Background of the Green New Deal

As the credit crunch is spreading to the real economy, most countries in the world are facing economic difficulties.  For the first time after World War II, the US, Japan and the eurozone along with other major countries projected that their economic growth would fall into negative territory.  The global economy is not expected to recover soon. 

The World Bank Projection on 2009 Economic Growth (%, projected in Dec '08):
(world) 0.9, (US) -0.5, (Japan) -0.1, (China) 7.5, (Korea) 2.0

The Korean economy saw its growth rate fall to lower than four percent after it had enjoyed seven to eight percent of economic growth for the last ten years.  The slowing growth rate has negatively affected job markets, resulting in economic hardships of a lower-income class.  Furthermore, the current account surplus has declined since 2004, and there has not been any prediction of economic recovery in 2009.  The global crisis requires Korea to react in time, and job markets needs to be provided with more jobs. 

GDP growth rate (%):
(Q1, '08) 5.8, (Q2) 4.8, (Q3) 3.8
Increase in employment (annual average, thousand):
(Q1, '08) 209, (Q2) 173, (Q3) 141, (Q4) 54, (Dec) -12
Current account (USD billion):
('04) 28.2, ('05) 15.0, ('06) 5.4, ('07) 6.0, (Jan-Nov '08) -7.1

Liquidity shortage has been eased as a sufficient amount of foreign as well as domestic currencies have been provided.  However, to prevent the financial crisis to spread to the real economy, more various measures need to be taken. 

As for a financial policy, increased liquidity provision and base rate cuts are not effective enough if SMEs and families are under heavy debt burden. 

Household debt (KRW trillion): (end '06) 443.3, (end '07) 474.1, (Nov '08) 512.8

As for a taxation policy, it takes time for corporate and income tax reductions to bring consumption and investment.

To keep creating jobs, and maintain the current level of economy, the policy mix of combining financial, fiscal and taxation policies together should be introduced:  That is to additionally provide sufficient liquidity in time along with carrying out tax reductions and fiscal expenditure expansion. 

Especially the fiscal policy needs to be pursued in a way that it will respond to the current economic downturn in the short term, and develop growth engines in the mid and long term to prepare for the post crisis.

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Briefing on the Green New Deal

The Green New Deal is designed to combine green growth and job creation. In the short term, the Green New Deal will respond to the recent economic downturn and in the mid and long term, it will boost growth momentum to take Korea to the next level of green growth.

The Green New Deal is not just one of several policy choices, but a vital strategy for Korea's economic growth.  It was created with the same purpose as the preemptive measures of advanced nations such as the UK, the US, and Japan.

The UK adopted a low-carbon and green economy as its national development strategy and it has recently unveiled its green projects aimed at creating 100,000 jobs in the construction of schools, hospitals, and railroads.

US President-Elect Barack Obama has announced a plan to invest US$150 billion in clean energy development over the next 10 years with the aim of creating 5 million jobs.

Japan also has a plan to increase the scale of its environmental business market to 100 trillion yen by 2015 in a bid to create 2.2 million jobs in the market.

In addition, the international community has long recommended green growth strategies. Both Agenda 21, which was revealed in Rio de Janeiro in 1992, and the World Summit on Sustainable Development (2002) in South Africa recommended water, energy, health, agriculture, and biodiversity (WEHAB) as five key sectors needed for sustainable development.

Secretary-General Ban-Ki-moon urged the formation of international leagues for green growth and green economy-driven job creation at the 13th Climate Change Conference.

The Green New Deal has been crafted in line with such global trends, with its focus on the following areas: 1) energy conservation, recycling and clean energy development to build an energy-saving economy, 2) green transportation networks and clean water supplies to upgrade the quality of life and environment, 3) carbon reductions and stable supply of water resources to protect the earth and future generations, 4) building of industrial and information infrastructures, and technology development to use energy efficiently in preparation for the future.
 

Two of the Green New Deal projects, revitalizing four rivers to secure clean water and water resources, and growing forests are among the five key projects adopted in the 2002 World Sustainable Development Summit. The two projects are indispensable for raising national competitiveness in the 21st century.

In particular, the Korean government has stepped up efforts to overcome realistic hurdles which previous policies encountered in achieving green growth and natural environment conservation.

