[Opinion] Improvement of Regulations For Long-Term Development Is Urgent

The vitality of the domestic business has been rapidly declining since this year.

Moreover, the advancement of the foreign companies into South Korea, which was active with the low-evaluation of the domestic assets, has declined. Of course, this can be thought of as temporary phenomena due to the stagnation of the world economy, which is continuing more rapidly than expected. However, according to the analysis on the business condition in each nation by a prestigious economic magazine Forbes, it does not seem to be temporary phenomena in South Korea.

Considering the business condition, such as initial expenses and the level of easiness in approaching to capital markets, the Forbes ranked South Korea as 18th, which is lower than Taiwan, Malaysia, and China, out of 25 countries. Especially, the U.S.` Heritage Foundation and the Keito Research Institute ranked South Korea as 43rd out of 123 countries in terms of the level of the freedom of economy without regulations. Having considered the perspectives of foreign institutes, it seems that the recent phenomena of lack of investment cannot be easily improved due to the heavy regulations. Despite the efforts of domestic economy to move toward the market economy system since the foreign exchange crisis, the domestic business enterprises are unable to break away from the triple regulations.

Let’s take a look at the reality of South Korea, which became a pavilion of various regulations. First of all, the frame of the regulation on market subordination, which was introduced during the development economy period, still exists. The government has tried hard to ease the administrative regulations in terms of the reform at the government level for the last three years. As a result, many regulations have been abolished or eased in each field. However, the core regulations still exist. It may not be necessary to quote the evaluation of the OECD, which said `the effect is skeptical because it has focused on the achievement of the short-term numerical goal` regarding the regulation reform of South Korea, because the administrative organization, which becomes enlarged instead of being reduced, is indicative of the existence of the core regulations.Moreover, regulations, which were introduced to constrain the concentration of economic power in the past, still exist. The system of designation of 30 affiliated companies, which is the only system on earth, still exists. Since the restriction on conglomerates` equity in subsidiaries, which was abolished along with the introduction of M & M, has been revived, the domestic conglomerates are under the reverse discrimination in comparison with foreign companies.

As the excessive loaning managements of the domestic companies were pointed as the cause of foreign exchange crisis, various regulations, which directly control the financial affairs of companies, have been introduced since 1998. For example, the regulation on the even debt rate without considering the specificity of each type of business, and the regulation on the loaning of the local finance from the local foundations in overseas are the representative cases. Because of these regulations, most of the dated businesses have to reduce the amount of loan and cannot imagine the expansion of investment on the profitable growing businesses of the future.

Since the IMF management system, the government has enforced the regulation on the rate of equity capital based on the BIS standard to settle the global standard, which is the foundation of the market economy system, and the government introduced the system of the board of directors (from outside the company). The government plans to enforce the group lawsuit system following the obligation of writing the combined financial statements.

The domestic economy is in the middle of hardship due to the recurrence of the lack in the economic confidence. This is so, without doubt, because the domestic companies and financial organizations could not quickly adjust to the new regulations. For example, local medium- and small-sized companies, which are having difficulties to adjust to the international standards, are such cases. As the standard of evaluation on the financial organizations became higher, these companies were excluded from the outside finance. The local economy cannot but deteriorate.

The group lawsuit system, which intends to guarantee the transparent management of the conglomerates, seems to bring about the negative side effects instead of positive effects, which were expected when the system of the finance by one’s own name was introduced. If this system is enforced when the strict control and expertise are lacking in terms of the object and condition of lawsuit and the estimation of compensation, the companies will not be able to pursue the future oriented management due to the risk of dishonor following the lawsuit. Because of this reason, this system is being ignored by the global community with exception to Mexico, Chile, Russia and the U.S.

In conclusion, various regulations, which were the bases of the planned economy period in the past, and the British and U.S.` style of market regulations are co-existing. Because of this reality, vision of future is more confusing and the consistency in the economic and social policy is shaking. It is a wish that South Korea clears itself from a bad reputation as a country in which business conditions are worse than the socialist countries by improving various regulations during the latter half of the year, while building a foundation for the long term development of the domestic economy.

Jung Moon-Gun (Samsung Economy Research Institute)