A call for the corporate revitalization act

Recently, the Korean economy is nostalgic about the high growth era of the ’80s and ’90s, and the pride in exceptionalism and the miracle on the Han River is diminishing. Growth engines are weakening, and China has caught up with Korea in the manufacturing sector that Korea had taken pride in. While we do not want to admit it, the Korean economy may have passed the short youth and fallen into midlife crisis.

In fact, Korea’s economic engines have increasingly slowed down. Last year, the Organization of Economic Cooperation and Development (OECD) forecasted that Korea’s growth potential would decline from 3.7 percent between 2008 and 2013 to 2.9 percent between 2014 and 2030. Between 2031 and 2060, Korea’s growth rate would be lower than the OECD average of 1.8 percent. The U.S. Council on Competitiveness predicted that Korea’s competitiveness in the manufacturing sector will fall from third in 2010 to sixth in 2016. At this juncture, the so-called “One Shot” act - special legislation to boost corporate vitality - may become the prescription to save the Korean economy from crisis.

Japan has benefitted from a business revitalization act considerably. In order to overcome an economic slump and boost industrial competitiveness, the Industrial Revitalization Corporation Act was passed in 1999, and a total of 628 business restructurings were facilitated, improving productivity and increasing employment.

The corporate revitalization act is expected to bring substantial results. The most anticipated outcome is corporate longevity and global competitiveness. While the average lifespan of businesses is only 15 years, DuPont, GM and P&G can maintain competitiveness for over 100 years through constant business reorganization. According to a research study on Fortune 500 companies between 1999 and 2008 by the Samsung Economic Research Institute, companies that remain on the list constantly are three times more likely to engage in mergers and acquisitions than those that do not stay on the list.

The economy is all about timing. Even the best-designed policy becomes meaningless when it is applied at the wrong time. We desperately need the corporate revitalization act in order to get over the midlife crisis of the economy. The legislation needs to be enacted as soon as possible to help companies gain vitality.

by Lee Dong-geun, Executive vice chairman of the Korean Chamber of Commerce and Industry