How can the public keep an eye on public corporations?
Illustration by Kang Il-goo
But what are public companies? They are companies set up and owned by the central or regional government. The government creates such companies because they can provide some necessary services that private companies cannot. For example, paving roads and distributing electricity or gas are quite daunting undertakings for a private company.
Such tasks require a lot of coordination with outside powers, which the government can handle. Plus, private companies prioritize making a profit, but projects like these are costly but not very profitable.
So the governments create companies in charge of these projects. When a country or its people do not have enough financial resources, it is too costly for the private sector to take responsibility for initiating such projects.
There are public companies that do things for the government, such as printing money or supplying houses at a low price. Such companies were often born as a part of the government or as public organizations. There are 24 such public companies in Korea. There are also 281 public institutions that are not public companies but act in a similar way.
Public companies are criticized for lack of competition, which often means inefficiency. Since public companies do not need to compete, they do not need to improve their effectiveness. If private-sector companies fail in their business, they need to shut down. However, even if public companies fail, they remain in business until the government closes up shop.
They also do not need to be frugal to operate. The prosecutors and the Board of Audit and Inspection recently found out that some public companies wasted their budget. Some public companies raise their employees’ salaries or manipulate exam results for new employees.
Moreover, as a country’s economy grows, some public companies start competing with private sector companies. They sell their services for lower rates than private sector companies. They can afford to take such losses since they get governmental support.
For these reasons, the government and the people continue watching public companies and trying to reform them. They attempt to eliminate what is unnecessary and to improve efficiency.
There are a number of ways to monitor public companies. Under the law, public organizations have set standards for operating procedure and must undergo various checks.
Public companies that fall under the umbrella of government ministries regularly undergo review of their operations by the ministries.
The Board of Audit and Inspection periodically investigates whether they violate laws or suffer from inefficiency. If the board finds faults, the officials of the related public companies could be subject to reprimand or prosecution.
The government also informs the public on how these companies operate.
This way, the public can scrutinize these companies’ performance and business functions. One way people can monitor these companies is through their official Web site (www.alio.go.kr).
The Web site not only provides a company’s balance sheet and income statement but also the number of employees on the payroll, their wages and a breakdown on expenditures such as lobbying. Issues raised by the National Assembly and the Board of Audit or self-evaluations can be also found online.
There are public companies with subsidiaries. Korea Electric Power Corporation, Korea Gas Corporation, Korea Railroad Corporation, Korea Expressway Corporation, Korea National Housing Corporation, Korea Land Corporation and Korea Rural Community and Agriculture Corporation have a total of 32 subsidiaries. Under the law, these subsidiaries are not considered public companies, but the Alio system discloses business transactions between the parent companies and their subsidiaries.
There is yet another way to check on public companies. The Ministry of Strategy and Finance has established a center in Gwacheon, Gyeonggi where people can report frivolous expenditures made by public companies and central and regional governments.
The center takes reports of wasted tax money. Between 2005 and 2007, a total of 4,600 cases of wasted public funds were reported. These cases were investigated, wasted money was recollected and rules for public companies were changed.
Thus, the government was able to save 177.4 billion won ($169.9 million). This is an example of how public involvement in scrutinizing public companies leads to improved efficiency in the companies.
However, there are limits to such efforts. “Government employees or public companies tend to grow the size of their organizations,” said Cyril Northcote Parkinson, a British historian.
Public companies could reduce their size right away, but they’re likely to grow again.
Retired bureaucrats want to move to public companies while politicians want to return the favor to those who helped them by offering positions in public companies.
Thus, some say the most efficient way of reforming public companies is to consider privatization.
This means the government must find an owner for a public company and then sell it to the private sector.
A successful example of a privatized company is Korea Heavy Industries and Construction Company.
It was suffering from large losses but then Doosan Group acquired it and reduced its payroll by 30 percent. Its profit skyrocketed.
Now Doosan Heavy Industries and Construction, formerly Korea Heavy Industries and Construction Company, is considered to have the best technologies for building plants to produce fresh water.
KT is another good example. Once privatized, the phone company cut long distance call rates.
Of course, not all public companies can function better when privatized. Not all private sector companies work efficiently. Some choose to maintain low-quality products or services because raising quality cuts into profits.
In the 1990s, the state of California in the United States suffered huge power outages because privatized electric companies failed to replace old wires. In an extreme case, if a company necessary for the good of the public or national security goes private and then goes bankrupt, there may be a troublesome breach in public safety.
However, in the case of companies like Korea Development Bank or Industrial Bank of Korea, which function similarly to private sector companies, privatization could prove effective.
By Choi Hyeon-cheol JoongAng Ilbo [jbiz91@joongang.co.kr]
with the Korea JoongAng Daily
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