Rethinking Industrial policy: A National wealth fund Approach

Amidst ongoing debates about economic inequality and the future of work, a novel proposal is gaining traction in South Korea: a national dividend-type sovereign wealth fund designed to fuel industrial policy and distribute profits directly to citizens. This concept, championed by figures like Democratic Party representative Lee Jae-myung, aims to address the limitations of short-term, profit-driven private financing and foster long-term investment in strategic industries.

The K-NVIDIA Sovereign Wealth Fund: A Vision for Long-Term Investment

Lee Jae-myung has articulated a vision for a K-NVIDIA sovereign wealth fund, drawing inspiration from the success of companies like NVIDIA in driving technological innovation. The core idea is to create a public investment vehicle that can support industrial policy initiatives over extended periods, generating operating income that is then distributed as a national dividend. This approach contrasts sharply with private financing models, which often prioritize immediate returns and shy away from riskier, long-term ventures.

Yoo Seung-kyung’s Proposal: linking Industrial Innovation and Profit Sharing

Yoo Seung-kyung, formerly the director of the gyeonggi-do Economic Science Promotion Agency, has put forward a detailed plan for a national dividend-type national fund for industrial policy linkage. Speaking at a National Assembly seminar focused on national wealth funds, Yoo emphasized the need for public finance to overcome the inherent limitations of private investment. Investors avoid risks with pressure that require immediate results, she noted, highlighting the challenges of securing funding for projects with long-term horizons.

The reason why sovereign wealth funds are attracting attention is because it is a public financial means for economic growth and social stability.

Yoo seung-kyung, former director of the Gyeonggi-do Economic Science Promotion Agency

Funding Mechanisms and Potential Dividends

The proposed fund would be capitalized through a combination of sources, including:

• Revenue generated from government-supported R&D achievements.
• Proceeds from the management and sale of state-owned assets.
• The establishment of a capital gains tax.
• The issuance of government bonds.

The initial plan involves issuing ₩100 trillion (approximately $75 billion USD) in government bonds specifically for the National Fund. Over a 10-year period, operating revenue would be reinvested. Projections suggest that after 30 years, the principal could grow to ₩2407 trillion. If the operating income were then distributed as a national dividend, each citizen could receive approximately ₩1.75 million (around $1,300 USD) per year. This figure is meaningful, especially considering the ongoing debate about global basic income and its potential to alleviate poverty and stimulate economic activity. For context,studies suggest that a basic income of even half that amount could significantly reduce financial insecurity for many households.

The Basic Income Connection

Yoo Seung-kyung’s background is closely tied to the basic income movement. She was selected by Lee Jae-myung during his tenure as Governor of Gyeonggi-do and translated the book Basic Income and Sovereign Money, which explores the themes of basic income and choice monetary systems. Moreover, Professor Kang Nam-hoon of Hanshin University, a key figure in providing the theoretical underpinnings of basic income, participated in the seminar, drawing upon his research in the Economics of Basic Income.

Challenges and Considerations

While the national dividend fund proposal offers a compelling vision for aligning industrial policy with social welfare, several challenges and considerations must be addressed. These include:

• Ensuring openness and accountability in the fund’s management.
• Mitigating the risks associated with long-term investments in rapidly evolving industries.
• Addressing potential concerns about inflation and the impact on government debt.
• Building broad political consensus to support the fund’s establishment and long-term sustainability.

Conclusion: A Bold Experiment in Economic Policy

The proposed national dividend fund represents a bold experiment in economic policy, seeking to combine strategic industrial investment with a direct distribution of wealth to citizens. Whether this model can successfully navigate the challenges and deliver on its promises remains to be seen. However, the debate it has sparked is undoubtedly contributing to a broader conversation about the future of work, economic inequality, and the role of government in shaping a more equitable and prosperous society.