[The Editors' Verdict] Government Returns to GDP Amid '4% Growth' Expectations

[Asia Economy Reporter Choi Il-gwon] Indicators that represent the standard of living for the people have long been a subject of study for economists. Finding an indicator that optimally reflects not only income but also human values has been a longstanding challenge. At the beginning of the Lee Myung-bak administration, experts pointed out that "policy considerations should focus on improving quality of life and happiness rather than just economic growth rates, which are mere numbers," but no visible changes occurred. Recently, the Bank of Korea has embarked on developing an indicator to measure the nation's ‘quality of life.’

In 2011, the Organisation for Economic Co-operation and Development (OECD) began publishing the ‘BLI (Better Life Index).’ As the name suggests, it is an index representing the ‘better life’ of each country, incorporating numerous welfare-related factors that GDP growth rates cannot capture. The intention behind this is to comprehensively assess whether people are living a humane life through various elements such as income, ‘degree of equality,’ and ‘work-life balance.’

The BLI consists of 11 major categories. It includes economic areas such as ‘income and wealth,’ as well as non-economic factors like housing, quality of work and employment, health, environment, well-being, social relationships, and civic engagement, which make up a significant portion.

In the BLI released last September, South Korea scored high in voter turnout, household assets, and housing affordability as of 2018. However, scores were low in housing overcrowding and household income, and there was a significant degree of inequality in items such as the gender gap in working hours. Considering that income inequality and asset bubbles worsened during the COVID-19 crisis last year, the gap in assets and income likely widened further. In particular, inequality between generations as well as genders was severe, with the employment rate of middle-aged groups surpassing that of the youth, while the long-term unemployment rate was overwhelmingly higher among young people.

The current government has shown strong interest in the BLI. South Korea’s BLI ranking fell from 24th in 2014 to 29th in 2017, reflecting an intention to focus more on indicators that citizens can feel rather than GDP. Former Deputy Prime Minister and Minister of Strategy and Finance Kim Dong-yeon said in November 2018 during his tenure, "Public interest has shifted from growth rates and exports to employment and income distribution indicators today," adding, "What is important in people’s lives is ‘quality of life’ and well-being." This also underpins the government’s inclusive growth policy aimed at addressing income imbalance and polarization.

However, there is skepticism about whether the BLI has contributed to improving citizens’ lives. Income-led growth, which aimed to raise income and drive economic growth, resulted in an employment disaster, and job support policies for vulnerable groups increased the fiscal burden. The fiscal burden expanded further during the COVID-19 response. Although innovation was emphasized, the corporate sector’s perception remains low. It will be interesting to see how the OECD evaluates South Korea in this year’s BLI.

Recently, the government has returned to emphasizing GDP. In his fourth anniversary speech on the 10th, President Moon Jae-in mentioned, "This year’s growth rate will rise by more than 4% compared to last year." Considering that GDP was barely mentioned when 2% growth in 2019 was threatened and negative growth was recorded last year, this is clearly a change. A growth rate in the 4% range is the highest in 10 years since the 6.8% recorded in 2010.

GDP is directly linked to per capita income but cannot determine inequality. With only one year left in its term, the government likely found it difficult to overlook productivity and GDP figures that intuitively show economic performance over various quality of life indicators.