[Outlook]Sliding positionsA question pops up when I see anti-U.S. beef candlelight vigils. The organizers of these protests reportedly said the rallies are planned to protect the public’s health and safety. Is it true?
The deadly H5N1 strain of avian influenza was detected in Seoul just a few days ago. People will fall ill with the human form of mad cow disease only when they eat bone marrow or organs of cows infected with mad cow disease. However, bird flu can be transmitted by air. When only two pheasants infected with avian influenza virus were found dead in an aviary, other birds including healthy ones in the area were culled. What if someone infected with avian influenza had mingled in the crowds? If we are deeply concerned about people’s health and lives, the first and foremost task is to dissuade people from joining in protests and demonstrations.
If we take a moment to look into the malicious talk about U.S. beef, we soon realize that the rumors seem self-contradictory. Even so, the government should bear primary responsibility for the uproar. It changed its position several times regarding the real risks of acquiring mad cow disease through American beef products, and on U.S. negotiation results, and thus the people felt at a loss. The government repeatedly insisted that all American cattle older than 30 months should be tested, because it might pose a serious threat to human health. However, after the new Korean president was inaugurated, the description of U.S. beef was suddenly transformed into “good-quality beef at reasonable prices.”
Unless it is a magic show, it is necessary for the government to provide a balanced explanation of its positions on controversial topics. However, President Lee Myung-bak rushed headlong into making his first state visit to the United States, paying no attention to the people, his priority.
We need to take a closer look at another matter on which the government changed its attitude on the sly since taking over political power. On July 10 last year, a regular briefing for the Financial Supervisory Commission regarding measures to improve fund charges was held. An official said in the meeting: “We will be actively engaged in modifying the existing irrational system for fund revenues and charges, and bring it into reality within this year.”
One month later, a public hearing was held with numerous participants from various fields, where a variety of measures poured in. Fund investors in particular, welcomed it enthusiastically.
However, banks and securities firms were in a hurry to seek a resolution to the situation, as they dealt with fund sales. It was mainly due to the fact that sales charges were an important source of income for them amid prevailing low interest rates. It was natural that they then began a fierce lobbying campaign, as they saw their source of income disappearing in the near future.
Against this backdrop, the edge of the knife became blunt, although the Commission showed its firm determination to perform a surgical operation for fund charges within the year.
The newly reorganized Financial Supervisory Commission finally agreed on nullifying this measure last week on the grounds that a law for capital market integration to take effect next February would include the provisions of the measure — for example, a compulsory public announcement of fund charges and the establishment of independent fund sales companies that are independent of banks and securities firms. The Commission expects that such measures will greatly contribute to naturally decreasing the amount of fund charges, as competition becomes fiercer.
However, the logic of the Commission does not provide sufficient explanation. The fund charges are still announced in public. Unlike David standing up against Goliath, in reality, poor independent sales companies are indeed confronted with many difficulties in defying banks and securities companies armed with nationwide networks of branches. We become well aware of the fact that the amount of deposit for online-designated funds with low sales charges does not exceed one trillion won, even though the size of the overall funds market reaches more than 350 trillion won.
This is because a fund management company is unwilling to make popular funds online-designated, due to the fact that it pays too much attention to the interests of banks and securities companies that have an overwhelming majority of networks for sales.
From the outset, the Financial Supervisory Commission was actively poised to improve the system of fund sales charges. It had a strong will to change the sales companies’ monopolized structure in the market.
The fund market made a quantum leap forward in the past three years. It is natural that as the size of funds gets bigger, sales charges should fall, backed by the principle of economies of scale. There are great cost differences in managing two big funds: 1 trillion won ($958 million) and 2 trillion won.
However, fund sales charges have seen no great changes over the past five years. In other words, incomes increased due to economies of scale, but investors did not gain. Sales companies take 70 percent of fund charges for their profits in Korea.
It is a fixed rate system. As the amount of investment increases, the share of sales companies naturally rises. It proves how powerful sales companies are. It is an easy job for sales companies, as long as they continue to succeed in selling funds to customers.
Naturally, investors are getting angry with the current situation. It is frustrating that the government made plausible excuses based on market autonomy and changed their positions on occasion.
I am not saying that the government should strive to take compulsory measures to cut down sales charges. But the government should provide a solid foundation to facilitate free competition in the fund sales market occupied by banks and securities companies.
*The writer is a deputy business news editor of the JoongAng Ilbo.
by Jung Kyung-min