With the upcoming general election scheduled for April 11, each political party is clamoring for economic democratization. The ruling New Frontier Party (NFP) held a national committee meeting on February 13 to announce its new policy planks stipulating the notion. Park Geun-hye, who is heading its emergency measure committee, said two days later during a radio address, “My party will realize a democratic market economy by establishing a fair market order.”
The Democratic United Party (DUP), which launched its Special Committee for Economic Democratization (SCED) in July 2011, also presented new policy resolutions. The very first article of the party platform is about none other than democratic economic growth. Representative Han Myung-sook asserted in her national press conference on February 15 that the incumbent administration was utterly failing at the most urgent goal. Economic democratization is emerging as a definite hot-button issue in the political arena ahead of the election.
The term is found in Clause 2, Article 119 of the Constitution of the Republic of Korea. It reads, “The State may regulate and coordinate economic affairs in order to maintain the balanced growth and stability of the national economy, to ensure proper distribution of income, to prevent market domination and the abuse of economic power, and to democratize the economy through harmony among economic agents.” The DUP chief also cited this clause at the news conference.
Still, it is tricky to give a clear definition to the term. Most constitutional scholars and economists agree that it is an abstract and ambiguous concept. They have pointed out that the provision, added during the ninth constitutional reform in 1987, could be ideologically biased or justify government regulations in the sphere of economy. “Even economists have failed to reach a consensus as to what is the most appropriate and desirable form of income distribution,” commented professor Jeong Ki-hwa at the College of Business Administration of Chonnam National University. Then, what does the word mean for political circles?
According to the SCED, it is a way of achieving economic equality to the maximum extent possible without harming the efficiency and dynamism of the market economy and the economic freedom forming its foundation. The NFP interprets it as the enhancement of government functions in order to maximize market economic efficiency and ensure a fair and transparent market. While both sound quite plausible, the ambiguity does not go away.
Large Enterprises Nagged by Ruling and Opposition Blocs
One thing both the ruling and opposition parties have in common is that they are targeting conglomerates, or chaebols, to achieve the democratization of economy. More specifically, the DUP is going for conglomerate reform, while the NFP pursues the abolition of practices in favor of them. The Unified Progressive Party (UPP) is so drastic as to claim they be disbanded.
Representative Han Myung-sook declared that she and her party, once in power, would look at chaebol reform so as to redress social polarization and attain market democratization. “We’re intending to revive the equity investment ceiling system, review the national list of business items reserved for small and mid-size firms and eradicate chaebol’s preferential treatment of subsidiaries,” she said. The NFP leader has also stated, “Some large corporations tend to seek excessive profits by favoring their own affiliates while encroaching upon smaller companies, and there is no doubt that such problems need to be tackled immediately.” Simply put, they are claiming that the current government has failed to abide by the Constitution’s command and that they will correct things to comply with it.
Here, we need to find out if the economic democratization clause in the supreme law is a hard-and-fast rule. Economy-related provisions of the nation’s Constitution are found between Articles 119 and 127 under the heading of “Chapter IX. The Economy,” called “Economic Constitution” by jurists. The first sentence of Article 119 reads, “The economic order of the Republic of Korea shall be based on a respect for the freedom and creative initiative of enterprises and individuals in economic affairs.” The predicate “shall be based” is the part showing that the national economy is rooted in liberalism and market economic principles.
Since the ninth constitutional reform, the correlation between the two clauses has been a matter of heated dispute because the interpretation can differ greatly depending on which one you focus. At present, the majority opinion is that the second paragraph is the exceptive clause complementing the first, i.e., the liberal market economic order stated in the first is the principal stipulation and the other is to guarantee the government’s intervention to overcome the system’s limitations and protect the economically vulnerable. These days, politicians are underlining only the second, laying the main clause aside.
The DUP came up with 10 key pledges for economic democratization back in November 2011. In addition to those mentioned above, the policy package includes: college entrance incentives for children of married couples in certain income brackets and educational levels; a ban on cross-shareholding; tighter regulations on holding companies; better protection of small firms in subcontract disputes; stable employment of temporary workers and redundancy targets; separation of financial and industrial capital; financial supervisory reform; director recommendation by employee representatives; and the establishment of new top corporate and income tax brackets in order to collect more taxes from the wealthy. As is expected, many in the business world are complaining, lamenting, “Their drive for a democratic market economy ultimately is just punishing us.”
However, those in the political community are deaf to such grumbling. The emergency measure committee of the NFP published its chaebol-related policy plans on February 9. It stated, “What we’re trying to do is not strangle major corporations but rectify wrong business practices,” the actual contents of the policy are not that different from those of the DUP in that it covers: regular ex-officio investigations into kinship-based internal transactions; separation between chaebols’ and small firms’ scopes of business; and the introduction of punitive damages to prevent unfair subcontracting price cuts.
The UPP’s policy for conglomerate overhaul was made available on February 2. Concentrating on 10 major groups’ ownership and governance structure, it comprises: the prohibition of circular equity investment; separation between them and their financial subsidiaries; stricter requirements on potential holding companies, adjustment of equity investment ceiling to 25%; and taxation on investments in affiliates in different business lines, etc.
In addition, the DUP promised mandatory youth employment by conglomerates, while the NFP is assuring non-regular workers in private enterprises of quasi-permanent employment. The current wage systems and employment structures do not have enough room to accept either of them though. In short, the parties are simply disgorging infeasible plans under the election slogan of a democratic market economy.
In fact, chaebol bashing has been repeated over and over in Korea during every election. Politicians have a firm belief that votes will come to them when they point a finger at large corporate groups. Yet, the intensity is oddly high this time.
No one denies that at least part of the buck stops with the big businesses themselves, which have eaten into what little profits their subcontracting partners make and poached on their smaller counterparts’ preserves while claiming to advocate common prosperity. The Federation of Korean Industries issued a resolution in this regard on February 8, covering ways to promote balanced growth and social contribution, as well as its commitment. That is the first resolution of the federation in nine years, implying that leading entrepreneurs are not just well aware of public sentiment, but also taking it into serious consideration.
Government Missteps Dumped on Industry Giants
Nonetheless, it has to be clarified where such social malaise arose, such as sluggish corporate investment, economic doldrums, gaping income divide, declining potential growth rate, plummeting savings rate and soaring inflation, unemployment and household debt. The Samsung Economic Research Institute hit the mark in as early as 2006 in a special report looking back on the past 20 years of the Korean economy -- “The best part of economic debates and diagnoses today are degenerating into ideological confrontation and identity confusion far from constructive and pragmatic alternatives.” Six years ahead of its time, the sentence pinpoints the crux of the ongoing problem.
“The social divide in Korea can’t be attributed entirely to the incumbent government and chaebols. Rather, it should be seen as an accumulation of failures that has lasted for several administrations,” said a two-time lawmaker of the DUP who requested anonymity. His colleague, Congressman Kim Bu-gyeom, agreed in an online newspaper contribution, “In the 10-year period we the Democrats were in power, those in their 20s and 30s spent their adolescence. A few years later, the absolute majority of them with no silver spoon have come to encounter the dearth of decent jobs, prevalence of underemployment and hackneyed expression of lost generation. Though it has been exacerbated in the Lee Myung-bak administration, we can’t pretend we have nothing to do with it, because the things began and were set during our time. Our party has to bear some, if not all, responsibility for it.”
Their campaign motto of a democratic market economy can gain the sympathy of the public only when such soul-searching spreads. Economic democratization should not be mistaken for conglomerate bashing.