Further Deregulation Needed to Hone Competitiveness
It is fortunate that the nation’s antitrust watchdog has eased investment restrictions on familyowned conglomerates or chaebol. Announcing the list of business groups whose subordinates are subject to investment limits on Thursday, the Fair Trade Commission (FTC) reduced the number of the affected firms to 264 affiliates of the top 11 groups from the 343 companies of 14 groups.
Under the deregulation, conglomerates whose total assets are valued at 10 trillion won or more will have to abide by the investment limits. Chaebol with more than 6 trillion won are currently required to meet the regulation. The measure is expected to inject fresh air into the nation’s mammoth business concerns that have long been reluctant to increase their facility investment not only due to the cap but also because of economic and political uncertainty.
We welcome the two-stage deregulation measure designed to eventually reduce the cap to 27 subsidiaries of seven major conglomerates in July. The step reflects the chaebol’s constant demand that the government should lift investment restrictions that their owners claim serve as a serious barrier to their business activities. We hope the FTC action, though not completely scrapping the limits, will encourage the chaebol to contribute to the nation’s growth by investing more, especially as the economy is expected to slow down this year.
The investment limits on chaebol were introduced in 1987 as part of the nation’s efforts to prevent conglomerates from overextending their business by recklessly borrowing money from banks without heeding their financial soundness and profitability. During that time, the chaebol’s overextension and excessive indebtedness caused the economy to deepen its dependence on the small number of family-controlled business groups.
Authorities once scrapped the limits in 1998 right after South Korea was battered by the Asian-wide financial crisis. The government revived the investment restrictions in 2001 in a desperate move to avoid the repetition of mistakes committed by chaebol. Under the government’s deregulation program, the limits should have been lifted by the end of last year.
Now it is not too late for economic policymakers to get rid of the regulations as the country needs to help the nation’s top business groups emerge as world-class enterprises in this borderless era of competition and free trade. In particular, local conglomerates will have to sharpen their international competitiveness since Seoul and Washington struck a free trade agreement (FTA) early this month.