[VIEWPOINT]Remove Obstacles to GlobalizationSince the 1990s, Germany has been engaged in discussion about favorable business conditions. The discussion began as foreign investment declined and German companies started looking to overseas markets with better business environments. Government regulations were unnecessarily rigid and tax rates as well as wages were too high. Furthermore, layoffs were too difficult, destabilizing the flexibility of the labor market. Civic movements to protect the environment and animals triggered the decline in business efficiency.
The current German administration has made improving efficiency a top priority. It has lowered tax rates by reforming the tax system, and labor unions have been weakened by the commission between labor, industry and the government. Civic movements were also integrated into the official system of policymaking by the government with the birth of a coalition between the Green Party and Social Democratic Party. Yet, despite these changes, the outcome is still unsatisfactory.
The standards of global competition for Germany and all members of the European Union and Organization for Economic Cooperation and Development are liberalization, deregulation and privatization. In other words, the three criteria establish suitable conditions for companies to operate effectively and later build a foundation to compete globally. This brings us to Korea, where, according to reports, business conditions are not good. Why?
First, various tight government regulations inhibit free enterprise. And some are even becoming stricter. Since the foreign exchange crisis, many Korean companies have suffered from the excessive regulations. Mandating a 200 percent debt-equity ratio, banning cross-affiliate investments and limiting any owner's stake in a company to 25 percent are some of the glaring examples.
Although these measures were suggested by the International Monetary Fund to build a sound foundation for the Korean economy, companies have been hampered by such restrictions. Unless the government loosens them to boost investment, Korea will escape the economic crisis later than sooner, and the people will have to bear most of the burden.
Second, labor unions in Korea are exerting more and more pressure, crippling the flexibility of the labor market. For example, unionists protest foreign investors who plan to take over and revive troubled firms. The tripartite commission between employees, employers and government should take a leading role to improve flexibility in the labor market.
Third, civic organizations, which are supposed to help build a healthy and rich society, are regulating the business activities of Korean companies unintentionally. It is rare in other countries for civic groups to participate in selecting outside directors, they usually do not ask for reform in ownership structures or demand the right for small shareholders in corporations to vote on management decisions. The introduction of class-action system will not only lead to an excessive number of legal cases to deal with but also deal a fatal blow to the credibility and reputation of companies in the marketplace.
If cumulative voting becomes mandatory and small shareholders are allowed to participate in directors' meetings and management decision making, the impact on corporate management would be fatal. Delaying the decision making process will negatively affect action and eventually threaten the survival of businesses.
Korea is recognized throughout Europe for having overcome its foreign exchange crisis very quickly and efficiently. Europeans also believed Korea was actively accomplishing the goal of globalization. Yet, many Europeans recently switched views, labeling Korea as inefficient due to delayed reforms. The government's mission should be establishing an environment in which companies can operate effectively. There is not shortcut for the Korean economy to make giant strides forward.
The writer is a professor of economics at the Free University of Berlin.
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