[KS] FW: RE: How unequal is South Korea, really? Almost perfectly unequal, in Seoul.
kimrenau at gwu.edu
Thu Aug 24 23:07:13 EDT 2006
I asked my husband, Bertrand Renaud, for his opinion on the question. He is a former Fiancial Advisot at the World Bank who has studied urban and real estate issues in Korea as well as in many other parts of the world for a long time. I am copying his response below.
>From Bertrand Renaud:
Rejoinder to Paul Shepherd,
Gini coefficients clearly show that wealth distribution is much more unequal than income distribution in Korea. Greater wealth inequality than income inequality is the case in most other countries. The next question is the extent to which land ownership is a major component of total household wealth in Korea. Gini coefficients are rather opaque indicators. Yim’s paper provided by Paul Shepherd provides a more transparent indicator “The top 1% of the Korean population owns 41% of the land and the top 8.5% of the population owns 76% of the total land in the country. On the contrary, 54.5% of the adult population does not own land at all.’ [How is land measured? What type of land? In pyongs? In won per pyong? What has been the rate of appreciation of land as opposed to improvements like buildings. The land distribution issue in Korea is a major social issue by Korean choice. Yet we should keep in mind the old warning that if you torture statistics hard enough they will confess.] The concept of “perfect inequality” in land ownership while striking and colorful is much less convincing socially than it appears at first sight. For instance, if Germany has 57% renters, and presumably very few of these renters own land elsewhere does this means that 57% of the population suffers from severe inequality and grievous economic injuries? To get a better picture, we need much more comprehensive information than pure data on land ownership. We need data on other forms of wealth. The underlying question is how Korean land issues become a channel for inequalities. One should also not forget that some of the problems faced in Korea now compared to most other countries are self-inflicted through very unsound and misguided public land policies and real estate policies that create artificial scarcities for access to housing and paradoxically greatly increase wealth distribution problems. By international standards, some of the most egregious, harmful and wasteful public policy distortions come from the present Rho administration (new capital city, refusal to grant permits in certain area, spatial policies unsuited to the country’s high density and excellent spatial access from everywhere, etc…).. A more central question to me than who owns the land and what people are doing with it is the issue of social mobility. Looking at Korean society over the last 50 years, to what extent did social mobility decline? Is there some good evidence on this issue?
For those interested in land and wealth issues, the papers produced by the Korean Development Institute [KDI] on wealth distribution and on land ownership and land values are very informative and usually considered credible. A leading expert on these land and wealth issues [at KDI and afterwards] has been Professor Son Jae-Young who has been and may still be the Chair of the Department of Real Estate Studies at Konkuk University, which is one of the leading departments in this field in Korea. [Contact info: Jae-Young SON jyson at kkucc.konkuk.ac.kr]
Somewhat like at the end of the 19th century when major new technologies sharply increased economic inequalities, we are experiencing worldwide trends that are far from unique to Korea. It is not clear when the pendulum will swing back nor how. Income and wealth inequality can be much worse elsewhere, like in the US . Today’s August 2006 newsletter of the National Bureau of Economic Research [the leading and the most respected network of research economists in the US] reports on new research by Ian Dew-Becker and Robert Gordon showing that in the US “Median household income fell by 3.8 percent from 1999 to 2004 and grew cumulatively at an annual rate of 0.9% per year from 1995 to 2004. i.e. much slower than the growth rate of non-farm private business [NFPB] output per hour of 2.9% over the same period”.
So who pockets the difference? ‘The top 1% of the US income distribution accounted for 21.6% of real total income gains during 1966-2001 and 21.3% during the productivity revival period of 1997-2001”. “Half of the total income gains went to the top 10 percent of the income distribution, leaving the remaining half for the bottom 90 percent”. The NBER newsletter adds that “Another way to describe these results is that the top one-tenth of one percent of the income distribution earned as much of the real increase in wage-and-salary income from 1997-2001 as the bottom 50 percent of the country.”
And this US income analysis does not take into account dividends and capital gains earned on financial wealth! For an [obscene] illustration of the wealth redistribution that is also taking place in the US, see below the article that made the front page of the Wall Street Journal in April reporting that the good Dr. McGuire who is the CEO of a private medical insurance company named United Health received stock options valued US $1.6 billion or 1,600 million worth of stocks. The article does not bother to mention Dr. McGuire’s salary, which comes in addition to these stock options.
