Restructuring's Broader Context

Public sector reforms are one of the government''s favored litanies, appearing on the agenda in times of government changes or crisis. The previous Kim Young-sam administration floated quite a few restructuring plans in the public sector, including the privatization of companies, but failed to bring about any visible results.

Corresponding to its name, "People''s Government," the current administration has pressed for restructuring as part of its effort to overcome the economic downturn.

Public sector restructuring seems to be on the right track, at least in terms of quantity, since the government-invested corporations'' plan to cut back 25 percent of their employees is under way as scheduled. Public sector restructuring, however, should be pursued with a goal of improving managerial and structural efficiency. With this in mind, I have looked at the controversial issues arising from the privatization plan of the Korea Electric Power Corporation. Based on this observation, I would like to suggest solutions for issues of restructuring in a broader context.

The plan of privatizing KEPCO was appropriate to bring competition into the monopolized electricity market and thereby enhance efficiency. Two decades ago, the British administration drive to privatize the public sector was a mandate out of its desperation to dispel the "British disease" caused by the public sector''s inefficiency. In an open market competition, the privatization of the electricity sector was an unavoidable choice for the British government since its power supply sector''s competitiveness trailed counterparts in other countries. Prime Minister Margaret Thatcher carried out the privatization by solving conflicts between concerned parties and establishing a flexible labor market.

In comparison, KEPCO''s privatization presents a more complicated story. Its privatization, too, is for the ultimate purpose of improving the efficiency of the nation''s electric power industry. Unlike Britain''s case, however, it is not likely to produce a visible outcome in the short term, taking into consideration the opening of the domestic electricity market and the possibility of effective competition.

This negative outlook, though, does not outweigh the necessity of the government''s having to decide on privatization. In its pursuit of selling the power company, the government is expected to take on two issues: opening the domestic electricity market and establishing effective competition.

What is demanded of the government at this juncture is the ability to mediate conflicts arising from the public sector reforms and establish a flexible labor market.

To carry out its role of mediating conflicts, the government needs the economic players'' faith in it. For the government to recover their faith, it should draw a clear line between what it must do and what it must not. The same applies for its relationship with state-run companies. For now, the government is exercising supervisory control, which is equivalent to that of big companies'' CEO, over them. The government is no longer a member of their board directors, but operates control over them in such a wide range of management issues as the direction of their restructuring and personnel. This only works to blur the accountability between the government and them.

Now the government should establish the scope of its accountability, as their biggest shareholder, related to their management. The government is expected to distance itself from forcing restructuring on them and instead enhance the efficiency of government organizations by exchanging personnel with the private sector.

The government should also provide a social framework that allows workers who have lost their jobs in restructuring to get re-employed in the private sector quickly. This will be possible only when the labor market becomes flexible. Only a flexible labor market can ensure stable employment and promote the inflow of foreign capital.