Public consensus on the need for environmental conservation was indeed forged in the previous discussions. Actual funding, however, failed to ensue. Therefore, it was difficult to turn those environmental discussions into actual policy aimed at job creation and economic growth.

The Green New Deal is an upgraded version of previous plans and designed to bring tangible results with the help of its funding sources, and will not get in the way of pursuing the stimulus plans featuring deregulation, tax cuts, and reformation of public organizations. Rather, the Green New Deal is closely interwoven with the stimulus plans since its goal is economic recovery, job creation, and institutional reforms.

Moreover, the Green New Deal is based on the rule of "TTT" (timely, targeted, and temporary) which take into consideration mid- and long-term growth potential and fiscal soundness.  As such, the Green New Deal is nowhere near a green gamble. (does not undermine the overall state of fiscal soundness)

Various projects that several ministries have implemented in a scattered manner will be consolidated into a package to facilitate policy implementation in a consistent and coordinated manner. The package will consist solely of core projects, helping curb budget spending on non-core projects.

The Korean government's push for tax cuts and economic liberalization is firm enough to carry out the stimulus plans without delay.

Even before the Lee administration took office, efforts for reforming public organizations had been launched.  While five public organizations are closed down and privatization of 22 public organizations takes place, the remaining 278 public organizations will be required to raise managerial efficiency under the 4-stage Plan for Managerial Efficiency for Public Organizations.
 
Corporate tax cuts are being made as scheduled. An income tax cut of 2 % and a rise in the threshold of tax deductions from 1million won to 1.5 million won are in place.
   
 *  Corporate tax cuts for large companies:
25% > 22% ('09) > 20% ('10)
Corporate tax cuts for SMEs:
13% > 11% ('09) > 10% ('10)

Regulations on the Seoul metropolitan area which had long been blamed for dampening corporate activity were slashed and streamlined to a great degree in October of 2008.  Regulations on industrial access to those areas have been lifted, allowing the construction and establishment of factories.

Knowledge and IT industries will be permitted to relocate to the Seoul metropolitan area as part of an effort to build small-scale, high-tech industrial park. In addition, Incheon will see more foreign investments as the Incheon Free Economic Zone shifts from "cautionary overpopulation district" to "growth management district."

The IMF also pointed out that the combination of tax cuts and expansionary fiscal policies will have a bigger economic-boosting effect than when they are implemented separately.

In conclusion, the Green New Deal aims to help Korea overcome the global economic crisis and create jobs. At the same time, it will transform crisis into opportunity by equipping Korea with future growth engines.

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 Abstract of the Prime Minister's Speech on the Green New Deal (Jan. 6, 2009)

We are in an unprecedented global economic crisis.

We must respond to the situation in an urgent manner.  The government's top priority this year is to develop a business plan.  Measures for the early execution of the budget allocation are completed.  The cabinet and I presented the president with an emergency economic government plan, which contains compassionate government, continuing reforms and green growth, and preparation for the future direction of national affairs.

As part of this effort, the "Green New Deal Job Creation Plan" has been established.  To find a new engine of growth, new job creation engines must be discovered.  The Green New Deal will provide these.  The 21st century global environment is here and we will find new growth engines for this era. 

The Green New Deal contains projects the government has chosen to realize green growth.   

Today's Green New Deal is founded on the projects financed by the government, however, it will be the cornerstone of the growth of private enterprises.

Energy conservation, resource recycling, and programs to mitigate impacts on the economy such as carbon reduction and water security, will be implemented for next generation's safety, business and industry.  Information infrastructure and an improved energy infrastructure are important for business.

Preventing floods, securing water resources, creating green spaces, and developing the areas around the four rivers are the base for national development.

In conjunction with bicycles and trains, there will be an expansion in investment in low carbon transportation.

The national information infrastructure network will continue to be more highly merged.  Information scattered between departments will be integrated as an information system develops.
In response to climate change, the value of our forest resources will be actively maintained through preservation.

The construction of two million green homes is proceeding without delay and highly energy efficient and eco-friendly buildings are being expanded in the public sector.  Environmentally friendly LED lights will be installed in public facilities and schools.

The government will proceed with the Green New Deal without delay and will invest KRW50 trillion from 2009 - 2012.

960,000 jobs will be created over the next four years, even though this year will see the creation of 140,000 jobs.

