[INSIGHT]Let Conglomerates Stand on Their Own

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[INSIGHT]Let Conglomerates Stand on Their Own

Currently, special regulations apply to the nation's 30 largest conglomerates. If I had asked before the currency crisis in 1997-98 why these regulations were needed, many would have replied: "To prevent the concentration of economic power in few hands." If I had asked why this was desirable, many - at least, those who spoke frankly - would have replied: "Conglomerates are making money unfairly by colluding with politicians." A less direct person might have said: "To keep conglomerates from abusing their powers and create an environment where small and medium companies can compete with conglomerates on equal terms."

After the currency crisis, the reasons for the regulations became more complicated. The methods of business practiced by the conglomerates - their tendency toward enormous debt and opaque management - were largely responsible for the crisis. To ensure that conglomerates pursued reform goals, including sound financial structures and transparent management, regulations were needed.

The government has said it will review these regulations. The currency crisis is obviously over, and we need to question whether we need to continue to regulate conglomerates. This is not because of the argument that regulations must be eased to boost investment by conglomerates. This is because we want to see how much progress has been made in efforts to achieve the two goals of the regulations: to instill an environment of fair competition, and to achieve the responsible, transparent and sound management of conglomerates. If there has been progress, the restrictions must be loosened. If not, they must be continued.

Has an environment of fair competition been achieved? Abuse of their power by the big business groups in their dealings with smaller companies and illegal transactions between affiliates were the primary targets of the Fair Trade Commission. Thanks to the commission's strict controls, the number of illegal collaborations and unfair transactions has been considerably reduced since the end of the 1990s.

Have conglomerates reformed their management? It is difficult to deny that efforts have been made since the crisis to improve their financial structure, to abolish mutual guarantees on payment of debts between affiliates and to focus on core businesses. Major shareholders of the conglomerates that survived the economic nosedive have put their own private property towards debt repayment; some have even faced prison. Conglomerate managers have had to face close scrutiny from outsiders. Responsible and transparent management is now a fundamental premise for survival of the conglomerates.

The administration's biggest accomplishment has been rescuing the country from crisis by reforming the corporate, financial, public and labor sectors. So, if we acknowledge the change of the domestic and global competitive environment, and conglomerates' efforts to institute transparent, responsible, and sound management, we see that most of the reasons we regulated conglomerates no longer exist. More importantly, companies must now learn to survive by the rules of the free market - not by obeying restrictions.

The problem is that we are not confident that all conglomerates have improved their management. Many conglomerates are still trapped by their own overexpansion, hazardous financial structure and outdated ownership structure. But the fact that financially troubled conglomerates still exist cannot be a reason to cage all of them.

The government's proposal to apply restrictions based on absolute rather than relative size is not persuasive because it overlooks this gap that exists between conglomerates in terms of their success at reform.

Guiding the conglomerates to improved management status is no longer up to the government but the market and the law. The regulations on the 30 largest business groups have already done their work. If the government needs to keep the regulations on conglomerates for the sake of administrative convenience, they should not be applied based on an absolute amount of assets, but to some conglomerates according to their success in measuring up to various criteria of reform.


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The writer is an editorial writer of the JoongAng Ilbo.

by Kim Chung-soo

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