The role of 'productive finance' in an era of low growth and asset inequality

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The role of 'productive finance' in an era of low growth and asset inequality

Published: 27 Aug. 2025, 00:02

Audio report: written by reporters, read by AI

Park Sun-young

The author is a professor of economics at Dongguk University.

The government has forecast economic growth of just 0.9 percent this year. The figure itself was striking enough to capture headlines. But another pressing issue — asset inequality — deserves equal attention.

According to the 2024 Household Finance and Welfare Survey, the top 20 percent of households by income hold 45.8 percent of total assets. The bottom 20 percent account for only 6.3 percent. By net assets, the imbalance is sharper. The top 10 percent control 44.4 percent of wealth, while the bottom 10 percent post a negative share of minus 0.1 percent, burdened mainly by debt. The net asset Gini coefficient, a measure of inequality, has worsened every year since data was first released in 2017.

Seoul’s last remaining shantytown, Guryong Village in Gaepo-dong, Gangnam District, is set for redevelopment after the city unveiled the winning design proposal for the project on March 31, with completion targeted for 2029. The photo taken on April 1 shows luxury residential complexes, including Tower Palace, rising behind Guryong Village, a stark symbol of wealth inequality in the capital. [YONHAP]

Another telling statistic: Nearly 30 percent of households have net assets of less than 100 million won ($71,500), and 56.9 percent fall below 300 million won. That means six in 10 households hold less than 300 million won in assets. Against this backdrop, headlines about apartments sold in cash for 10 billion won or 10,000 people holding crypto assets worth over 1 billion won only deepen public resentment. More telling news is that 1 million small businesses shut down last year and 480,000 young people reported themselves as “taking a break.”

Why is Korea seeing stagnant growth and vanishing quality jobs, while asset prices such as real estate soar, widening inequality? A key reason is that capital is not flowing into productive uses but into speculative assets like property.

A recent report from the Bank of Korea, Inefficiency in Resource Allocation by Industry and Productivity, identifies structural distortions as a major cause of slowing growth in total factor productivity. Total factor productivity captures the “quality of growth,” measuring how efficiently labor and capital are used beyond simple inputs. It becomes more important as economies mature, when growth depends less on expanding inputs and more on the efficient use of resources.

The report concludes that Korea’s decline in productivity growth over the past three decades stems not only from slower technological progress but also from a misallocation of resources. In effect, the economy has undermined its own potential. High-productivity firms often fail to secure the resources they need to grow — a problem of “under-resourced high productivity.” The distortions are especially visible in capital allocation, more so than in labor. Service industries and innovative startups face sharper difficulties than manufacturing or established companies.

One telling indicator is the five-year survival rate of startups. In Korea, it is about 34 percent, far below the United States at 51.9 percent, the Netherlands at 61.9 percent, and France at 50.8 percent.

A shift toward “productive finance” is one solution. Instead of flowing into speculative real estate or crypto markets, liquidity should be directed toward research and development, nurturing startups and modernizing industrial facilities — areas that generate real value and create jobs.

This transition offers what economists call a “dual dividend.” First, supplying capital to innovative firms directly boosts productivity, the only real way to raise Korea’s long-term growth potential in an era of demographic decline. Second, the growth of such firms can generate stable, high-quality jobs that help rebuild the middle class. Expanding capital markets can also allow ordinary citizens to invest small amounts in promising companies and share in their growth, breaking the cycle of inequality tied to property.

As of February of this year, the number of young people unemployed, preparing for jobs or simply staying at home reached 1.207 million. The photo, taken on March 17, shows job notices posted at a university in Seoul. [YONHAP]

For productive finance to take root, Korea must build the right soil for businesses to grow. That requires a better environment for companies. U.S. President Donald Trump disrupted the global trade order to push investment back into U.S. manufacturing. Taiwan, forecast to grow 4.45 percent this year, has also made companies central to its national strategy. The government and private sector there work in tandem on unprecedented support measures, from generous research and development tax credits to joint investment funds, expanded university-industry cooperation, and aggressive talent recruitment.

Compared with such global trends, Korea’s political debate remains outdated and complacent. The country may not get another chance. At a minimum, financial authorities must set the right direction and ensure that policy delivers practical results. Redirecting capital toward productive finance may be the only way to confront both stagnation and inequality at once.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.