New chaebol model needed

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New chaebol model needed

The political parties are shaping up platforms to revise the chaebol model amid mounting social criticism of the family-owned business conglomerates. The ruling Saenuri Party has said it won’t seek to revive the cap on cross-affiliate investments but will instead pursue an incremental ban on cross-shareholding.

If cross-shareholding is suddenly prohibited, management of some large companies could fall prey to foreign predatory forces. The ruling conservative party is mulling over whether or not to allow the existing cross-shareholding system that allows family owners to control most group subsidiaries with just small stakes through shares in core companies but prohibit any new equity-sharing among affiliates.

The opposition Democratic United Party is less tolerant. It wants to revive the cap on cross-affiliate investment, slap a new tax on chaebol as well as enforce criminal penalties on any deliberate work placement and favor within a group. Whether it is the ruling or opposition party, chaebol policies will likely be revisited, according to the current public consensus and sentiment. Based on the policy outlines so far, the ruling party’s direction to restrict cross-shareholding by family owners and group affiliates is better than capping equity investment among affiliates.

Both policies are aimed at regulating personal fortune building by business owners and family members. The liberal opposition wants to employ both regulations, which is not necessary. Restrictions on cross-shareholding would be better, as prohibiting equity investments could dampen corporate investment. Large companies in launching new businesses usually raise funds through cross-investment. With a cap on cross-affiliate investment, corporate activities could slow. Even the anti-chaebol Roh Moo-hyun government called the regulation rough and nonsensical.

The chaebol model should be revised under current calls for economic justice. But the changes must come incrementally. We cannot deny the chaebol’s role in driving the economy and upgrading the competitiveness of Korea Inc. and corporate brands.

If they are discouraged too much, the entire economy could lose steam. It is why past governments all have stopped half way on chaebol reforms. Chaebol also must try to recreate themselves. They must act their size and stop invading and preying on smaller competitors. We need a new chaebol model that can be reasonable to all.
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