(EDITORIAL from the Korea Times on July 4)

Too business-friendly
Where has Lee administration's market economy gone?

The package of incentives for corporate investment unveiled Thursday reflects how
badly the government needs businesses' help to revive the economy. It also
explains why President Lee Myung-bak, a former CEO himself, both begged and
pressed for more capital spending by companies, particularly by family-controlled
conglomerates, even citing their "social responsibility."
Seen by the contents of the package, the Lee administration seems fully qualified
to demand more investment from businesses: It will launch a 20 trillion-won fund
to help finance firms' investment into plants and equipment; will drastically
simplify cumbersome processes for startup businesses; and will provide the
biggest tax breaks for R&D investment among OECD countries.
These are not all. The government is even considering introducing the "poison
pill" to help local companies defend management control from hostile takeover
bids so that they can spend more of their reserve funds to build factories and
hire workers. Will the big business executives respond favorably to the appeals
from one of their former colleagues, who has met almost all of their demands ???
or even more than they asked for?
Unfortunately, the prospects are not that bright if past experience is any guide.
At the last similar meeting, the large enterprises said they would sharply
increase both investment and employment if the government accepted their
requests, which ranged from further deregulation to the rollover of matured bank
loans. The Federation of Korean Industries, a business lobbying group, however,
reported that new investment and employment by the 30 largest chaebol in the
first half of this year dropped 15.7 percent and 32.6 percent, respectively, from
a year ago.
In a way, the big businesses' reluctance to invest is natural, considering the
hardly improved global economic situation. The single biggest factor influencing
corporate decision for investment is profitability, not the government's tax,
administrative and even financial support. Major domestic businesses have already
accumulated hundreds of trillions of won as internal reserves, a hundred times
larger than their capital.
All these measures are coming on top of a series of deregulatory measures, which
sharply raised the ceiling for chaebol subsidiaries' equity investment and tore
down barriers separating industrial and financial capital, allowing conglomerates
to own banks. The introduction of poison pills, if realized, would highlight the
pro-business policy of the Lee administration, but hurt the president's market
economy principle by excessively protecting the existing large shareholders at
the expense of smaller shareholders and potential challengers. It also runs
counter to another government slogan of "global standards," as most U.S. and
European companies are rather reluctant to resort to the system as hindering fair
competition.
Unlike in the 1970s and 80s when the government could direct chaebol to do this
or that with carrots and sticks, there is little today's government can do to
make the outgrown conglomerates follow its words. It can only leave any decisions
to their "goodwill" or "conscience." Chaebol seem to have fully recovered from
their infamy as the main culprits of Korea's worst economic crisis only 12 years
ago.
Contrary to the government's wishes for the "trickle down" effect, the
concentration of resources on large companies can strain those for small- and
medium-sized enterprises and workers in this zero-sum economy, as shown by the
ongoing disputes on minimum wages and temporary workers.
Which is why the Lee administration should heed calls of global economic experts,
who stress enhancing support for smaller firms and workers as a means of escaping
global recession by helping them develop new technology and upgrade their skills.
(END)