SOUTH KOREA: Fallen middle class may hinder economic recovery

By IPS Correspondents Reprint | | Print |

Ahn Mi-Young

SEOUL, May 15 1998 (IPS) - Just a year ago, many of its members had more than what they needed, and were looking forward to reaping yet more rewards for their hard work.

Instead, South Korea’s middle class fell on hard times in the wake of the prolonged financial crisis, and now some political and economic analysts worry that the woes of the once moderately affluent may hinder the country’s bid for an early recovery.

“The middle class is the backbone of a nation’s domestic market,” says Han Sang-Choon, who leads the international finance team at Daewoo Economic Research Institute. “Their (fall) could exacerbate the trouble by further dampening domestic spending, subsequently prolonging the recession.”

Senior journalist Song Hi-Young, for his part, echoes the sentiments of some people in saying that “this is a season of fury.”

While the middle class is in deep pain, he says, politicians seem to be more concerned with “haggling over power”. And he warns that the increasing frustrations of the ex-upwardly mobile may just lead to an explosive situation.

South Korea, in fact, was among the last Asian countries to be affected by a regional currency slide that began last July. By November, however, the won had undergone substantial devaluation and the economy was in deep trouble.

So far, the middle class – defined by the Daewoo researchers as those who earned the equivalent of 258,000 dollars a year and spent some 1,500 dollars monthly — has been the hardest hit.

Many had apparently occupied redundant positions, and had managed to hold onto them only because of the general corporate practice of lifetime employment.

But when the economy took a wild tailspin late last year, legions of salarymen wound up jobless. The country’s unemployment rate climbed to 6.5 percent in March, up from end-1997 figure of three percent.

These days, social workers report that the rising number of homeless people includes former white-collar workers. At the same time, police officials say that in the past months, there has been a 38 percent jump in what they call “hungry crime”, or theft of food, appliance and clothes by the newly unemployed.

But social workers are most concerned about the effect of the downfall of the middle class on families. Some have noted a disturbing pattern among families in which the father loses his job, and the mother leaves. The father then takes the children to a shelter while he looks for work, or takes a job in a far-away place.

In the Ja-An Children’s Home in the southern industrial city of Ulsan are some 20 children left there by newly unemployed parents. One of them, seven-year-old Sung-Hyon, has been there since January, when his father became one of thousands laid off by Hyundai Motor Co.

“Sung-Hyon no longer cries, but he seldom talks and plays,” says Jang Doo-Ok, who heads the home. “He is only waiting for his father who said he will come back after earning money.”

Those lucky enough to still have jobs, meanwhile, have had to take wage cuts of as much as 30 percent even as the government raised taxes to discourage spending.

The desperation among South Korea’s “new poor” is becoming more apparent, but some say the country may not necessarily experience the same type of social turmoil Indonesia is going through right now.

For the past three months, that South-east Asian country, whose currency had been battered the most, has seen riots break out in key towns and cities.

This week, protests in Jakarta led to scores of casualties, including six students who were shot dead by police and about 10 people who burned to death after mobs set their shops on fire. President Suharto is being urged to step down by more and more Indonesians.

South Koreans are also getting fidgety over their troubled economy. Indeed, last May 1, angry labourers clashed with police during a rally here in the capital.

But the general public still seems tolerant of the government, which has been in power for only two months. Moreover, President Kim Dae Jung is seen largely as the one person who can pull off the necessary reforms because of his image as an idealist.

Kim, though, seems to be reneging on his previous pledge “not to indulge in any political retaliation” by going after the country’s former rulers. Media reports say an ex-finance minister is facing possible arrest for not informing the president properly of the severity of the economic situation.

But much of South Korea’s relative social calm stems from a patriotic fervour felt by a population that even donated personal gold jewellery and individual hoards of foreign currency so that the government could build up its foreign exchange reserves.

Since the nation’s fortunes began to fall sometime last October, people have also made it a point to shun imported products and buy only local goods.

Says Hyundai Department Store manager Jung Hwan-sung: “I was taken by surprise to see such a large number of housewives gathering at a local specialty outlet.”

But analysts warn against taking the former middle class for granted, saying the growing gap between the rich and the poor may lead to a sense of estrangement among those who had enjoyed the good life and now are barely scraping by.