Starting next month, each of the government ministers will attend crisis management meetings, to be held every week, to address areas of specific projects so that planning may be quickly carried out.

In order to integrate the related tasks of developing sustainable energy and addressing climate change, I, as Prime Minister, will co-chair a Commission that will promote green growth.  To support the "Green Growth Act", we will promote its establishment as soon as possible.

Mutual understanding and cooperation between the government and the private sector will be needed.

The government will make leading financial investments, but companies will need to transform themselves in a market-based effort.

Through innovative technology development and investments, we can develop and market new products so that economic growth and job creation will be produced.

Individuals also must take part in the effort to conserve resources in all ways possible as a way of participating in the Green New Deal.

If the efforts of households, business, and government are combined together, we will have the chance to leap forward in this time of crisis.

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 Regarding the Critiques of the "Green New Deal"

There have been critiques by major presses on the "green new deal": 1) 96 percent of the 960,000 jobs generated by the "green new deal" are manual labor jobs in construction.  2) Absence of projects for nurturing new industries to prepare for the future.  3) The source of financing is not fully specified.

For such critiques, the Ministry of Strategy and Finance explained how the Green New Deal will work.

Explanation for critique 1: 96 percent of the 960,000 jobs generated by the Green New Deal is manual labor jobs in construction.

First, projects related to hi-tech and R&D are not involved in the Green New Deal because there will be an announcement in mid-January on the development of core technologies and new growth engines.

Second, the main purpose of the Green New Deal is to generate jobs.  It is not to exclusively generate highly professional or technical jobs.  New Deal programs, whether they are of the US or the UK, are mostly about construction and public works such as school reconstruction, new railroad and hospital construction, and wind and tidal power plant construction. 

Third, a considerable portion of the 920,000 positions classified as construction and manufacturing jobs are related to professional or technical fields.  Statistics show that 30.6 percent of construction jobs are usually taken by professionals, technicians, administrators, and office workers.  It is a bit assertive that construction projects only generate manual laborers, as green home or super-speed highway construction requires state-of-the-art technology.  

<Jobs related to construction (%)>

By The Korea National Statistics Office, Nov. 2008

Fourth, 100,000 jobs, which will be created for young adults (age 15 to 29) during the period of '09~ '12, are quite substantial in terms of size in the shrinking job market, considering that the number of unemployed young adults on average from January to November 2008 by ILO stood at 310,000.

Fifth, there has been a critique that out-of-date statistics were used in figuring out the number of jobs generated by the "green new deal".  However, the 2005 input-output table used in the calculation is the most up-to-date because input-output tables are made every five years.      

Explanation for critique 2: Absence of projects for nurturing new industries to prepare for the future

First, there have been critiques that the Green New Deal contains few projects to develop future industries, the examples of which are the effective use of resources, a converged industry of broadcasting and communication, and biopharmaceutical industry.  Hi-tech industries were excluded in the Green New Deal on purpose because they will be dealt with separately in mid-January under the entity of core technology and new growth engine development. However, the Green New Deal has a biomass energy project, desalination system development project and green car technology development project on its list.

Second, as is stipulated on page 16 of the press release on Jan. 6, the Green New Deal mainly covers projects that will generate jobs more effectively and quickly.  The future Green New Deal will involve new growth engine development projects in various industries according to the Prime Ministerå¡£¿ï¼£¿ç«£¿ï¼£¿å¡£¿ï¼£¿ç«£¿ï¼£¿s Office and the Ministry of Strategy and Finance.  Then, professional and technical jobs will continuously be generated in the fields of new renewable energy R&D, LED application, eco-friendly transportation and other R&Ds. The focus of the future Green New Deal will be on developing a few core technologies rather than dealing with various fields.

Explanation for critique 3: The source of financing is not fully specified.

First, the Green New Deal focuses on integrating and classifying various projects planned by each Ministry, and on articulating core industries and related policy directions, to provide fiscal support more effectively.  By doing this, budget efficiency as well as policy consistency is expected along with less budget spending on non-core industries.  In 2008, 267 Green New Deal related projects were submitted by 20 ministries and offices, the budget of which amounted to KRW148 trillion.  Careful examination of the plans revealed that they were less focused dealing with too many subjects, and the divide between public projects and private projects were not clear. The Green New Deal packaged the plans into 9 core projects and 27 related industries. 

