The Debt Problem

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I read an article in the Korean times the other day about the pace at which the state debt problem in Korea is growing.

The Korean Times pointed out the following:

“The ratio of government debt to gross domestic product (GDP) stands at 44.8 percent, much lower than the OECD average of 115.5 percent.”

It was surprisingly not a very cheery article, but it did address some very real concerns about the economy here in Korea and also the impossible situation that the government is in.

The debt problem essentially all boils down to the aging demographic, or so the article seems to think.

Yes Korea as a nation has a much larger aging population than the amount of youth that were created to support it, and this will obviously cause problems as more and more people expect to draw some kind of welfare from the state in their senior years.

This welfare could be in the form of a pension, or in the form of the state medical insurance, where the government essentially pays half of the cost of all treatments.

The problem with this is that senior generations really don’t do much to drive the economy, in fact the only major industry that benefits from having a senior population is the pharmaceutical industry. So those welfare payments have to be found from elsewhere.

As the article continued it explained that some of the ideas being passed around to deal with the debt problem and what to do to stimulate the economy. This included a hopeful presidential candidate’s pledge to create over 1 million jobs.

Here lies the problem.

There are 50 million (ish) people in Korea at the moment, and many already work in the public sector, or more bluntly put, in government jobs.

Adding another million government employees to the workforce will not really achieve anything. It sounds impressive, and yes it would certainly relieve unemployment in the short term. It would also probably win a lot of votes,

But the government can only make government jobs.

It cannot create jobs in the private sector, which is the driving engine for the economy. The government, and this is the same of every country only has the power to create jobs in the public sector, all of which have to be paid for by the tax payer. This means that taxes would have to rise in order to cover the wages of this miillion newly employed government workers.

But the other question is, what exactly would the government do that required a million more workers? Is it so drastically understaffed now? The answer is a most obvious no.

With an aging population and a diminished workforce, by simply `creating’ a million government jobs this ensures that the economic situation will essentially get worse rather than better.

It can be likened to having an extra million mouths to feed out of the treasury’s shrinking soup bowl.

So is there a solution?

Absolutely, it lies in what PGH, (even though she is so hated due to the scandal) suggested and pushed for. It is to foster creativity. Instead of the young people going mindlessly through the education system and then `looking for a job’, it would be far better for them to be taught how to think creatively. So little of the Korean education system puts real value on becoming a creative thinker. As a result few develop business ideas that could put their untapped creative talent to use.

But then this is not just a Korean problem, it is a symptom of the global education system that emphasizes the need to test performance, rather than nurture talent.

Thank You

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