[VIEWPOINT]From idealism to ulcers at ABC

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[VIEWPOINT]From idealism to ulcers at ABC

The strike in the power generation industry has gone on for too long. The law on restructuring of the industry was passed by the National Assembly in December 2000. Discussions over the breakup and privatization of the Korea Electric Power Corp. started in 1993. The ruling and opposition parties passed the law based on a social consensus that privatization was needed.

The Supreme Court has ruled that labor union strikes over matters like corporate restructuring or privatization are illegal. The electricity industry unions are even refusing the suggestion by the National Labor Relations Commission to arbitrate.

The illegal strike is about three weeks old now, but the government is overlooking the lawbreaking, and some politicians and newspapers are irresponsibly expressing their sympathy with the labor union's position.

I do not want to repeat a lengthy discussion in support of privatization of the industry; the matter has already been settled. But I do want to rebut the union arguments that it has put forward as the basis of its opposition to the privatization.

First, the union contends that core industries in society must not be privatized. That is groundless. Some Korean industries that are part of the backbone of our society, such as the airlines, shipping, telecommunications and oil refineries, are all led by private companies. In other countries, private firms operate post offices, penitentiaries and railroads.

Second, the union argues that privatization will bring side effects like price hikes or a monopoly by one giant private company. Here the union could not be more wrong, because the general tendency is that private companies are more efficient than government-run corporations. That is why most countries put privatization of government-run corporations at the top of their agendas.

Third, the union claims that privatization is unnecessary, because wages tend to be lower in public companies than in privately-run companies. The union seems to be confused about its identity here. If the union truly wants to improve the welfare of its members, it should make efforts to increase its members' wages through privatization and rationalization.

Finally, the union argues that privatization of the power generation industry will lead to the export of national wealth or that foreign conglomerates will get a foothold in the industry, which is unreasonable. If the government sells state-run corporations to foreign buyers, the government will earn money that will stay within the country and be used for productive purposes.

The illegal strike by the power unions ironically shows how inefficient government corporations are. Let's look at why this inefficiency comes about. Let's say that ABC is a public company set up by the government to provide essential public services.

The government would look for a capable manager to start up the firm and lead it well. But within a year, politicians will start looking for places to insert people to whom they owe a favor. Perhaps even the CEO will be replaced with the beneficiary of political patronage.

Watching their bosses die like flies, ordinary workers at ABC begin to think that their destiny is also at the whim of fickle government or political figures, so they set up labor unions to protect their job security. So far, the workers' efforts have been legitimate self-defense. But labor would tend to grow militant and would soon wield a powerful influence on wage increases and labor conditions.

The "parachute" chief executives come to understand that if they want to maintain their lucrative post, they must not trigger labor disputes; they gradually yield to the demands of the union. At this stage, ABC has became a company with a management-labor cartel. Efficiency nosedives, and wage negotiations become pro-forma because labor and management interests coincide.

Now leadership and staffers turn their attention to politics. The president ponders how to make connections in political circles and labor joins hands with politically oriented labor organizations.

If ABC is monitored by other government organizations, it would at least make some effort to maintain order in the company ?albeit reluctantly. Otherwise, the company would be entirely under labor control. There are many state-run corporations in Korea that are now at this final stage. They cannot perform their functions and their future is at risk.

The company ABC, which was initially established to serve the public interest, now is an ulcer in the national economy, having gone through this four-stage process from idealism to illness. This is the fundamental reason why privatization is urgently needed.


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The writer is a professor of business administration at Yonsei University.

by Jung Ku-hyun

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