[VIEWPOINT]Kia union selling Korea a lemon

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[VIEWPOINT]Kia union selling Korea a lemon

The screams of "Dae Han Min Guk" during the World Cup still ring in our ears. In spite of the positive emotion, walkouts are mushrooming in the business community. Among them, the strike at Kia Motors appears most grave. In my opinion, labor strife at that automobile firm in 1997, coupled with other factors, triggered the economic crisis at the end of that year.

One day in April 1997, I had a chance to visit a Kia Motors plant in Gyeonggi province. At that time, the automobile industry was a matter of primary concern in the Korean economy. Ominous clouds were threatening the industry, which was awash in an oversupply of vehicles stemming from production of the nation's newest carmaker, Samsung Motors, and declining exports. The automobile companies' financial statements grew worse and frequent strikes made the matter more complicated.

As we made our way to the plant, we exited the Gyeongbu Highway to end up on a narrow two-lane road. It took us more than two hours to get to the plant. The serpentine journey to the plant made us feel more worried over the eroding condition of the automobile industry which was brought on by internal and structural problems.

First of all, the infrastructure was inferior. Roads and ports serve automakers, which need a heavy mobilization of material resources and widely positioned distribution channels. Why had Kia placed its plant in such a location?

The government put off the promised construction of essential infrastructure, which inevitably led Kia to waste huge amounts of money on transportation cost. Adding to the burden was the incessant walkouts and rigid collective agreements between labor and management, which made the firm unstable.

In spite of decreasing sales for the Credos, this mid-range model filled the firm's stockyards because its production level can't be reduced. Although sales of the luxury model Enterprise climb sharply, no production increase, why? Assigning workers by production line was not allowed. Allocation was governed by collective bargaining.

How can a concern that does not meet market needs and uses inferior infrastructure survive? It seemed to me that Kia was like an airplane that cannot take off. Specializing in automobiles, Kia seemed to find it difficult to adjust to the economic cycle. After a few months, Kia went bankrupt at last, triggering the economic crisis in 1997. Civic groups' fervor to revive Kia Motors ended in vain.

After five years of rehabilitation, supported by a write-off of 7 trillion won ($6 billion) of debt, Kia is in turmoil again. The conflict between labor and capital is detrimental to the consumers' interest. My mind is really boggled by the walkout at the firm that triggered the economic crisis and caused the nation to pay as much as 7 trillion, and Kia still has 300 billion won in accumulated losses.

The strife reminds me of the "nightmare" that oppressed me five years ago. Just think of those angry shareholders and customers. The firm has paid no dividends over the past few years and has failed to meet its delivery schedule.

Kia is not the only case. How much have we changed our wasteful labor-capital relationship? Did we make any progress with our "generous" labor-management relations, which did not keep to the no-work-no-pay guidelines and failed to bar illegal strikes?

When a company makes a profit, it is forced to pay its workers bonuses; when it suffers from deficits, its arm is twisted to guarantee job security. When a firm plans to move plants or to change subcontractors, management must negotiate with labor in advance. I am pessimistic on attracting foreign investment to Korea's type of market economy.

Foreigners point out that militant unions and rigid relations between labor and capital are major obstacles to Korea's economy. As vigorous as you might inform foreign investors abroad of the Korean economy, if the image of hard-liners in red headbands overwhelms the passionate image of the Korean Red Devils, which was boosted during the World Cup, we cannot progress one step.

We cannot overemphasize the importance of flexible labor market and mature labor-capital relations.


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The writer is a professor of economics at Yonsei University.

by Jeong Kap-young

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