firmly in place has been confirmed through an abundance of historical evidence.
Anti-competitive behavior of the public sector
When it comes to the subject of who is the violator of fair trade, the first thing that springs to people's mind will be private enterprises. We read in the paper about products bundling by famous software makers, bid rigging by construction contractors, unfair business conduct by larger companies on small sized firms, unfair cost transfers to suppliers or partners by large retailers or outlet merchandisers and so on.
However, we shall not overlook the public sector, which is silently suppressing competition. The effect of the public sector's preemption and monopoly of the market has created a barrier that does not allow for the private sector to enter the market on an equal footing. The public sector does not feel the competitive pressure, and manages to stay inefficient and keep operating their businesses laxly, thanks to this safety net. The negative effect will be passed on shoulders of customers and the public as a whole in its entirety.
Let's have a look at an example. Recently, the Board of Audit and Inspection examined the institutions affiliated with the Ministry of Labor. As a result, those institutions that control the five funds under the jurisdiction of the Ministry of Labor were found to have missed out on collecting 80billion won for the industrial accident insurance premium, over-collected on the unemployment insurance fund by 5 trillion won and paid undue sums for medical and rehabilitation compensation. If there were a system where private insurance firms could compete for the industrial accident insurance policy, these incidents would not have occurred.
In fact, many government-owned companies have monopolistic statuses that are guaranteed by the law. They preempt the market on the basis of various government plans. There are 874 government plans, which are stipulated in 295 laws, as of 2005. Of course, some plans are drawn up for the government to undertake the basic needs of the public. However, there are many that are just for securing jobs for the employees of public enterprises or government subsidiary institutions. For example, the government's plan to build a nuclear power plant in accordance with the Power Development Plan is an official blueprint endorsing the construction of the nuclear power plant mentioned in the plan. Based on this, the Korea Hydro and Nuclear Co. Ltd receives construction permission from the government and starts the construction.
Similar aspects are seen in the housing sector. The government's Comprehensive Housing Plan carries out the role of securing the housing construction orders for the National Housing Corporation. Many government plans, by allowing the government sector to have a steady occupation of a certain share of the market, eliminate the space for private enterprise in the market. In the case of network industries such as electricity, railway, gas and district heating, the monopolistic operation of public enterprises has been justified, due to their characteristic of natural monopoly. Therefore, the competitive pressure has been absent in these industries, and so were efforts to increase efficiency. The laxity in management and redundant organizational expansion became the essence of their business. However, in some network industries showing natural monopoly characteristics, we can introduce competition if we can decompose its functions properly. In the case of electricity, although it would be unavoidable that transmission and distribution have to stay monopolistic either nationally or regionally, it is reasonable enough that generation and sales can move to the competitive market.
In the case of the gas industry, among the works of the Korea Gas Corporation ranging from import, reception, storage, and to national pipeline service, with exception of national pipeline service, can be shifted to the competitive field. When there are many elements of competition in the networking industry, it would be needless to say private firms can carry out their business competitively in such fields as safety and facility management, maintenance, and repair. Despite that, the government, in fact, justifies monopoly of public enterprises with laws that protect them by defining their undertakings and roles.
There is more. In reality, the government has been establishing co-operative societies as legislated public entities in order to secure jobs for retiring public servants or to increase the government influence. These co-operations have been engaging in various anti-competitive activities such as undertaking the government's order exclusively and colluding on prices, and forcing other enterprises to join in the membership and so on. Many unfair trade practices are by private enterprise, but their origins often are from the government, as these examples show.
In order to carry out various industrial development plans and trade policies during the past development era, the government introduced laws such as Protection laws, Foster laws, Support laws and Promotion laws for specific industries and enterprises. From this process, derived were a large number of public enterprises, government subsidiaries and businesses organized by the government. As a result of this, a huge public sector was created, which is now a barrier to market competition.
Moreover, individual government departments are, while acting as 'god fathers' for related subsidiaries, showing every tendency of group egoism and looking after their own 'children's' interests. It is because having as many subsidiaries and public enterprises as possible under their influence are deemed as the most effective way to enhance their power. There are many unseen cases of unfair trade practices in this process. In order to block expansionism and self-interest of government departments, it is desirable to restructure and privatize as many government subsidiaries and public enterprises as possible. Also, if outsourcing and a competitive system are once established, the government sector would have to be the fair manager for the system, resulting in a reduction of unfair and unjust practices. We hope that now the government let go of its role as the coach or player. It needs to be nothing more than a strict referee and look after the playground. Competition among the private sector will flourish when the government promotes it with a right attitude.
Cho, Sung Bong (Senior Fellow, Korea Economic Research Institute)
