Moon or Ahn, chaebol reform inevitable
By Yoon Ja-young
With less than a month left until the May 9 presidential election, recent polls show that it will be a match-up between Moon Jae-in of the Democratic Party of Korea and Ahn Cheol-soo of the People’s Party.
The two candidates, once members of the same party, have common points as well as differences in the economic policies they promise to take.
With either Moon or Ahn, the country’s conglomerates aren’t likely to avoid reform as both of them have included chaebol reform as parts of their key agendas.
“The chaebol-led economic system has become a stumbling block for economic growth, weakening the competitiveness of the chaebol themselves. Severing corrupt ties and getting rid of long-standing evils is essential to revitalize the economy,” Moon said.
He is suggesting reforming their governance structure and enhancing transparency as top priorities to set up a fair market system. More concretely, he has pledged a revision of the Commercial Law. This includes obligating businesses to introduce electronic voting systems, and restricting large shareholders’ rights when selecting an auditor. He also plans to allow workers to participate in management by letting them recommend a board member.
While Moon is focused on reforming the structure of the chaebol, Ahn seems to be concentrated on fixing their unfair activities. He has that the Fair Trade Commission (FTC), which regulates unfair business practices, should have more power and independence.
“The biggest challenge is to root out the corrupt ties between politics and businesses,” Ahn said. “A fair market begins with the FTC doing its job. It should enjoy independence from the administration and have more power.”
Ahn has also taken issue with the country’s National Pension Fund, which is a major shareholder in the country’s top conglomerates. While the pension fund is facing criticism that it approved a merger between two Samsung affiliates to help a power transition within the owner family following the political corruption scandal that led to impeachment of former President Park Geun-hye, Ahn says it should more actively exercise its right as a shareholder.
Both of them also made it clear that there will be no leniency for major economic crimes committed by tycoons.
How to create jobs
Job creation is also among the top priorities of the two candidates, but they slightly differ regarding “how.”
Moon plans to create jobs in the public sector. He notes that the country’s public sector shoulders only 7.6 percent of job creation, which is just a third of the average 21.3 percent of the Organization for Economic Cooperation and Development (OECD) member countries. By raising the ratio by 3 percentage points, he expects to create 810,000 jobs. Including this, he has pledged to create 1.31 million jobs during his term.
While most agree that more jobs should be created in the public sector, critics, including Ahn, say that this will be costly. Moon says it will take 21 trillion won to fulfill this pledge.
“It isn’t right to directly pour in tax to overcome the shortage of jobs. It should be the role of the government and the politicians to set up a foundation for economic growth and help businesses and the private sector create jobs,” said Ahn who is wooing conservative voters.
He also stressed job creation for young people. These will be temporarily guaranteed employment for five years, and those getting jobs at small enterprises will be guaranteed 80 percent of the wages they would get at conglomerates. Ahn said 500,000 jobs will be created for young people at a cost of 3 trillion won.
Amid snowballing social welfare spending, experts have pointed out that a tax hike is inevitable. The former Lee Myung-bak administration slashed corporate tax rate to 22 percent from 25 percent in 2009. Both Moon and Ahn, however, are cautious about raising the corporate tax rate again. They say that they would focus on raising an effective tax rate first by decreasing tax exemptions or tax cuts. The corporate tax rate hike should only come after.
Regarding income tax and inheritance tax, however, Moon said the tax rate should be raised for high income earners while Ahn is reserved about the issue.
Ahn is a successful entrepreneur himself, who has vowed to scrap the antagonism against enterprises.
“Companies underpin growth of the country while creating jobs,” he said. “It is understandable for people to have negative sentiment against a few unscrupulous businesspeople, who are corrupt or have committed wrongdoings.”
“I will strengthen punishment on them. But most businesspeople deserve respect. I will do away with the unnecessary antagonism against businesses.”