The economic team under Yoo Il-ho, the new deputy prime minister for the economy and finance minister, took off on a low key note amid lingering questions about the economist-turned-politician’s will and capacity to steer the country away from a structural slowdown. He rendered textbook-like answers during confirmation hearing. “Structural reform is the only way,” he said. He is not wrong, yet he is strangely unconvincing. It may be because he spoke without much passion. Steadiness is essential in carrying out long-term structural reform. Restructuring is never easy. It does not play out as in some kind of a manual. It needs the will to stake one’s life - a nation’s lifeblood - not to mention political nimbleness.
To become a czar of reform, Yoo will first have to disarm five enemies. They are formidable opponents who have not been tamed even by the president. The first group are legislative colleagues on both side of the aisle. Take this example: A state bank was getting ready to restructure a shipyard in the southern port city of Busan. The company’s owner ran to a lawmaker representing the region. He pleaded that the bank was going to dismiss employees and close down the shipyard. He argued that local businesses would be hurt by a swell in local joblessness which would bode badly for public sentiment and votes. In short, he warned the legislator of choppy waters in his next campaign. The lawmaker immediately had a talk with the head of the bank. Being a skilled politician, he was subtle yet unequivocal. The planned restructuring was called off. The state bank has been injecting billions of dollars into such money-losing companies due to the political pressure of the like.
Another adversary is banks. Banks are often compared with the mafia. I’ll take the Busan shipyard again as an example. The company’s auditor is a former state-bank executive. He is paid handsomely and provided with a chauffeured sedan and personal secretary. He hardly does the work he is hired for - oversight of mismanagement and irregularities. Such revolving-door jobs are rampant. All 43 retirees from the state-run Korea Development Bank over the last five years found jobs at financial companies. Of them, 35 were rehired within a month of retirement, suggesting the jobs were offered before they even quit the KDB. Such practices are not restricted to public banks. Executives from commercial banks can get jobs at companies that had been on debt workout program with the creditor bank. The worse off the companies are, the more jobs are available for bankers. There is no need to push harsh restructurings and put their post-retirement jobs at risk.
The third group of adversaries are the bureaucrats. Bureaucrats are everywhere. They act fast when they smell money and power. They move at snail’s pace in restructurings. They abhor getting their hands dirty through actual hard work. Complacency set in among bureaucrats after high-profile Finance Ministry official Byeon Yang-ho came under public fire for selling Korea Exchange Bank too cheaply to U.S. firm Lone Star Funds in 2003. Since then no one wants to take any risk in decision-making. They feign work. All they want to do is serve their terms and retire.
Then there are the labor unions, especially the powerful unions of major companies. They are the most resistant to any diminishment of their vested interests. The country’s three largest shipbuilders incurred combined losses of more than 8 trillion won ($6.6 billion) last year. Over 3,000 workers got the axe. Most were office workers. Companies dare not touch dockyard workers. Hyundai Motor’s union is equally notorious. It is most skilled in bargaining for higher salaries. Hyundai Motor workers are paid 97 million won on average, better than employees of Toyota. And the paycheck keeps getting fatter. Any belt tightening is felt by suppliers and subcontractors. Their workers earn 20 million won a year on average, and they must do the hard work. Hyundai Motor’s powerful union forces the company to give preference to the children of union members in hiring. It’s a hereditary profession at Hyundai Motor.
Finally, there are the chaebol. The bigger they are, the longer they hang on. The mess they leave is also greater. The repercussions not only knock out banks, but also burn retail investors and the entire economy. Tongyang and STX are recent examples. Among our 20 biggest conglomerates, four out of ten did not earn enough to pay the interest on their debt last year. But they still go on with business as usual.
So whom was Yoo addressing when he talked of reform? He may not have had specific target in mind. But he should aim at all of them.
JoongAng Ilbo, Jan. 14, Page 30
The author is an editorial writer of the JoongAng Ilbo.
by Yi Jung-jae