Avoiding a capital strike

In 2006 under the administration of liberal President Roh Moo-hyun, Lee Soo-young, then chairman of the Korea Employers’ Federation (KEF), made a comment implying the threat of a capital strike. “If labor-related rules and laws tilt too much in favor of the unions, enterprises too can go on strike,” he said. A corporate strike won’t be a physical demonstration on the streets, but would be in the form of quietly taking business out of the country. Because of the silent ongoing corporate strike, companies are investing and hiring less, which explains the increase in jobless people, he explained. He was speaking on behalf of companies as various bills that could make business harder headed to the National Assembly. His comments sparked both criticism and cheers. Some were sympathetic while others scorned enterprises for threatening to abandon their home country.

Eleven years later, under another liberal President Moon Jae-in, the burden on corporations is again growing with a double-digit rise in minimum wage and a hike in the maximum corporate tax rate. The Korea Automobile Manufacturers Association (KAMA), which represents the country’s five automakers, recently issued a statement warning that they could move their manufacturing bases overseas if labor strife and burden increases. The statement came ahead of a court ruling on a lawsuit by employees of Kia Motors demanding what they claim as overdue wages by counting bonuses and other incentives as base salary. If Kia loses the court battle, it would have to pay around 3 trillion won ($2.6 billion). Textile makers Kyungbang and Chonbang are reportedly considering closing factories here and moving to other countries because of higher labor costs.

The pressure does not end with the laws. Companies are being pushed to share profits with partner subcontractors and suppliers, increase jobs and place irregular workers on the permanent payroll. Kim Sang-jo, chief of the Fair Trade Commission, has been emphasizing that these things are “voluntary,” which is more or less a verbal warning.

Entrepreneurs do not wear banners and shout on the streets to protest. The KAMA statement or a corporate chief suggesting to leave the country in an interview would be mildly frank. Companies that do business globally must consider labor costs, market accessibility and business regulations to find the best place to produce and sell their goods. As the former KEF chairman said, companies silently and discreetly adjust manufacturing share and profits. Samsung and Hyundai Motor have been increasing their share of overseas production and sales.

What we should fear more is this form of silent capital strike. The only hope is patriotic sentiment in entrepreneurs. Korean companies will likely tolerate tax and labor burdens as much as possible and cooperate more with partner companies to help improve their business environment. They cannot ignore their home turf. But foreign entities are different. They won’t be as sentimental when considering investment in Korea.

Kim Hyun-chul, presidential aide on economic affairs, in an interview sounded confident about the new administration’s experimental economic policy of generating growth through increased income and jobs. He said what is needed today is the courage to change the economic paradigm. But too much boldness could be reckless. It is true that there should not be liberals or conservatives on the issue of making lives better for the ordinary people. President Moon aspires to improve the livelihoods of the broader population through growth in income, jobs, balance, and innovation.

Next month, the government will announce a strategy to promote innovation for growth at the supply end. For Moon’s economic policy to work, the four growth engines must be expedited in balance. Innovation strategy must be considered as important as the policy to increase income. During the drive, the government must check whether all engines are running well. They must use their bureaucratic expertise and experience to keep the silent capital strike from proliferating.

JoongAng Ilbo, Aug. 17, Page 28

*The author is an editorial writer of the JoongAng Ilbo.

Suh Kyoung-ho