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Hold companies accountable

Kim Yeong-ook

I have to confess, I keep a secret stash of cash that my wife doesn’t know about (or pretends not to know about). It’s a kind of rainy day fund because what I get for spending money from my wife isn’t enough. I use it mostly to hang out with friends. A piece of advice for wives: One effective way to make husbands to kick this habit would be to make them pay double or triple the sum if they are caught being profligate. But this may not work if it inspired the husband to come up with more clever ways to hide the money. The fundamental solution to the problem would be having the husband reduce his socializing. Men usually have less of a need to keep a little on the side after retirement.

The same principle can work if applied to corruption and black money spread among government officials. To the company paying the money, we say they are paying out from a slush fund. To the bureaucrat receiving the money, it is a bribe. To break this arrangement or tradition, we obviously need tougher punishments. When caught red-handed, those involved must pay fines many times the amount of the bribe and possibly be sent to prison. This is the gist of the anti-corruption act, or the so-called Kim Young-ran law, under which civil servants caught accepting more than 1 million won ($979) in bribes will receive jail terms of up to three years or fines of up to five times the kickbacks received. The law, a brainchild of Kim Young-ran when she headed the Anti-Corruption and Civil Rights Commission, could dramatically change the way of doing business in the corporate and official realms.

But the law alone cannot entirely uproot the deep and sordid bonds between businesses and bureaucrats. There will always be the clever and sneaky ones who will somehow find ways to outwit the watchers and the law. A fundamental solution would be to do away with regulations, which are what businesses pay bureaucrats to bend or break. Businessmen entertain government officials because they need to win their favor. They are investing in advance so their friends in government offices will help them circle around regulations and win licenses. Deregulation has always topped reform agendas of past administrations. But progress has been scant. The corporate sector still complains they cannot do business because of the complicated web of regulations prevalent in this country. Governments always say they will simplify procedures. In reality, getting approvals for businesses has become tougher. Dismantling red tapes is hard.

Many are skeptical that the new anti-corruption act will do any good unless layers of regulations are removed. In fact, the price to get licenses - which mean bribes - may only go up because the work has become riskier for government officials. Bureaucrats won’t take risks unless they are handsomely compensated in case they are caught. When private tutoring was banned in 1981, its prices shot up. What choice does a company have if it cannot get a license when it has finished building a factory? It cannot let all its investment go down the drain. It must get the license. It must pay the bribe.

When the government in 1994 proposed to set a cap on corporate expenses per business project, it was the companies that opposed the bill. For a company that stakes a lot on winning a license or some other kind of official approval, any cap on lobbying expenses could hurt its business prospects. The clause was scrapped in 2008.

To crack down on so-called black money, both punitive and reform measures must be applied. The anti-corruption act and reform in regulations should be carried out simultaneously. But what we see on the political stage nowadays is entirely the opposite. Both the government and legislature are preparing to toughen regulations while dragging their feet on the Kim Young-ran Act.

All regulations are not evil. But the mindset about regulations must change. Regulations on procedures to enter a business should be eased to foster more startups. But those on supervision must be strengthened. The playing field should be widened for businesses, but anyone that breaks the rules should face strong penalties. In this way, corruption could be eased while helping to revitalize economic activities.

The same rule should apply to safety codes. Reform is more important than regulation. We have been through it all too many times before. Every time a major man-made disaster occurs, the responses from the government and legislature are the same. They make new regulations or toughen existing ones. They believe their work is done. But disasters do not go away. Tougher regulations have not worked. That is because the ties between companies and bureaucrats somehow end up intact despite the heavy human and property losses. Despite a strong safety code, they do not bother to enforce it because they can get away with it.

Companies go on with disregarding safety regulations and government employees go on neglecting their supervisory duties. It would be better to do away with regulations and leave safety issues to the companies themselves. Companies should be fully accountable for any major disasters. If they know they will face heavy sentences when bad things do happen, companies will inevitably invest in safety. On the flip side, regulators would keep a strong watch on the industries they cover if they don’t want to end up in jail. The government should consider drawing up a law named after Yoo Byung-eun, the fugitive owner of the Sewol operator, comprised of harsh punishment for liabilities in industrial disasters.

JoongAng Ilbo, May 29, Page 32

*The author, former editorial writer for the JoongAng Ilbo, is an adviser at the Korea Institute of Finance.

By Kim Yeong-ook