By Lee Kyung-sik
Publisher, The Korea Post
Which party will win in the 20th-term National Assembly general elections on April 13 next year and in the Presidential elections in December 2017?
The answer is whichever party can carry out the ‘economic democratization’ (reform of the Jaebeol business conglomerates).
What does ‘economic democratization’ means? It means drastic reduction of the income gaps between the haves and have-nots through reform of the Jaebeol big businesses and fair distribution of the fruits of the economic development and growth.
Executives at the Jaebeol business groups (such as Samsung, Hyundai, LG) receive an average of over 600 million won a year while the majority of working people like taxi drivers and employees at the small-medium enterprises (SMEs) and smaller subcontractor companies get only 18 million won. This means that Jaebeol executives get 33 times more than the amount the majority (95%) of the total working population do in Korea.
Korea used to have a broad middle class but it has collapsed in the past seven or eight years, especially since the inauguration of former President Lee Myung-bak in 2008, who used a ‘business-friendly’ policy which, in fact, however, turned out to be a pro-Jaebeol policy. It was implemented at the expense of the middle and lower strata of people. Lee enormously reduced the corporate tax of the Jaebeol business groups while increasing the income taxes on the ordinary wage earners.
The people lost love for Lee, and this was why all the Presidential candidates in 2012 chanted slogans vowing efforts to carry out the ‘economic democratization’ (Jaebeol reforms). However, as of today, nothing much has been done to realize the ‘economic democracy.’
Korea’s Middle class has collapsed
President Park Geun-hye has tried to do it as it was among the main election pledges, but not much has been accomplished to the chagrin of the havenots.
Normally, opposition politicians such as Chairman Moon Jae-in of the main opposition New Politics Alliance for Democracy (NPAD) and former Co-Chairman Ahn Cheol-soo of NPAD and Chairperson Shim Sang-jeong of the splinter moderate progressive Justice Party have been considered champions for the realization of the ‘economic democracy’ and for this they have had a considerable support from the people.
During the last Presidential elections in 2012, Ahn Cheol-soo won the first place in some public opinion surveys followed by the then ruling Saenuri Party Presidential Candidate Park Geun-hye and NPAD Presidential Candidate Moon Jae-in.
And for the materialization of the ‘economic democratization’ the people used to rely on the opposition candidates, especially Ahn Cheol-soo because he was a successful business CEO and an ‘elite’ political leader who would never become a so-called pro-North Korean, leftist politician while Moon and Shim were classified to belong to such an opposition group.
Opposition no longer only champion for Jaebeol reforms
However, the situation has changed.
Conservative political leaders have begun turning their attention to correcting the serious income disparity between the handful of haves and the vast majority of havenots.
They are reform-minded Chairman Kim Moo-sung of the ruling Saenuri Party, former Saenuri Party Floor Leader Yoo Seung-min and former Saenuri Party National Assemblywoman Lee Hye-hoon.
The reform-oriented conservative political leaders are obviously determined to correct the situation where Jaebeol and other well-to-do people are overly privileged at the expense of the collapsed middle class and the poor.
However, their ideology and efforts for reforms of the Jaebeol do not have the blessings of President Park Geun-hye and have consistently been the target of criticism by the so-called pro-Park Faction in the ruling Saenuri Party.
One example was the involuntary separation of former Floor Leader Yoo Seung-min who tried to keep the post but who, at length, had to give it up under mounting pressures brought to bear on him from the pro-Park Faction leaders of the ruling party.
At this juncture, former Saenui National Assemblywoman Lee Hye-hoon gave a piece of her mind in connection with the ‘economic democratization’ at a KBS Radio panel discussion on the evening of Sept. 17, 2015.
Named Gonggam Toron (literally, ‘feeling-sharing discussion’), the KBS panel discussion session also invited radio listeners to express their views, an approach for both the KBS and the people to listen to the voices of all strata of people on the current issues. Many people say that the KBS, which had formerly been considered a ‘mouthpiece’ or an organ of the government and the ruling camp, has substantially changed, and now broadcasts ‘without fear or favor.’ Excerpts from the statements of former National Assemblywoman Lee at the KBS radio discussion follow:
A Saenuri politician speaks up for the poor
KBS Officiator Kim Man-heum: What is your view of the economic policy of the government of President Park Geun-hye?
Answer by Mrs. Lee Hye-hoon: I would call it a pump-priming policy. It seems to be aimed at stimulating some areas of the economy. Especially from last year, extensive efforts are being made to stimulate the real-estate market.
Korea pursued a ‘fast economic development policy’ and in this process the fruits of the economic development and growth have not been distributed in a fair manner. There have been a lopsidedly benefited group and such benefits went to the group at the expense of other group.
There were some areas that needed a fast development and growth and at the same time there were areas which did not need such a fast development.
The government provided the fast-growth businesses with full support while it gave no such support to the other group. This situation has caused serious gaps between the government-supported priority business group (Jaebeol) and the non-priority businesses (SMEs).
In other words, the Jaebeol business groups have harvested enormous fruits of the economic development made thanks to the government support but these fruits have not been distributed fairly to the unprivileged group such as the SMEs and their sub-contractor companies who have supplied their products to the Jaebeol groups.
It is like a traditional Korean Ondol floor-heating system. The floor is heated by many lines of pipes under the floor and hot water from the boiler is circulated through these pipes. Now these pipes are clogged in places and the hot water does not circulate smoothly to all parts of the floor. So the hot water remains only in the vicinity of the boiler and does not evenly reach the broad space of the room.
The ‘economic democratization’ means removing what is clogging the pipes so that the hot water will flow smoothly to all parts of the room.
