President-elect Park Geun-hye came up with various pledges during her campaign, one of the most controversial being economic democratization. This was a key phrase on which the ruling and opposition parties demonstrated a sharp conflict of opinion during the election campaign. She tabled the seemingly left-wing agenda item ahead of her competitor and set forth related pledges in order to gain the upper hand.
In Korea, economic democratization is commonly defined as the movement to dismantle the economic dictatorship and authoritarianism of family-run conglomerates, also known as chaebol. No one can deny that they are wrapping the Korean economy around their finger, accounting for over 80% of the combined gross sales of all Korean companies.
The President-elect’s intention is to impose regulations on them and give more opportunities to smaller, more vulnerable economic agents. The idea is based on Clause 2, Article 119 of the Constitution, which covers government regulations for balanced economic growth and income distribution. “I’ll make sure everyone in our society will enjoy the fruit of economic prosperity and no one is left behind,” she said at the very first press conference after her election, adding, “That’s the true meaning of national unity, economic democratization and a country good to live in.”
She has adhered unwaveringly to the pledge ever since, making chaebols jittery. She recently visited the Korea Federation of Small and Medium Business, the first economic organization she has visited as President-elect, and promised some policy measures in favor of small businesses, giving a hint as to the new administration’s overall economic policy.
Nub of Economic Democratization
At the center of economic democratization is chaebol reform. She stressed repeatedly during her election campaign that she would crack down on the illegal practices of conglomerates. In detail, she promised a ban on circular equity investment, along with cumulative and electronic voting and multiple derivative actions for the protection of minority shareholders. She also said that she would amend the law so that no stay of execution can be given to chaebol owners and their families engaged in criminal activities. Furthermore, she suggested a limited prerogative of mercy and the reduction of a financial or insurance company’s voting rights in a non-banking subsidiary from 15% to 5% in order to separate industrial and financial capital.
All of these policy measures share the same goal, that of corporate governance reform. Park has mentioned the strengthening of fair trade as a way to attain this. To this end, the Fair Trade Commission’s exclusive right to accuse is nullified, while companies that harm consumers are supposed to face greater liability for compensation for punitive damages and class action suits.
Some entrepreneurs are said to be concerned about Park, such a principled person, sticking to her pledge too seriously. The business community is therefore paying keen attention to her future policy stance in regards to economic democratization. Some have even gone so far as to set up task forces to cope with the issue.
Controversies Surrounding Economic Democratization and Revitalization
“Economic democratization is designed to prevent a certain group of people from dominating our economy and society,” said Kim Jong-in, head of the People’s Happiness Committee of the ruling New Frontier Party. Stressing the importance of timely policy implementation, he added, “Procrastination will result in chaebols’ strong opposition to make things harder.” Kim is one of the people who led Park to focus on the agenda.
However, it is still up in the air in regards to what pace she will take. Park and Kim have already had a conflict of opinions regarding the specific scope of economic democratization. Ruling party floor leader Lee Han-gu, an experienced economist, is also claiming that economic growth on an even playing field be put first. “It’s wrong to limit the concept of economic democratization to chaebol bashing. It is rather closer to fair economy and fair competition.”
“The effect of leaving the existing circular equity investment as it is and banning new such investment will be limited at best,” said an anonymous executive at a local securities company, adding, “In addition, she will have to slow down the policy, at least to some extent, if conglomerates continue to show a low profile amid the ongoing economic recession.”
In this vein, some experts are asking that the incoming government, in the interest of investment attraction, address any economic uncertainties that could be caused by economic democratization. “Economic democratization must come after considerable consideration regarding its impact on investment and job creation,” said Hwang In-hak, senior research analyst at the Korea Economic Research Institute. The same institute’s Macroeconomic Policy Division director, Byun Yang-kyu, echoed this, saying, “Removing policy uncertainties during the early days of the new administration and making room for investment will contribute to domestic market growth.”
“Timing matters when it comes to economic policy and it seems to me that 2013 will be a very tough time for the Korean economy,” said Kim Kwang-doo, chairman of the National Future Research Institute, “To provide against this situation, the new government would be well advised to prepare a revised supplementary budget of approximately 10 trillion won for economic stimulation.” The head of the think tank is one of the figures expected to be assigned to an import post in the new administration.
Direction of Economic Democratization
In the meantime, the Presidential transition committee, which was recently put into operation, appears to be focusing more on the livelihood of the public than chaebol control.
In fact, the President-elect herself has already mentioned that she will concentrate on economic reinvigoration for some time, not putting the cause aside. “I’ll put first the safety of the people and economic vitality as two of the most important aims,” she said at a recent general meeting of the transition committee. Her remark can be ascribed to signs of a further economic slump that have emerged since last year. A prolonged recession could impose a great burden on her government by exacerbating social tensions.
According to political experts, the new administration is likely to come up with temporary deregulation and investment attraction measures for economic recovery, while maintaining the stance of economic democratization. In this case, she may keep close relations with conglomerates for a certain period as she has to ask them for job creation and larger investment.
As a matter of fact, she watered down and shifted the focus from chaebol reform to fair competition during the final moments of the campaign, putting to the fore such promises as increasing the ratio of the middle class to over 70%. As a result, some people are predicting that policy measures not directly related to a person’s livelihood, e.g. a ban on new circular equity investment and separation between industrial and financial capital, will take a back seat to support for small businesses, job creation and the like for the time being.