[Insight & Opinion] Shylock's Plea

In 1492, significant events that marked a turning point in history occurred in Spain. That year, Queen Isabella, who unified Spain for the first time, invested a huge amount of funds to enable Columbus to discover the New World, thus opening the Age of Exploration. Encouraged by these achievements, the queen issued the ‘Alhambra Decree’ in the same year, expelling the Jews who had been a thorn in her side. The Jews residing in Spain at the time were required to convert to Catholicism or leave Spain. As a result, the Jews who controlled finance were expelled all at once.

The common people’s economy plummeted. The disappearance of the greedy Jewish financiers caused severe hardship for the commoners, who did not understand why they were suffering so much. Not long after, the great kingdom of Spain lost world dominance to tiny Netherlands, where many of the Jews expelled from Spain had settled after their wanderings. Centered around the first joint-stock companies and financial institutions created by Jewish financial techniques, the common people of the Netherlands enjoyed a prosperous life. The commoners’ money even fueled the ‘Tulip Mania’ speculative bubble.

The characteristic and common feature of Italian city-states such as Milan, Genoa, Venice, and Florence, which flourished during the medieval period, was the thriving finance industry centered on Jews and the Medici family. However, the view toward financiers who provided commercial and trade capital was harsh. For example, in Venice, the most liberal city-state in Europe at the time, Jews were legally confined to live only in areas called ‘ghettos’ and were monitored. Jews who left the ghetto during the day had to wear red hats to identify their status. Considering that Shylock, the archetype of the greedy and evil financier, had to endure such treatment, one might feel some sympathy.

Currently, the view toward financiers in our country is also harsh. There has even been the somewhat puzzling expression that ‘banks are public goods,’ and somewhat illegal ideas such as imposing a ‘windfall tax’ as if bank profits were sudden fortunes have been proposed. This is because the profits of banks continue to increase while the common people’s lives become increasingly difficult. Was the resentment toward financiers in Spain and Venice in the past similar to this?

However, looking at the accounting books, the return on equity (ROE) of banks relative to their net assets is not particularly high. Although it may seem as if profits have suddenly surged, this is not true. The average ROE of KB Financial over the past 10 years (2013?2022) was only around 8%, which is considerably lower than Samsung Electronics’ approximately 15%. This year, an ROE of about 9% is expected.

The financial industry is a core sector that creates many jobs and greatly contributes to economic growth. This is even more true in advanced countries. If there is concern about the financial companies’ profit scale becoming too large, a fair approach would be to raise corporate tax rates. If the goal is to ensure that many people benefit from financial industry profits, measures such as ‘exempting dividend tax for long-term holders of financial stocks’ should be introduced to encourage widespread ownership of financial stocks. To the author, who always argues that the growth of the financial industry is essential for Korea’s leap forward, the recent situation feels like the ‘Alhambra Decree.’

Seojunsik, Professor of Economics, Soongsil University