Public corporations need a turnaround

Hong Ki-yong
The author is a professor of business administration at Incheon National University and president of the Korean Taxpayers Union.

The Moon Jae-in administration has come under fire for overexpanding public corporations and agencies over the last five years. As they became oversized, their debt also increased and their wages have come to exceed the levels of employees of big companies in the private sector. They require a fix as their poor management could translate into a burden for taxpayers.

The number of public enterprises rose 18 to 350 over the five years of the Moon administration, which started in May 2017. Their debt increased by an average of 18 trillion won ($14.4 billion) each year, or 89.8 trillion won over five years, to reach 583 trillion won at the end of 2021. Of total liabilities, 434 trillion won was owed by 36 state companies, far exceeding this year’s tax-based budget of 343 trillion won. The public companies that delivered a combined net profit of 4.3 trillion won in 2017 incurred a combined net loss of 1.8 trillion won in 2021.

The past administration created the category of social value contribution when it appraised their performance and gave it the highest scores. Instead of profitability, the public companies were evaluated by job additions, contribution to fair opportunities and social integration, regional balance and ethical management. The non-business criteria have worsened the financial performances of public enterprises.

The policy to convert irregular workers to permanent status under the past administration increased the number of employees at pubic organizations to 440,000, up from 100,000, as of 2021. Labor costs naturally went up. The annual pay of permanent employees of 350 public corporations and organizations averaged 69.8 million won, doubling the average salary of 31 million won for small and medium companies and also exceeding the 63.5-billion-won average of executive payrolls at large companies in the private sector.

The Yoon Suk-yeol administration that began in May promised to provide quality public sector services through reform as one of its 110 agenda items. It vowed to rationalize the public sector, enhance financial integrity and strengthen sovereign and responsible management capabilities. To do so, the cause of deterioration in management must be identified to come up with a reasonable solution.

Performance by public organizations is directly linked to government policies. Due to unrealistic energy policies to phase out nuclear reactors and freeze electricity bills under the past government, the Korea Electric Power Corp. and other state utility companies have run up massive losses. In contrast, the government’s repeated failures in real estate policy which spiked prices have delivered massive profits for the Korea Land and Housing Corp.

On top of unreasonable government policies, irrelevant appointments by placing politicians or other figures at the top or in executive posts also worsened the financial condition of public enterprises. These problems must be addressed to rationalize management of public enterprises.

Each administration employs public corporations for its own needs. To rationalize management in the long term, sale of government stakes to the private sector needs to be studied.

The Privatization Act enacted in 1997 under the recommendation of the International Monetary Fund in exchange for an international bailout has rarely been employed. The liberal front is even demanding a law that bans privatization of public enterprises.

Public corporations must be turned around. The last government worsened the management of public entities to serve its own needs. The new conservative administration has promised private-led economic growth. Market principles should be applied to public enterprises too.

For sustainability, public corporations must have greater sovereignty. They must be efficient aside from contributing to social values.