01/18/99 Reform the Chaebol--or Let the Worst Die (int'l edition)

Reform the Chaebol--or Let the Worst Die (int'l edition)

In ''Showdown in Korea'' (Asian Cover Story, Dec. 14), Korean conglomerates, known as chaebol, are depicted as wild horses or cornered animals fighting with ferocity. Maybe it is true that they focused more on size than profitability, diversification over specialization, and massive debt over a solid equity base. But it is their variety of products and their eagerness to spread out that have made possible their proliferation--and consequently Korea's surprising economic development. Naturally, they must change to keep pace with competitors in a free market that requires higher productivity and efficiency, and they are well aware of that.
But with such a blatantly interventionist manner as that of our government, forcing change by means that seem undemocratic, I'm concerned it could bring about a contrary effect on our economy.
Joon Il Kim
Kyoungnam, Korea

Even though your article is based on facts, you don't look beneath the surface to see the real causes that triggered Korea's economic meltdown last year. For example, if Hanbo Steel, Kia Motors, and several other chaebol had been allowed to go under last year, our economy might not have encountered such a meltdown. But, due to the inextricable, corrupt relationships among chaebol owners, politicians, and bureaucrats, those firms were given protection in the form of a sort of moratorium, only to make them more debt-ridden.
In addition, if those failing chaebol had been allowed to die a natural death, our economy might have started restructuring without outside intervention or assistance. Of course, we also might have been thrown into much more severe economic and political turmoil than what we are experiencing now.
This example also shows the defects of the heavy-handedness of government intervention in the name of ''chaebol reform.'' If our government succeeds in what they call reform, their belief in the governing class becomes stronger. That, in turn, means that property rights will lose ground and that the government will tighten its grip on the economy. The former will weaken the profit motive through restrictions of private-property rights, and the latter will block development of the market. Corruption could occur even more widely than before the reform.
With their profit motives restrained, the surviving chaebol will not be as energetic and aggressive as before, and they will become like Korea's financial institutions. These institutions, though owned by stockholders, have been heavily regulated and protected by the Finance Ministry and thus did not have any motivation to do business for profit. No wonder management never worried about banks' precarious financial status.
In short, the present government plan of reforming the chaebol should not be praised as highly as you did. This plan will surely create a superficially reformed economy within a surprisingly short period of time, but the danger lies in its long-term effect--the destruction of the energetic chaebol and, therewith, the Korean economy.
Han Eung Kim
Seoul