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(EDITORIAL from The Korea Herald on Oct. 8)

All News 09:14 October 08, 2016

Scandal indicates bad tradition persists in government-business relationship

The scandal surrounding the two nonprofit foundations allegedly established under the patronage of people close to President Park Geun-hye tells us that the government in power still bullies conglomerates.

Both Park's Blue House and the Federation of Korean Industries -- the lobby for big businesses -- deny allegations that members of the president's inner circle were behind the establishment of the Mir and K-Sports foundations.

It may take some time before we come to know whether they are telling the truth or not. But at least one thing is more than certain: The nation's biggest conglomerates, including Samsung, Hyundai Motor, LG and SK, lined up to donate about 80 billion won ($72 million) to the two foundations in just one week.

This is reminiscent of the past in which authoritarian governments twisted the arms of conglomerates, especially the family-controlled chaebol, to collect illegal political funds or force them to make donations to government projects and dubious ventures, like the foundations set up by former President Chun Doo-hwan and his wife Lee Soon-ja.

Thanks to democratic progress and improved transparency in Korean society, no Korean president think about demanding illicit money from any chaebol tycoons any longer. But the Mir and K-Sports scandal is a good reminder that part of the bad tradition in which conglomerates -- under pressure from the government or in order not to fall out of favor with it -- donate sizable amounts of money to favored causes still persists.

FKI says that it broached the idea for the two foundations to promote culture and sports and that participating firms in the projects donated funds "voluntarily." Few would buy that argument. Names of people close to Park – like a top Blue House aide and a long-time associate – have already been mentioned as those behind the work to set up the foundations.

The Park administration already has a track record of twisting the arms of conglomerates. With a call for a nationwide boom in "creative economy," the president's pet mantra, the government matched each metropolitan city and province with one conglomerate to establish a "creative economy and innovation center" in 18 places.

The goal of the centers is to foster small firms and startups with the help of the central and local governments and the designated conglomerate.

This is a typical government mobilization of conglomerates, none of which would have been able to question, let alone reject, the government request. In other words, Park, like her predecessors, acted as the bully-in-chief over conglomerates to promote one of her flagship policies.

Things like this impose excessively heavy financial burdens on conglomerates as they have to divert funds which otherwise would go to more productive areas.

There are so many such occasions that one report estimated that "quasi-taxes" — non-tax financial burdens on enterprises – amounted to 44.7 trillion won in 2014, larger than the total corporate tax of 42.7 trillion won.

It is good if enterprises generate profits and spend part of them for good causes -- social responsibility activities, patronage and philanthropy programs and so on. But the time is past when the government and the public can look to conglomerates whenever and wherever some public funds are needed.

It is against this backdrop that the FKI should stop acting as a funnel through which corporate funds are diverted to the government and public projects.

One more problem the FKI should address urgently is its membership. Founded in 1961, the federation now embraces more than 600 members. The problem is that they include state-run enterprises like the Korea Development Bank, the Export-Import Bank of Korea and Korea Electric Power Corp. and 16 other public enterprises.

This is wrong since the FKI is basically an organization that promotes the interests of conglomerates. There is no reason for public enterprises funded by taxpayers'money to be members of the business lobby. All of them must renounce their membership at once.

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