[OUTLOOK] Daewoo Motor, Time for ActionNow is Not the Time to Put Daewoo's Fate in The Hands of Others
The conflict caused by Daewoo Motor is no longer an internal problem of one particular company. Characterized by inordinate business expansion, inconsistent government policies, creditor banks relying on the injection of public funds, and repeated labor strife, Daewoo Motor is a scaled-down picture of all the ills afflicting the nation's economy.
As proven by the sharp drop in Daewoo Motor's market shares, the price it had to pay for losing credit standing was harsh. The hearts of ordinary citizens are also heavy; on the one hand, they sympathize with the laid-off workers, but on the other hand, they feel the automaker's downfall is a natural consequence of both failed management and labor disputes. They also cannot help worrying about the company's insolvency making their own tax burden heavier.
If the deadlock surrounding Daewoo generates even greater repercussions, such as extreme confrontations between management and labor, a chain of bankruptcies of its parts suppliers and yet more insolvency in the financial sector, and creates confusion in the overall economy, not a single person involved will be spared public condemnation.
The crux of the Daewoo issue lies in the solution. At this point, there is no best solution capable of solving all the problems at a single stroke. Each of the proposed solutions ?from liquidation to overseas sale to nationalization ?has obvious setbacks.
Many argue as if its sale to General Motors is the only alternative, but the nation had a first-hand experience with international negotiations being no child's play when it bungled the attempt to sell the company to Ford. The current negotiation strategy of simply waiting for an acquirer to snap up the company can aggravate problems due to foot-dragging from potential buyers. Even if the sale goes through, its creditors will have to assume the bulk of its insolvency. As for turning it into a national or public enterprise, the outcome is similarly uncertain, especially if the proposal is based on the moral justification that the "entire people have to unite to help reinstate the nation's key industry." In an industry where the competition over technology development and sales is stiff, provisional transfusion of funds, whether funded by the public or the government, cannot guarantee long-term returns.
In such a situation whereby everything is uncertain and no clear-cut solution exists, the best policy is to take time to tackle each necessary issue methodically, regardless of the final outcome. Since any type of solution will be extremely costly, it is necessary to concentrate on raising the corporate value. More than anything else, the government has to take an active lead.
The first priority, of course, lies in identifying and punishing the persons responsible for past blunders. Not only does the management have to take legal responsibility, but the failures of policy decision-makers also have to be brought to light. Nor can Daewoo Motor's unionists evade blame for wresting such concessions as "a five-year employment guarantee" when the company is subsisting on taxpayers' money.
The next priority is to paint a large picture of the auto industry from a long-term perspective. We have to devise an aggressive industrial policy anchored in competitiveness, not in a defensive posture, based on which a restructuring blueprint for Daewoo Motor must be redrawn.
Also essential is clearly defining the priorities in injecting government funds to the restructuring process. If retrenched production and personnel adjustment are unavoidable, no time should be lost in their implementation, and funds must be used more aggressively to minimize the aftereffects. No end is in sight if we continue with the current helpless method of using public funds to cover insolvency each time one surfaces.
As for unemployment, the government has to implement measures active enough to motivate the employees to voluntarily choose re-employment training programs over remaining at a company with a shaky future.
It is also necessary for the government to devise explicit bail-out measures for the parts suppliers to prevent the repercussions of Daewoo's restructuring from spreading in advance. It should not fear incurring temporary financial deficits because budget execution focused on restructuring consists of non-recurrent expenditures and the policies used in the process are highly reliable. This is why restructuring is said to be the best policy for stimulating an economy.
The outcome of many issues, including reaching a compromise with Daewoo unionists, its overseas sale or forging an alliance with another automaker, depends on the government's actions. Instead of clinging to uncertain solutions, it should focus on raising Daewoo Motor's corporate value by pursuing sweeping restructuring first. Using sufficient funds in a timely way to counteract temporary losses and to devise unemployment countermeasures will lessen the burden on the people in the long run. Now is not the time to put the fate of Daewoo Motor in the hands of others and wait for the verdict.
The writer is a professor of economics at Ewha Womans University.
by Chun Chu-song