[OUTLOOK]Partnership, Not Government DirectivesIt is very encouraging that the major business associations and the government decided to discuss the reform of regulations the associations want changed. It is time to wrap up the crisis management system imposed by the International Monetary Fund and to establish a future-oriented relationship between government and Korean business.
Korean companies have had to endure too many ordeals since the end of 1997. Many of them could not survive the steeply rising foreign exchange rate, high interest rates and the credit crunch aggravated by deep-frozen financial markets.
More than a few companies were sold out at prices under their proper value in the international market. However, thanks to the restructuring undertaken during those gloomy days, most Korean companies have become healthier than before.
First of all, transparency in accounting has greatly increased. Corporate governance and financial structure have improved a lot, but the biggest accomplishment is that companies set profitability as their primary management goal when they started feeling regulated (pressured) by financial markets. There have been many trials and errors. The industrial policy of "Big Deals," a kind of business swap among conglomerates, was anachronistic. Debt-equity ratio reductions were pushed hastily by the government, and companies had to pay unnecessary additional costs.
The biggest problem of our economy is that the role of bureaucrats in running our economy has greatly expanded since the economic crisis in 1997. Direct responsibility for the foreign currency crisis was on the government and bureaucrats. For whatever reason, their voices got even louder after the crisis － the biggest irony of the period following the IMF bailout. We have to move the government and bureaucrats back to their proper role in running the economy as soon as possible.
The current government's policy toward conglomerates is to break the ties among companies of a conglomerate and eventually dissolve them into bits and pieces. The goal is very dangerous and reckless. Looking back on the history of companies for the last 100 years since the second industrial revolution, the scale of companies has gotten bigger and bigger. Recently the tendency is more apparent owing to the globalization trend.
Industrial restructuring on a global scale is taking place in many sectors, where only the top 10 companies in the world can survive in any industry. Who in South Korea can join the list of survivors except for several companies belonging to the 10 largest conglomerates and Pohang Iron and Steel?
Let me put it bluntly. If we have 10 or even only five companies like Samsung Electronics, we can be more optimistic about our economy.
We are sandwiched between the world's second largest economy in Japan and the third largest economy in China and are exposed to the fierce competition of globalized economies. Under such circumstances, for whom do we have to dissolve the conglomerates that we have reared with our efforts?
We have to establish a new relationship between government and the business community. There should be a strategic partnership, in particular between the government and the conglomerates. But the partnership should not be hierarchical as it was before; the relationship should be horizontal. In order to have such relationships, the following policy changes should be introduced.
First, we have to abolish the system of regulating the 30 largest conglomerates with a separate set of rules. Sixteen of the 30 largest conglomerates in 1997 went bankrupt or were under court receivership or in workout programs. Why does the government have special rules to regulate conglomerates, some of whom have revenues less than the annual profit of a company like Samsung Electronics? The government is living in the past.
Secondly, the government should be more flexible in regulating cross-affiliate investment by conglomerates. This touches on the core on which the structure of conglomerates is based. It is very important to defend management rights from international attacks in an economy opened to foreign capital. Conglomerates should be allowed to invest 30 percent of their net assets in their affiliates. It is also desirable that such a new regulation should be gradually introduced from 2002 to 2003.
Third, it should be easier to set up holding companies, because they will play a role in facilitating the era of professional managers in Korea.
A vision for a sound Korean economy in the future would see our nation at the center of the Northeast Asian economy. Several giant Korean companies, many independent large companies, small and medium companies, venture firms with overflowing creative entrepreneurial spirit and renowned multinational corporations will all flourish together. In order to make that vision a reality, it is a prerequisite for competitive conglomerates and efficient government to forge a new strategic partnership.
The writer is dean of the Yonsei Graduate School of Business Administration.
by Jung Ku-hyun