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.