Go to Key Stories
'Odd Couple' Agree on How to Fix S. Korean Economy — but for How Long?
By Steven Mufson
Washington Post Foreign Service
Thursday, December 25, 1997; Page A33
Both campaigned for President-elect Kim Dae Jung, and, faced with the near bankruptcy of the South Korean economy, both are pledging allegiance to Kim and to an International Monetary Fund program designed to get their country off the ropes.
But Gov. You Jong Kuen, a former Rutgers University economics professor who has emerged as one of Kim's top economic advisers, and Park In Sang, leader of the 1.2 million-member Federation of Korean Trade Unions, make an odd couple among the supporters of the president-elect.
For now, the two men do not seem far apart. Both express concern about finding ways to limit layoffs but agree they cannot be avoided. Both talk about reorganizing companies and ending the corrupt relationship between many big conglomerates and the government. And both recognize that Korea must adapt to a tightly intertwined world.
"People blame the IMF and talk about the East Asian model," said You. "But it's precisely the East Asian model of using connections and high debt that's created this situation."
"Globalization is unavoidable," said Park. "We have to accept it naturally."
But while the economic emergency has united South Koreans behind an economic rescue program for now, the hardships in store for the country could well split that consensus in the months ahead. And within Kim's coalition, these two men could later find themselves standing on opposite sides of the fault line.
You, 53, is one of the key players at the moment. He spent 24 years in the United States, first as a student, then as a Rutgers professor and finally as a member of the economic policy council of the state of New Jersey for governors Brendan Byrne and Thomas Kean. "I began thinking about doing the thing for myself," You said. You also stayed active in the South Korean democratic movement and befriended Kim Dae Jung when Kim was in exile in the United States in the 1980s.
In 1994, You returned to Korea and defeated the chairman of Kim's party for the nomination for the governorship of North Cholla Province. Kim initially discouraged him but in the end remained neutral in the race. In the general election, You defeated a candidate who was a foe of foreign investment.
"Many have thought that foreign direct investment meant a loss of control and economic sovereignty," said You, who noted that the sharp increase in direct foreign investment recently to an annual level of $3 billion was still tiny for an economy the size of South Korea's. He added that many politicians liked the old South Korean system, which allowed the government to decide where investment could go; that gave it the power to dispense favors, and thus opened the doors to corruption.
As a governor, You has attracted more than a dozen modest-size foreign investments to his province despite tepid support from the central government. He has tried to promote several others, including the possible sale of a resort to entertainer Michael Jackson, who visited South Korea to have a look. You later persuaded Jackson to join international financier George Soros and former secretary of commerce Mickey Kantor in a teleconference hosted by Kim during the presidential campaign to discuss how to rescue the South Korean economy. Recently, You has been ardently courting Dow Chemical, which is trying to decide where to locate a $2.8 billion plant.
"Korea has been very unwise in the past by not being very friendly to foreign direct investment," said You, whose message to foreign investors has become party dogma now that it is clear the country desperately needs investments to provide new capital for heavily indebted South Korean firms.
Today, the South Korean government and Kim's party approved a package of measures recommended by the IMF that are sure to please You. South Korea will remove existing limits on foreign capital flows and foreign investments in South Korean banks, open up the South Korean market to foreign products and revise the country's labor laws to make layoffs easier.
Union leader Park, unlike You, has undergone a recent conversion to the IMF program and a more open economy. Last January, he was demanding 11 percent wage increases for workers. Just two weeks ago, he was demanding job security; a ban on hostile takeovers; job guarantees for employees of merged companies; union consultation before layoffs; and "renegotiation with IMF . . . in order to minimize unnecessary social tension" and prevent steps that "threaten the employment and decent lives of workers."
But much has changed in two weeks. The country is staring bankruptcy in the face, and companies are beginning to shut down because they cannot get parts or day-to-day financing.
"I basically support the IMF conditions," said Park, as he smoked a cigarette this week in his office. "Workers and trade unions are strongly supporting economic reforms."
For Park and the union movement, South Korea's economic crisis represents a tremendous setback. Since democracy replaced South Korea's military rule 10 years ago, the labor movement has been a powerful force in the country, and many analysts say its demands have discouraged foreign investors. From 1987 through 1995, South Korean wages rose by an average of 15 percent a year, far outstripping inflation and gains in productivity. Strikes were common, but Park says that wages had to catch up.
At the same time, however, union representation among South Korean workers has dwindled from 19 percent to 14 percent. Earlier this year, when union leaders tried to call a nationwide general strike to protest a change in labor laws, the response was weak.
The election of Kim Dae Jung, the first opposition candidate to win the presidency in South Korea, represented an important political victory for a longtime friend of the union movement. But even at that moment of triumph, the financial crisis was undermining labor's gains.
Analysts predict that 1 million of South Korea's 13 million employees will be thrown out of work in coming months. Whereas last January Park was demanding complete job security and a wage increase of 11 percent for South Korean workers, now he is pleading that wages be frozen as a less painful alternative to mass layoffs. In fact, both pay cuts and layoffs are more likely; companies are proposing deep wage cuts as they try to rescue themselves from cash crunches and suffocating debt loads.
"Venture capital companies should be increased and opened and create new jobs," said Park. "We will accept a reduction in working hours and partly accept a reduction of wages to minimize the layoffs."
Park said that the Federation of Korean Trade Unions favors a "step by step" reduction in the length of the workweek, from 46 to 42 hours, as a way of maintaining jobs. He also expects unemployment to rise, though he believes it can be limited to an additional 1 percent of the work force, a prediction that most economic analysts believe is too optimistic.
Across town in a hotel room, You worried that unions will revolt against the IMF program as layoffs mount. The government, said You, "has to be prepared to face" strikes. "If you want to maintain the leadership of a union, you have to maintain militancy," he said.
One condition of the IMF package is to give South Korean firms, now bound by a restrictive labor law, greater flexibility to lay off workers. President-elect Kim and outgoing President Kim Young Sam have indicated that revisions would be made next month, one year after the trade unions tried to mobilize against more modest changes in the law.
It will be up to Kim Dae Jung to work out conflicts within this alliance, and he appears ready to defy the expectations of people who in the past portrayed him as a leftist or a captive of organized labor. "Kim has become a trusted follower of the completely free market system," said Kim Won Gil, another economic adviser to the president-elect. You said Kim has a better chance than anyone of persuading the unions to go along with the reform package.
© Copyright 1997 The Washington Post Company
