Reforming public corporations (2)Why reforms are difficult

Reforming public corporations (1) Reforming public corporations (2) Reforming public corporations (3)

The recent crisis of the Korea Electric Power Corp. (KEPCO) has disclosed that the biggest obstacle to the restructuring of public enterprises is the strong resistance from labor unions. Labor unions of most public enterprises as well as KEPCO wield a great power, even stronger than any other companys¡¯ labor union. The government criticizes that the selfishness of labor unions of corpulent public enterprises is in the way of reforms.

However, people who have a little inside knowledge of public enterprises would question whether the government is in a position to make such a criticism. For the most part, it is none other than the government who is responsible for raising the power of the labor unions.

When the Ministry of Planning and Budget (MPB) drafted a program for restructuring of public enterprises in 1998, it included a proposal on the abolition of the practice of appointing high-ranking officials of public enterprises through influence from above. It was based on a belief that public enterprises could reform themselves only by appointing the management equipped with expertise. But the proposal was completely ignored and the unreasonable personnel management style has persisted.

Now MPB officials complain that restructuring had limits because the reform program lacked such a key element. The current administration strongly denounced such an unreasonable personnel management system when it was an opposition party, but now in power, it is following in the former regime¡¯s footsteps.

That is why the government remains mum to the criticism from union activists such Noh Hang-Rae, policy department chief of the Korean Federation of Transportation, Public & Social Services Workers' Unions (KPSU). Noh said, ¡°It is not right that the government is attacking members of the public sector at random after it appointed the management in such a unreasonable way.¡±

The government has so far taken an array of measures to reform the fundamental operation system of public enterprises, such as the introduction of systems to select presidents of public enterprises through public recruiting. But the problem was that a body such as the committee to approve presidents has played a role in justifying the appointments of political figures as executives.

As the posts of public enterprises¡¯ presidents have long had political links, speculations abound whenever the posts are empty. And government agencies are also busy adjusting seats for political figures. In the process, seats are easily changed due to political bargaining and compromise, and there is no room for expertise to come in.

Prof. Lee Jong-Soo of Hansung University pointed out that reforms in the public sector will never be achieved unless the government drops its deep-seated practice of appointing political figures as executives of public enterprises.

The management lacking the legitimacy cannot help but be vulnerable to the labor union. During the day, it confronts with the labor union but at night it is busy making deals to reach a compromise.

An official of the Board of Audit and Inspection (BAI), which conducted a special inspection on public enterprises in September, also said, ¡°Labor unions take advantage of the weak point of the management and make excessive demands. When they find the strategy working, they become powerful and selfish.¡±

He said that public enterprises, which had been disciplined by the BAI, had all presidents who formerly served for government agencies. They included the Korea Occupational Safety & Health Agency, Korea Housing Guarantee Co., Korea Agricultural & Rural Infrastructure Corp., Korea Racing Association and Korea Labor Welfare Corp.

Particularly in case of the Korea Racing Association, the labor union came to wield an absolute power after a labor-management agreement in 1999 expanded union members to include 97 percent of its employees except for executives in the second grade and higher. Even employees in charge of auditing and secretaries of executives became union members.

Another problem facing the restructuring of public enterprises is the government¡¯s insufficient preparation for it. Without considering the specific situation of each company, the government just sets the deadline and presses the company for it. Experts point out that the government¡¯s will is strong but the infrastructure is not ready for reforms.

A government official also admitted that in the process of public enterprises¡¯ restructuring, the government has sometimes pushed each enterprise for the reform without considering its specific situation because of the schedule. There are only 10 or so employees in charge of restructuring of public enterprises in the MPB. The manpower is too small to inspect the complicated internal situation of some 100 public enterprises and work out effective restructuring plans for them.

The fact that the post of a government-reform director in the MPB, a top official supervising the public-sector reform, is shunned by many officials shows how difficult the project is. Dr. Lee Kye-Shik of Korea Development Institute (KDI), who has long studied about government reforms, took the position but resigned in August after suffering from strong pressure from inside and outside. The MPB tried to enlist experts from the private sector but no qualified candidates appeared. It was because many people are well aware that the job is tough and notorious. It was a case that shows the rough road standing ahead of the project of restructuring public enterprises.

Lee Myung-Jae mjlee@donga.com