UnitedHealth to Review Stock-Options Practices
By CHARLES FORELLE
April 10, 2006; Page A10
Wall Street Journal
UnitedHealth Group Inc. said a committee of independent directors would review its stock-option grant practices "in light of" recent scrutiny of options grants by the Securities and Exchange Commission and other parties.
The SEC is engaged in a broad look at options at a number of companies, focusing on whether options grants were backdated to give recipients a better chance of profiting from them. UnitedHealth said it had received an inquiry from the SEC and had advised the agency of its internal review.
The review was disclosed in a proxy statement filed Friday by UnitedHealth. The giant health insurer, based in Minnetonka, Minn., was one of a half-dozen companies spotlighted last month in a Wall Street Journal analysis1 of option-grant patterns.
Grants to top executives at the companies, including those to UnitedHealth's chief executive, William McGuire, were regularly dated just prior to substantial run-ups in share price, often after steep declines. The low prices on the day of the grants meant the executives received options with unusually low exercise prices. That means more profit for the executive if the option is cashed out.
The analysis found that the odds of such patterns occurring by chance is extraordinarily remote. The patterns suggest that the grants may have been backdated to take advantage of the low prices. The SEC is examining backdating at a number of companies. Backdated options could result in false financial disclosures and accounting issues for companies.
At UnitedHealth, Dr. McGuire received 12 grants between 1994 and early 2002, each time just before a rise in the company's share price. Grants in 1997, 1999 and 2000 all were dated on the stock's lowest closing price of the year.
Mark Lindsay, a UnitedHealth spokesman, over the weekend reiterated an earlier statement by the company that the process by which grants were awarded was "appropriate," and added, "we have no concerns about looking into matters raised by regulators to confirm that our practices were appropriate."
Until last year, a provision in Dr. McGuire's 1999 employment agreement allowed him to pick his own grant days. In the proxy, UnitedHealth said the company had received a "call" from the SEC. The brief proxy disclosure didn't specify the scope of the option-granting practice under examination and Mr. Lindsay declined to elaborate on that.
The company did say in the proxy that the issues being reviewed by the committee were related to a shareholder suit filed last month in federal court in Minnesota. The suit, which names as defendants Dr. McGuire, Chief Operating Officer Stephen J. Hemsley and several board members, cites the Journal's analysis and alleges that shareholders were harmed by backdated option grants.
Mr. Hemsley received some option grants on the same grant dates as Dr. McGuire. Mr. Lindsay said neither Dr. McGuire nor Mr. Hemsley would comment. Dr. McGuire has been heavily compensated during his 15-year tenure at the helm of UnitedHealth, during which time the company's shares have soared more than 50-fold in value.
In the regulatory filing in which the option-grant review was disclosed, UnitedHealth also said Dr. McGuire received options to buy an additional 1.7 million shares last year, and $8 million in salary and bonus. At the end of 2005, he held exercisable options that the company valued at $1.6 billion. His options not yet exercisable were valued at an additional $175 million. Mr. Hemsley's exercisable options were valued at $663 million and unexercisable options at $82 million at the end of 2005.
For the fourth quarter, UnitedHealth posted a profit of $870 million, up 18% from a year earlier, on revenue of $12.05 billion.
Another company highlighted in the Journal's analysis, Affiliated Computer Services Inc., has said the SEC is conducting an informal investigation of its option grants. A third company, Comverse Technology Inc., has said its board is reviewing the timing of option grants and a restatement of financial results is likely.
Write to Charles Forelle at charles.forelle at wsj.com2
Is this information useful?
bertrand.renaud at att.net
From: koreanstudies-bounces at koreaweb.ws [mailto:koreanstudies-bounces at koreaweb.ws] On Behalf Of Paul Shepherd
Sent: August 21, 2006 5:20 PM
To: koreanstudies at koreaweb.ws
Subject: Re: [KS] How unequal is South Korea, really? Almost perfectly unequal, in Seoul.
I found something useful that makes the point I am getting at. I guess my point is that when people talk about inequality in Korea they are often talking about the situation in Seoul. In terms of land ownership, which Koreans consider as the most important investment avenue (in my opinion), Korea is close to perfectly unequal. Also Gangnam receives a large share of investment (somewhat related to higher land tax). I provide an excerpt from a study of this problem (link below):
3. Occupation is not a unique cause of social polarization
So far social polarization has mainly been approached in relation to occupational structure. Its
basic logic is that occupational distribution among the population results in income inequality,
and income inequality results in social polarization. There is an approach that social polarization
is seen as a process bound up with the emergence of the so-called global city (Baun, 1997;
Doring, et al., 1996). That is to say, the occupational structure of major growth industries in
global cities has created and contributed to the growth of a high-income stratum and a
low-income stratum of workers. Ultimately, ¡®global city¡¯ arguments focus on polarization within
occupational hierarchy. Hamnett (1994a, 1994b) criticized this ¡®global city¡¯ thesis, but his
argument for ¡®professionalisation¡¯ is also related to occupational structure.
