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Korean conglomerates target of 'economic democratisation'

Publication Date : 19-07-2012

 

About 70 per cent of 1,200 global investors and traders told a survey that the present capitalist structure should be revamped during their participation in the last Davos Forum.

The poll result seemingly reflected growing criticism of corporate greed in many countries, according to local research analysts.

While international economists are suggesting a variety of solutions, similar discussion and debates are under way in Korea among lawmakers and policymakers.

Ahead of the December 19 presidential election, “economic democratisation” has become a buzzword in the political sector.

In Korea, the concentration of economic power with family-owned conglomerates, rather than financial capital, has reached the point that it could undermine other sectors.

Opposition party lawmakers say the situation is the regressive result of the Lee Myung-bak administration, arguing that it has been negligent in its oversight of big firms.

The government’s growth-over-all policy based on being “business-friendly” has brought a series of irregular practices including violation of antitrust rules in the conglomerate sector, according to a group of lawmakers at the Democratic United Party and the United Progressive Party.

They claimed that “with no distinctions between heavyweights and flyweights due to relaxation of regulations under the Lee administration, monopolisation by dozens of business groups has grown worse”.

They stress the need for strong regulations against big business groups, calling on policymakers to ensure fair competition and fix the framework where the income disparity is continuously widening.

Last month, the ruling Saenuri Party followed suit, announcing that it would include “economic democratisation” in its party platform.

The conservative party pledged “to promote economic democratisation in order to realise a fair-competition economy that protects the market, small and mid-sized businesses and consumers from mammoth economic forces.”

But despite sharing the view toward economic democratisation, lawmakers in the Saenuri Party, including its powerful presidential contender Park Geun-hye, do not reprimand conglomerates, such as Samsung, Hyundai Motor, SK and LG, directly.

The party’s change of stance against the business sector is in line with its desperate effort to revitalise its image and regain public support, according to market observers.

The Saenuri Party is relatively more focused on introducing gradual measures such as restrictions on large and mid-sized marts from advancing into traditional markets, banning discrimination in the work environment and welfare benefits for irregular workers, and abolishing the exclusive right held by the Fair Trade Commission to act against fair trade act violations.

Opposition parties are pushing for more drastic measures, such as the introduction of a ceiling on total equity investment, division of financial and industrial capital and reforming conglomerates.

Business leaders and some policymakers, including Finance Minister Bahk Jae-wan and FTC chairman Kim Dong-soo say the opposition parties spotlight only negative sides of conglomerates.

The ceiling was first introduced here in 1987 in order to prevent reckless business expansion by family-controlled business groups. The restraint was scrapped in March 2009 under the administration.

Top policymakers’ position is that the equity investment ceiling system is an analog method that does not reflect the global management environment and the traits of individual companies.

It is a natural economic phenomenon to see a company’s size and the number of the parent company’s business units usually expand when the economy grows, they said.

“Policymakers and lawmakers need to diagnose the exact root cause for problems with conglomerates and come up with the right prescription rather than talk about the size of businesses,” a finance ministry official said.

The official added that decisions related to investment or business diversification should be made by conglomerates themselves, which have to compete not just with domestic companies but also powerful foreign rivals.

Chiefs of the nation’s major business groups recently called on the government to put more efforts into revitalising the economy through deregulations.

Seoul members of the Korea Chamber of Commerce and Industry shared the view that “the corporate sentiment has been worsening since the second half of 2010 and exports are in a declining mode”.

The participants including KCCI chairman Sohn Kyung-shik expressed worries over tough regulations on the business sector.

“We want the political sector to actively foster the environment which can help local enterprises secure global competitiveness,” a KCCI official said.

 

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