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Yim Tae-hee, the head of the Grand National Party¡¯s Policy Planning Committee, said Saturday it is beyond the power of the government at the moment to resolve both the economic difficulties facing the public and pursue public sector reforms. He added it would be difficult to implement other policies unless the living conditions are improved first. In other words, the privatization of state-run companies must be delayed since improving the welfare of the public is more important.
That is a valid argument. But it appears that the government and ruling party have been intimidated by unionized workers at state-run companies who displayed their might by participating en masse in the candlelight vigils. For a government that has already been pushed to the edge, it must be extremely tough to take on another major policy task. Nevertheless, giving up on efforts to explain to the public the need to privatize state-run companies is like giving up on the very spirit that defines this administration.
One state-run company made a W2.8 billion (US$1=W1,041) profit and ended up handing out W3.7 billion in incentives to its workers, while workers at another state-run company divvied up money it received from the government to boost marketing among themselves. Things you would never imagine happening at privately run businesses have been happening in state-run companies as if they were nothing out of the ordinary. These abuses have been verified on numerous occasions in probes conducted by the Board of Audit and Inspection. Because of such unethical management practices, over W180 trillion in government support -- in other words taxpayers¡¯ money -- went into state-run companies during the five-year term of president Roh Moo-hyun.
The average pay per worker at the 302 state-run companies and other public entities, which have to be kept afloat with taxpayers¡¯ money, was W53.4 million last year. That was 66 percent higher than the average income of Korean workers. There were 92 state-run companies whose employees earned higher wages than those at Samsung Electronics, the world¡¯s largest memory chip maker. Because of these exorbitant wages, taxpayers end up suffering.
The average return on assets (net profit divided by total assets) at state-run companies was just 2.3 percent last year, a mere one-third of the average level of listed companies. Three out of 10 state-run companies are suffering from chronic deficits. If they were privately run, they would have closed down a long time ago. But they are still operating thanks to the hard-earned money of taxpayers.
The purpose of privatizing state-run companies is to stem such inefficiencies and minimize the financial burden on taxpayers. Raising the competitiveness of the public sector, which accounts for 10 percent of Korea¡¯s GDP, will end up making the economy more efficient, boost productivity and stimulate the country¡¯s entire economy. This is why both advanced and developing countries are pushing ahead with efforts to private state-run companies.
Of course a strategic decision must be made on the timing and method of privatization. The government must choose and tackle first those areas where it can overcome the resistance of workers at state-run companies by gaining the public support, by allowing them to enjoy substantive gains through privatization. The Japanese government spent four to five years preparing for privatization of the state postal service. But here, without a specific strategy, the Lee Myung-bak administration repeatedly mentioned the privatization of the state utility, gas, water and sewage treatment and even national health insurance companies; it ended up being attacked with groundless rumors that privatization would raise tap water charges to W140,000 a month. Now the candlelight vigils against U.S. beef imports have turned into protests against privatization. But if the Lee administration is pushed into giving up on its pledge to privatize, it will end up breaking the promise it made to voters. It must live up to its will and privatize at least one state-run company so the public can see the benefits of such a move.
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