5Nov2014yVol.14,No.39
The Prospect for Korea’s Entry into the 30‐50
Club and Its Significance
Jongkyu Park
Abstract: The 30-50 club indicates economies with per capita gross national income (GNI) over USD30,000 and a population larger than 50 million. Some expect Korea to join the club by 2015, but given the current trend of income growth and exchange rates, the entry is likely to be deferred until 2016 or later. Currently, six countries comprise the club, and all of them have an experience of running an empire or being a global powerhouse, exerting immense power and hegemony throughout the world. If Korea’s per capita GNI exceeds USD30,000 in 2016, it will have taken 10 years to raise the income level from USD20,000 to USD30,000. Korea would be the seventh member of the club, as well as the first with no prior experience of an empire. Nonetheless, the growth in national income might not be so palpable to the households, mostly due to the wageless growth. Going forward, to fully capture the benefits of a higher income, and to aim higher for the next destination of USD40,000, it would be essential to raise wage in line with improved labor productivity, and urge companies to expand investment and employment, to set in motion a vibrant and virtuous economic cycle. In a recent paper, it was forecast that Korea would join the so-called 30-50 club (economies with per capita GNI over USD30,000 and a popula on larger than 50 million) by 2015.1) As of 2013, Korea had a popula on of 50.22 million, and per capita GNI was on the way to reach USD30,000, which is among key policy goals of the incumbent government. The Exclusive Membership of the 30-50 Club Apparently, the abovementioned criteria are quite hard to meet. As of 2013, 21 countries had per capita GNI over USD30,000, and 25 countries had a population larger than 50 million. By income, Norway topped the list (USD102,610), followed by the Switzerland (USD86,600) and Qatar (USD85,550). Australia (USD65,520) and Denmark (USD61,160) boasted per capita GNI over USD60,000, and right behind them were Sweden (USD59,240), Singapore (USD54,040), the US (USD54,670), and Canada (USD52,200). Eight countries had per capita GNI between USD40,000 and USD50,000,2) and four countries between USD30,000 and USD40,000.3) Spain (USD29,180), Saudi Arabia (USD26,200), and Korea (USD25,920) trailed closely behind. Among these countries, only six met both criteria of per capita GNI over USD30,000 and a popula on over 50 million: the US, Japan, Germany, France, the UK, and Italy.4) And now, Korea is poised to become the seventh country in the world to join the 30-50 club. Assuming that Korea’s per capita GNI increases 6% per annum in 2014 and 2015, with the current level of exchange rates, it might reach USD30,000 during 2015. However, there is a good chance that the entry into the 30-50 club would be deferred un l 2016, or even later, if the US begins to raise its benchmark rate in the la er half of 2015, and the US dollar appreciates as a result. Korea joined the 20-40 club in 2006 when the country’s per capita GNI recorded USD20,823, and its population surpassed 40 million. If the country joins the 30-50 club in 2016, Korea will have made the great leap in ten years. 1) The 30-50 Club is an unofficial term to conveniently group the countries that meet the qualifica on criteria, and not an official forum or organiza on, for example, like the OECD. 2) Austria (USD48,610), the Netherlands (USD47,440), Finland (USD47,110), Japan (USD46,140), Germany (USD46,100), Belgium (USD45,210), Iceland (USD45,210), Iceland (USD43,930), and France (USD42,250) 3) The UK (USD39,140), Hong Kong (USD38,420), Italy (USD34,400), and Israel (USD34,120) 4) The US (USD53,670, a popula on of 320 million), Japan (USD46,140, 127.14 million), Germany (USD46,100, 82.73 million), France (USD42,250, 64.29 million), the UK (USD39,140, 63.14 million), and Italy (USD34,400, 60.99 million) 6 | Weekly Financial Review
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Significance of the Transi on To grasp the significance of joining the 30-50 club, we need to look no further than the current members of the club. They share one common feature: All of them was, or arguably is, an empire that commanded the world. Not to mention the current superpower, the US,5) Italy and the UK each reigned over the world as the Roman Empire and the British Empire. Germany and France also dominated the European continent at some point, and Japan, during the second world war, occupied the oceans east of the Pacific and the vast territories around the region, albeit for a brief period of time. All these six countries projected their hegemony and power far beyond their national boundaries, and mobilized and managed all the available resources. In other words, they share an experience of setting their own rules according to their unique value and belief systems—putting aside the question of whether they were good—and imposing them on others either by persuasion or coercion. These countries continue to be a regional great power or a global super power to this day. An Extraordinary Feat If the forecast comes true, Korea would be the first country to join the 30-50 club with no prior experience as an empire.6) Economically speaking, additional per capita income of USD10,000 might not make much difference. However, from a historical and political standpoint, it would be an epochal event, and a national pride. Other than the six countries currently on the 30-50 club roster, most countries with per capita GNI over USD30,000 are small-sized, including the Switzerland (a popula on of 8.1 million), Hong Kong (7.2 million), and Singapore (5.41 million). The popula on of Sweden (9.57 million) is smaller than that of Seoul, and the popula on of Denmark (5.62 million), Finland (5.43 million), and Norway (5.04 million) are about half of the popula on of Seoul. Qatar is home to 2.17 million peo-
