[Viewpoint] Economics of envy miss the point

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[Viewpoint] Economics of envy miss the point

Choi Gee-sung, who recently was promoted to the No. 2 position of head of corporate strategy at Korea’s largest conglomerate Samsung from the chief executive post of Samsung Electronics, confessed he was surprised - and scared - by the staggering first-quarter earnings of the world’s largest producer of memory chips and mobile phones.

Led by overwhelming demand for the Galaxy smartphone, Samsung Electronics reported a record-high 5.85 trillion ($5.1 billion) won in operating profit for the first quarter of 2012.

Sales of smartphones left the company’s memory chip heyday in the dust.

Choi and other executives tried to hide their glee, largely because of overall gloomy mood in the corporate sector and exporters feeling pinched by the European credit crisis and global economic slowdown.

The day after Samsung’s announcement, Apple reported record quarterly operating profits of 17.55 trillion won.

In a recent preliminary release, Samsung estimated its own second-quarter operating profit at 6.7 trillion won.

Samsung Electronics beat around the bush over the stunning new figures. “We are worried that 70 percent of the group’s profit comes from the electronics arm and 70 percent of that is smartphone sales,” Choi said.

Who wouldn’t love to have such a problem?

Its moaning would hardly get any sympathy. If over-reliance on smartphones is a headache, Apple should be heading to the intensive care unit. The company runs almost entirely on income from its iPhone, iPad and iPod lineup.

Moreover, mobile phones today have become indispensable and their sales will not likely be swayed by cyclical volatilities, as were semiconductors and flat panels.

And thanks to subsidies by service operators, profits from handsets and tablets are virtually assured.

It is why securities analysts upped Samsung Group’s third-quarter profit estimate to 8 trillion won.

The outlook for the company remains upbeat because even if smartphone sales are challenged by the iPhone 5 release, Samsung will benefit from a rebound in the semiconductor market.

Samsung Electronics, the largest and most lucrative company in the country, is turning more and more defensive and self-conscious about the economics of envy amid a brewing public debate over inequality.

One critic accused Samsung Electronics of making money purely from local consumers, saying its second-quarter operating profit was generated from the domestic market.

But that argument doesn’t hold if you read the company’s financial statement thoroughly. Overseas earnings are translated into local income so the company can pay more taxes at home than abroad.

The critic apologized, but bloggers nevertheless went on with their Samsung bashing.

In April, Apple was scorned for having reported 70 percent of its income as earned overseas, mostly in countries offering tax breaks and the rest from American states with low tax rates. Despite profits of 39 trillion won last year, Apple paid just 3.7 trillion won in taxes. Samsung Electronics, whose profits were 16 trillion won paid 3 trillion won.

Apple was unfazed by criticism that it was sidestepping taxes and job creation in the United States. While creating 700,000 jobs in China and other countries, it was attacked for hiring just 47,000 at home, most of which whom were in sales with annual wages below 30 million won.

In a statement, Apple said its focus on innovation has created more than 500,000 U.S. jobs, “from the people who create components for our products to the people who deliver them to our customers.” It added that it was “incredibly proud of all of Apple’s contribution.”

Such audacity from a Korean company would be unthinkable.

There is no doubt that Samsung’s profit figures for this year have made the company somewhat apprehensive. It may be due to the current infatuation with smartphones or perhaps Samsung wants to keep a low profile during the presidential election season.

Some cite the case of Finland, where Nokia’s downfall has paved the way for start-up ventures like Rovio Mobile, creator of the Angry Birds video game, to argue for dismantlement of chaebol groups.

But data tells different story. The Finnish economy for the last three years contracted by 1.2 percent and now lags behind Sweden and Norway. If the one-time leader in mobile phones had maintained its share in the global market, the country could have reported different gross domestic product data.

One must have the facts right to come up with workable actions to address problems like economic inequalities. How will a contest turn out if we berate our best player and instead cheer the other team’s?

We should be proud, not fearful, of our exceptional corporate players.

*The author is an editorial writer of the JoongAng Ilbo.
By Lee Chul-ho
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