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 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 situations. 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.