[GLOBAL EYE]Don’t demonize foreign capitalAnti-foreign-capital sentiment is building in Korean society. As companies’ cautious stances in defense of their management control are met with the age-old antipathy of politicians and some civic groups, the hostility has developed into the “bashing” of foreign capital.
As negative aspects of the foreign capital are put in the spotlight, we increasingly hear phrases like “economic nationalism” and “neo-nationalism.” Not so long ago, we were of one voice in saying that we would use whatever means were in our power to help the economy, whether those means had foreign origins or domestic.
Foreign capital was Korea’s savior after the 1997 foreign currency crisis. Certainly, in the course of coping with that crisis, there were “speculative” funds that concentrated on taking short-term profit, and Korean companies whose activities were limited felt deprived and discouraged. But that was the inevitable price the Korean economy had to pay if it was to emerge from the crisis with the help of foreign capital.
The presence and the influence of foreigners grow by the day in the Korean economy. Of the eight commercial banks, three are foreign-owned, and foreigners own the majority of the shares at four of the other five. Foreign investors own more than 40 percent of the Korean stock market, and foreigners’ stakes exceed domestically held stakes at one of every 10 listed companies.
At the time of the foreign currency crisis, the total amount of foreign-owned land in Korea was six times the size of Yeouido; now it is 18 times Yeouido’s size. Whether we like it or not, foreign capital has already become an important part of our economy.
Of course, the negative side effects of foreign capital have to be minimized. Realistically, though, it is impossible to distinguish “quality” foreign capital from speculative capital and to respond accordingly.
By its nature, and quite apart from any notion of right and wrong, capital has two faces ―that of speculation and that of investment. Newbridge Capital and the Carlyle Group, which profited from the acquisition and sale of Korea First Bank and KorAm Bank, are private equity funds with, at most, several hundred shareholders. Even for leading international investors, acquiring a defunct foreign bank is a risky business.
But the private equity funds are high-risk-takers, seeking high returns. Newbridge Capital and the Carlyle Group acquired Korea First Bank and KorAm Bank, reduced their risk and successfully resold them to Standard Chartered and Citibank, respectively. As long as the financial market is open, all sorts of investors will come and go, and it is wrong to label some funds “speculative” and ban them from the market.
But Korean sentiment does not tolerate foreign capital making hundreds of billions of won in profit without paying a penny in tax. These funds navigate around the legal system by setting up paper companies at tax havens.
The fundamental solution, therefore, is to locate the blind spots in the system that allow the funds to avoid taxation, and to reinforce the law to meet the global standard. Korea’s approach to tax investigations ― basically, casting a wide net ―is no match for these foreign funds.
Some are concerned about the “national wealth” leaking away through the stock market, as foreign investors benefit from enormous margins and high dividend payments. But we should not ignore the positive effects of bringing Korean companies up to global standards, and of their elevated stock and corporate values. Giving benefits to foreign businesses amounts to reverse discrimination against Korean companies, and it is that reverse discrimination that is largely responsible for the prevailing anti-foreign-capital sentiment.
Therefore, it is urgent to make Korean companies more competitive by correcting this reverse discrimination, so that they can stand on their own against hostile mergers and acquisitions. Building a “breakwater” is not the best response. Only when Korean companies and the Korean economy get used to surfing the changing tides of foreign capital can Korea attain its ambition of becoming a Northeast Asian financial hub.
The problem is the anti-foreign-capital populism that feeds on Korean companies’ complaints about reverse discrimination. This encourages economic nationalism. The fact that foreign capital is expanding here means that the Korean economy is in a state of great fluctuation. We have to be wary of jeopardizing both our security and our economy to imprudent, populist cries for “self-reliance.”
* The writer is a senior columnist at the JoongAng Ilbo.
by Byun Sang-keun