[VIEWPOINT]Government’s firm regulations must stop

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[VIEWPOINT]Government’s firm regulations must stop

The fuel efficiency of a vehicle shows how far a car can run on a gallon of gasoline. The higher the fuel efficiency, the less fuel the car consumes to travel the same distance. The lighter and the smaller the car, the higher its fuel efficiency.
So the popularity of smaller-model cars goes up when there is an energy crisis.
During the first oil shock in the 1970s, the United States made new fuel efficiency regulation under the pretext of saving energy.
That regulation is still adhered to by automakers. Vehicles should travel 27.5 miles on a gallon of fuel, on average.
American automakers keep to that regulation by mixing the number of large- and small-model cars manufactured at an assembly line in an exquisite way.
Since then, however, the number of traffic accident deaths has increased. It is because the vehicles get lighter to follow the regulation and the lighter cars are damaged more in crashes.
American scientists estimate that vehicles have gotten about 500 pounds lighter. They also estimate that about 3,000 people lose their lives every year due to that regulation. Some people have even argued that people’s lives were bartered for oil.
Government regulations work like this.
However good the cause may be, they always bring certain side effects. More often than not, the side effects a regulation causes are worse than the benefits. That is, Murphy’s Law also works in government regulation. Just like the rule that “anything that can go wrong will go wrong,” government regulations cost more and bring less effect than promised.
Regulations on business corporations, introduced some 20 years ago ostensibly to prevent big businesses from spreading their business line in all directions, sounded good. Although not as popular as the energy-saving regulation, they were in line with people’s anti-business sentiments.
The Korean Fair Trade Commission regulated the practice of big business owners who started new businesses with money from their affiliates.
The fair trade watchdog designated business groups with bigger assets than a certain amount as “big business conglomerates” and imposed a a rule that no more than 25 percent of their assets can be used for cross-affiliate investment.
In the meantime, the side effects of the investment ceiling began to be seen.
Investment by businesses slowed. In order to harvest a promising business line, one should try every possible alternative.
But now that no one is willing to invest, it is extremely difficult to expect new industry investments for the future. Although a speculative foreign fund such as Sovereign Asset Management runs freely and aggressively in the market, Korean conglomerates chained by the investment ceiling on cross-affiliate shareholdings cannot even defend themselves effectively.
Later it was revealed that fuel-efficiency regulations in the United States were not made for the noble cause of energy saving.
The real purpose was to restrain foreign automakers’ exports to the American car market. Another purpose was to create jobs for Americans by inducing foreign carmakers to build factories in the United States, according to the analysis of some American scholars.
The real purpose of the regulation on big businesses was also revealed later. They were designed to weaken the governance of the business groups’ owners.
In the 1990s, the government criticized business owners for owning too many business shares of their own groups.
If an owner of a business group diversified his holdings, the government exempted the business from the imposition of the investment ceiling.
Now, the government criticizes business owners for exercising full management rights, although their shareholdings of their company are small.
The government drives the owners into a corner by demanding that they only exercise as much management right as the size of their shareholding, excluding shares held by the groups’ affiliates. The actual purpose is to dismantle the business owners’ management.
Here is the reason why big business owners complain they are disadvantaged for following the government’s order.
This year marks the 25th anniversary of the Fair Trade Commission. And the chairman of the commission was changed recently. The commission held a seminar in commemoration of the anniversary. Kwon Oh-seung, the new chairman of the watchdog, said he would evaluate the past achievements of the commission cool-headedly. He is right.
But because the agency has not evaluated itself before, it sounded surprising to hear such words from its leader.
If he really meant to look back on its past achievements, the commission should remove the regulations on big businesses, including the investment ceiling system.
And that should be the starting point of the commission’s new approach to fair trade.
The commission should be faithful to its inherent duty of enhancing business competition.
It should not interfere in corporate governance, including the management by business owners, the chain-of-succession to second-generation owners or the establishment of holding companies.
Basically, the issue of who owns a business and exercises management rights is not a matter for government regulation.
Tax problems will be handled by the National Tax Service and financial problems will be sorted out by the Financial Supervisory Service.
The Fair Trade Commission has the duty to promote competition.

* The writer is an economic affairs staff writer with the JoongAng Ilbo. Translation by the JoongAng Daily staff.


by Kim Young-wook
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