How Mixed Is The South Korean Economy?
The South Korean economy is a “highly developed mixed economy”, famous for its dramatic rise from one of the poorest countries in the world after the Second World War, to a developed, high-income country, with the 12th largest GDP in the world within decades. But how mixed is the South Korean economy exactly?
In regards to healthcare, South Korea provides universal healthcare to all citizens funded by the National Health Insurance Scheme (NHIS), which is a compulsory social insurance system covering 97% of the population. Although the public healthcare is not free, it is reasonably priced. South Korea's national healthcare system was able to rank first between the OECD countries for healthcare access and the fourth most efficient. Nonetheless, there are some procedures and medications, especially those associated with chronic illnesses, which are not covered in the NHIS, resulting in 77% of the population having private health insurance in addition to the NHIS. In comparison to the UK’s NHS, it is still lacking in coverage, however, it is still a well-acclaimed system that would not have been provided in a completely capitalist market-based economy.
The rigorous education system is thought to be one of the main factors behind the economic success of the country and there is high government intervention involved in this sector. It is required by law for all children aged six to fifteen to attend school. Whilst there are both private and public schools in Korea, they both receive funding from the government; private schools simply receive less funding from the government than public schools. Primary schools and middle schools are provided completely free of charge in state schools and the government has agreed to extend free education to all high schools students starting in 2021. The government strongly controls the South Korean educational system through the Ministry of Education, which is responsible for the “formation and implementation of educational policies”; they regulate and oversee every part of the education system, including higher education. For example, in recent years, they ordered universities to ease their admissions examinations in order to allow students from low-income households to be admitted without extensive tutoring. Their main responsibility is to develop a national curriculum framework, which all schools follow. The government also attempts to control the education sector by randomly allocating students to middle school by a lottery system to even the quality of education throughout the nation, which demonstrates a similar ideology to a planned economy.
On the other hand, people argue that the existence and prevalence of private tuition mean that these government attempts to equalise the quality of education are futile. More than 95% of middle school students attend independently owned after school tutoring agencies and the average family spends more on private tutoring than any other country. This minimises the effect of government intervention to provide all children with equal opportunities and results in a more free-market economy.
Negative production externalities, like pollution and congestion, can lead to environmental market failure, therefore, governments around the world set regulations in place. Due to South Korea’s lack of natural energy resources, it is a major energy importer with a huge reliance on coal and nuclear energy. This, combined with the rapid industrialisation of the country, meant that pollution skyrocketed during the late 20th century. Consequently, under the current government, there have been numerous new environmental laws, including restrictions on green belts and emission. South Korea also has the 14th highest environmentally related tax revenue among 34 OECD economies and this provides a negative incentive for citizens to use less energy. Recently, the government has also made a tremendous effort to transition to green energy, with the president saying that the country would not try to extend the life of its nuclear plants and would close existing coal-fired plants. Seoul, the capital city of Korea has also introduced a car-free day program, a voluntary program where citizens who do not drive on a chosen day of the week are rewarded incentives provided by public organisations and private companies, such as discounted petrol or car washing. This has proved itself to be very effective in reducing carbon dioxide emissions. Although pollution is a massive problem, the increasing government interference means that the South Korean economy is less of a free-market economy and more of a mixed economy.
Unfortunately, South Korea is a country with rising economic inequality. In the OECD poverty rate ranking, South Korea is ranked to have the second-highest economic inequality, only after the United States. Despite this, South Korea’s share of government spending on social welfare is one of the lowest between OECD countries. The country’s pension scheme was introduced relatively recently, in comparison to other democratic nations and the public social spending by the government is half of the OECD average, although half of the country’s population aged 65 and over live in relative poverty. Although there is a progressive income tax system, the government has relatively low tax revenue, where the tax revenue as a percentage of GDP in 2017 was below the OECD average. This suggests that the government is not redistributing as much income among citizens, leading to greater economic disparity and this insufficient provision is a characteristic of a more free economy.
However, there are some provisions in terms of equality for the citizens. The minimum wage in 2019, according to the OECD Statistics, was ranked the 9th highest in the world, after the United Kingdom. There is a mandatory weekly paid holiday for people that work more than 15 hours per week, which is a law that is absent in several other developed countries. South Korea also enforces an inheritance tax of up to 50% on the assets of the deceased, which is the second-highest rate in the world, behind Japan, in order to combat economic disparity caused by extreme wealth inequality. As a comparison, the average tax on inheritance being 26.3% among OECD countries.
In conclusion, South Korea is a mixed economy with increasing government intervention in the recent decades, however, compared to other countries, such as Sweden, or even the UK, it still has a relatively laissez-faire economic system, where consumers, rather than the government tend to dictate the demands.