Lessons from JapanThe ongoing discussions over restructuring the ailing shipping and shipbuilding sectors are evoking scant sympathy or support from the public. They cannot understand why public funds should automatically be used whenever self-serving companies in challenged industries run into trouble. The chaebol owners and mighty unions keep their astronomical profits to themselves during their heyday but turn to the treasury whenever they find themselves sinking under losses.
The shipping and shipbuilding sectors are regulars in the emergency room. Its companies have received injections of life-saving public funds four times since the mid-1980s.
Some 7 trillion won ($6 billion) to 10 trillion won will be needed to clean up their debt, and the bailout could take place once again without a fundamental fix to their money-losing ways.
So-called big deals to merge companies in industries with overcapacity or cut overpaid union ranks won’t happen out of fear of political risk. The government and creditors will merely keep the companies on lifelines and hope for a rebound in the global economy to pull them out of their ocean of red ink.
This is not restructuring — it is a band-aid when amputations are called for.
President Park Geun-hye seems to be misunderstanding the situation entirely. In theory, the president is partly responsible for the state-run Korea Development Bank’s mismanagement and poor oversight over Daewoo Shipbuilding & Marine Engineering.
But instead of apologizing for squandering taxpayer money, she brought up the idea of having the central bank print more money to raise funds for corporate restructurings.
President Park should have studied Japan, particularly the reform drives led by two former prime ministers: Yasuhiro Nakasone, who pushed through administrative reforms and privatization of state enterprises, and Yukio Hatoyama, who allowed Japan Airlines (JAL) to file for bankruptcy. The reforms were all complex and difficult, as they involved infamously rigid bureaucrats, farmers and unions. Instead of spearheading the reforms, the prime minister recruited experts from outside to do the job.
Nakasone chose Toshiwo Doko as his point man for administrative and public finance reform. Doko, already in his 80s, had served as president of Toshiba and chairman of the Japan Business Federation. He was highly respected by Japanese society for donating all of his income to charity and retiring modestly.
When his agenda to reform the government’s rice procurement program met strong protest from farmers, Nakasone pleaded with him to reconsider in fear of losing an upcoming parliamentary election.
Doko instead vehemently handed in his resignation and stormed out. Nakasone had to get on his knees to beg him to return. The scene was televised live.
The government and farmers later reached an agreement to freeze the price for state rice purchases that year, and the ruling party won the election by a landslide.
The job to reform JAL landed on the lap of Kazuo Inamori, founder of Kyocera, in 2010. The prime minister personally flew to his home in Kyoto to ask the telecommunication and electronics titan to revive the troubled Japanese flag carrier. JAL was saddled with debt and losses of over 1 trillion won ($856 million) at the time and was facing delisting and bankruptcy.
Inamori accepted the job on the condition that nobody got in his way and that he wouldn’t receive a dime in salary. JAL was a heaven for unions. Eight unions were active in the company and treated former bureaucrats-turned-CEOs as their puppets. Inamori reduced unionized pilots’ pensions by 30 percent, cut staff by 10,000 and shut down 30 percent of workplaces.
Inamori went so far as to close 45 money-losing domestic and overseas routes. Lawmakers couldn’t protest even as air routes to their constituencies were canceled. In just three years, Inamori turned the airline around and relisted it. After he saw the airline was safe for liftoff, he left the company, saying in his farewell speech there was always a way when one confronts the essence of a problem.
Both Doko and Inamori were parachute appointments handpicked by the government for restructuring. Doko was a businessman without any experience and knowledge in public administration and finance. Inamori likewise was inexperienced in aviation management.
But they rebuilt companies excellently. The right people can make a corporate restructuring work. We’d like to see our president seek out and bow her head before an expert. That is the only way to persuade the unions and taxpayers. If necessary, she could even bring in someone from abroad.
JoongAng Ilbo, May 9, Page 30