ple, roughly same as combining the popula on of four districts in the southeast part of Seoul (Gangnam, Seocho, Songpa and Gangdong). Raising the level of per capita GNI to USD80,000 for 2 million people, or to USD50,000 for 5 million people are an en rely different task from boos ng per capita GNI to USD30,000 for a country of 50 million people. How Long Does It Usually Take to Join the 30-50 Club? For the Korean economy, it took 11 years to raise per capita GNI from USD10,000 (in 1995) to USD20,000 (in 2006). If per capita GNI reaches USD30,000 in 2016, it will have taken 10 years to move upward from the 2040 club to the 30-50 club. This is close to the average length of me taken for major economies. For countries with per capita GNI over USD40,000 and a populaon larger than 10 million (as of 2013), it took average 12.5 years between per capita GNI of USD10,000 and USD20,000, and another 10.5 years between USD20,000 and USD30,000. Some of the countries took less than 5 years to push up their per capita GNI from USD20,000 to USD30,000, and in most of these cases, the period accompanied currency appreciation, whose contribution to a GNI growth was over 20%. In comparison, for countries that experienced either currency depreciation or the contribution of currency appreciation was less than 20%, the same transition took over 11 years. Japan has been the only exception in this rule. It took merely 4 years (1988-1992) for Japan’s per capita GNI to jump from USD20,000 to USD30,000. During this period, the yen appreciated, but only marginally, and its contribution to the GNI growth was a paltry 5.0%. This seemingly extraordinary accomplishment was fueled by the bubble in the economy. Particularly, the real estate market bubble, which had started and only grown larger since 1986, suddenly popped in the spring of 1991, precipitating the lost decades since. Japan’s sharp growth of 5) Some US historians argue that the American Empire is one of the only two authen c empires, alongside the Roman Empire. 6) Arguably, Korea has an experience of running an empire as it declared the establishment of the Daehan empire (1897 through 1910). 7 | Weekly Financial Review
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national income was backed by property bubbles, heated investment, and expansionary labor market, but could not be sustained over a long time. As remarkable as it is, Japan’s case sends a message that a reckless pursuit of a higher income could be perilous. Where Korea Stands in the Race As to the critical period between per capita GNI of USD20,000 and USD30,000, countries that experienced currency depreciation all took more than 12 years to make the transition.7) If, in 2015 and 2016, the USD/KRW exchange rate does not slide below the level of 955 won per dollar (the 2006 average level), it would mean that Korea’s transition from GNI of USD20,000 to USD30,000 would be made without an aid of the stronger currency. As it is, the interest rate in the US is expected to increase significantly between the latter half of 2015 and 2017, which means that the Korean currency is unlikely to gain against the US dollar. Thus, Korea might be slower than Japan in achieving per capita GNI of USD30,000, but at a decent pace compared to other major economies, if not faster. Some people argue that the Korean economy is trapped in a stalled income growth, but data show that we are making a steady progress. To Fully Capture the Benefits of Higher Income Despite the steady improvement in income, Korean households seem to hardly feel the difference. Reasons are manifolds. Above all, the growth of real wage has all but stopped in the past 7 years with the so-called “wageless growth,” and interest income and dividend income have dwindled as well. Households’ income from the corporate sector remained stagnant or even declined, whether in nominal or real terms. Meanwhile, companies retained their savings from lower labor costs, instead of expanding investment or employment, further enervating the economy. The paradox of corporate thrift is in full view in the current Korean society. To fully capture the benefits of a higher income, and to aim higher for the next destination of USD40,000, it would be essential to dispel the gloom of “wageless growth” so that real wage grows in line with increased labor productivity, and also address “the paradox of corporate thrift” and spur the companies to spend more to set in motion a more vibrant and virtuous economic cycle. 7) Singapore (12 years: 1994~2006), Canada (15 years: 1990~2005), the Netherlands (12 years: 1992~2004), Finland (16 years: 1988~2004), Iceland (12 years: 1988~2000), and Italy (13 years: 1992~2005) 8 | Weekly Financial Review
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