Finance

Davos highlights: South Korean profit sharing could be a model for world, president says

The World Economic Forum’s annual gathering of the world’s political and business leaders, which usually takes place in Davos, is a virtual event this year due to the pandemic. The FT brings you highlights from day three.

South Korea’s plan to encourage businesses prospering during the coronavirus pandemic to share profits with those less fortunate could be a model for the world to follow, according to president Moon Jae-in.

The president warned on Wednesday that inequality was worsening not only within countries but also between nations, as a result of the economic fallout from the pandemic.

He laid out South Korea’s policy measures in response to the virus, including massive fiscal stimulus, assistance for small businesses, job retention support and vouchers for low-income families. But, as he has previously warned, Mr Moon said more support measures might be required to help the worst-off in the aftermath of the pandemic.

“My administration and the legislature are also discussing a profit-sharing system in which the government provides strong incentives to companies that have prospered during the Covid-19 pandemic to share their profits with their hardest-hit peers,” said Mr Moon. “More wisdom will be needed to work out the details but if these initiatives can be realised they can become a benchmark for inclusive policies to be used in overcoming future pandemics together.”

Mr Moon’s government has garnered international praise for its handling of the health crisis posed by the pandemic — particularly its mass testing and high-tech contact tracing systems which were rapidly rolled out and have been sustained over the past 12 months.

South Korean businesses have benefited from the lack of a nationwide lockdown and strong demand for the country’s tech exports. The economy swung back into growth in the second half. Many analysts believe the country’s central bank forecast of 3 per cent growth this year is too conservative as optimism builds over the vaccine rollout starting next month.

South Korea has set an ambitious target of delivering jabs to 70 per cent of its population by September to create herd immunity by November.

While the pandemic has been the focus of much of the event so far, Wednesday’s discussions at the World Economic Forum shifted their focus to climate change.

Mairead McGuinness, EU commissioner for financial services, said that asset managers and companies had a duty of care to help reduce carbon emissions and urged them to widen their perspective beyond gaining a financial return.

“Given that we’re all in a world where we’re stuck where we are, we don’t mix with people because a pandemic we never prepared for has hit us — this is a real wake-up call for the world about what can happen,” she said. “It’s not decades away, it’s very close.”

Bill Winters, chief executive of Standard Chartered, said that although many businesses had communicated net-zero emission pledges, few of them had outlined how they would implement or measure them. He highlighted the importance of global standards on net-zero activities.

“Ultimately there is going to have to be some facility for people to get to net zero by transferring money to other people who are able to actually remove carbon from the environment which may not be the businesses that we run,” he said.

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