SEOUL, Aug. 30 (Yonhap) -- With the presidential election less than four months away, political parties are locked in a heated debate over the so-called "economic democratization," weighing diverse measures that they see as a way to restrict the influence of large conglomerates.
They believe that family-run conglomerates, also known as chaebol, have contributed greatly to the country's fast industrialization and development over the past decades, but their unchecked market power has also resulted in many unwanted problems such as widening income gaps and other social disparities.
At issue is whether political parties will eventually impose a ban on new "cross shareholding" among large conglomerates after a group of lawmakers from the ruling Saenuri Party unveiled a related bill earlier this month. The opposition Democratic United Party also recently announced a similar bill.
Conglomerates have been under fire for such a practice that allows a handful of people with small stakes to control the decision-making process at all of their subsidiaries and for preying on smaller firms with their reckless expansion.
Due to such an entangled shareholding structure, there are risks that a collapse of one subsidiary could spark a domino effect, causing others to fall apart. Many still remember that business failures gripped the country in the wake of the 1997-98 financial crisis, experts said.
Another key issue being debated in the political circles is whether to toughen rules on industrial groups' holding of financial companies.
Currently, industrial groups -- those with over 25 percent of their capital invested in non-financial companies, or with assets in such companies topping 2 trillion won (US$1.6 billion) -- are not allowed to buy more than a 9 percent stake in holding companies controlling bank affiliates.
The restriction is aimed at preventing conglomerates from using bank subsidiaries as private coffers that provide easy credit for business decisions. The cap was raised from 4 percent to the current 9 percent in 2009 by the then ruling Grand National Party despite objections by rival parties.
Breaking away from its long-held business-friendly stance, the Saenuri Party, which also led the cap increase before, recently unveiled a bill that would restrict industrial groups' voting rights on their financial subsidiaries and oblige them to establish holding companies only for financial subsidiaries.
Such toughened moves by political parties come amid growing criticism over conglomerates' unrivaled power in the Korean economy.
Last year, the combined sales of the top 30 business groups came to 1,345 trillion won, exceeding the country's nominal gross domestic product for the first time, according to industry data. Samsung, Hyundai Motor, SK, LG and POSCO accounted for 776 trillion won in sales or 62.7 percent of the total.
They were credited with helping develop the country's economy into Asia's fourth-largest in a very short period of time, but also frequently blamed for widening income gaps by focusing only on making profits regardless of the impact of their decisions on smaller companies and ordinary people.
They recently come under fire for making inroads into the bakery, restaurant and other business sectors, which have been mostly dominated by mom-and-pop stores or smaller companies.
Civic groups support the moves to overhaul conglomerates.
"The core of economic democratization is to prevent conglomerates from wielding unbridled power," said Ahn Jin-geol, an official of the People's Solidarity for Participatory Democracy. "In other words, it is to regulate monopoly, greed, illegalities by large conglomerates, and remove any favors to them, pushing for a balance development of our economy."
Ko Kye-hyun, director of policies at the Citizens’ Coalition for Economic Justice, echoed the view.
"The biggest problem of our society is that wealth is focused excessively on a small group of people and the reason behind that is chaebol," he said. "Reforming chaebol can resolve the wealth concentration issue and put an end to the social polarization problem at the same time."
Some critics, however, call the recent push by the political circles to toughen regulations "populism" and politically motivated efforts, saying that they are mostly designed to woo more voters ahead of the presidential elections in December.
They argue that the time is not right either, and "corporate bashing" will only backfire for the already struggling economy by discouraging large conglomerates from investment and hiring.
"The concept of economic democratization is for politics to intervene in the results of market activities," Kim Jeong-ho, an economic professor of Yonsei University. "The public might feel thrilled when the government engages in corporate bashing, but it would be difficult to expect that to bring practical benefits to the people."
The business community shared the concerns, with some saying lawmakers are politicizing the issue to appeal to a broader group of voters in time for the upcoming election. Some others even feel that they are being shortchanged for what they have contributed to the country's economy for many decades.
"We are now competing fiercely in overseas markets and working hard to expand investment and hire workers in the domestic market," a conglomerate group official said on condition of anonymity.
"Under this mood where (we) are regarded as criminal groups and there is no appreciation for our contributions, we will inevitably see overall business activities dampened," he added.
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