Harsh approach to chaebol

President-elect Park Geun-hye’s surprise visit to a shantytown in southern Seoul and a subsequent meeting with leaders of small- and medium-sized businesses before having a goodwill gathering with the Federation of Korean Industries (FKI) attracts our keen attention. After the meetings, Park said, “The Korean economy now must move toward coprosperity among conglomerates and small businesses, together with simultaneous growth of exports and domestic consumption.”

This amounts to the essence of “Geun-hye-nomics” for the next five years.

She made her most noteworthy remarks about the chaebol. In the brief session with the FKI, she urged them to change their way by respecting shifts in economic and social priorities, while vowing to actively support their investments in creating jobs. Stressing the significance of “principled capitalism,” she criticized big companies’ bad practices such as the arbitrary firing of employees, infringing on business that support a lot of mom-and-pop shops and the unilateral slashing of parts (or their prices) supplied by small companies. She reportedly didn’t comment after the FKI requested her to reconsider her campaign pledge to put caps on chaebol’s cross-shareholdings.

No one will oppose Park’s overall prescriptions for our economy as there is a broad consensus on their wisdom. They are eventually the way we should go. But we still harbor some suspicions about the speed and intensity of her “economic democratization” drive. Blindly jumping on the anti-chaebol bandwagon will only bring about unwanted confusion in the market. An approach based on promoting export-oriented conglomerates while supporting small businesses that work on the domestic market would be a better route. Rushing to correct the conglomerates’ malpractices at the cost of their economic vitality will end up pushing the economy into a vicious cycle of investment reduction and job losses.

The new administration needs to take big companies’ capabilities into account as well. Big Business is waiting for harsh legislation aimed at punishing them for various business practices like price fixing, relying on cheap, non-salaried workers, and they expect more tax too. It seems to be only a matter of time that those bills will pass the National Assembly. Park needs to carefully review whether big companies can deal with the tsunami. The new government’s anti-conglomerate attitude can backfire at any time. Park needs to be prudent.