Public Sector Reforms Must Succeed
Government Has to Overhaul Public Sector, Even If It Is the Last Thing It AchievesIt is probably because of my almost obsessive concerns about the dismal state of restructuring in Korea that I am thinking about the joke about artificial intelligence computers resembling humans so that they can blame other computers for the mistakes they make.
Restructuring is mostly the product of the tide of globalization. When the Korean market was closed to foreign competition, there were no problems even if the price of some products was high, but the story changed when the market opened to cheaper foreign goods.
How many consumers would buy far more costly Korean products just out of patriotism?
The production conditions and productivity of each country are different, yet globalization enforces uniform terms of economic exchanges across the world. The only countermeasure is to lower production costs so that they can become competitive in the global market.
Restructuring is the task pursued to raise productivity, and layoffs and wage freezes or cuts are usually the easiest means to achieve this goal, in the name of attaining greater competitiveness.
Exorbitant corporate debt is the most disgraceful aspect of the Korean economy, which is suffering from high costs and low efficiency. The government hastened to pursue corporate and financial reforms when companies failed to earn enough operating profits to even pay the interest on their loans and financial institutions became saddled with enormous bad loans. It decided to raise public funds to bail them out, initially declaring that 110 trillion won ($94 billion) would be enough but then recently raising that by 40 trillion won.
The public now shudders whenever it hears the words public fund, because the program proved entirely useless. Corporate reforms ended merely by reconfirming the fate of companies already destined for liquidation, without fundamentally eradicating insolvency. Bank reforms are also likely to finish only by establishing financial holding companies to merge several nonviable banks instead of liquidating them. Even a state-owned research institute pronounced the reforms an abysmal failure.
Bank vaults are filled with money but it is not circulating to companies, forcing them to face a severe cash crunch as they desperately try to stay afloat. The banks'' reluctance to give loans points to their lack of faith in the results of corporate restructuring.
The government vowed to complete labor reforms by February, but I don''t have a clue as to what it hopes to achieve.
It is highly doubtful whether the Tripartite Committee of the Government, Labor and Management will be able to generate any sort of agreement, since it has hobbled along so far without resolving such issues as reducing weekly working hours and allowing fulltime union officials to remain on the payroll. The government at least had the "weapon" of retrieving debts and injecting public funds for corporate and financial restructuring, but it has no such means for labor reforms, other than making concessions and compromises.
If the core of labor reform lies in restructuring the employment structure to encourage corporate sell-offs and mergers, there is no question that it is going to meet ferocious resistance from the labor sector.
When Korea was placed under the International Monetary Fund''s management in late 1997, workers failed to put up much of a protest, dazed by their first experience with corporate restructuring.
But the story is different now. The workers regret having naively cooperated with the government to help it overcome the national crisis, and some even wish to wrest back the gold rings they donated.
The government must go through a soul-searching analysis to realize why public sentiment has changed so drastically in only two years.
The government has to set a role model especially in reforming the public sector. It cannot hope to accelerate reforms in private companies when it cannot even manage the enterprises under its control. The scope of wastefulness and inefficiency of many public enterprises, marked by astronomical debts, irresponsible personnel management and moral hazard, defies common sense and imagination.
Had they been private companies, they would have been wiped out countless times already. Since they are allowed to hang on through the taxpayers'' money, the government has to be particularly determined to overhaul state-invested enterprises, especially their irresponsible waste of the budget.
It has to succeed in reforming the public sector, even if it is the last thing it achieves.
Controversies will not be limited only to questioning propriety or fairness if the government dallies with its own reforms, while prodding other sectors to accelerate their reforms; dereliction of its duties will be suspected. There are even rumors that the government made secret deals with the labor unions of several public enterprises and financial institutions to avert general strikes. If they are true ?and many believe they are ?the government has turned reforms into a farce.
The only way for it to overcome being a lame duck is to enforce reforms with a grim determination to prevent its program from achieving nothing but driving workers out of their jobs, while failing to remove insolvency.
