[NOTEBOOK]Economic Numbers Don't Always Add Up

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[NOTEBOOK]Economic Numbers Don't Always Add Up

We live with numbers. In fact, everything is related to numbers: How much has the price of gas gone up? How much has it rained this fall? One should keep some basic numbers in mind in order to live a more convenient life.

The government's economic policies come with a number of numbers, particularly when the government wants to regulate something. Those to be affected by the numbers are suffocated by them because what those people are trying to do is restrained by the numbers.

If such grievances have built up and things change, some cry out for changing the numbers themselves. If the numbers of a policy lose their appropriateness, some would even go as far as to argue that the policy is useless.

Against that backdrop these days, one side calls for abolishing a certain number, while the other side refuses to do so.

Korea's banking law imposes a ceiling on an individual's or a corporation's holdings of stock in commercial banks. After being established during Japan's colonial rule of Korea, the Japanese-held banks were privatized in the 1950s. In 1961, a military junta that took power through a coup nationalized banks. In the 1980s, the government tried to privatize them again amid talks of opening up the local financial markets.

Still, the government decided to put an ownership limit on banks' stakes so that the nation's family-controlled industrial conglomerates called chaebol could not hold sway of banks' management. In 1982, the Finance Ministry proposed a 10 percent ceiling. During the assembly deliberation of the bill, the opposition parties insisted on lowering it to 5 percent. The middle point was 7.5 percent, but both sides did not like the decimal point. Finally, they agreed to set the ceiling at 8 percent.

About a decade later, many complained that the 8 percent limit was too high. So the government halved it to 4 percent. Korea's preference for the decimal system and cutting something in half set the standard for bank ownership.

There is a similar episode in the Fair Trade Commission's designating the country's 30 biggest conglomerates. At first, the top-30 chaebol groups were defined as those with total assets of 400 billion won ($307.7 million). With Korea's economic growth and the subsequent inflation, the number of conglomerates that fall into the category rose to 78 in 1998 from 32 in 1987. And critics argued that monopolistic conglomerates had greater dominance over the economy.

Then, the commission decided that regulating more conglomerates was not practical. So it began to name the top 30 business groups in assets. A then commission official said the antitrust watchdog's chaebol division believed that Koreans loved to divide things into a group of 10, 20 or 30 and that the commission wanted to regulate the top-30 conglomerates.

The number 30 led to a policy of requiring chaebol affiliates to cut intra-group and outside investments to a certain percentage of their net assets. In 1986, the government revised the Fair Trade Act to ban chaebol affiliates from investing more than 40 percent of their net assets in other firms. Why 40 percent? Because the then 10 largest chaebol groups invested a little less than 50 percent, on average, of their net assets in other firms.

Eight years later, the chaebol met with government officials to discuss a revision of the investment ceiling. Businesses proposed a 35 percent limit, while bureaucrats wanted more cuts. They failed to reach an agreement, and the news was reported to the Blue House. Top presidential aides blasted the chaebol for challenging the president's power, and the chaebol had to back down. Finally, the investment restriction was cut drastically to 25 percent, lower than the initial government proposal.

Now the 4 percent limit of bank ownership is shackling companies that can afford to buy the stocks. The regulation of the 30 biggest conglomerates is questioned because the top four groups are far bigger than the rest. The 25 percent ceiling on new investments is blamed for blocking companies from investing at a time when investments are needed.

Numbers in economic policies must be deliberated scrupulously in the first place.


The writer is the economic news editor of the JoongAng Ilbo.

by Yang Jai-chan

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