[OUTLOOK]Policies led to Daewoo’s fall

The name of the conglomerate Daewoo means “big world.” The founder and former chairman of Daewoo Group, Kim Woo-choong, who realized his brilliant dream of global management in Asia, Latin America and Eastern Europe 10 years ago, was the Gulliver of the Lilliputian kingdom.
When he came back to Korea from his overseas wanderings two weeks ago, he looked haggard. His strong legs, which once ran the Silk Road, were wobbly from a lack of strength and his shoulders, burdened with debts, were bent.
An angry crowd surrounded him, small shareholders who lost their fortune, civic groups that denounced his insolvent management and the media, which accused him of squandering public funds. Mr. Kim was now a Lilliputian and criminal of the Gulliver kingdom.
After issuing an apology to the public, he was detained by the prosecutors. As they are known to the public, his charges are clear: accounting irregularities amounting to 40 trillion won ($40 billion), securing 10 trillion won in bank loans under false pretenses, misallocating $20 billion of Daewoo funds overseas and misappropriating 15 trillion won in public funds.
These charges make him a super white-collar criminal. But should he stand trial alone?
His alleged crimes stemmed from the method of “global management.” He built an electronics plant in Hanoi. He calculated that if he ran the plant for about five years with a free transfer of the plant site and a supply of management funds through loans, he would be able to own the plant completely.
In the same way, he established an automobile plant in New Delhi, India, and produced the compact car Matiz, which created a sensation. In Uzbekistan, Daewoo’s motor plant was the largest modern business there.
With that momentum, he built a foothold to advance into the European market in Warsaw, Poland. At that time, Daewoo took over the largest automaker in Poland, which was struggling with deficits, and put Daewoo’s mark on it.
Daewoo automobiles made by Poland’s famous Solidarity workers ended up taking the second-largest share in the market after General Motors. Daewoo Bank, which started its business in Budapest, Hungary, gathered small savers in a short time. Hungarians were reportedly overjoyed with the Korean style service, which issued savings account books.
Like the dream of Genghis Khan, who put his hope in his elite cavalry, Daewoo staked fate of its global management on the electronics and automobile plants that it built across the world. Kim Woo-choong believed that his dream would come true if he waited only five years.
His mistake was that he did not realize the problems with loan-based management. When the foreign exchange crisis, which no one could anticipate, took Korea by surprise in 1997, his style of management brought about a liquidity crisis.
What happened in 1998 and 1999? When all business people looked everywhere for cash, banks called in loans and no longer issued any so that they could meet the standards of the Bank for International Settlements as ordered by the International Monetary Fund. The situation was such that the then-president of Samsung Electronics said he was even turned back at the doorstep of a bank.
It was about that time when a new method called “workout plans” was introduced to Korea. Politicians and creditors may have preferred to sell assets of insolvent companies, even if the companies were in a workout plan, for the smooth recovery of public funds.
For this reason, Korean businesses were offered at fire-sale prices. Daewoo Motors was sold cheaply to General Motors. Including the banks that were taken over by speculation capital, not just one or two essential companies were disposed of inexpensively. It was like disbanding the Korean economy, which had built itself up with great efforts.
If we define the three causes of the foreign exchange crisis as negligence of politicians and bureaucrats, poor management of large companies and excessive loans by financial institutions, Daewoo is clearly among them.
Foreign investment funds were waiting for a chance to take over Korean businesses, ready to swoop down on their prey on the Korean Peninsula, and a feast was prepared for them under the stewardship of the IMF.
Joseph Stiglitz, adviser to the World Bank and Nobel prize winner, and Jeffrey Sachs of Harvard University belatedly criticized the IMF’s method of managing the crisis as inappropriate and excessive.
If so, doesn’t this mean that Korean people suffered too much from the 20-percent interest rate, that large companies were sold at an excessively low price and that public funds were overly injected?
Under the crisis management strategy of the time, which was assessed as “successful,” hastiness drove large companies to bankruptcy or to sale. Did the political community at the time make every effort to prevent Korean companies, not necessarily Daewoo, from being taken over by foreign capital?
Is the crime allegedly committed solely by Mr. Kim or the product of certain political and policy decisions? What will happen if we return to the urgent situation back then and reconstruct what Daewoo did? Now, just as it was back then, government policies are important enough to determine the future of not only businesses but also of the country.

* The writer is a professor of sociology at Seoul National University. Translation by the JoongAng Daily staff.

by Song Ho-keun