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Why Korea's Cleanup Won't Catch On


International Business: ASIA

WHY KOREA'S CLEANUP WON'T CATCH ON

It reads like a classic tale of revenge, with President Kim Young Sam purging his predecessors in a bid to secure his own future. But the bribery indictments of former President Roh Tae Woo and seven top businessmen on

Dec. 5 are clear evidence that as South Korea's democracy deepens, the corrupt old system is gradually giving way to one that is more transparent and market-oriented.

Speaking before a national TV audience in sad, reverent tones, senior prosecutor Ahn Kang-Min outlined a pattern of massive corruption. Ahn said his team of 92 investigators questioned 400 witnesses and found that 35 business groups gave a total of $369 million in bribes to Roh during his term that ended in 1993.

Lee Kun-Hee, chairman of Samsung Group, led the list, with $32 million in bribes. Chairman Kim Woo-Choong of Daewoo Corp. came next, with $31 million. The bribes were often paid for specific government contracts. But Ahn said Roh also extorted money regularly from businessmen in exchange for their staying in the government's good graces.

LENIENCY. The disclosures left Koreans feeling shame and resentment. Yet the view that Roh shook down the chaebol, rather than vice versa, led to relatively lenient treatment of their chairmen. So did fear that their detention would hurt their conglomerates' operations and dampen the country's economy in the runup to next April's general election.

For that reason, the seven chairmen who were indicted on Dec. 5 were not detained. Instead, they are free to work as they face trials that are expected to conclude next spring in suspended sentences or fines. The stiffest punishment so far went to Hanbo Steel & General Construction Group Chairman Chung Tae-Soo. He is in prison.

The outcome was widely expected, and the Korean bourse rose 2% by the end of trading Dec. 6 on optimism that the worst was over. The exposures should sharply reduce payoffs in Korea. And that means the chaebol will have to compete more on merit.

It will also hasten the groups' transition from autocratic, family-run businesses to professionally managed enterprises. The government has already considered requiring them to appoint more outside directors to their boards. These developments come as the government is overhauling its financial sector, opening the door to more foreign companies and moving toward more professional handling of taxation.

A key question now is whether Korea's purification process will send reverberations throughout East Asia. The sort of political and economic reform that Kim is promising certainly hasn't happened in Japan. There, the Liberal Democratic Party, dethroned by a series of scandals in 1993, is back as the biggest partner in the ruling coalition. Promised political reforms are full of loopholes, and they have yet to be tested in an election.

Similarly, in Taiwan's Dec. 2 election, voters expressed disgust with the corrupt ways of the ruling Nationalist Party, but there is little prospect of a fundamental assault on dirty-money connections. Taiwan's legal system makes it difficult to punish officials who play money politics since there are no laws or regulations governing corporate donations.

HOMEMADE. Korea's ability to confront graft owes much to its style of democracy. Unlike even nominally democratic Japan, Korea's system was shaped by something akin to a revolution. The watershed came in 1987, when the middle class joined students in demonstrations that forced then President Chun Doo-Hwan to hold a direct presidential election.

The result is a Korean polity that feels more enfranchised than Japan's since Japan got its constitution from the U.S. "Korea has become a democracy, but one that wants to examine how it got here, how much it cost, and who is responsible," says Chalmers Johnson, president of the Japan Policy Research Institute in Cardiff, Calif.

True, Japan's economy bears many similarities to Korea's and is many times bigger and more complex. If capitalism and a broad middle class were all that mattered, Japan's decision-making would be the most transparent in the world.

Ironically, one reason Japan may be more resistant to sweeping reform is that its system is more mature and balanced than Korea's. More of Japan's companies are professionally managed, and they enjoy tighter patterns of cooperation with the ministries that oversee them. So for now, other East Asian states can only wonder if--and when--their own people will discover the same impulse that has driven Korea to confront a system built on graft.By Steven Brull in Seoul, with bureau reports International Business


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