Fears over big business bashing

Economic democratization as stipulated by the Constitution, is the first thing to be mentioned to resolve Korea`s widening income disparity and ensure sustainable development. This is a legal justification for government intervention aimed at minimizing market failure and correction of market unfairness in which the strong reigns over the weak. What is worrisome, however, is that politicians are vying to bash big business in their attempts to win votes by provoking the public ahead of the December presidential election. Such an approach deviates from the essence of economic democratization and could cause side effects in the national economy.

People live on the fruits of economic growth. If actions toward economic democratization are focused solely on bashing big business, the economy will be negatively affected and leave the people worse off. If large corporations that create quality jobs collapse, this will devastate the incomes of workers and the livelihood of small merchants and businesses who depend on consumption by wage earners. The Korean economy quickly recovered from the global economic crisis and the country’s sovereign rating was made higher than Japan`s because large companies performed well amid fierce international competition and their solid credibility.

Ahn Cheol-soo, an independent presidential candidate, pledged Friday to set up a presidential committee on reforming Korea’s family-controlled conglomerates. Moon Jae-in, the presidential candidate of the main opposition Democratic United Party, also announced a reform proposal for conglomerates of banning subsidiaries from making new cross-unity equity investments and requiring them to undo existing cross-subsidiary shareholdings within three years. Park Geun-hye, the presidential contender of the ruling Saenuri Party, is also considering reforming the governing structures of large corporations by cracking down on unfair business practices and banning new cross-unity equity investments. Kim Moo-sung, who heads Park’s campaign committee, went as far as proposing a wealth tax.

All three candidates want to ban cross-subsidiary shareholdings, which are allowed in Japan and European countries including France and Germany. If large corporations want to remove such holdings, they have to spend billions of dollars. In that case, investment and job creation would have to be put on the back burner. In France and other European nations, the wealth tax is being debated because it could drive out capital and labor through heavy taxes on hard earned money. Ahn’s envisioned conglomerate reform committee is worrisome because it could cause confusion in the government and the market since the Fair Trade Commission is supposed to be the watchdog of big business groups.

Discussion of economic democratization should be expanded. Preventing unions from blocking young people from entering the job market is also part of economic democratization, as is protecting the market economy and jobs from the unjust arrogance of bureaucrats.

Raphael Amit, a professor of entrepreneurship and management at the Wharton School of the University of Pennsylvania, recently wrote in his column “Korea`s Costly War on Conglomerates” carried by the Wall Street Journal that such a populist movement “would have precisely the opposite effect.” Moves are “threatening to kill the goose that continues to lay South Korea`s golden eggs,” he said. The three presidential candidates should heed his words as a warning that their attempts to garner votes should not undermine the economy.