Moon in the dark
The author is the chief editor of the JoongAng Ilbo.
When Israeli Prime Minister Benjamin Netanyahu visited South Korea in August 1997, the late Hyundai Motor Honorary Chairman Chung Se-yung asked what the government had done to transform Israel into such a high-tech nation. Netanyahu smiled and said, “This is a secret. Non-interference.” Chung chuckled, remembering that he had heard that South Korea could excel in chipmaking as there was no division in the Ministry of Industry covering semiconductors. Such talk underscores Korean entrepreneurs’ complaints about regulations by the government.
Semiconductors and motor vehicles have been sustaining both Korea Inc. and the Korean economy. But the outlooks for those industries have become murky. Under Hyundai Motor Group, Hyundai Motor and Kia Motors shipped more than 8 million cars across the globe in 2015. But their production has been cut in half as they struggle in the biggest markets: the United States and China. Samsung Electronics and SK Hynix still dominate the memory chip market, but face challenges from Chinese competitors.
Chung, who helped make Hyundai Motor a global brand, warned of Korea Inc.’s doom before the country went into crisis in late 1997. In an interview published on March 24 of that year, he said that the Korean economy could sink within the next three years if it did not make urgent corrections. First, he said, the government must remove all the unnecessary regulations chocking the corporate sector. Second, the complacent labor spirit should be addressed. Third, authorities must come up with financial measures such as interest rate cuts. Fourth, they must let the Korean currency better reflect market reality.
Frustrated by a foot-dragging government at the time, he met with a key aide of President Kim Young-sam to warn about the worsening economy. The official did not share Chung’s urgency. Eight months later, the government had to turn to an international bailout through the IMF.
The economy is still just as bad. The last time facilities’ investments slumped for six straight months was during the crisis of the late 1990s. Sharp increases in the minimum wage have killed jobs and dampened domestic demand. Exports have also become shaky due to unfavorable external environments from faster rises in U.S. interest rates and a slowdown in the Chinese economy. The government is right in its pursuit of so-called “inclusive growth,” but it makes little effort in deregulation and no attempt at reforming the labor market.
A senior government official said there was little opportunity to talk directly to the president for fear of irking his key aides in the Blue House. The president remains oblivious to the problems facing the corporate sector.
Labor reform is rarely mentioned by the Moon Jae-in administration. The Korean Confederation of Trade Unions (KCTU) is so proud of its role in helping Moon get elected that it even snubbed the president’s invitation to a dinner. It boycotts the Economic, Social and Labor Council ― a tripartite body for consultations among the government, employers and unions ― and threatened to launch a general strike on Nov. 21. Businessmen stay quiet so as not to invite more regulations and scrutiny from the pro-union administration. The former Hyundai Motor chair acted differently 20 years ago: when the unions went on strike on June 1, 1988, he announced that the company would close down its factories for six months. The unions began to shake a few weeks later. President Roh Tae-woo ordered the company to reopen the factories so as not to further provoke.
Chung regretted this as it only helped the unions get what they wanted. Wages increased by four to five times over the next 10 years, surpassing even those in the UK. When the unions waged a militant walkout in 1992, Chung stormed into the factory. He scolded the unions armed with steel pipes and demanded they remove a barricade. Though the workers were somewhat subdued by their hard-line boss, the deputy labor minister met with union representatives to make a deal against the company’s will. The government’s intervention ended up hampering an autonomous settlement of the labor dispute between the labor and management.
Chairman Chung was part of the first-generation of business leaders in Korea: they spoke their minds to the government. However, Chung was generous to suppliers, ordering that they not be addressed as “subcontractors,” but rather as “partners.” Few entrepreneurs demonstrate such boldness and generosity these days.
The Korean economy has grown since then, but the government’s capabilities remain the same. Unions are blocking an ambitious project in Gwangju in order to make more jobs at an affordable wage level. With the manufacturing sector shaken as it is, the economy is shrinking, sailing dangerously towards another typhoon. It is sad we have to borrow the wisdom of a late entrepreneur to warn ourselves of what will surely come.
JoongAng Ilbo, Nov. 5, Page 31