“Economic democratization” has been a major campaign issue as widening income gaps and unrelenting chaebol power have increased calls for fairness, compassion and the rule of law in the market.
The battle lines became clearer on Friday as conservative presidential candidate Park Geun-hye unveiled a set of prescriptions that differ from her progressive rivals Moon Jae-in and Ahn Cheol-soo.
The Saenuri Party flag-bearer’s version of economic democratization focuses more on a “fair market” than “chaebol reform,” returning to the party’s long-standing emphasis on economic growth ahead of wealth distribution, and highlighting status quo stability without burdening the country’s finances.
Democratic United Party nominee Moon and independent Ahn suggest stronger measures to curb the family-owned conglomerates. They criticize them for impeding competition and innovation, which Asia’s fourth-largest economy desperately needs to keep growing sustainably.
With economic democratization becoming one of the slogans most-used by politicians but resisted by conglomerates, the candidates with varying standpoints have been weighing their options to cater to their supporters without contradicting their principles.
However, experts warn just that the debate must not end up a political jingle but lead to systematic change for a healthier economy.
“Economic democratization is not a problem that can be addressed with a few laws, not to mention how such legislation and implementation will be met with immense opposition and protest,” said Yoo Jong-il, senior economist at the Korea Development Institute, in a statement Friday.
“In order to break through that and consistently pursue (economic democratization), not only the president’s belief but also the interests of the governing power must concur with the philosophy of economic democratization, along with meticulous preparation and plans,” he added.
Yoo pointed out that Park’s support base runs counter to economic democratization, while Moon and Ahn lack teamwork to push through the measures, and suggested the next administration set up an organization to enforce economic democratization.
Advocates of the reform have argued that Korea’s political democratization, achieved by a civil uprising in 1987, remains an unfinished business as its social and economic systems are still plagued by unfairness, inequality and a lack of protection for the poor, marginalized class.
But the proposed changes to the economic system largely target chaebol, the key locomotive of Korea’s decades of development. Critics call that kind of economic overhaul a populist project that would undermine growth especially at a time when uncertainty still looms over the global markets.
In the early stages of the presidential race, Park was the instigator of the economic democratization wave despite its ambiguity and complexity, vowing to lean more liberal as part of her image overhaul. Increasingly, however, Park was seen to return to her nook of conservatism, shunning radical measures such as stricter control on existing cross-shareholding presented by her key economic policymaker Kim Chong-in.
Moon and Ahn, on the other hand, share generally common positions despite their ongoing feud over the single candidacy rules.
The two simultaneously released their pledge books on Nov. 11, which overlapped overall, but differed in approach.
Park pledged Friday to protect the economically weak, prevent large conglomerates’ exploitation of power and reinforce consumer protection.
“I will turn the conglomerate-centered economic structure to a satisfying economic system where small and medium-sized businesses and consumers can grow together through fair and transparent market order, equal opportunities and reasonable rewards.”
Her plans, however, excluded some symbolical chaebol reform measures such as a penalization of existing circular shareholdings suggested by Kim, who was absent at the news conference in an apparent show of protest.
Park’s 35 economic democratization measures, instead, are focused on fostering growth of small and medium enterprises and restraining abuses of power by large family-owned businesses. She also underscores that large businesses’ positive roles in fueling growth and creating jobs must be maximized.
Park pledges to remove discrimination between regular and irregular workers, limit conglomerates’ advances into areas better fit for smaller businesses, and curb large retailers’ abuse of power against smaller suppliers. Stricter penalties with jail sentences would be introduced for chaebol owners for embezzlement or malpractice, and presidential pardons limited. Any unfairly earned profits would be returned, while the rights of consumers would be reinforced by revamping the Fair Trade Act. Park also pledges to introduce a punitive damages system, expand the scope of class action lawsuits and prepare ways for minority shareholders to gain cumulative voting rights.
Without touching the existing cross-shareholdings, Park promises to ban future ones while reinforcing the separation of industrial and financial capital by restricting their influence and limiting the allowed shares.
The key to Moon and Ahn’s economic democratization, on the other hand, is more focused on reforming the chaebol and the financial market. They both argue that supporting small self-owned businesses and creating new jobs is the priority of economic democratization.
