[EDITORIALS]Rethink Policy on Largest Firms

The government policies on large business groups, intended to ease regulations and enhance competitiveness, have failed. The fair trade commissioner, Lee Nam-kee, announced Thursday that the investment ceiling will be lifted, and the government and the ruling party finalized revisions to the Banking Act on Friday. Although the government said the two recent measures loosened control over large business groups and resolved problems associated with discrimination against Korean firms in favor of foreign firms, the policies are strongly criticized by the companies, instead of being welcomed.

The anti-trust watchdog suggested that the top 30 groups can invest more than 25 percent of net assets in their subsidiaries, but they will be curtailed of voting rights accompanying the investments. The plan also suggests designating any group with more than 3 trillion won ($2.3 billion) of assets as a large business group. The intention is to ease existing regulations under which companies have to meet the investment ceiling, 25 percent of the net assets, by early 2002.

However, such moves violate the purpose of reforming large business groups: moving toward a market economy by promoting transparent management and improving financial and management structures. Will any company increase investments without voting rights? In the course of reforming large business groups, the transparency of management has been improved. Many analysts contend that the recent economic stagnation is caused by excessive control over companies and atrophied motivation to invest.

Under the current conditions, the recent FTC proposal falls short of its purpose. Limiting voting rights can infringe on property rights. The anti-trust watchdog failed to consider voting rights as part of efforts to improve management. The government seemed to come up with unconvincing standard of defining large groups － 3 trillion won － to avoid mounting demands to ease regulations. This continues in the revision bill of the Banking Act, with government curtailing voting rights of industries, which hold more than 4 percent of bank stakes. The government should rethink the fundamental intention of reforming large business groups and loosening regulations.