| BUSINESSWEEK ONLINE : DECEMBER 18, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Commentary: Why Korea's Crony Capitalists Are Still in Charge (int'l edition) It has been a frustrating year for Lee Jong Hoon. Last December, he bought 2,000 shares in Korea Gas Corp., where he worked as an assistant planning manager. The state-owned utility was selling a minority stake to the public and listing itself on the Seoul bourse. So Lee figured the investment was a sure bet. He was wrong. The stock never moved above its initial price of $27.50. In fact, it has lost almost half its value, thanks partly to management fumbles by its politically connected bosses. ''What you need is a professional manager at the helm, not a government puppet,'' says Lee, who is active in the company's 20,000-strong union. So when the government nominated a politician to become the company's new CEO in September, Lee and his fellow union members took out an angry newspaper ad demanding management reform. The problem is not confined to Korea Gas. Despite government vows to reform Korea's bloated public sector along with the rest of the economy, state-owned companies continue to be run as political fiefdoms, their top ranks filled with politicians who have been put out to pasture or are owed big favors. Consider Korea Gas's new chief, Kim Myung Kyu, who got the job despite the union protest. It appears to have been a reward from the ruling Millennium Democratic Party after Kim politely stepped aside for another candidate during parliamentary elections earlier this year. Korea cannot afford these games. Yet foot-dragging in public-sector reform is endemic. Nearly three years after the Planning & Budget Ministry was charged with slaying the state-owned dragon, just four of 11 companies slated for privatization have been sold, and only three of them are wholly owned by private investors. Government-owned companies still account for about 10% of the economy, continuing to inhale capital while making little money. ''SOUND AND FURY.'' To be sure, labor is partly to blame for subverting reform. Workers at Korea Electric Power Corp. (KEPCO) blocked privatization legislation last year by threatening to disrupt power supplies. And more recently, the same union managed to force the government to put off privatization for at least a year. Far more intransigent than the unions, though, are government officials and politicians who refuse to give up control over state companies. They are thwarting reform at the very top. At KEPCO, the privatization plan not only omits a timetable for breakup but also allows the Ministry of Commerce, Industry & Energy to regulate prices. Sure, utility prices need to be regulated to some extent--but by an independent committee, not by bureaucrats whose sole aim is to see that their directives are carried out. It's not as though state companies are efficient. Again, KEPCO is a prime example of the problem. To bolster the manufacturing sector, the government has long forced the power monopoly to charge industrial users half the going rate; households and other general-purpose customers pay full freight. As a result, Korean companies waste huge amounts of power, but KEPCO cannot generate enough profit to invest in new power plants to meet demand. So it borrows heavily. Its debt mushroomed from $5.2 billion in 1990 to $28.1 billion in 1999 (chart). When the economy rebounded last year, privatization virtually ground to a halt. Even hopelessly inefficient state-owned companies escaped the ax. In the past 10 years, Korea Coal Corp., which runs money-losing mines, has piled up $470 million in losses. Yet instead of shuttering the company, the government forced KEPCO to buy 479,000 tons of its coal at inflated prices. ''Economic reforms will be full of sound and fury, signifying nothing, unless true privatization is quickly carried out,'' says Ham Shee Chang, who teaches economics at Seoul's Sangmyung University. If officials and politicians adhered to Korea's Confucian ethics, they would set an example before pressuring the public sector to swallow the bitter pill of reform. Yet politicians are the first to backpedal when their interests are at stake. Tobacco & Ginseng Corp. was to complete privatization this month, but lawmakers have refused to table a bill to end its state ownership. Why? Because farmers threatened to back opposition candidates unless the state monopoly keeps buying their tobacco leaf at inflated prices. President Kim Dae Jung concedes that the public sector has been the worst laggard in the drive for reform. But it would be a shame if the man who vowed to end the abuses of the chaebol were to be overwhelmed by the abuses of the state. By Moon Ihlwan Moon covers Korean business and economics. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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