They believe that the current control structure of conglomerates must be radically changed, and economic centralization eased through addressing the ownership domination.
Moon, for his part, vows to ban new cross-shareholding and obligate the dissolution of existing ones after a three-year grace period, and restricting the voting rights for the shareholding families in case of non-compliance.
“Economic democratization means to (make) an economy where everyone prospers together,” Moon had said upon his economic policies announcement. “The measures are not intended to cut away the competitiveness of large conglomerates but to remove factors that hinder fair competition for the sake of promoting a healthy market economy,” he added.
The former presidential chief of staff also pledges to reintroduce the investment ceiling system by banning the top 10 conglomerates from making investments worth more than 30 percent of their net assets. Ahn is against this.
The maximum debt ratio for a holding company would be lowered from 200 percent to 100 percent, while industrial capital will only be allowed to hold 4 percent of the stakes in banks, as opposed to the current 9 percent.
Moon’s plans to curb chaebol’s irregularities are equally strong. He vows to slap penalties on affiliates and levy heavier tax on chaebol families for any unfairly earned profits. Any violation of the Fair Trade Act or in subcontract transactions will mean having to pay three-fold the amount of losses in compensation. The former lawyer also promises to expand the scope and ease qualifications for class action lawsuits.
Ahn, meanwhile, sticks by his original seven-point chaebol reform measures as his key economic policies. They include: preventing chaebol’s expedient inheritance of wealth and invasion into traditional markets; fortifying civil and criminal charges against chaebol leaders and their associates’ illegal acts; strengthening the separation of industrial and financial assets; banning cross-shareholding; toughening up the regulations on holding companies; heightening watch on chaebol’s ownership structure; and managing the systematic risks.
“Economic democratization is the constitutional value that the president must protect,” Ahn had said. “I will first push ahead with the first-stage chaebol reform measures by preventing expedient inheritance and transfer of asset and execute strict law enforcement, then review them with the chaebol reform committee,” he said, adding that if the first-stage measures fail to show sufficient outcome, he will be taking stronger structural reform plans.
Inheritance and gift tax will be buttressed, while unfair profits enjoyed by an affiliate through favored orders by a conglomerate will be clawed back. Chaebol affiliates’ inroads into industrial fields favorable for small and mid-sized or self-owned businesses will be limited.
The Act on the Aggravated Punishment, Etc. of Specific Economic Crimes will be revised to impose heavier punishment on chaebol for embezzlement or malpractice worth a certain amount. Penalty will follow violation of the Fair Trade Act by a conglomerate head or executives. Like Moon, Ahn also pledges to reduce from 9 percent to 4 percent the ratio allowed for industrial capital to own shares of a bank.
To keep a watch on chaebol’s ownership, the former professor suggests mandating a concentrated voting system and introducing multiple derivative suits to better protect minority shareholders.
He also pledges to set up a chaebol reform committee directly under the president to oversee chaebol-related policies.
Both Moon and Ahn agree that financial policymaking and financial oversight must be separated. Moon’s idea is to separate the two bodies and install a separate entity to protect financial consumers. He is also said to be reviewing ways to integrate domestic and international financial policies and revising the structure to prevent bureaucratic monopolization of a financial supervisory organization.
Ahn suggests moving the Financial Services Commission’s policymaking of financial industries to the Ministry of Planning and Budget, and bestowing the role of supervision to the Financial Supervisory Service, which will also be split into two separate functions to watch over the financial organization’s soundness and to regulate the market and protect the consumers.
Both Moon and Ahn pledge to restrict the maximum interest rate to 25 percent by enacting the law on protecting financial consumers.
To enable wider access to financial services for lower income brackets, Moon promises to set up a “credibility arbitration center.” Moon is also for suspending the privatization of Korea Development Bank.
With a vision to create innovation-friendly financial industry to foster start-up businesses and corporate social responsibility, Ahn pledges to invite “crowd funding,” a collective effort of individuals through the Internet to support projects of organizations.
By Lee Joo-hee (firstname.lastname@example.org)