When liberated from Japanese rule in 1945, Korea was as poor as sub-Saharan countries. Until the late 1960s its income per capita remained below $ 1,000 but since then the country’s wealth has vastly increased, such that many developing countries now look to Korea as a role model.
Some argue that income equality should trump prosperity. That is a difficult principle to adhere to in the face of formidable catastrophes, such as tsunamis, earthquakes, tornadoes and floods. Korea was unable to do anything in the face of such catastrophes until a great leader with clear vision steered his course to sustainable economic development.
I would argue, therefore, that economic development is a precondition not only for inclusive capitalism but also for rebuilding after natural disasters.
The secret of Korea’s economic and democratic achievements lies in Korean parents’ determination to educate their children at any cost. Korea’s only natural resources are its 50 million people. During the colonial period, Korean parents refused to send their children to school – despite their continued respect for education – as a way to resist Japan’s rule (Japanese was the language of education at the time). As a result, at liberation around 80% of Koreans were illiterate (similar to the rate in South Sudan now).
The country therefore lacked not only financial and physical capital but also human capital: an educated and skilled labor force. It is not surprising, then, that Korea’s economic miracle took two decades to get underway. Poor physical infrastructure is a barrier but poor social infrastructure, particularly low levels of education, is the main barrier to achieving inclusive capitalism.
Capitalism is rooted in the philosophical assumption that people are motivated by their own self-interest, not by the good of society, as Thomas Hobbes thought. This makes it hard to achieve truly inclusive capitalism. Yet there are things that KIC and other public funds can do to support inclusive capitalism.
Globally, the number of sovereign wealth funds (SWFs) – which are mandated to secure the economic welfare of future generations – has increased dramatically since 2000. Their assets under management now amount to nearly $ 20 trillion. They played a big role during the global financial crisis of 2008, providing critical liquidity through their investments in companies such as Citigroup, Morgan Stanley and Merrill Lynch. Indeed, helping to stabilize global financial markets is one of the guiding principles of SWFs, as laid out by the International Forum of Sovereign Wealth Funds.
SWFs strive to maximize long-term return on investments, something that lies at the heart of inclusive capitalism. Their extremely long investment horizon enables them to invest both in physical infrastructure (highways, railways, airports, seaports, electrical grids, energy utilities, telecommunications, etc.) and social infrastructure, such as schools and hospitals, taking on political as well as economic risk.
SWFs maximize their effectiveness when they co-invest with other organizations with similarly long investment horizons, such as governments and multilateral financial institutions (the World Bank and regional development banks, for example). One way to increase impact is by working together, for example through the Co-investment Roundtable of Sovereign and Pension Funds (CROSAPF), a collaborative co-investment platform formed by several public funds. Now is the time to take action together. Action speaks louder than words.
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