Recent social polarization in South Korea is certainly connected with occupational structure
including unemployment. Employment is separated into a small number of high-income
professional jobs and a large number of low-income jobs by flexible strategies of capital, and
there is a significant increase in long-term unemployment and part-time jobs in the process of
However, there is a limit to explaining social polarization in South Korea with only ¡®the global
city¡¯ thesis or occupational structure. Polarization of occupation is one of the causes for income
inequality. But asset inequality should be considered more problematic in Korean society,
because it is a major culprit in the deepening of income inequality. Inequality in asset ownership
invites a vicious cycle between the rich and the poor. According to a report by Lee (2000), the
Gini coefficient of wage income recorded an average of 0.286 after the currency crisis, while the
Gini coefficient of asset income was a high 0.535 on average (see Table 3).
That is, inequality in wage income is lower than that in total income. In contrast, the degree of
asset income inequality is much higher than that in total income. In addition, considering the fact
that urban workers do not possess much, even if the Korean economy has more or less an
equalized wage income distribution, it is difficult to completely solve the income inequality.
In particular, the inequality is the highest in real estate property such as land, buildings and
homes. That inequality in land ownership is estimated using the 1998 land tax data. The Gini
coefficient is 0.875, which is close to perfect inequality. The top 1% of the Korean population
owns 41% of the land and the top 8.5% of the population owns 76% of the total land in the
country. On the contrary, 54.5% of the adult population does not own land at all....
Graduate School of The College of Law, Seoul National University
Mobile: (ROK) 010-7217-7675
From: Ruediger Frank <rfrank at koreanstudies.de>
Reply-To: Korean Studies Discussion List <koreanstudies at koreaweb.ws>
To: Korean Studies Discussion List <koreanstudies at koreaweb.ws>
Subject: Re: [KS] How unequal is South Korea, really?
Date: Mon, 21 Aug 2006 08:39:34 +0200
>far from telling the whole story, here's what economics tell us. The
>usual index for (in)equality is the Gini coefficient. It has values
>between 0 (perfect equality) and 1 (perfect inequality). Don't want
>to bore you with the details; if interested, just check out
>Wikipedia. The Gini coefficient for SKorea is pretty low - around
>0.31, for Taiwan it is around 0.33, Singapore had 0.42 in 1998.
>Korea does pretty well if compared to, for example, the USA (0.408),
>Germany (0.382), the UK (0.36) or France (0.327).
>Vincento Spiezia (http://www.oecd.org/dataoecd/43/0/15179780.doc)
>did interesting research on geographic income distribution that
>provides some kind of alternative/supplement to the Gini
>coefficient. By the way, he mentions Korea as one of the few cases
>in the OECD where geographic concentration of production mainly
>reflects concentration of population.
>Interestingly, disparity in regional income distribution in Europe
>is highest in the UK, Belgium, Germany and France, and lowest in
>Poland, Portugal , Greece and Ireland (since you're Irish, you might
>want to check out
>To make it short, I guess the low Gini coefficient is one reason why
>Korea is said to be highly egalitarian. My limited personal
>experience supports this view. I guess Koreans just sometimes have
>that tendency to downplay their own successes (or to overemphasize
>them at other instances). It's a country of extremes - but not for
>Hope this helps.
>Afostercarter at aol.com schrieb:
>>A large question, which has been bugging me for some time:
>>*How unequal is South Korea, really?
>>*There is a paradox:
>>* In the development literature, South Korea (and Taiwan) are
>>routinely cited as examples of highly egalitarian societies:
>>a fact often linked to their early and thorough land reforms.
>>* Yet that is not at all how most South Koreans themselves see it.
>>In Seoul, inequality and "polarization" are major worries, across
>>the political spectrum. President Roh has made reducing inequality
>>one of the two top goals for the remainder of his presidency
>>(the other being to achieve a free trade agreement with the US).
>>Who is right? Can these views be reconciled? A few thoughts:
>>1. There are many kinds of inequality. This debate seems not to be
>>about eg _gender_ inequality, which remains manifest and pervasive.
