By Koh Byung-joon
SEOUL, Sept. 27 (Yonhap) -- With about three months to go before South Korea's presidential election, major candidates' economic pledges revolve around the reform of the country's sprawling conglomerates, which they call "economic democratization."
The rhetoric appears to be gaining more traction after independent liberal Ahn Cheol-soo joined Park Geun-hye of the ruling Saenuri Party and Moon Jae-in of the main opposition Democratic United Party last week in the race for the Dec. 19 presidential election.
The three candidates broadly share the same goal of resolving what they see as "unfair" business practices by large conglomerates, which have been at the center of the ongoing debate over economic democratization. They, however, differ in their detailed opinions, which mostly fall along their party lines.
Among other things, the three say that there should be a regulation on "cross shareholding" among family-controlled conglomerates, or chaebol.
Chaebol have been credited with helping the country's economic growth over the past decades by spearheading exports. But they are frequently blamed for hurting smaller companies and widening income gaps through their market domination and wealth concentration.
They, in particular, have been under fire for the cross shareholding 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.
Park of the conservative and pro-business Saenuri Party reportedly favors a restriction on "additional" cross shareholding, stopping short of a full-scale ban.
The other two -- Moon and Ahn -- share the view that conglomerates should be banned from cross shareholding practices all together.
In drawing a sharp contrast with the ruling party contender, Moon, in particular, is expressing his strong support for toughening regulations on cross shareholding practice. He once said that it is "the core of his chaebol reform."
Imposing a ceiling on equity investment by chaebol is another issue that the candidates are closely watching. The equity investment ceiling is designed to limit conglomerates to only investing a certain percentage of their net assets in other companies.
The ceiling was first introduced in 1987 in order to prevent reckless business expansion by chaebol. The restraint was scrapped in March 2009 as the current business friendly government saw it as a regulation that hampered free corporate investment.
Its reintroduction has been cited as one of the ways that the political circles are considering to regulate unfair business practices and prevent excessive wealth concentration to a small number of large conglomerates.
Park, the current frontrunner in many polls, is opposed to the reinstatement of the ceiling. She once said, "(I) am not confident about its effectiveness and also worried about heavy costs (stemming from its reintroduction)." Her stance strikes a contrast with the other two, who support imposing a ceiling on equity investment.
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.
Park earlier said that it is necessary to "cautiously" review the issue given the changed economic and financial environment following the global financial crisis, not clearing her stance. Moon and Ahn, meanwhile, both support beefing up regulations on the separation of financial and industrial capital.
Along with economic democratization, welfare is yet another shared buzzword in the political circles and how to finance such programs is one of the major hot campaign issues.
The three appear to agree that they have to expand welfare for less privileged people and share the view that it is necessary to raise taxes to finance the programs that they are pushing for. But when it comes to raising corporate taxes and taxes on wealthy people, the candidates differ in their opinions.
Ahn, a former CEO of the country's leading software company, is in favor of increasing taxes on businesses and high-income earners to pay for expanding welfare programs.
"The tax-to-GDP ratio of our country stands at about 20 percent, which compares with the OECD average of 26 percent," Ahn once said. "It will be inevitable to steadily hike (income) taxes in line with increasing welfare spending down the road." He also supports increasing the effective corporate tax rates.
Moon of the Democratic United Party appears to be in line with Ahn in terms of tax policies, but Park of the ruling party earlier expressed her reservation against raising corporate taxes, though she agrees to the need to increase tax revenues.
"To strengthen welfare, it is inevitable to maintain a tax-increasing stance but, if possible, it will be good to keep the corporate tax rate at a low level," she said.
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