hankyoreh

By Lee Tae-hee, staff writer　
On Tuesday, the opposition Democratic United Party (DUP) made an “economic democracy pledge” for the Apr. 11 general elections. The pledge includes plans for conglomerate regulations centering on a circular equity investment ban and revival of the total equity investment ceiling system.
Previously, the ruling New Frontier Party (NFP) added “economic democracy” items to its platform and stated plans on Jan. 20 to develop conglomerate reform measures to offset the abolition of the total equity investment ceiling system.
Both parties are climbing over each other to raise the economic democracy flag, but a closer inspection of the specific platforms shows a world of difference.
The DUP economic democracy platform plans to reintroduce the total equity investment ceiling system for the ten largest large corporation groups. This system sets a limit on the rate of parent corporation equity investment in affiliates. In the DUP plan, this limit is 30% of net assets, with a three-year grace period for resolving cases of shares in excess of 30%.
The DUP also plans to ban circular equity investment. This investment is a method of control used by chaebol owners. It allows them to use a small stake of holding companies to control a wide range of firms. For example, company “A,” where the owner has control, comes to control company “B,” which in turns controls company “C,” giving the owner control of all three. A representative example is the Samsung Group, which is controlled by Samsung Electronics president Lee Jae-yong. Samsung Everland is Samsung Group‘s actual holding company and is controlled by Lee Jae-yong.
The DUP’s plan is to ban new cases of circular equity investment, while granting a three-year grace period for preexisting cases. Regulations such as voting right restrictions are to be implemented for cases where the equity situation is not resolved within the grace period. The party also intends to lower the holding company debt ratio from its current 200% to 100%.
Wi Pyung-ryang, researcher at Solidarity for Economic Reform, said that if the party truly intends to bring about economic democracy, it would offer grace periods of one to two years rather than three for the circular equity investment ban and total equity investment ceiling system. This would mean creating a structure for pushing this early on in next year’s new presidential administration, on the assumption that related legislation is passed in this year’s regular National Assembly session and the opposition party is elected in the presidential election at the end of the year.
“At its core, economic democracy is about relieving the concentration of economic power, and that core is missing from the NFP’s economic democracy policies,” Wi said.
The NFP has yet to come out with a concrete plan for chaebol reform, though many observers are predicting one ahead of the presidential election. But the party’s emergency measures committee did give a general outline, saying it would discuss the designation of appropriate industries for small and medium enterprises, the blocking of negative impacts from large corporation “funneling” to affiliates, far-reaching reforms in the subcontracting system, eradication of unfair franchising practices, the prevention of dumping bids, and the establishment of practical pension fund shareholder rights.
Last month, the party announced plans for regulating the entry of chaebol-owned retailers in small and mid-sized city local commercial districts and lowering surety requirements for entrepreneurs and SME businesspeople.
The emergency measures committee initially considered reviving the total equity investment ceiling system, but abandoned the idea after objections from in and around the party. A policy official with the NFP said that while the party’s position on the system had not been formulated at the time of the announcement, the system “doesn’t really seem effective.”
In announcing its economic democracy policies last year, the NFP said its aim was to develop basic measures for dealing with behavior that was “harmful to a fair economy,” including chaebol profiting for funneling to affiliates, infringement on markets typically dominated by SMEs and small merchants, and the abuse of monopolies and dominance to engage in unfair transactions. Its basic position, it said, was that caution was warranted against criticism of large companies and the swelling of anti-business sentiment.
Contrary to their basic stance, the NFP is focusing on the eradication of illegal actions by chaebol. For example, it made plans to regularly investigate and announce the internal transaction situation for the top 30 chaebol in terms of assets in order to root out the practice of funneling business to affiliates. It also announced a policy of using its authority to carry out regular investigations of internal transactions with companies for corporations where the owner’s family owns a share of more than 20%.
Kim Ki-won, professor of economics at Korea National Open University said that while the NFP raised hopes by listing economic democracy as one of its three main commitments, there was little sign of any intent to follow through in its policies.
“If they intend to pledge economic democracy, we expect to see them come out with additional policies suited to it,” Kim said.
　
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