>>2. What about _regional_ inequality? Despite Seoul as vortex and
>>Honam-Yongnam divide, the alleged rationale for moving the capital
>>seemed quite unconvincing. In this respect, South Korea looks quite
>>homogeneous when compared to many (most?) other countries.
>>3. Similarly, the visible _income_ inequalities of a Brazil, China,
>>India, et al
>>are surely far more extreme and pressing. At least to an outsider,
>>all the socio-economic challenges which South Korea currently
>>income inequality is hardly the first that would spring to mind.
>>Why then do Koreans see it differently? A few hypotheses:
>>4. One should distiguish _income_ (flow) from _wealth_ (stock).
>>The latter, as everywhere, is liable to be more unequal.
>>5. Income inequality may indeed have _worsened_ since the 1997-98
>>financial crisis, as has job insecurity. Is S. Korea measurably
>>equal than it was, or does it just feel that way? And in either
>>has it become less equal compared to other countries?
>>6. Polemically, my instinct is to file all this as yet another case
>>current South Korean debates tend to be subjective and
>>with a real risk that pursuing chimeras may produce misguided
>>7. However, the clipping below suggests there may be something in
>>these plaints after all - although note SERI's view that,
>>ironically, the Roh
>>administration has made matters worse by (to paraphrase) focusing
>>to slice the cake, rather than getting on with baking a bigger and
>>8. I bet North Korea is far more unequal than the South, had we the
>>Honorary Senior Research Fellow in Sociology & Modern Korea, Leeds
>>Home address: 17 Birklands Road, Shipley, West Yorkshire, BD18 3BY,
>>tel: +44(0) 1274 588586 (alt) +44(0) 1264 737634
>>mobile: +44(0) 7970 741307
>>fax: +44(0) 1274 773663 ISDN: +44(0) 1274 589280
>>Email: afostercarter at aol.com (alt) afostercarter at yahoo.com
>>[Please use @aol; but if any problems, please try @yahoo too - and
>>let me know, so I can chide AOL]
>>South Korea's Income Gap Wider Than in Developed Countries
>>By Lee Hyo-sik
>>The income gap between the rich and poor in South Korea has
>>deepened over the years, becoming wider than in most developed
>>countries, including the United Kingdom and Japan.
>>According to a report by the Samsung Economic Research Institute
>>(SERI) Thursday, the Esteban & Ray (ER) index, which measures
>>income inequality between income brackets, was 0.0665 for Korea in
>>2004, higher than that of most developed nations. The higher the
>>index becomes, the wider the income gap is between the haves and
>>France's ER index came at 0.0434, followed by Germany with 0.0474,
>>Japan with 0.0507 and Britain with 0.0653. The United States was
>>the only developed country with a wider income disparity than South
>>Korea with an ER index was 0.0833, the report said.
>>Also, the National Statistical Office (NSO) reported yesterday that
>>the bottom 20 percent in income suffered deficits in the first half
>>of the year as they spent more than they earned to cover rising
>>The monthly income of the bottom 20 percent of households in the
>>country stood at about 800,000 won ($840) during the first six
>>months of the year. But they spent an average of 1.2 million per
>>month, resulting in a deficit of 400,000 won, up 10 percent from
>>360,000 won recorded in the same period last year.
>>However, the top 20 percent in income recorded a surplus of 1.9
>>million won per month in the first half, up 4.9 percent from 1.8
>>million won last year.
>>The institute attributed Korea's growing income gap between the
>>rich and the poor to low economic growth since the 1997-1998 Asian
>>financial crisis *and the current administration's focus on
>>redistribution of wealth rather than economic expansion.
>>``Even though the country's exports have expanded at a double-digit
>>figure over the past 10 years thanks to rising overseas demand,
>>such an increase has failed to encourage companies to expand
>>corporate investment and create high-paying jobs,'' it said.
>>The institute said that is because Korea's exports have become more
>>centered on capital and technology-intensive industries, such as
>>semiconductors and cellular phones, creating fewer jobs compared to
>>traditional manufacturing businesses.
>>``To ease deepening economic polarization, the country should make
>>the utmost effort to enlarge its economic pie and create more jobs,
>>increasing the number of middle-class households, which have lately
>>fallen into the low-income bracket,'' it stressed.
>>The institute also said the government should encourage companies
>>to expand facility and research-related investment and phase out
>>discriminative activities against non-regular workers to produce
>>high-quality jobs and stabilize the livelihoods of low-income
>>leehs at koreatimes.co.kr 08-17-2006 17:48
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