Lee Chang-yong "Popularity-driven Welfare and Cash Support Cannot Solve the Fundamental Low Birthrate Problem" (Comprehensive)

Key Tasks for Korea's Sustainable Growth: Solving Low Birthrate and Climate Change Issues
Easing Seoul-Centric Entrance Exam Competition through Regional Proportional University Admissions
Reducing Metropolitan Concentration by Developing 2 to 6 Hub Cities
Worsening Fertility Rate and Economic Conditions Raise Risk of 'Populism'
Popular Welfare and Cash Support Fiscal Policies Fail to Address Root Problems
Only Wasteful Spending and Soaring National Debt Lead to a Vicious Cycle

"The key to solving the low birthrate problem lies in addressing the overheated entrance exam competition and the resulting concentration of population in the Seoul metropolitan area."

Lee Chang-yong, Governor of the Bank of Korea, emphasized this during his keynote speech at 'GEEF 2025' held at Yonsei University in Seodaemun-gu, Seoul, on the 14th, stating, "The core issues that our country must resolve to achieve sustainable growth are the low birthrate and aging population problems, as well as climate change."

Lee Chang-yong, Governor of the Bank of Korea, is delivering a keynote speech on the key tasks for Korea's sustainable growth at 'GEEF 2025' held at Yonsei University in Seodaemun-gu, Seoul, on the 14th. Bank of Korea

Governor Lee said, "If last year's total fertility rate of 0.75 continues, Korea's population will sharply decline from 51.7 million to about 30 million, which is 58% of the current level, in 50 years," adding, "The annual average population decline rate will reach -1.1%." He pointed out, "Korea's potential growth rate is currently around 2%, but it is expected to fall to the zero percent range by the late 2040s," and warned, "If the fertility rate of 0.75 persists, negative growth after the 2050s will be difficult to avoid."

As the fertility rate decreases, national finances worsen, and the proportion of elderly people relatively increases, causing the burden on the younger generation to support pensions, healthcare, and caregiving expenditures to surge. According to the National Assembly Budget Office, the national debt-to-GDP ratio was 46.9% in 2023, but if the fertility rate remains at 0.75, the national debt ratio is expected to soar to 182% in 50 years. He also pointed out the issue of increasing support burdens. He warned, "Currently, four young people support one elderly person, but if the fertility rate remains at 0.75, in 50 years, one young person will have to support one elderly person."

He emphasized the risk of easily falling into the temptation of 'populism' if the fertility rate declines and the economic situation worsens. There could be a strong temptation to implement popular welfare policies or cash support fiscal policies to reduce short-term pain. Governor Lee stressed, "Such policies risk creating a vicious cycle that wastes fiscal resources without solving fundamental problems and rapidly increases national debt."

He pointed out that if the current ultra-low fertility rate continues without considering the influx of foreign labor, our economy could face entrenched low growth, exploding debt, and intensified social conflicts. He stressed, "It is an urgent task to restore the fertility rate to at least the OECD average level of 1.4."

He cited 'high competitive pressure' and 'anxiety about employment, housing, and childcare' as the fundamental reasons why young people delay or give up marriage and childbirth. The key factor fueling young people's competition and anxiety is the concentration in the Seoul metropolitan area. He said, "Korea's concentration rate in population, GDP, and jobs in the metropolitan area exceeds 50%, whereas in the U.S. and Germany it is around 5%, in the U.K. and Italy 10-20%, in France 20-30%, and even in Japan it is about 30%."

(From left) Yoon Dong-seop, President of Yonsei University; Lee Chang-yong, Governor of the Bank of Korea; and Kim Yong, former President of the World Bank, are having a discussion on key tasks for Korea's sustainable growth at 'GEEF 2025' held at Yonsei University in Seodaemun-gu, Seoul on the 14th. Photo by Bank of Korea

He pointed to excessive university entrance exam competition as an important factor deepening the concentration in the metropolitan area. Governor Lee said, "The competition to enter a few prestigious universities concentrated in the metropolitan area is becoming increasingly fierce, resulting in private education becoming an essential element." When children reach school age, demand increases to move to Seoul, especially Gangnam, where private education institutions are densely located. The proportion of Seoul natives among Seoul National University entrants is 32%, double the proportion of school-age population in Seoul (16%). The proportion from the three Gangnam districts is 12%, three times the school-age population ratio (4%).

He warned, "The three issues of ultra-low fertility rate of 0.75, excessive concentration of population in the metropolitan area, and overheated entrance exam competition may seem separate, but they are deeply interconnected." He cautioned, "If we do not respond immediately, there is a high possibility that our society will face intolerable side effects such as population extinction, permanent negative growth, social conflict explosion, and loss of opportunities and confidence among youth." The Bank of Korea recently proposed bold policies such as 'development of hub cities' and 'regional proportional selection system' to address these issues.

Governor Lee emphasized, "Considering Korea's land area and population, nurturing two to at most six hub cities is the most effective strategy." It is important to concentrate core infrastructure and resources such as hospitals, cinemas, and sports centers intensively in a few regional hub cities to create living conditions comparable to the metropolitan area. Through this, quality jobs can be created locally, and high-level education and cultural services can be provided, revitalizing the economies of hub cities and surrounding small and medium-sized cities, thereby achieving practical balanced national development.

He reiterated that universities should introduce a regional proportional selection system in the college admission system. This method grants universities autonomy in selecting freshmen but requires that the final selection results be proportional to the regional school-age population ratios. He said, "If this system is introduced, it will reduce the influence of socioeconomic backgrounds such as parents' economic power and private education environment on entrance exams, expanding social mobility through education." He added, "As entrance exam competition concentrated in Seoul is alleviated, it will help curb population concentration in the metropolitan area and the rise in housing prices in Seoul, thereby aiding a rebound in the fertility rate." By selecting students from diverse regions, universities provide opportunities for students to learn from different backgrounds and perspectives, which will contribute to easing regional conflicts in the long term.

Some universities claim they are already implementing this system by selecting about 15% of their entrants through regional balance admissions, but it is pointed out that the proportion is too small in the overall admission process to fundamentally solve the problem. Governor Lee argued, "To successfully establish the system, the regional proportional selection system should be applied to most freshmen." He explained that Korean universities' current method of selecting students solely by academic performance is an exceptional case internationally. He emphasized, "If universities have the will, this proposal by the Bank of Korea can be realistically implemented."

He also said that universities should be granted more autonomy in admissions. Evaluating only by grades tends to produce students who are neither too high nor too low in IQ to be bored by 15 years of repetitive learning from kindergarten, who obey their parents well and conform to given demands. Governor Lee said, "We are now at the forefront of technological advancement and facing an era where new industries must be created." He stressed, "In the future, rather than uniformly selecting conformist talents, it is more important to enable talents with diverse backgrounds and experiences who are not afraid of new challenges to cooperate and interact."

Regarding the other key issue of climate change, he viewed it not only as a problem affecting export industries but as a realistic task that must be solved immediately. Although the government and related ministries have made various policy efforts, much remains to be done. He said, "We need to reorganize Korea's 'green taxonomy' to align with international standards." As of April last year, the global average carbon emission permit price was about $30 per ton, and the European Union (EU) price reached $60, while Korea's remained at about $6. Governor Lee emphasized, "If the price is excessively low, companies will find it more economical to buy emission permits rather than reduce carbon emissions," and stressed, "The carbon emissions trading system (K-ETS) must be improved in a more rational direction." He said companies should be induced to have incentives to trade emission permits according to market principles.