[Editorial] Reform of State-owned Firms

Under the leadership of Roh Moo-hyun, net income decreased while debt and staff increased in Korea’s state-run organizations. According to ALIO, a management information system run by the Ministry of Strategy and Finance, 24 state-owned firms, 77 quasi-government agencies and other 201 government agencies are in poor financial conditions.

Net income of 302 state-run organizations decreased a whopping 45 percent from 31.1 trillion won in 2003 to 17.4 trillion won in 2007. On the other hand, their debt increased 31 trillion won from 245 trillion won to 276 trillion won over the same period. Notably, the number of their staff increased 66,000, or 7.7 percent per year, from 193,000 to 259,000 over five years. The former government recruited 10,000 more staffs in 2007 alone. Even though 30 percent of them are suffering from chronic deficits, staff of the state-run organizations are presented with higher wages than their counterparts at the nation’s largest electronics maker Samsung Electronics. At state-run organizations, no one assumes responsibility for their poor management but takes as much as possible, even when they have to borrow money from financial institutions.

It would ring hollow if the government argues that it would boost the economy without reforming state-run organizations, which account for 10 percent of the nation’s gross domestic product. No nation has successfully revived its economy without reforming an inefficient public sector. Former British Prime Minister Margaret Thatcher successfully cured “English disease” by cutting the number of public servants from 730,000 to 560,000 and privatizing 48 state-owned firms. Former Japanese Prime Minister Junichiro Koizumi decreased the nation’s budget spending by 1.5 trillion yen by abolishing, privatizing, or spinning off 136 out of 163 state-run firms.

Seo Sa-hyeon, who once worked for the government and has worked as CEO of Powercomm and the Small Business Distribution Center, told about his experience at the government, saying, “Workers kept corporate financial performance a secret without even knowing how much deficit they had. Workers at state-run organizations strongly believed that their jobs would never be taken.

Doosan Heavy Industries & Construction earned 300 billion won of net income in six years since it was privatized from the Korea Heavy Industries and Construction, which had been long considered as a prime example of poorly managed state-run firm. The case proves the effectiveness of privatization.

Oh Yeon-cheon, a professor at Graduate School of Public Administration at Seoul National University, said, “Whenever a new government took to the power, it declared that it would privatize state-run firms, only in vain. That’s because every new government recognized that it was not easy to give up the money coming from state-run firms.” Korea Development Institute President Hyun Jung-taik stressed, “The government can succeed only when it strongly pushes for privatization in an early stage.” Which direction will the Lee Myung-bak administration take?