[VIEWPOINT]Market proved to be our friend

Four years after our economic crisis, the face of the Korean economy has changed. The restructuring process, led by the government, has produced some fruits and is still in progress, but it is correct to say that the market itself took care of the problems. Weak companies that had no competitiveness perished, and new enterprises were born to pilot our economy. As a result, our economy has become more diversified, moving closer to that of a true market economy.

In the past, the nation's conglomerates, or jaebol, represented the Korean economy. Starting from the '70s for 20 years, jaebols were like impregnable fortresses withstanding anything. Nevertheless, the year 1996 will go down as a period that was a catalyst that would change these dinosaurs of the Korea economy. Starting from the end of that year, for three years, half of the top 30 companies, including a group that was in the top five, went bankrupt or came close to it.

During this period of turmoil one important trend appeared. Over the last two years, the top four companies accumulated about 40 percent of the total market capitalization of the Korea Stock Exchange, compared with 17 percent in the early '90s; the others in the top 30 hold 10 percent to 12 percent. These companies enjoyed a peak in 1987 with 27 percent.

The reason for this "imbalance" or "domination" － call it whatever you like － is the existence of super conglomerates, like Samsung Electronics and SK Telecom. They have truly set themselves apart by becoming global competitors and that is why they have become the indisputable leaders of the stock exchange.

The economic crisis pushed many companies into oblivion, but far more have been created. In the 1999-2000 period, ventures were created like hot dog stands. Although the frenzy has slowed somewhat these days, there is no shortage of young pioneers who are willing to take the risk to become the "next Bill Gates."

From 1993 to 1997, the number of newly created enterprises was three to four times as large as the number that went bankrupt. In 1999, the factor increased to 12, in 2000 it was 15, and last October it stood at 17. Last year alone, 33,000 businesses were created compared with 2,000 that went bankrupt.

This venture rush is partly due to an exodus of people from the big corporations, which did not provide a lifetime job anymore. Overall, starting a new company has become relatively easier and the window of opportunity has become bigger. In my opinion, this is going to have a positive effect on our economy in the long run.

The last component that is the driving force behind our economy is the active entrance of foreign companies － either totally owned or partly. According to a study last year by the United Nations, the total invested capital by foreigners has jumped five times from 1995.

Foreign companies are no longer a thing of the distant world; they have taken an active part in our economy. New technology, know-how and competition have been brought to us, true signs of an economically advanced nation. Some people argue that our nation might become an economic "colony," but the number of foreign companies is still lower than the average number of foreign companies in other nations of the Organization for Economic Cooperation and Development. Hence, there is no need to worry about this.

In conclusion, the elevation of some domestic companies to an elite status of true global players, the fall of weak corporations, the venture capital fever and the successful establishment of foreign companies in Korea have been the major forces behind our five year journey to renewal. We should embrace this wind of change with open arms since it will give our economy just the right balance. Now that our economy has been given the gift of self healing power, the time has arrived for our government to ditch the old habits of sponsoring and giving favors to specific companies and focus on providing tools to help the financial market and the labor market function properly. To have a prosperous economy, companies have to prosper － and for companies to prosper the government needs to practice a hands-off policy. The ownership, financial structure, management and strategy of a company will run their course according to the law of the market.

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The writer is a professor of economics at Yonsei University.

by Jung Ku-hyun