The Korea Times
amn_close.png
amn_bl.png
National
  • Politics
  • Foreign Affairs
  • Multicultural Community
  • Defense
  • Environment & Animals
  • Law & Crime
  • Society
  • Health & Science
amn_bl.png
Business
  • Tech
  • Bio
  • Companies
  • World Expo 2030
amn_bl.png
Finance
  • Companies
  • Economy
  • Markets
  • Cryptocurrency
amn_bl.png
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to the Editor
amn_bl.png
Lifestyle
  • Travel & Food
  • Trends
  • People & Events
  • Books
  • Around Town
  • Fortune Telling
amn_bl.png
Entertainment & Arts
  • K-pop
  • Films
  • Shows & Dramas
  • Music
  • Theater & Others
amn_bl.png
Sports
  • Hangzhou Asian Games
amn_bl.png
World
  • SCMP
  • Asia
amn_bl.png
Video
  • Korean Storytellers
  • POPKORN
  • Culture
  • People
  • News
amn_bl.png
Photos
  • Photo News
  • Darkroom
amn_NK.png amn_DR.png amn_LK.png amn_LE.png
  • bt_fb_on_2022.svgbt_fb_over_2022.svg
  • bt_twitter_on_2022.svgbt_twitter_over_2022.svg
  • bt_youtube_on_2022.svgbt_youtube_over_2022.svg
  • bt_instagram_on_2022.svgbt_instagram_over_2022.svg
The Korea Times
amn_close.png
amn_bl.png
National
  • Politics
  • Foreign Affairs
  • Multicultural Community
  • Defense
  • Environment & Animals
  • Law & Crime
  • Society
  • Health & Science
amn_bl.png
Business
  • Tech
  • Bio
  • Companies
  • World Expo 2030
amn_bl.png
Finance
  • Companies
  • Economy
  • Markets
  • Cryptocurrency
amn_bl.png
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to the Editor
amn_bl.png
Lifestyle
  • Travel & Food
  • Trends
  • People & Events
  • Books
  • Around Town
  • Fortune Telling
amn_bl.png
Entertainment & Arts
  • K-pop
  • Films
  • Shows & Dramas
  • Music
  • Theater & Others
amn_bl.png
Sports
  • Hangzhou Asian Games
amn_bl.png
World
  • SCMP
  • Asia
amn_bl.png
Video
  • Korean Storytellers
  • POPKORN
  • Culture
  • People
  • News
amn_bl.png
Photos
  • Photo News
  • Darkroom
amn_NK.png amn_DR.png amn_LK.png amn_LE.png
  • bt_fb_on_2022.svgbt_fb_over_2022.svg
  • bt_twitter_on_2022.svgbt_twitter_over_2022.svg
  • bt_youtube_on_2022.svgbt_youtube_over_2022.svg
  • bt_instagram_on_2022.svgbt_instagram_over_2022.svg
  • Login
  • Register
  • Login
  • Register
  • The Korea Times
  • search
  • all menu
  • Login
  • Subscribe
  • Photos
  • Video
  • World
  • Sports
  • Opinion
  • Entertainment & Art
  • Lifestyle
  • Finance
  • Business
  • National
  • North Korea
  • 1

    K-pop group Kingdom recalls album cover resembling Quran

  • 3

    BTS' Jungkook to drop 2nd solo single '3D'

  • 5

    S. Korea flexes military might in rare parade with US in central Seoul

  • 7

    4 in 10 Koreans experience overdue wages: survey

  • 9

    All BTS members renew contract with BigHit

  • 11

    K-pop fans rally in Seoul against luxury brands' failure on climate action

  • 13

    Deoksu Palace's reconstructed Dondeokjeon hall to open to public

  • 15

    Korean gov't faces international criticism for R&D budget cuts

  • 17

    Hyundai Steel decides to form steel pipe unit

  • 19

    SK earthon begins crude oil production in South China Sea

  • 2

    Actor Song Joong-ki still hungry for new movie roles

  • 4

    Tanghulu captures hearts of Korean millennials and Gen Z

  • 6

    Korea has world's highest senior poverty rate: data

  • 8

    PHOTOSHarvest season arrives

  • 10

    Korean tennis player Kwon Soon-woo eliminated in 2nd round at Hangzhou Asiad

  • 12

    Serial killer transferred to detention center in Seoul equipped with execution chamber

