[VIEWPOINT]Time to Look Closely at Trade GuidelinesThe state of the economy cannot satisfy everyone in society at all times. It would be terrific if there was an idea to make everyone rich, but the idea would be an equation with lots of variables.
Think about a situation in which income and the size of companies are made equal. Would this equality be an ideal one? Companies with ample ability and resources would naturally demand more freedom to operate their businesses. Otherwise, the companies would lose desire to work hard and produce profit.
But then, leaving everything to the market would not solve all the problems. While the market is capable of nurturing competitive companies, it also produces side-effects. Monopolistic companies may wield undue influence or the economy as a whole may come to depend on a small number of conglomerates. It is important to increase efficiency through business freedom and competition. However, it is also necessary to promote policies that can alleviate market failures. This is the basic premise behind the fair trade regulations that promote free and fair business competition.
South Korea has reaped its share of benefits ever since it introduced the fair trade mechanisms in 1980. The regulations on the thirty largest business conglomerates also emanated from those mechanisms. In particular, the government recently refreshed the sense of fair business practices by strongly regulating insider trading within companies, despite stiff opposition from the business community.
Even though the fair trade regulations produced certain benefits, controversy has been constant. The conflict between the government and the business community has ranged from whether to decrease the number of conglomerates overseen by the government to just outright abolishment of the regulations.
The business community argues that the comprehensive regulations and the limit on the amount of investment restricts their activities. Despite this, the public sentiment toward the monopolistic power of the conglomerates has changed little, compounding the government's dilemma. It is a pity that relaxing the regulations is viewed by some as a regression in the government's reform drive. Consequently, abolishing the regulations should be preceded by true change on the part of the business community. But just how much and what should we try to resolve?
First, let's take a look at the proposal that calls for reducing the number of conglomerates regulated by the government. How many of the 30 chaebols that were overseen by the government before the outbreak of the Asian financial crisis still survive? More than half have either gone bankrupt or cannot continue normal business operations. In addition, the assets of the 30th largest chaebol is not even one-twentieth of that of the top ranked one. How can the government attempt to regulate these disparate groups of companies under the same standard?
How many should be regulated then? There is no clear answer supported by economic theories. This is a matter that needs to be compromised with reality. Radically decreasing the number may run counter to public sentiment. But the annual revenue of the multinational companies that Korean companies find themselves competing with exceeds the entire amount of Korea's exports. Therefore, we need to be flexible with what we view as "big" conglomerates. Seen this way, five would not be a small number. Rather than looking at the asset size, the government should look at the proportion of the country's gross domestic product that each firm accounts for.
More important than the number of companies regulated is the degree to which the regulations are relaxed. If the regulations are truly needed, they should be applied to all companies regardless of whether they are designated for supervision or not. Think about the global competition between the affiliates of multinational enterprises and Korean companies. General Motors and Ford, among other companies, generate as much revenue in their financial businesses as in their automobile business. Korean companies can only dream of replicating such success because of the regulations imposed on them. If there is a set of regulations that disadvantages Korean companies, something needs to be changed. If the problem lies in management transparency and corporate governance, regulations may be differentiated depending on the companies' business results.
The regulations on monopolistic and unfair business practices need to be even more strongly implemented on a case-by-case basis. If the comprehensive regulations that emphasize equal treatment of firms tie their feet and constrain their business activities, where will we find the dynamic for further growth?
The writer is a professor of economics at Yonsei University.
by Jeong Kap-young