[Insight & Opinion] "Republic of Korea, Inc." Out of Touch with the Interests of Its 'Employees'

Asset Structure of Economic Bureaucrats Heavily Concentrated in Real Estate
Encouraging Accountability Through Stock-Linked Pension System

"The Republic of Korea as a joint-stock company owned by its citizens"?this is the slogan of Koo Yooncheol, the newly appointed Deputy Prime Minister for Economic Affairs. At a press briefing, he added, "Economic officials should serve as agents, or 'employees,' managing the national economy on behalf of the shareholders, who are the people." Witnessing an economic leader who is beginning his term with a clear understanding of the 'essence of the job' is a refreshing change and naturally raises expectations.

However, I was shocked after reading the section on the separate taxation of dividend income in the '2025 Tax Reform Plan' recently announced by the Ministry of Economy and Finance. My hope that things might finally change quickly faded. In short, the plan appears to signal an intention to maintain the world's highest tax rate on dividend income, thereby keeping the dividend payout ratio of companies at one of the world's lowest levels. There is little incentive for major shareholders to increase dividends. From the perspective of major shareholders, it remains more advantageous not to distribute company profits as dividends but to retain them within the company and later transfer them at a significantly discounted 'Korea Discount' market price through a sale or inheritance, rather than at the company's true value. This news has led to sharp declines in many dividend stocks and stocks with high dividend expectations, and once again, citizens are leaving the Korean stock market.

Although the reform is outwardly justified as 'supporting the national goal of reaching KOSPI 5000,' in reality, it is undermining that very goal. Regardless of whether this is intentional or due to incompetence, the problem is serious. It brings back memories of the Moon Jae-in administration, when, despite the Blue House's strong commitment to curbing real estate prices, the policies designed by the Ministry of Land, Infrastructure and Transport and the Ministry of Economy and Finance ended up, beneath their packaging, as measures that actually boosted the real estate market. Why do the policies of 'political appointees,' aimed at stabilizing real estate prices and channeling funds into the capital market, so often fail due to the poor implementation plans of 'career bureaucrats'?

Whenever such issues arise, suspicions inevitably surface that the reason lies in the real estate-heavy asset portfolios of these officials. Comparing the asset structures of economic officials in advanced financial countries and those in Korea provides an intuitive sense of why Korea has become a 'real estate republic' and why it remains a 'financially underdeveloped country.'

For example, in the United States, all high-ranking administrative officials are required by the 'Ethics in Government Act' to transparently disclose their assets. Of these assets, only 20-30% are real estate, while the majority are invested in financial assets such as stocks and funds. Furthermore, as of 2024, more than 70% of U.S. federal employees' retirement pensions are managed through the Thrift Savings Plan (TSP), a retirement pension system that invests primarily in stocks.

Financial powerhouses like the United Kingdom and Singapore also have pension systems that encourage stock investment, so it is estimated that the proportion of stock holdings among economic officials is similarly high. These countries have deliberately established institutional frameworks to ensure that economic policymakers become stakeholders in the financial market through the management of their own assets. This is similar to how companies use stock options or employee stock ownership plans to directly link the company's growth to the wealth of the employees who contribute to that growth.

I believe that everyone involved in designing and implementing Korea's economic policy should become investors in Korea. Like the leading financial nations, we must restructure our system so that a significant portion of our economic officials' pensions is automatically allocated to Korean equity funds, thus aligning their interests with those of the capital market. The rewards for their efforts and abilities should be directly linked to the development of the Korean economy. Only then will they truly become 'employees' who work sincerely for the advancement of the 'Republic of Korea as a joint-stock company owned by its citizens.'

Suh Joonsik, Professor of Economics, Soongsil University