It is probably because of my almost obsessive concerns about the dismal state of restructuring in Korea that I am thinking about the joke about artificial intelligence computers resembling humans so that they can blame other computers for the mistakes they make.
Restructuring is mostly the product of the tide of globalization. When the Korean market was closed to foreign competition, there were no problems even if the price of some products was high, but the story changed when the market opened to cheaper foreign goods.
How many consumers would buy far more costly Korean products just out of patriotism?
The production conditions and productivity of each country are different, yet globalization enforces uniform terms of economic exchanges across the world. The only countermeasure is to lower production costs so that they can become competitive in the global market.
Restructuring is the task pursued to raise productivity, and layoffs and wage freezes or cuts are usually the easiest means to achieve this goal, in the name of attaining greater competitiveness.
Exorbitant corporate debt is the most disgraceful aspect of the Korean economy, which is suffering from high costs and low efficiency. The government hastened to pursue corporate and financial reforms when companies failed to earn enough operating profits to even pay the interest on their loans and financial institutions became saddled with enormous bad loans. It decided to raise public funds to bail them out, initially declaring that 110 trillion won ($94 billion) would be enough but then recently raising that by 40 trillion won.
The public now shudders whenever it hears the words public fund, because the program proved entirely useless. Corporate reforms ended merely by reconfirming the fate of companies already destined for liquidation, without fundamentally eradicating insolvency. Bank reforms are also likely to finish only by establishing financial holding companies to merge several nonviable banks instead of liquidating them. Even a state-owned research institute pronounced the reforms an abysmal failure.
Bank vaults are filled with money but it is not circulating to companies, forcing them to face a severe cash crunch as they desperately try to stay afloat. The banks'' reluctance to give loans points to their lack of faith in the results of corporate restructuring.
The government vowed to complete labor reforms by February, but I don''t have a clue as to what it hopes to achieve.
It is highly doubtful whether the Tripartite Committee of the Government, Labor and Management will be able to generate any sort of agreement, since it has hobbled along so far without resolving such issues as reducing weekly working hours and allowing fulltime union officials to remain on the payroll. The government at least had the "weapon" of retrieving debts and injecting public funds for corporate and financial restructuring, but it has no such means for labor reforms, other than making concessions and compromises.
If the core of labor reform lies in restructuring the employment structure to encourage corporate sell-offs and mergers, there is no question that it is going to meet ferocious resistance from the labor sector.
When Korea was placed under the International Monetary Fund''s management in late 1997, workers failed to put up much of a protest, dazed by their first experience with corporate restructuring.
But the story is different now. The workers regret having naively cooperated with the government to help it overcome the national crisis, and some even wish to wrest back the gold rings they donated.
The government must go through a soul-searching analysis to realize why public sentiment has changed so drastically in only two years.
The government has to set a role model especially in reforming the public sector. It cannot hope to accelerate reforms in private companies when it cannot even manage the enterprises under its control. The scope of wastefulness and inefficiency of many public enterprises, marked by astronomical debts, irresponsible personnel management and moral hazard, defies common sense and imagination.
Had they been private companies, they would have been wiped out countless times already. Since they are allowed to hang on through the taxpayers'' money, the government has to be particularly determined to overhaul state-invested enterprises, especially their irresponsible waste of the budget.
It has to succeed in reforming the public sector, even if it is the last thing it achieves.
Controversies will not be limited only to questioning propriety or fairness if the government dallies with its own reforms, while prodding other sectors to accelerate their reforms; dereliction of its duties will be suspected. There are even rumors that the government made secret deals with the labor unions of several public enterprises and financial institutions to avert general strikes. If they are true ?and many believe they are ?the government has turned reforms into a farce.
The only way for it to overcome being a lame duck is to enforce reforms with a grim determination to prevent its program from achieving nothing but driving workers out of their jobs, while failing to remove insolvency.
by By Joseph W. Chung
with the Korea JoongAng Daily
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