  • 14

    Over half of Koreans want continuous strengthening of alliance with US: poll

  • 16

    LG Uplus, Hanwha develop ceiling-mounted EV charging system

  • 18

    EXCLUSIVELawmakers to submit resolution urging China to free N. Korean escapees

  • 20

    Main opposition chief in showdown with prosecutors over arrest

Close scrollclosebutton

Close for 24 hours

Open
  • The Korea Times
  • search
  • all menu
  • Login
  • Subscribe
  • Photos
  • Video
  • World
  • Sports
  • Opinion
  • Entertainment & Art
  • Lifestyle
  • Finance
  • Business
  • National
  • North Korea
Opinion
  • Editorial
  • Columns
  • Thoughts of the Times
  • Cartoon
  • Today in History
  • Blogs
  • Tribune Service
  • Blondie & Garfield
  • Letter to the Editor
Wed, September 27, 2023 | 07:17
Guest Column
Failure of US 'economic democratization'
Posted : 2016-07-12 16:27
Updated : 2016-07-12 17:04
Print PreviewPrint Preview
Font Size UpFont Size Up
Font Size DownFont Size Down
  • facebook
  • twitter
  • kakaolink
  • whatsapp
  • reddit
  • mailto
  • link
By Shin Jang-sup

As Korea's National Assembly starts its new four-year term, opposing political parties are unanimous in arguing that social polarization is the most serious problem facing Korean society and suggesting "economic democratization" as its solution. In his opening speech of the Assembly last month, Kim Chong-in, the leader of the opposition Minjoo Party of Korea (MPK), claimed that the current Park Geun-hye government has abandoned its initial election promises to realize "economic democratization" and, to correct the situation, his party has submitted amendments to commercial law to achieve economic democratization. Chung Jin-suk, the floor leader of the incumbent Saenuri Party, while contending that there has been some progress in economic democratization in Korea since the Park government came to power in 2014, also emphasized the importance of furthering economic democratization as a solution to the "polarization of capital."

The term "democratization" is an appealing word to most of the populace. In fact, many believe that democratization is an ideal any society should pursue. However, the problem with "economic democratization" is that it is not clear what it actually means in running an economy or business in a capitalist country, what are the tools to achieve it, who are its eventual beneficiaries and so on. We are probably still encountering such clamors for economic democratization because of the ambiguity of the term when it is applied to actual policies even though the term has been used in policy discourse in Korea for quite a long while, and Korea actually underwent a major corporate restructuring in the name of "economic democratization" under the tutelage of the International Monetary Fund (IMF) after the foreign exchange crisis in 1997.

To make sense of the discourse of economic democratization, it is necessary to understand what really happened in the U.S. where the term originated and where it has been practiced longer than in Korea. In contrast to the situation in Korea where economic democratization contains anti-chaebol sentiment and presupposes that professional management is preferable to family management, economic democratization in the U.S. emerged as an antithesis of what people perceived as "autocratic professional management."

From the early 20th century, ownership of major U.S. companies became dispersed to minority shareholders and what business historian Alfred Chandler named "managerial capitalism" flourished. Professional managers focused their efforts on expanding their organizations. They were "organizational men" whose competency was vindicated by promotion within their company hierarchies. They were "corporate generals" who carried out the great strides of the U.S. economy in the middle of the 20th century.

However, they started facing increased criticism in the 1970s that they were over-diversifying their businesses just for the sake of growth at the expense of profits and shareholder interests. They were also accused of building their own "fiefdoms" inside corporations. Added to the negative perceptions of U.S. managerial capitalism was the fact that new competition ― especially from the Japanese and Germans ― was beginning to catch up. Many of them were also suffering economic problems due to the global recession and inflationary pressures caused by the two oil shocks. At the vanguard of criticizing U.S. public corporations were various shareholder activists, including labor activists, corporate raiders, most institutional investors, activist-oriented academics and lawyers. Despite their diverse backgrounds and motivations, they formed a common front against U.S. corporations under the banner of shareholder value.

The U.S. corporate sector consequently underwent a major restructuring process often by "hostile takeovers" in the 1980s. It is still controversial whether the restructuring actually helped strengthen the U.S.'s corporations or economy. It is not controversial, however, that the restructuring irreversibly changed the power relations between corporations and financial investors. Corporate managers accepted the maximizing shareholder value ideology as the new creed of managing corporations. Achieving and maintaining higher stock prices, rather than sales growth and expansion of businesses, became the primary objective of CEOs. Corporations thus carried out major cost-cutting measures through shedding workers, merging different operations, outsourcing manufacturing and services, moving production facilities to low-cost countries and so on. Even in Silicon Valley, it has become the preferred method to employ young foreign professionals who can work longer hours at a lower salary over continuing to employ experienced locals.

The collapse of the middle class and the emergence of the "1% versus 99%" framework in the U.S. had much to do with this restructuring process. The "Trump phenomenon" in which both blue-collar and white-collar workers are disenchanted with the current political establishment and instead supporting Donald Trump in the U.S. presidential race, is also grounded in the restructuring based on shareholder value ideology.

