It seems like South Korea’s newly elected President Moon Jae-in is bringing concern rather than optimism to businesses with his plan of implementing the chaebol reform.
Since his election, President Moon has been aiming on increasing job opportunities for the youth of South Korea while protecting worker’s rights as well.
The Chaebol Reform
President Moon has been targeting the country’s family-owned companies known as chaebol which govern economic life in South Korea so as to lend a hand on smaller groups turning them into instruments of development for Asia’s fourth largest economy.
Kim Sang-jo, Moon’s nominee for head of the Fair Trade Commission (FTC) said that the primary objective of the chaebol reform is to protect small companies and self-employed business owners so that they are able to create many more new jobs.
The country’s four major chaebol conglomerates include Samsung, Hyundai Motor, SK Group, and LG Electronics makes up half of South Korea’s stock market value.
Last week, Kim noted that South Korea’s largest firms including Samsung and Hyundai hire only 1 million out of South Korea’s 19 million actively working personnel.
The President’s chaebol reform also promises to strengthen the rights of shareholders, give more power to the FTC and raise corporate tax rate from 22 percent to 25 percent undoing the 3 percent tax cut made by former President Lee Myung-bak
During his inauguration Moon said that he will take the lead in reforming chaebol and that the phrase ‘collusive ties of politics and business’ will absolutely disappear under his administration.
Significant amount of power and resources of the chaebol which is supported by close relations with the government and the state bureaucracy has resulted to business figures’ disapproval of their owners’ behavior when operating the corporations since they are believed to act like it is their own personal domain.
This kind of action has led to repeated complaints from investors and stockholders who want to acquire bigger share of corporate incomes, that chaebol families utilize funds of the company for personal expenses.
Moon’s solution to deal with the issue is to reestablish a bureau within the FTC in order to investigate the chaebol.
If President Moon’s reforms are implemented, several businessmen worry that rather than creating jobs smaller companies will be incapacitated by the higher cost of hiring and paying employees.
Moon has vowed to increase minimum wage by 55 percent to ₩10,000 ($8.94) per hour by the end of his five-year term.
Moreover, he also wants to reduce the maximum working week from recent limit of 68 hours pulling it down to 52 hours which he said would help generate 50,000 private sector jobs.
However, small business owners thought differently saying that Moon got it wrong and there will be not as much work given that profit margins will suffer.
According to Choi Gi-won a spokesman for the Arbeit Workers Union stated that the government needs to do more in order to support small businesses so that they can have the money to pay for more.
Furthermore, Choi said that they understood that it would be unreasonable to ask businesses to pay higher wages when they do not have the ability to pay but the minimum wage has to be increased.
In an effort to persuade the private sector to hire more employees, the President has promised that the government will pay for the salary of every third youth worker employed by small firms for three years.