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A clearer picture is emerging of the Lee Myung-bak administration¡¯s deregulation policies for major business conglomerates. Last week, the Fair Trade Commission announced it would scrap limits on investments between the subsidiaries of a business conglomerate, while easing limits on cross-shareholding and debt guarantees between affiliates as well. The Financial Services Commission said Monday it would ease regulations that prohibit non-financial businesses from owning banks, with the deregulatory measures to be implemented over a three-stage process. Most of the core regulations involving the big business conglomerates or ¡°chaebol¡± are disappearing.
Businesses must be allowed to exercise their fullest potential. The economy needs a breath of fresh air. And if regulations need to be scrapped or eased for that to happen, the faster such changes take place the better. If businesses are encumbered by regulations that do not exist overseas, such limitations must be abolished. It is time that policies concerning the chaebol are considered with their global competitiveness in mind.
But before the boundaries of regulations are torn down, we must take an objective look at the reality of our businesses. The independent counsel¡¯s investigation of the Samsung Group and past incidents involving accounting fraud and the amassing of slush funds by SK and Hyundai Motor groups show just how far from global standards the levels of transparency is here. Deregulation to match business conditions in advanced countries must be accompanied by measures to boost corporate transparency according to global standards.
Take existing limits on cross-investment between the subsidiaries of a conglomerate. At present, only 25 subsidiaries of seven business conglomerates are regulated by inter-subsidiary investment limits. And even under existing regulations, these companies can still invest W37 trillion (US$1=W990) more into other units in their business groups. Moreover, new technology industries, venture companies, foreign-invested corporations and investments in infrastructure projects are not hindered by inter-subsidiary investment limits. The exceptions have been made to this regulation to allow businesses to breathe. In other words, there are very few instances where inter-subsidiary investment limits actually keep conglomerates from making crucial investments. It is not because of this limit that conglomerates are hoarding huge amounts of cash, refraining from investing them, but because they haven¡¯t been able to find a suitable location to park the money.
As a result, scrapping inter-subsidiary investment limits will not spur corporate investment as long as businesses have difficulties finding new investment opportunities. Rather, seven business conglomerates that have tens of trillions of won in cash reserves will now face no limits at all on acquiring stakes in other major business groups, raising the possibility that they can gain control of state-run companies that will be privatized in the future. In the end, most state-run companies that are privatized may end up in the hands of major business conglomerates.
Easing inter-subsidiary investment, which allows company A to invest in company B, which in turn invests back in company A, is not exactly enabling businesses to find new and creative opportunities for investment. It merely enables a conglomerate¡¯s owner with a limited stake to maintain his management control over subsidiaries without significantly increasing spending. And there are concerns that easing regulations on bank ownership could turn banks into virtual ATMs for large business conglomerates. Deregulation must not simply favor the chaebol.
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