Those who advocate economic democratization in Korea tend to ignore this negative side of U.S. restructuring. Some even show a tendency to accept whatever happened in the U.S. as the "global standard" that other countries should follow. But an undeniable fact is that major beneficiaries of pursuing economic democratization through shareholder democracy in the U.S. were financial institutions and some corporate executives who were awarded with lucrative stock options. Most workers and ordinary people were marginalized. The end result was far from the ideals of democracy.

However, advocates of economic democratization in Korea are still proposing U.S.-style policies to strengthen the power of "minority shareholders" and making their "independent" agents participate more actively in corporate affairs. These attempts are highly likely to repeat U.S. failures. Financial investors would definitely benefit from it. Lawyers, accountants, scholars, retired public servants and even retired politicians will be beneficiaries because they are the ones who will be needed to fill those new posts in "independent" boards and various supervisory organizations. However, workers will lose out in the process of achieving short-term profit targets and maximizing shareholder value. Entrepreneurship is also likely to further decline.

Robert Monks, a leading shareholder activist in the U.S., even admitted in his later years that his activism went nowhere and said it might be better to have a corporate governance system run by strong owner-managers, like Warren Buffet's‎ Berkshire Hathaway, than one run by professional managers or heavily influenced by financial investors. There is no universally best corporate governance system. There are only alternative second-best or even third-best systems with their own pros and cons.

The main task of the Korean government is to find concrete ways to achieve equitable distribution while maintaining economic dynamism in the context of the Korean economy, rather than sticking to the ambiguous term of "economic democratization" and attempting to implant the failures of the U.S. in Korea without critical assessment.

Shin Jang-sup is an economics professor at National University of Singapore and former adviser to Korea's finance minister.

 
miguel
wooribank
Top 10 Stories
1S. Korea flexes military might in rare parade with US in central Seoul S. Korea flexes military might in rare parade with US in central Seoul
2Korea has world's highest senior poverty rate: data Korea has world's highest senior poverty rate: data
3For closer business ties between Korea, Vietnam For closer business ties between Korea, Vietnam
4Seoul Welcome Week to return for first time since pandemicSeoul Welcome Week to return for first time since pandemic
5Gov't to boost Korean language education for multiethnic students Gov't to boost Korean language education for multiethnic students
6[INTERVIEW] Wellington mayor's love for Korean culture spurs collaboration INTERVIEWWellington mayor's love for Korean culture spurs collaboration
7POSCO International to enter US grain market POSCO International to enter US grain market
8BOK warns of worsening household debt situation BOK warns of worsening household debt situation
9Late Samsung chairman's love of animals helps change Korea's pet culture Late Samsung chairman's love of animals helps change Korea's pet culture
10SK Telecom to triple AI investment over next 5 years SK Telecom to triple AI investment over next 5 years
Top 5 Entertainment News
1[INTERVIEW] ONEUS returns as 'mermaid prince' INTERVIEWONEUS returns as 'mermaid prince'
2Kep1er unveils 'Magic Hour' with fresh perspective on love Kep1er unveils 'Magic Hour' with fresh perspective on love
3Rwandan artists bring diversity to Seoul's art scene Rwandan artists bring diversity to Seoul's art scene
4K-pop group Kingdom recalls album cover resembling Quran K-pop group Kingdom recalls album cover resembling Quran
5BTS' Jungkook to drop 2nd solo single '3D' BTS' Jungkook to drop 2nd solo single '3D'
DARKROOM
  • Turkey-Syria earthquake

    Turkey-Syria earthquake

  • Nepal plane crash

    Nepal plane crash

  • Brazil capital uprising

    Brazil capital uprising

  • Happy New Year 2023

    Happy New Year 2023

  • World Cup 2022 Final - Argentina vs France

    World Cup 2022 Final - Argentina vs France

CEO & Publisher : Oh Young-jin
Digital News Email : webmaster@koreatimes.co.kr
Tel : 02-724-2114
Online newspaper registration No : 서울,아52844
Date of registration : 2020.02.05
Masthead : The Korea Times
Copyright © koreatimes.co.kr. All rights reserved.
  • About Us
  • Introduction
  • History
  • Contact Us
  • Products & Services
  • Subscribe
  • E-paper
  • RSS Service
  • Content Sales
  • Site Map
  • Policy
  • Code of Ethics
  • Ombudsman
  • Privacy Statement
  • Terms of Service
  • Copyright Policy
  • Family Site
  • Hankook Ilbo
  • Dongwha Group