[Viewpoint]Private interests, public failures

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[Viewpoint]Private interests, public failures

The poor management and corrupt morals at public corporations, whose directors are appointed by the government, has reached a serious level.
The average annual salary of the leaders of public corporations is 186.59 million won ($201,900) while inspectors are paid an average of 150.55 million won.
The average salary of Korea Development Bank employees is 86 million won.
A public corporation recently paid a salary for two years to an employee who never showed up, and another created an unofficial fund to treat its union leaders.
Public corporations are supposed to pursue both profit and public interest at the same time. While the two values seem mutually exclusive, public corporations can only work when both goals are achieved in harmony. An inefficiently managed public corporation that only emphasizes the public interest is a burden to both citizens and the government. In the end, such a corporation will hurt the public good.
Korea’s public corporations today have failed to attain either goal. They have been reduced to selfish entities that maximize the private interests of their employees, and are far from achieving the two causes.
First, let’s look at several incidents in which public corporations have abandoned the public interest. At the Korea Infrastructure Safety and Technology Corporation, a person who was being considered for a promotion was a member of the evaluation committee. The committee promoted that person out of a pool of candidates to first-level officer.
The management and union at Korea Construction Management Corporation agreed to freeze wages due to the company’s deficit, but it paid a special bonus to its employees to keep up its personnel expenses.
In terms of profitability, public corporations are performing quite miserably. Among the 10 agencies cited by the government for outstanding management performance in 2006, only three showed an increase in their net profit, and only two reduced their debt compared to the year before. All of the other agencies have drastically increased their debt. Many corporations are suffering from serious levels of debt.
The Korea Agro-Fisheries Trade Corporation’s debt ratio is 675.9 percent, meaning its debt is more than six times its equity capital. The total debt of public corporations was 195 trillion won in 2002. That jumped to 296 trillion won in 2006. However, the total number of employees working at 288 public corporations increased by 25,686, or 12 percent, from 2002 to 2006.
Korea’s public corporations are facing serious challenges in both their levels of public good and profitability. While the past administrations are all responsible, the Roh Moo-hyun administration is especially to blame. The Roh administration advocated “innovation” as its catch phrase. However, the public corporations are far from behaving innovatively even though they should have been first in line to do so.
When dealing with public corporation issues, the administration has relied on faulty stop-gap measures instead of substantial solutions. The government’s reform of public corporations has focused on their internal management structure, such as the board of directors, the inspection committee and the external structure in charge of the promotion and management of the executives. The international trend in solving the public corporation problem is privatization, but the government has little interest in that. During the financial crisis and consequent IMF bailout, the Kim Dae-jung administration privatized eight public agencies as a way out of the difficulties.
However, in the “Participatory Government,” such discussions have, in effect, been suspended. The privatization pursued by the Koizumi government is generally credited to have played a major role in overcoming the “Lost Decade” of the Japanese economy.
Prime Minister Junichiro Koizumi abolished, privatized or corporatized 136 of the 163 public agencies despite the opposition of labor unions, civil servants and politicians. The most notable case was the privatization of Japan Post. When even the communist state of China is privatizing its electric power corporation, President Roh suspended privatization of the network industry because the unions opposed any attempt to privatize the electricity and gas industries.
The moral failings of the public corporations send an unhealthy message to Korean society. Talented youth reportedly prefer public corporations over competitive companies in the private sector because of the relaxed competition and slackened culture. It might be an exaggeration, but it is hardly desirable for the young generation to pursue such a life. The next president must tighten discipline when tackling the public corporation issue.

*The writer is a professor at Hansung University and the president of the Korean Association for Policy Sciences. Translation by the JoongAng Daily staff.

by Lee Chang-won
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