Second, the Green New Deal clearly announced the projects that will be pursued, the size of each project, and budgets needed to carry out each of the projects.  As was announced in the press release on Jan. 6, the January Crisis management meeting will decide on the details of the 9 core projects including the amount of fiscal investment.  The meeting will also discuss as to by whom the projects will be led (by the federal government, municipal governments, or private entities), how big the projects will be, how much budget will be allocated and how many jobs they will create.  The specific source of the Green New Deal budget will be decided following the decisions on the roles of each ministry, cooperation between the federal and municipal governments, and related regulations.   

<Frequently Asked Questions>

Please find below the frequently asked questions and responses about the Green New Deal, as pursued by the Korean government.

     1) All the following projects are pursued under the vision of achieving "low carbon green growth," as announced by President Mr. Lee on August 15th 2008. Ultimately, each project may be regarded as aiming at the same goal.

* Comprehensive plans to cope with climate change ('08.9.19)
* Master plan to meet nationwide needs for energy ('08.8.27)
* Strategy for "New Growth Engines" ('09.1.13)
* Green New Deal ('09.1.6)

     2) The Green New Deal was created as a result of combining and streamlining different projects pursued by various ministries with a view to achieving green growth(low carbon and highly efficient recycling system). By doing this, the government aims at preventing redundant investments and at the same time, maximizing the efficiency of the government policies. The New Green Deal is expected to assist the government with achieving its goal in a systematic manner by focusing upon core projects.

(2) Does the Green New Deal contain any measures pertaining to future growth engine?

Plans on future growth engine are detailed in the "Strategy for New Growth Engines," announced on January 13th, 2009. Development of green technology contained in the "Strategy for New Growth Engines," will be reclassified as a part of the Green New Deal project.

(3) Are the concerns valid that the Green New Deal is merely aimed at creating manual laborers?

1) Development of four rivers and conservation of forest are not limited to simple labor, but rather aimed at improving the general quality of life and ensuring sufficient water supply which is one of the 5 core agendas at the Summit Meeting for Sustainable Development back in 2002.

2) Similar projects in the U.S. and the UK include many construction-related projects, such as school remodeling, laying new railways, building hospitals and wind-powered generators. Given the characteristics of the "Green New Deal," this is unavoidable.

3) Plans for creating professional jobs are detailed in the "Strategy for New Growth Engines," which is projected to create added-value amounting to KRW700 tril. and 3.5 million jobs over the next ten years.

(4) Will the Green New Deal have negative effects on the nation's fiscal soundness?

1) In the wake of the "low carbon green growth" announcement (August 15th, 2008), various ministries have unintentionally caused redundant investments in projects, while pursuing policies on their own. (Twenty ministries and government agencies proposed 267 projects for the Green New Deal valued at KRW 148 tril.)

2) The Green New Deal is a package of policies, designed to minimize negative effects on the fiscal soundness by selecting and concentrating on 9 core categories.

(5) How will the Korean government fund its Green New Deal?

1) Korea has sufficient fiscal resources to fund the project in the mid to longer term. Out of KRW 50 trillion, KRW 38 trillion will be provided out of the national coffers. This amount is equal to 3.2% of the government's fiscal expenditure plan (KRW 1,200 trillion) over the next four years (2009-2012).

2) The government (Crisis Management Council) will announce the specifics, including funding, with regards to the nine individual core projects of the Green New Deal by the end of February. A substantial part of the required funding will come from budgets allocated to existing projects to be converted into those for "green projects."

(6) Other issues

1) Does the New Green Deal emphasize stimulus of the domestic economy, at the expense of international cooperation? The issues regarding international cooperation and overseas outreach programs are discussed in measures to cope with climate changes and ensuring energy resources.

2) Does the civil environment conservation groups oppose the Green New Deal?
The responses of the conservation groups are somewhat ambiguous in that they advocate the "green" components of the New Deal and oppose the construction projects contained in the New Deal. The government is proceeding with development of the four rivers, to ensure sufficient water supply and preventing desertification.

3) Is the opposition party likely to oppose the Green New Deal?
The Green New Deal is aimed at creating new jobs and stimulating future growth, as a result of which quite a number of jobs for the working class will be created. (Therefore, the opposition party is not likely to oppose the Green New Deal, in principle)