Chaebol Reform and Tax Investigation

There has been increasing tension between the government and business sectors. The Fair Trade Commission plans to investigate stock transactions by the four largest business groups, including Hyundai and Samsung, following their investigation of internal transactions.

Upon hearing of the investigation plan of the FTC, the Federation of Korean Industries called for government to suspend systematic controls over the 30 largest business groups and halt intervention in group restructuring. Though unspoken, there are palpable concerns over government pressure on the chaebol (conglomerates).

We do not want to raise issues on government policies. The tax and stock transaction investigations have been a feature of regular government duties for a long time. Considering recent incidents, such as the power battle surrounding management rights and suspected corporate exploitation of loopholes to up profits, it is definitely desirable to conduct thorough investigations of the transfer of the wealth and to apply the appropriate taxes.

However, our main concern is that a negative side-effect will be the slowdown of corporate activity - and our economy - due to the conflicts between the government and the business sector. The recent tax investigation failed to revitalize current economic standards due to its timing and intensity. There are no previous examples of tax investigations being conducted on the four largest business groups together - right after the general election.

Chaebol restructuring is one of the most important problems facing us today. The systems to enhance the transparency and competitive power of business management, such as combined financial statements, restriction on investments between affiliates, and the external auditor system, must be carried out without any further intervention. In particular, the restructuring must work to terminate owner management and 'management dictatorship.'

However, all the processes of restructuring must be conducted following the principle of the free market, through laws and regulations. The government action to intervene in business groups by taking advantage of its authoritative power cannot be accepted. Furthermore, government policy should not be abused for non-economic purposes. Most importantly, the government must listen to the reasonable requests of the companies. When the four largest business groups generate 68 percent of the total sales amount of the top 30 companies in the nation, it is more effective to reduce government control over the top five business groups, as the business sector requested.

Certainly, the voluntary reform of the chaebol must be the first step. Even though management systems and the transfer of wealth are said to have improved, the efforts to keep the wealth in the workout companies - which have required tremendous national taxes to restructure - aggravates national anger against them. The chaebol must reconsider their status, before complaining that the people are ignorant of their efforts to transform.

The restructuring of the chaebol is a mandatory step in the revitalization of our economy. However, it can not be carried in the form of confrontation between the government and business sectors. Confrontation will only result in disaster for the Korean economy. A symbiotic relationship between government and business sectors is desperately needed to achieve reform.

by Kang Hong jun