Corruption goes both ways

Korea is hardly alone in grappling with corruption. Brazil also is enmeshed in a scandal that reaches up to the president. Hillary Clinton, the presumptive Democratic nominee for president in the United States, is facing down charges - so far unproven - that her husband’s foundation abused access to Mrs. Clinton when she was secretary of state.

But the scope of Korea’s current corruption woes is stunning, probably spanning administrations on both sides of the aisle and involving a variety of institutions, from state-owned enterprises to parties and even academia. (One accused politician - recently resigned - claimed he could secure university positions for his cronies). What lies at the root of the problem and what should be done about it?

It is first important to remember that corruption is always a two-sided transaction: the party giving the bribe and the party taking it. So far, an inordinate amount of attention has focused on politicians who have taken bribes, rather than on the broader issue of private sector malfeasance.

The problems on the political side may have to do with too many controls rather than too few. As I argued in an earlier column on freedom of expression, Korea maintains an array of restrictions on political speech that have the effect of dampening the opposition. These include highly restrictive campaign periods and criminal defamation laws that have been abused by incumbents.

But Korea also maintains an array of restrictions on the ability of candidates at different levels to raise financing for their campaigns; indeed, according to Jong-sung You at Australian National University, Korea’s campaign laws may be the most restrictive of any among advanced industrial states. With very short campaign times - and in a rich and media-saturated society - even National Assembly candidates are forced to raise money on very short notice.

The United States has gone way too far in one direction, with legal campaign contributions increasingly distorting the political process. But has Korea gone too far in the other direction? Limits on the ability to campaign can favor incumbents and provide strong incentives for illicit fund raising, regardless of party.

The ability of the Park administration to credibly investigate corruption at this level is damaged. Moreover, it appears that by threatening to investigate possible corruption with regard to past presidential pardons, she may be seeking to deter - rather than initiate a thorough-going investigation. Party leaders should stop posturing and purge their own ranks. But it may be time to consider longer-term reforms. These include a special prosecutor seriously vetted by both parties and reform of campaign laws.

But to an outsider, what has not received adequate attention are the vast amounts of money that have flowed from the government to private firms with little oversight. The payoffs to politicians barely reach into the millions of won; the loans extended to Keangnam Enterprises - and many others - run into the billions and constitute losses to both Korean taxpayers and shareholders.

The story involves failure to undertake due diligence in both the Roh and Lee administrations. Sung Wang-jong was convicted of embezzling funds from his company and providing them illegally to the United Liberal Democrats. He was not only pardoned by the Roh administration once, but pardoned again following a second conviction for breach of trust in 2007.

But that was not the end of the story. Despite the firm’s spotty track record, it was able to benefit from an ill-conceived effort during the Lee Myung-bak presidency to finance natural resource exploration that should have been left to market forces and the company’s cost-benefit calculus. With easy government money, Keangnam - as well as other government-owned entities - were involved in a Russian investment that itself appears to have been wrapped up in shady policies, including the transfer of Rosneft licenses to the Russian gas giant Gazprom. Why are Korean taxpayers left financing such ventures on the part of companies like Keangnam in the first place?

We should remember the larger picture. Korea has come a long way since the massive slush funds of the Chun Doo Hwan and Roh Tae-woo era, and particularly following the investigations and prosecutions surrounding the 2002 election. But comparative data from corruption watchdogs shows an interesting pattern: While Korea’s overall corruption record is roughly equal to that of Taiwan, it fares much worse on measures related to corporate governance, where Korea ranks surprisingly low in the region. For example, the five most recent World Competitiveness reports find that less than 1 percent of businesspeople surveyed responded that corruption was the biggest problem with doing business in Japan or Singapore; in Taiwan it was just over 1 percent. But for Korea, the number was more than 5 percent, five times those responding that it was an issue in Taiwan and 25 times the share saying it was a problem in Singapore.

If the corruption scandal only focuses on the public sector side, it will miss the collusion, self-dealing and lax regulation of private sector activity, to which we owe the Sewol ferry tragedy. Let’s hope this scandal is seen by both parties as a moment for reform on both sides of these corruption transactions, public and private.

*The author is Krause Distinguished Professor at the Graduate School of the University of California, San Diego.

by Stephan Haggard