[NOTEBOOK] State Monopolies, Private Monopolies
Chung Ju-yung, honorary chairman of the Hyundai Group, had a bitter relationship with Park Tae-joon, the former chairman of Pohang Steel Company.
Mr. Chung wanted to own a steel company. He did not like the fact that Hyundai affiliates would have to bow to POSCO, then a government firm with a monopoly in steelmaking. Mr. Chung established a steel company in 1977, and started to realize his dream by taking over Inchon steel company in 1978. He even intended to build an integrated steel plant in Pyeongtaek. Mr. Park, then chairman of POSCO, turned down this plan. The "Hyundai steel company," came near to becoming a competitor to POSCO. Mr. Park persuaded then-President Park Chung Hee to oppose the aggressive expansion of the conglomerate. The government decided that there should be two complementary steel plants and allotted the second one also to POSCO.
When POSCO's Mr. Park lost his influence after President Kim Young-sam came to power, Hyundai dusted off its plans again. In July 1994, Hyundai announced that it would build a third steel plant. This effort also ended in failure; Mr. Chung's rumblings about entering politics in the 1992 election was the true source of failure, although the ostensible reason given by the government was that the enlargement of conglomerates must be stopped. Discord between Hyundai and POSCO continued to surface periodically, and Hyundai was brought to its knees by threats from POSCO that it would stop supplying steel to Hyundai.
The brawl surrounding steel manufacturing, which seemed to have calmed down for a time, has risen to the surface again, and has been going on for months. Yoo Sang-boo, CEO of the privatized POSCO and Chung Mong-koo, chairman of Hyundai Motor, have inherited this fight.
This second round began when Hyundai announced that it will purchase some of its needed cold rolled sheet, used in automobile manufacturing, from one of its affiliates, Hyundai HYSCO. POSCO responded by saying that it would not supply any more hot rolled steel coils to Hyundai HYSCO. Even the government tried to intervene to solve the problem, but POSCO's management responded that the government should not interfere in the decisions of a private corporation.
The intrinsic quality of the fight had changed. Previously, it was a fight between a private sector conglomerate and the government, but now it is a quarrel between private corporations, but the principles of free market competition are still being ignored. The government did not redefine its monopoly policy on the steel industry when it decided to privatize POSCO. In November 1998, the Fair Trade Commission suggested that POSCO should be split into the Pohang steel plant and the Gwangyang steel plant before being privatized to prevent monopolistic abuses. This suggestion was not pursued because the Ministry of Commerce, Industry and Energy and POSCO both opposed it. POSCO supplies about 55 to 60 percent of the steel needed for automobiles, ships and electronics. It also supplies 92 percent of the hot coil. Although it is a private company, it still monopolizes the supply of steel products. The government, as a result, nurtured an enormous conglomerate and released it into the market.
The first power shortage since World War II in the state of California should be a lesson to Korea. The cause of the electricity shortage rose from production cutbacks by companies which were in an unprofitable business. This illustrates what can happen when the private sector takes charge of electricity, which is communal. Korea suffers from the aftereffects of privatization of the steel sector, the United States from that of electricity. The privatization of Korea Telecom, Korea Gas Corporation and Korea Electric Power Corporation is pending. Privatization has become the core of economic reforms but it is important to think over the aftermath of privatization.
The writer is a deputy industrial news editor of the JoongAng Ilbo.
by Lee Jong-tae