[OUTLOOK]Keeping investors at homeIt is rumored that some members of the government and the governing party have said the slump in corporate investment is an intentional “act of sabotage” to tame the administration.
That is a ridiculous accusation. Why would any business want to not make money just to spite the government when it’s so difficult to make money these days anyway? I’ve heard about businesses that are struggling to stay alive, but never of businesses that are ready to commit “economic suicide.”
Foreign-held shares comprise about 44 percent of the ownership of listed businesses in the country. Foreign investors hold about 50 percent of the shares in the ten biggest conglomerates and 60 percent of the shares in the ten biggest businesses. Since these conglomerates and businesses are the driving force behind our exports, it means that a considerable share of the profits that these firms make goes to foreigners. At the same time, foreign shareholders can decide through their voting rights whether to reserve their profits, to reinvest within the country or to collect their dividends.
What is corporate profit? It is the money earned by the business minus the wages, interest and rent. Shareholders investing their capital get to take the remaining surplus after deducting these costs.
What is the corporate environment like in Korea these days? With the expansion of the five-day workweek, the pressure to regularize the employment of temporary employees and policies that favor labor unions, labor costs for businesses keep rising. Policies that would cut down the profit for business, such as the proposed “social contribution fund,” are being considered or will be implemented.
The most important factors in deciding on an investment are the earning rate and risk. Businesses feel the urge to invest when risk is controlled and the expected earning rate is above a certain level.
But many of the policies that the government has pursued lately are those that have lowered the earning rate and increased the risk. In other words, they are policies that make businesses lose the urge to invest in the country. Under these circumstances, foreign shareholders would not feel the necessity to reinvest the profits they reserved from businesses in Korea. From their point of view, it would be far wiser to take their money out and invest in a more attractive region.
In the end, the money that our businesses worked so hard to earn will flow out of this country to become the initial capital for investment in other regions.
If the government wants to encourage investment, it must first not deny capitalists the share of the profits that they earned. It must keep in mind the simple but important principle that investments happen only by guaranteeing adequate profit to the investors.
Also, the government must acknowledge that by creating a discriminatory environment favoring foreigners while holding back domestic capital after the financial crisis in 1997, it has unwittingly let a considerable amount of corporate shares flow into foreign investors’ hands. They have become “semi-foreign” businesses that are located in Korea but whose ownership has been handed over to foreign companies to a large degree.
Therefore, in order to encourage domestic investment by businesses, we need to make domestic investment attractive even to foreign investors by supplying them with various supports. These policies should be more attractive than those of Thailand, Taiwan, Hong Kong, Singapore and Malaysia. Our government should turn its eyes outward and evaluate our ability to attract businesses and investors in comparison to other Asian countries with whom we need to compete. The government must provide a package of policies on taxes, finance, labor, environment, education and medical care that is at least good enough to convince investors to reinvest in our country, if not good enough to attract new businesses.
The recent slump in domestic investment is a reflection of the unattractiveness of the policy package that the government has provided so far. And this is a reflection on the government and the government party that have chosen and implemented these policies.
In this global age, businesses, people and money are continuously on the move for a better place to invest. A “vote with their feet” phenomenon is appearing. It is businesses that invest and businesses that create new jobs. Jobs that the government temporarily provides through tax revenues are only makeshift solutions.
* The writer is a professor of economics at Myongji University. Translation by the JoongAng Daily staff.
by Yun Chang-hyun