Ahn’s golden chanceAhn Cheol-soo, head of the splinter People’s Party, would benefit more than Kim Chong-in, head of the main liberal Minjoo Party of Korea, and even President Park Geun-hye should Korea succeed in cleaning up ailing companies through a sweeping corporate restructuring drive. If he is really confident of his chance at becoming the next president, he should be outspoken and aggressive to see the agenda through. Ahn must make sure the current government completes the restructuring before Park’s term ends in February 2018. Why is that?
“Kill with a borrowed sword” — or use the strength of another to win a battle — is an ancient Chinese war strategy. Corporate restructuring can be arduous and gut-wrenching. Conservative governments put it off for eight years.
Even suggesting widespread restructuring can ignite immediate agitation. Mass layoffs lead to social unrest. The economy will temporarily recede. The more it is delayed, the greater the pain.
The economy has arrived at a point where it can no longer afford a delay. Restructuring is enormously unpopular. The government must brace for protests. It may have to stake its very control of the central government. The job has been dumped on the incumbent government with just 19 months left in office. If it succeeds, Ahn would not have to get his hands dirty.
Democratic candidate Bill Clinton won the 1992 U.S. presidential election against incumbent President George H.W. Bush with the campaign slogan, “It’s the economy, stupid.” Although tarnished by an infamous sex scandal, Clinton remained popular through his two terms. The U.S. economy fared well during his eight years in office.
Clinton was fortunate to be in the White House when U.S. productivity levels jumped during the boom years of the IT sector and in the wake of actions taken by the administration of Ronald Reagan, who carried out tax cuts and streamlined the public sector through privatization.
Reagan was strict on illegal strikes. When a union of flight controllers went on strike in 1981, his government fired over 10,000 staffers and prevented them from returning to public office. There are still disputes about Reaganomics, but many agree that his pursuit of stringent cost-cutting helped revive the U.S. economy down the road, though it was Clinton who enjoyed the benefits.
If the incumbent president carries out restructuring, an incoming president will benefit from a so-called big bath effect. A big bath is an accounting technique to lower earnings by one-time charges through asset reductions and write-offs or reflection of losses in a single year to improve future performance. It is often employed by a new CEO to transfer the blame for poor performance to his or her predecessor.
A big bath could be a useful strategy in our country, where prosecutors’ political penchants shift with whomever is in power. Daewoo Shipbuilding & Marine Engineering CEO Jung Sung-leep unearthed losses at the shipbuilder under his predecessor and reported a deficit of over 5 trillion won ($4 billion) in last year’s earnings. Otherwise, all the blame for the troubles of the shipbuilder could have been laid at the feet of the current CEO.
Ahn must prove that he is the most eligible expert on restructuring. He criticized the president for being ignorant in economic affairs. Kim Chong-in, an economist-turned-politician, challenged his younger rival, saying a doctor who became an entrepreneur through the creation of an antivirus software program cannot claim to be an expert on the economy. From their own appraisals, Kim theoretically is the most knowledgeable in economic affairs, followed by Ahn and President Park.
It would foolish of Ahn to miss out on a chance to volunteer his efforts on the restructuring front. There could be many ways if he uses his imagination. He could take command through a three-party council or make a deal with the president and act as her Cabinet head to spearhead restructuring. That way, he can prove his critic Kim wrong and demonstrate his administrative leadership skills.
Little gain will come to himself and the country if he merely makes textbook comments on the sidelines. Even if he does not complete the mission, he would at least score points for trying. He would have nothing to lose.
A big bath would be a huge relief for a new government. Once the messes are cleaned up, the economy can strengthen during the next government. If they are carried into the next government, it would have to battle with layoffs, protests and social unrest, and fret over the economy throughout its term.
Whoever wishes to become the next president, he or she must take up a challenging restructuring agenda. Ahn leading the polls is the best candidate.
JoongAng Ilbo, May 5, Page 26
*The author is an editorial writer for the JoongAng Ilbo.