[Editorial] Loosen Capital Regulations

At a Korea Tobacco and Ginseng (KT&G) regular stockholders’ meeting yesterday, overseas stockholder Carl Icahn and his associates gained a seat on the company’s board.

Icahn can now pursue his demands to sell the company’s non-business real estate and prevent KT&G from selling its own stock. This is an indicator that the fight for control of KT&G will be long-term.

It is also the first time a Korean corporation has had an outside board member against its will, and shows that Korea’s management environment has changed.

But the government, in particular the Fair Trade Commission (FTC), seems to be insensitive to this. FTC Chairman Kwon Oh-seung, who took office two days ago, admitted the problem of corporate shareholding restriction limits exists, saying, “I wonder whether it is the most effective system to stop large corporations from circulating investment.” This regulation, that restricts large corporations from investing more than 25 percent of their net assets into their subsidiary corporations, is a key measure to control large conglomerates.

Large corporations have opposed this regulation, arguing that it is an obstacle that restricts investment and makes it difficult to fight for control of companies. Experts also point out that since it only applies to Korean companies, it discriminates against Korean companies.

Uri Party lawmaker Kang Bong-kyun, who is also the chairman of the government Policy Committee, and Bank of Korea Governor Park Seung have added their voices to those calling for an end to the regulation.

But Kwon has said, “Since we don’t have an alternative, for now, lets just keep it.” Admitting a problem, and then just leaving it alone, is incompetence.

The regulation that separates financial and industrial capital and prohibits industrial capital from entering financial business transactions is having a similar effect. This regulation was adopted in order to prevent large conglomerates from using subsidiary financial companies as their own private coffers. But many are now arguing for its abolition because other monitoring measures are now in place. Even bank presidents who are reluctant to oppose government policies said yesterday that abolishing this regulation is not something to be concerned about.

It is clearly inappropriate to adhere to shareholding restriction limits and the separation of financial and industrial capital. Nevertheless, it seems that a twisted anti-conglomerate mindset and a fallacious “justice” policy are holding the government back from doing anything about them.

Korea Development Institute president Hyun Jung-taik says, “Currently, Korea is experiencing a strange phenomenon where growth is lagging and distribution of wealth is worsening. A change in policy paradigms is necessary.”