Clogged floor pipes hamper smooth heat flow
The government’s pump-priming policy is like continuously feeding fuel to the boiler, which only heats up the very small portion of the floor immediately connected to the boiler.
For the past eight years, the governments have been burning fuel in the boiler without repairing the blocked pipes with the result that the flooring paper near the boiler burns while most other parts of the floor are cold.
The purses of the middle class people and the commoners are empty and they cannot buy anything until and unless they have money in their purses. This situation causes stagnation in the domestic market.
To make the situation worse, the government is making the housing prices and rents soar high as it tries to stimulate the real estate market when the consumers do not have enough money even for their daily living due to the clogged heating system (mal-distribution of fruits of economic growth). The middle-class and common people just have no money to buy things, and this situation is deteriorating the domestic market.
(According to a report by an Internet daily, Chaebul Dotcom, on Jan. 18, 2015, the 30 largest Jaebeol business groups hire only five percent of the total working population of Korea and the rest (95%) of the workers are earning wages working at the SME and their contractor companies. In spite of this situation, the government is known to have concentrated on helping Jaebeol businesses as priority industries--Ed.)
Jaebeol hire only 5% and 95% work at SMEs
There is an index showing the return on sales. When the market is good, the return (profit) is good but if the market is slow the return is small. It is only natural that the return (income or profit) fluctuates depending on the market conditions. This is common in all countries of the world and it has been so in the past as well as at present.
However, there is a strange situation in Korea. At the Jaebeol groups when the market is good the ratio of the return on sales goes as high as up to 8.8% and then falls to 5.8% when the market is slow. The fluctuation takes place between the good and bad times of the market. So, the big businesses make good money when the market is good and less when the market is slow.
In contrast with this natural situation at Jaebeol, however, the return on sales at the SMEs and their subcontractor companies is fixed at 5.5% regardless of difference in the market conditions.
Why does this happen? And what does this mean?
It means that the Jaebeol business groups have taken all the profits from their business deal with the SMEs and have given the SMEs and their subcontractor companies just enough to eke out a scanty and difficult living, that is, just enough not to die.
Jaebeol steel new technologies from SMEs
And this kind of unfair practices of trade have taken place not just for one or two years but for a long. This is clearly told by the statistics that have never changed in all those years.
The statistics eloquently bespeak the possibility that the Jaebeol businesses must have put the SMEs and subcontractor businesses to an extremely difficult situation by unilaterally cutting down the prices of the products made and supplied by the SMEs and subcontractors to them. The Jaebeol businesses literally steel the technologies that the SMEs and smaller companies have developed, and perpetrated various other unfair practices against the SMEs and smaller companies who supplied products and services to them.
This situation must be corrected for the cause of justice.
Jaebeol businesses boast that they have successfully attained the export target of, say, US$300 billion. However, the fruits of such achievements are not distributed fairly to the employees or their SMEs or subcontractor companies.
The Korean economy must give benefit equally to all parties involved in achieving such export targets. Only this way, the whole floor of the room will be warm with the hot water running smoothly through all the pipes underneath the Ondol floor.
In the 1970s and 1980s (under Presidents Park Chung-hee and Chun Doo-hwan), when Korea achieved an average of 8% economic growth, the Jaebeol business groups got an 8% share of the growth and also the workers got 8%.
These days, however, when the economy grows by 4% the Jaebeol businesses get 16.4% but the SMEs only 2%. It bespeaks the imbalance that is one-sidedly in favor of the Jaebeol business groups at the expense of SMEs.
Why is this situation developing? It is because the Jaebeol businesses are run by one man, the chairman of the group. This situation has given rise to the recent struggle between the brothers of the Jaebeol tycoon. It comes from an emperor-like business management style at the big business groups.
At bad times, Jaebeol gains while SMEs lose
An end must be put to this situation where one man decides on everything in the management of such a big business organization where no one can say anything against the chairman.
This situation gives full justice to the public demand that reform must be carried out to change the management method at Jaebeol business groups.
At the time of the Presidential elections in 2012, there was a big difference between the opposition NPAD and the ruling Saenuri party.
The NPAD stressed the importance of reforming Jaebeol’s ownership and management structure.
In contrast, the ruling Saenuri Party proposed to improve the fair trade practices, which included fair treatment of the SMEs and subcontractors.
Since then, some related laws have been amended in favor of the reform proposals made by the ruling and opposition parties.
However, they are far from being effective in protecting the SMEs and subcontractor companies from the unfair trade practices by Jaebeol. They were by far too inadequate to stop the unfair practices of the Jaebeol in the awarding of business contracts evenly to all the SMEs. The Jaebeol businesses gave contracts only to those run by their offspring or those others they have chosen in an unfair manner.
What is the main cause of the recently aggravated imbalance of revenue between the haves and havenots?
Lee Myung-bak’s tax cuts for Jaebeol under fire
One of the main causes is former President Lee Myung-bak’s substantial reduction of the corporation tax in favor of the Jaebeol businesses. When the government started giving this enormous tax privilege to them the total amount of reserve fund that Jaebeol businesses had was about 200 trillion won. The big tax privilege was given to the Jaebeol businesses on condition that they would invest the accrued money in new businesses to create new jobs and increase employment.
However, the Jaebeol businesses did not invest the money in new business but accumulated the money in cash in their own safe. Thus the reserve cash of 200 trillion won in the hands of the Jaebeol businesses jumped by more than three folds.
So where did the Jaebeol businesses use the money? The tycoons used the money in businesses that resembled a high-interest money lending.
Appropriate steps should be taken to correct this situation.