Tax the robots

Forcing future generations to bear too much of the cost for their older counterparts — and reducing pension payouts to the young — is a one-dimension idea. The puzzle must be solved by creative ideas.

Yeom Jae-ho

The author is an emeritus professor and former president of Korea University. Future problems can hardly be solved with present solutions. If you stick with old ways, it often causes new problems. A typical case is the government’s prescriptions for low birthrate and ailing pension systems. During the last presidential election, a candidate even proposed to offer 100 million won ($70,502) for each birth. Many simply brushed it off as a populist campaign promise.

Over the past 16 years, the government spent nearly 300 trillion won to lift Korea’s ultra-low birthrate. And yet, only 260,000 babies were born in 2021 even after spending a whopping 46.7 trillion that year. The total fertility rate, which refers to the total number of children that would be born to each woman, was 0.81 in Korea last year, the lowest in the world. Even after spending nearly 200 million won per newborn, the government could not stop a declining birthrate. It could be better for the government to admit its policy failures and give up on a crusade to raise the birthrate.

A low fertility rate for well-educated career women was a serious problem in Japan, too. Companies took steps to ban fertile women from working overtime and allowed them to work from home between 5 a.m. and 8 a.m. when extra work is needed. Companies also allowed them to return home between 3 p.m. and 6 p.m. when the need arose. Thanks to the flexible working hours, the birthrate for high-educated women in Japan rose to 1.74 last year from 1.66 the previous year. Japan’s total fertility rate was 1.30, far higher than Korea’s. Tax is not the only key to addressing a declining population.

In a recent lecture in Jeju, Rep. Ahn Cheol-soo, a lawmaker of the People Power Party and former presidential candidate, denounced the Moon Jae-in administration for arbitrarily avoiding pension reforms throughout its five-year term even though all past administrations pushed it. Ahn attributed it to the liberal administration’s fear of public resistance in case it pressed ahead with pension reform.

In his book on co-relations between population and economy, Hiroshi Yoshikawa, a professor of economics at Rissho University, argues that future economic problems will not come from an aging population and its reduction. He maintains that as innovation has effectively taken the place of land, capital and labor today — three major factors of production in the traditional economic theory — innovative technologies can raise economic efficiency more than 10 time those conventional factors.

Concerns about low fertility rate are deepening due to the gloomy prospect of a young person having to support several older people if fast ageing accelerates. Pension reform is being resisted because the government takes a one-dimensional approach simply based on “Pay more, get less.”

A new era has come when AI or robots can increase productivity more than ten times the past. Europe has introduced a digital services tax (DST) on multinational IT companies based on the logic that a government must impose tax on tech companies earning surplus revenue due to the Digital Revolution. In Korea, too, people do not see the excess revenues — and impressively high wages — of IT companies and businesses such as Naver and Kakao in a favorable light.

In the past, a state levied tax on individuals. But after the Industrial Revolution, a state imposed tax on corporate bodies as they started earning profits. Now that AI or robots create added values, governments are being required to levy tax on them. If so, how about imposing tax on such tech companies to make up for a critical dearth of pension funds instead of levying tax on future generations.

If a state cannot properly manage pension system, it can solve the problem like Germany does. According to a book on 100 years of German companies by Masaru Yoshimori, an emeritus professor at Yokohama National University, top German companies are preparing a system to provide 70 percent of their employee’s annual salary if they retire. Those companies and employees extract a certain portion of their profits and pay and save the money in a corporate pension plan for their post-retirement benefits, instead of entirely reflecting company profits in their pay raise. On the national level, this approach also helps control inflation from wage hikes.

Future problems should be solved by a multilevel equation, not a simple one. Forcing future generations to bear too much of the cost for their older counterparts — and reducing pension payouts to the young — is a one-dimension idea. The puzzle must be solved by creative ideas. The time has come for our political leaders to present wise — and farsighted — solutions rather than falling into the trap of populism.

Translation by the Korea JoongAng Daily staff.