Profit-shar­ing sys­tem

The Korea Times - - OPINION -

Large com­pa­nies and smaller firms are stand­ing against each other over a profit-shar­ing sys­tem pro­posed by the gov­ern­ment.

The Korea Fed­er­a­tion of SMEs is­sued a wel­com­ing state­ment, say­ing the sys­tem would “help to nar­row the wide gulf be­tween large and small busi­nesses and stim­u­late small and mid­size en­ter­prises’ in­no­va­tive ef­forts.”

Large en­ter­prises are strongly re­sist­ing the pol­icy, not­ing that “no coun­tries in the world are reg­u­lat­ing to force busi­nesses to share their prof­its through leg­is­la­tion.” Some pri­vate econ­o­mists are also rais­ing their voices in op­po­si­tion, crit­i­ciz­ing the pro­posed sys­tem as an “anti-mar­ket idea.”

A profit-shar­ing sys­tem be­tween large and small busi­nesses was pushed here for the first time in 2011, by Chung Un-chan, then chair­man of the Korea Com­mis­sion for Cor­po­rate Part­ner­ship. The idea re­flected the per­cep­tion that large busi­nesses, us­ing their su­pe­rior sta­tus, refuse to give a fair share of prof­its to their sub­con­trac­tors, hin­der­ing the lat­ters’ growth and re­sult­ing in the po­lar­iza­tion of cor­po­rate wealth.

The gov­ern­ment and the rul­ing party are plan­ning to fin­ish re­lated leg­is­la­tion pro­cesses by next month and to be­gin to im­ple­ment it as early as next Fe­bru­ary. Of­fi­cials, con­scious of crit­i­cism con­cern­ing mar­ket prin­ci­ples, say they will not “en­force the sys­tem force­fully but pro­vide in­cen­tives if busi­nesses vol­un­tar­ily adopt it.”

One must be doubt­ful about the smooth progress of the sys­tem, how­ever, less be­cause of ide­o­log­i­cal op­po­si­tion based on mar­ket prin­ci­ples and more be­cause of the dif­fi­cul­ties in work­ing out a fea­si­ble model.

Much more dif­fi­cult than the leg­is­la­tion will be how to af­firm and ver­ify whether busi­nesses in­volved share prof­its, and how to en­sure proper co­or­di­na­tion of in­ter­ests be­tween com­pa­nies that adopt the sys­tem as well as fair­ness of con­tracts. If the gov­ern­ment fails to solve th­ese prob­lems, the re­newed at­tempts are highly likely to go up in smoke — again.

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