social unbalance of neoclassical economic theory under the analyzed model of General Equilibrium. It also mathematically proved that economic efficiency and social equity can exist simultaneously by an efficient resource allotment for the social optimum.
‘Efficiency’ in the analysis model of this research means a neoclassical comparative static efficiency. It is not the Pareto Optimality but a dynamic efficiency of Phelps-Koopmans (1965) and K. J. Arrow and M. Kurz (1970).
Moreover, ‘social equity’ in this research is not simply the neoclassical distribution justice that indicates ‘Euler’s Law’ but Rawlsian Justice based on the macro income distribution theory of N. Kaldor (1955, 1956) which means the income distribution between capital income class and wage income class and ‘minimal maximization principle’ advocated by John Rawls’ (1921-2002) in A Theory of Justice (1971).
‘Social Justice’ involves ‘legislative justice’ as well as ‘economic justice.’ The society operating without the precept that ‘all mighty is the dollar’ is a ‘fair society’. Moreover, a ‘fair society’ is based on ‘equal opportunity.’ With these conditions fulfilled can we finally embody the communal value (not a community as an ‘imaginary group’ remarked by Jeremy Bentham) of Michael J. Sandel (1982, 2005, 2010).
Notice the difference of Utilitarian ‘expected utility maximization’ and John Rawls’ (1971) ‘minimal maximization principle.’ The former ignores the consumption ability before utility maximization or the state or income allotment whereas the latter sets the distribution of justice as the utility standard. According to John Rawls (1971) A Theory of Justice, ‘Justice’ is an evidence that calculates happiness. In other words, justice is not a result of calculation but a starting point of all calculation that it is assumed before the calculation. According to John Rawls’ (1971) ‘minimal maximization principle’, people with ‘the veil of ignorance’ do not know which position they are placed in. Thus although they acknowledge the inequity among the social members, they will choose inequity where the most disadvantaged person can gain the most profit possible.
An economic system that fulfills the ‘justice principle’ of John Rawls is liberal socialism and private property democracy. The two systems secure a basic freedom of fair political freedom and equal opportunity and they can regulate economic-social inequality according to ‘Reciprocality.’ Among the two economic systems (liberal socialism and private property democracy) each can be decided by tradition, system, social power, specific historical conditions of each state.
Editor’s Note: This paper will continue in the upcoming July-August 2012 issue of this Journal.
) Yang-Taek Lim (1985), Overcoming Foreign Exchange Crisis and
Challenge to Sustainable Economic Development,
was born in Daeduk, Choong-nam and participated in the independence movement
and served as a historian, journalist until he passed away in Prison Yusoon
under the Japanese Imperialism. He sought asylum in
) The author
quoted from Lim Yang-Taek (1995),
The People Shall Perish Where There Is No
) The government reported comprehensive countermeasures (2011. 06. 29) for soft-landing household debt are focused on the change of the debt structure. The essence is to pull up the rate of fixed interest rate and non-stationary repayment mortgage, which are 5% of the current bank loans, to 30% by 2016. The government will raise the income deduction limit on loan interest rate of national house size and reduce the deduction limit on floating-rate loan and stationary loan. In other words, it will change the floating-rate loan to fixed-rate loan and stationary-ordinary loan to non-stationary-repayment mortgage loan. It is to prevent the burden of interest repayment increasing caused by low-rate system normalizing and thus raising the interest rate. As a result, a computer network related to financial businesses’ household loan was blocked out. It is important at this point to manage the total household debt so that it will not increase and gradually reduce it. However it pushes common people, who need money, to depend on high rate of interest in the private money market. The author believes that there are no other fundamental solutions for household debt rather than to create a decent job through economic growth and increase disposable household income.
 ‘The Principle of Justice’ in John Rawls’ A Theory of Justice (1971) can be established in the following two principles: The first principle is that every individuals needs to have an equal right on the most broad total system of equal basic freedom that is compatible with a similar freedom system of all people ; the second principle is that social-economic inequality needs to satisfy the two conditions. That is, 1. it should be compatible with the just saving principle and 2. status should be opened to all people under the fair equal opportunity that will be ‘the greatest benefit to the least recipient’ (Rawls, 1999, p266). In other words, equality should be applied in advance but it can be differentiated when necessary. That is, it starts from ‘the equality principle’ (the first principle of justice), and differentiation is applied when it can improve people’s situation (the second principle of justice). Moreover social / economic inequality is allowed when it maximizes the long-term bar of the least recipients or at least it contributes to it.
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