North Korea? No. Inflation? No. Its Aging Population? YES.
This article printed in The Chosun Ilbo points out Korea’s largest underlying problem: it is the most rapidly aging population in the world. It is for this reason that the Seoul Gyopo Guide has suggested two taxes, one on soju, and one on cigarettes. Those proposals made here on this blog were suggested in order to address Korea’s aging problem. The facts are that Korea faces larger cost outlays as its population ages, either in the form of higher pension payments to its citizens, or in the form of higher medical costs to the elderly. If you want to see a template for what happens when a nation grows older and is not prepared to face the consequences, then you can look to the United States, where the entire social security system and medical system for the elderly (Medicare) is threatened.
The Obvious Problems
It should be pretty clear to many: the older you get, the more susceptible you are to getting ill. Well, in Korea, the ratios in The Chosun Ilbo article are pretty clear. The number of elderly will outnumber the youth. That means more sick people compared to healthy people. It doesn’t matter where you go or when you went there, the result is always the same. That is just Father Time’s effect on people. Currently, the nationalized health system is in considerable financial trouble. That has been highlighted in this article. This problem will, inevitably, get worse, as time passes.
While less visible, the same pressures face the National Pension Fund of Korea (NPF). With fewer workers paying into the NPF over time, and more recipients of potential benefits, you need not be an accountant to understand the basic math. The same exact thing is happening in the United States, where a great deal of domestic political maneuvering is related to this issue. It is a mess, and there are no easy answers for the largest economy in the world. The decline in the US’ relative power in the global economy has made bad matters even worse.
Korea’s Problem May Hurt Its Economy
In addition to the problems that will occur to the Korean social system, there are other, more direct, economic effects. In economic theory, there is the notion of creative destruction. Basically, it means that as one industry declines, some innovation within that industry is used to create the next generation of industries. Korea is a definite example. Steel, automobiles, shipbuilding are three related industries which have fed off each other, and pushed each other to greater global positions in the global economy. There is no one involved in those industries that do not know the names POSCO, Hyundai-Kia Motor, and Hyundai Heavy (among others). That they are all located in Korea is no mistake. Related technologies or products has been used in each others’ industries.
In technology, the very, very picky tastes of the young, Korean consumers have driven LG Electronics, Samsung Electronics, et al, to similar positions in the global hierarchy. Koreans know that if a new product has features that no one likes, or if has some problem, then it will have a new name: DEAD. In that sense, Korea has served as a global laboratory for international tastes with respect to consumer electronics. The reason this has been possible is because of the Koreans in the 20s and 30s have both the purchasing power and the insistence for the best features in its products. Thirty years ago, this was not the case. It was the case in Japan. The most simple example: the Sony Walkman, which improved almost every season during the late 1970s and early 1980s. At that time, young Japanese consumers demanded the newest and best features. If this sounds familiar to the current-day Korean consumer electronics situation, then it should. We can talk all about how Koreans are superior to the Japanese, etc, which the Seoul Gyopo Guide rejects. While Sony may have made missteps, the Seoul Gyopo Guide suggests that it was Japan’s aging population, who was less demanding as it aged, that helped Sony lose its “edge” for innovation and design. Sony didn’t instantaneously become incompetent: its customers at home were not as effective in representing the demand for features because they simply got older. Korea Inc has taken full advantage of this, to its great credit. The same thing can be said for Hyundai-Kia, which has now created features that make its car more popular in the United States than Japan’s Nissan, when measured by market share.
While it is one thing for an opportunity to present itself, it is another one altogether to take full advantage of the opportunity. There is little doubt that Korea Inc has done just that. However, The Chosun Ilbo article, and its underlying meaning, should serve as a reminder that the same thing that has happened to Japan can happen to Korea.