By Kwak Jung-soo, business correspondent
Article 119, Item 2 of the Republic of Korea’s constitution specifies the role of the state in ensuring economic democracy: “The State may regulate and coordinate economic affairs in order to maintain the balanced growth and stability in the national economy, to ensure proper distribution of income, to prevent domination of the market and the abuse of economic power, and to democratize the economy through harmony among the economic agents.”
Now, with a presidential election coming in December, the topic of economic democracy sits alongside social welfare as a crucial part of the zeitgeist. Even executives at chaebol (conglomerate groups) have stated off the record that there “doesn’t appear to be any turning this tide.”
After taking power in a military coup d’etat in 1961, the Park Chung-hee administration launched a five-year economic development plan the following year. This government-led industrialization strategy brought about the so-called “Miracle on the Han River,” but it also caused a host of side effects: foreign dependence, a deepening divide between rich and poor, and free rein for the massive chaebol driving the economy.The growth of these chaebol came courtesy of deliberate resource allocation by the government and sacrifices by the public, but their behavior has been less about concessions and restraint than about boundless greed. Kim Jong-in, head of the New Frontier Party’s committee for the Pursuit of Citizen Happiness, said talk about the need to add economic democracy stipulations to the Constitution dated at least as far back as 1975 and the Park era. As a National Assembly member for the Democratic Justice Party (predecessor to the NFP), Kim headed an economic subcommittee in the special parliamentary committee for the amendment of the Constitution in 1987.
The process leading up to Item 2 that year was anything but smooth sailing. Representing the business community, the Federation of Korean Industries (FKI) set up a public relations committee to thwart the amendment, headed by Daewoo chairman Kim Woo-jung. It also set aside a massive 2 billion won budget for publicity -- the equivalent of 400-500 billion won today.
The FKI’s lobbying efforts went as far as the Blue House. “Couldn’t we omit Item 2?”, asked then-President Chun Doo-hwan about the amendment, the effort having already gotten under way with the June 29 Declaration in 1987. He watched Kim’s face as the subcommittee chair delivered a report on the amendments related to the economy. Kim held out. “Even if we try to make a law controlling chaebol to prevent society from blowing up, the business world will call it unconstitutional and block it,” he said. “We need this clause in there to prevent that from happening.” After a moment, Chun finally nodded his head.
The Great Depression in the US provides a clear-cut example of why a constitutional grounds for economic democracy is necessary. After being elected president in 1932, Franklin D. Roosevelt convened a special meeting of Congress and developed a host of social and economic reform bills as part of his New Deal. Many of them were ruled unconstitutional by the Supreme Court, which was steeped in laissez-faire ideology at the time. For instance, the National Industry Recovery Act, which would have recognized workers’ rights to organization and collective bargaining and stabilized employment by stipulating a minimum wage and maximum working hours of 60 per week, was blocked on the peculiar rationale that it violated tge freedoms of workers as well as management.
The roots of economic democracy in the history of capitalism can be traced back to the late 19th century. Otto von Bismark, Germany’s first chancellor, introduced a variety of social security measures in the 1870s to protect workers from disease and industrial accidents. His aim was to achieve a stable system. Confronted with opposition from the bourgeoisie, he responded by calling attention to the increasing presence of workers’ socialist parties in parliament. He said, “You, the bourgeoisie have to make concessions to protect yourself.”
With the New Deal in the 1930s, the US government opted for Keynesianism and market intervention over the laissez faire approach as a way of rebuilding the economy. With this, it ushered in a new chapter in the history of economic democracy.
South Koreans went through a long battle with dictatorship before finally winning political democracy in 1987. But the 25 years since Item 2 was instituted have failed to resolve the festering socioeconomic contradictions that emerged over the country’s rapid growth process, including the concentration of wealth in the hands of chaebol and income polarization. One leading example of economic democracy policy over the last quarter century involves efforts to limit the concentration of chaebol’s economic power. A number of measures were taken, with chaebol designated “large-scale corporate groups” and subjected to limits of mutual investment between affiliates and total equity investment, constraints on voting rights for the stocks of financial and insurance company affiliates, regulations on holding company activities, and bans on improper assistance between affiliates.
But the effects of those measures have been minimal. The measures have gone through a repeated cycle of trial and error, their consistency hampered by changes with each new administration.
The Lee Myung-bak administration has been heavily pro-business in its policies. As result, South Korean society has taken step backward at a time when the so-called “trickle down effect” (chaebol gains working their way down to the general public) is weakening and polarization is on the rise. Ironically, this proved the catalyst for a revival of economy democracy as a zeitgeist more than two decades after the Constitution’s amendment. “The chaebol are pointing to Item 1 of Article 119 [‘The economic order of the Republic of Korea is based on a respect for the freedom and creative initiative of enterprises and individuals in economic affairs’] as a basis for repudiating Item 2,” noted Democratic United Party lawmaker Hong Jong-hak. “But the reality is that even Item 1 isn‘t being executed, since the freedoms and creativity of the weak are being utterly disregarded.” Will this 25th anniversary revival bear fruit? Kim Jong-in expressed confidence that it will. “No matter who becomes president, they will have no choice in the matter,” he said. “If they don’t effectively push economic democracy and chaebol reform, they‘ll end up an early lame duck and the administration will be short-lived.” But Solidarity for Economic Reform director Kim Sang-jo advocated a more cautious approach. “This isn’t something that can be done during a president’s five-year term,” he said. “And the bad economic climate forecasted for here and overseas next year could end up hindering economic democracy efforts.” Some observers warned that delaying economic democracy would only exacerbate the crisis. “Historically, the roots of economic crisis have been in undemocratic economies, where economic power was concentrated in a few hands and the environment was pro-business and deregulation-heavy,” said You Jong-il, a professor at the Korea Development Institute School of Public Policy and Management.
“Economic democracy is the best structural reform approach for preventing and overcoming crisis.”
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