[Editorial] Chaebol under siege

A week after she was elected president on Dec. 19 last year, Park Geun-hye said she would be a “president for small and medium enterprises.” She made the promise when she met with leaders of their special interests, including the Korea Federation of Small and Medium Business, ahead of those of the Federation of Korean Industries, the lobby for big businesses.

The action she took as president-elect set her apart from her predecessor, Lee Myung-bak, a CEO-turned president who had maintained a “business-friendly” policy geared toward exports led by big businesses throughout the five years of his governance.

Whether to favor big businesses or small ones in pursuit of growth, jobs and other economic goals may be a matter of choice for a president. Lee apparently believed in the proven policy of pushing for big-business-led exports as the engine of growth. But Park demands a shift in policy in favor of small businesses, particularly start-ups. One of her economic mentors says ventures should be placed in the center of a “creative economy” that focuses on turning new ideas and technologies into businesses.

A shift in policy is already visible with Park in office for less than two months. It starts with the leveling of the playing field, which her administration apparently believes has been in favor of big businesses, in particular family-controlled business groups known as chaebol.

The administration is reportedly preparing to tighten the screws on chaebol groups that have been conducting intra-group trades in violation of the Fair Trade Act. Few are coming to their rescue, with the administration’s move undoubtedly eliciting support even from its main adversary ― the opposition Democratic United Party.

According to a news report, the administration is already in talks with the opposition party, as well as the ruling Saenuri Party, on a revision bill to the Fair Trade Act. The bill, if passed, would make a chaebol chairman culpable if he was found to be involved in unlawful trade between a corporation under his control and a company owned by any member of his family.

Currently, only the company under his control is punishable. But when the revision bill is passed, both the chairman and the company owned by his family member will be liable to punishment as well.

The proposed revision of the law should be welcomed, though it is belated. As the Fair Trade Commission suspects, members of a family controlling a group of business conglomerates commonly establish small private companies in pursuit of their trades with the group’s affiliates. The private companies then serve as conduits of unlawful gain for spouses and children of business tycoons, as a recent investigation showed.

The beleaguered errant chaebol are monitored by the Board of Audit and Investigation, an autonomous state watchdog, and the National Tax Service. The BAI demands that the administration take action against them by tightening fair-trade regulations and conducting tax audits on suspect large corporations.

In its recent investigation into their trades of goods, services and equity trades, the state watchdog disclosed that nine of them breached the law to enrich members of their chairmen’s families. One such case involved the grandson of a chaebol chairman, who allegedly made 102.5 billion won in capital gains when he purchased 12.7 billion won worth of shares of a company affiliated with the chaebol on insider information.

The National Tax Service has selected more than 1,000 large corporations, many of them chaebol affiliates, for tax audits. The targeted corporations are complaining about the extensive dragnet, which they may be tempted to regard as big-business bashing by the Park administration.

True, it has often been the case that a new administration, during its early days, conducts tax audits and launches criminal investigations to tame business tycoons. If the Park administration wishes to give no such impression, it will have to limit itself to leveling the playing field for fair competition and keep itself from granting leniency in return for support for its policy. According to a news report, the Federation of Korean Industries is offering to create a 100 billion won fund to help finance the Park administration’s “creative economy.”

Chaebol businessmen had better take caution because they can no longer get away with embezzlement, tax evasion and other wrongdoings. When it recently decided to send the SK and Hanwha chairmen to prison, the court did not take into consideration their past contributions to the nation’s economic advancement, as it had often done in similar cases in the past.