[Insight & Opinion] Why We Must Leave a Good Capital Market for Future Generations

After Economic Development and Democracy, What Should We Leave for the Next Generation?
Efficient Capital Allocation at the Societal Level
A Market for Small Shareholders Rather Than Real Estate

From the perspective of economic development, South Korea is a miracle. It is the only country that started as a colonized nation and surpassed a per capita income of $30,000. Considering that most of today’s developed countries were former imperialist nations, the term “Miracle on the Han River” is not an empty phrase. Additionally, it is one of the few countries that have dismantled past political dictatorships through legitimate voting, which can be considered the foundation of modern democracy. It is an outlier that has caught two rabbits?economic development and democracy?in just over 50 years. I believe the expression of this result is the stock market reaching 2,000 points.

Despite this miracle, our country faces new challenges. By next year, one in five citizens will be aged 65 or older, entering a super-aged society. The debate over polarization issues resulting from short-term growth is not new. Especially since the 2000s, the influence of labor income on life has been overshadowed by the power of asset size.

In It All Started with Assets, co-authored by Australian sociologists and economists, the modern era is explained through the concept of the “Asset Economy.” One of the key messages of this book is that “asset ownership plays a crucial role in determining life opportunities, and the gap between those who own assets and those who do not will widen further.” The starting point of asset differentiation is none other than homeownership. It sounds less like a story about Australia and more like one about South Korea. The bigger problem is that population aging accelerates regional polarization. What is the solution to this? It varies greatly depending on political stance or academic background. It is hard to think of a field in Korean society as contentious and lacking consensus as the real estate issue.

The Miracle on the Han River over the past 50 years has left us with a manufacturing-centered economic structure and democracy. What should we leave for future generations? Should we leave behind a polarized real estate market? Should we leave behind a depleted national pension? Even if we cannot predict the future, it is clear that leaving good jobs and a robust capital market will enable a better life than now.

The capital market plays a role in efficiently allocating capital at a social level. It channels capital from those who have accumulated it to those who need it and moves capital from less competitive areas to more competitive ones. Shareholders who share the risks in this process receive compensation. The capital market should serve as a lifeline for companies that create jobs and have a structure where successful companies reward shareholders who share the risks. However, looking at the domestic stock market, shareholders often only serve as a lifeline without receiving compensation. Many companies court individual investors at the time of listing but ignore them afterward. It is also common for shareholders’ interests to be sidelined for the company’s profits. Under these circumstances, individual investors have no reason to hold onto corporate stocks for long. Efficient capital reallocation, which the capital market should provide, does not occur.

Building a good capital market can be a good alternative in the asset economy era. Real estate is a location-based product with strong individuality, making it difficult to approach without leverage. The reason the real estate crisis spreads to the entire society is precisely because of the leverage inherent in the real estate market. On the other hand, stock investment is accessible with small amounts and leverage is not as widespread as in the real estate market. Leverage is impossible in pension investments. If the capital market improves to be recognized as a partner rather than a market that exploits and discards small shareholders, the Korean stock market might record levels above 3,000 points. If economic development, democracy, and capital market reform are achieved, Korean society might level up. This is a thought I had while observing the recent rise in real estate prices.

Sang-geon Lee, Head of Mirae Asset Investment and Pension Center