[OUTLOOK]Free Corporations From Prison NowIf a company becomes insolvent, the owners have only themselves to blame for the consequences. They got into the situations because they lost their competitiveness. However, when economic growth falls and unemployment goes up, there are deeply rooted beliefs in modern states that governments are responsible. After the Great Depression in 1930s, macro national accounts were constructed by industrially developed countries and later spread to other countries. Since then governments have become the culprits when macro economic indicators falter. The people's government has been the culprit for our economic decline since the 4th quarter of last year.
The statement by the opposition Grand National Party that our national debt is around 1,000 trillion won ($769.2 billion, roughly two times of our gross domestic product), is right in the sense that the contingent liabilities would be realized for themselves if the economy slumps further. Under such huge pressure of the national debt it is very dangerous to boost our economy by fiscal stimulus. The actual interest rates at commercial banks already are less than zero. Financial institutions are staying alive only with the transfusion of 150 trillion won of public funds. Considering these things, it is almost impossible to ease monetary policy further to grow our economy.
In other words, the government can hardly do anything about our economy using macro-economic policies, such as fiscal policy and monetary policy, at this juncture. Jin Nyum, deputy prime minister for economy, has floated, the idea of encouraging equipment investment by easing regulations on large companies. He proposed such an idea out of desperate efforts to find a solution to the economic doldrums. He should be praised for that.
At almost the same time the Korea Economic Research Institute, which is sponsored by private companies, put forward such demands as the abolishment of the designation of the top 30 business groups, easing rules on the establishment of holding companies, upward adjustment of the 200 percent debt to equity ratio and a higher ceiling for the limit on cross-affiliate investment, now set at 25 percent. It is almost like the government and business finally met in the middle after digging their own tunnels from opposite ends of the argument. However, it is not just a coincidence. They meet there because there lies the answer. Unfortunately, this answer has been considered incorrect and rejected by the people's government because it is not in accord with the ideology of the elite groups supporting the incumbent government.
Mencius once said government is not supposed to punish people after inducing them to commit crimes. The designation of 30 top largest business groups is something like inducing the groups to commit crimes. Why can the government punish with harsh regulations a business group that becomes one of the 30 largest business groups in Korea after hard work? The evil of the institution is in the ideology where the irrational power of government can unconditionally categorize successful companies as culprits. It is also in the ideology that defines every company aiming for success as potential culprits. South Korea in economic doldrums is like a jail for companies and the government.
The government wishes for the economic recovery of the United States in order to get out of the prison. Meanwhile, it would like to rely on the theory of economic recovery, like a drowning man grasping at a straw. However, the economic implosion in 1997 was inevitable from structural and longterm viewpoints. All the conditions in 1997 that brought on the economic crisis are the same or even worse, except for the introduction of the floating exchange rate system. The conditions are a government bureaucracy that pulls companies in one direction and labor unions that pull them in the opposite direction with socialistic values of equality. Under these circumstances the period of economic upturn is short and narrow; the downturn is fast, long and wide.
What is most serious now is the decline in equipment investment and exports. The Korean economy is falling into the trap of longterm and structural low or super-low growth. The government can break free from the prison of its failures of macro economic policy only if it first releases the companies to the market after freeing them from the prison of bureaucrats and socialism.
Whether they survive or perish, companies should be left to the most cruel and the most fair umpire, the market. As the law enforcement authorities are there to deal with crimes, financial supervisory authorities should take care of the transparency of companies, including consolidated financial statements. However, other than that, every reward and punishment for companies should be decided by the market: consumers, investors and creditors. That is the market economy. Everything, including corporate governance, financial structures, and even the diversification of businesses should be decided by market. Again, that is the market economy.
The writer is the publisher of the monthly Emerge.
by Kang Wee-seuk