“President Roh Should Act Swiftly to Respond to Militant Labor Unions”

Amid the world’s grappling with deflation, Hyundai Motor Co. agreed to an 8.6 percent increase in base salary to end a strike, suggesting that Asian’s fourth largest economy is falling prey to militant labor unions, said Bloomberg News Monday.

Bloomberg Columnist William Pesek criticized Korea`s union activities from various perspectives. The following is a summary of his column:

A six-week strike cost Hyundai 1.39 trillion won ($1.2 billion) in lost production. The salary increase it agreed to is more than double the Bank of Korea`s 2003 inflation forecast of 3.5 percent. It also agreed to shorten the workweek by half a day.

Accordingly, other companies are likely to be forced to concede much of the conditions that their unions demand. Organized labor is increasingly complicating President Roh Moo-hyun`s efforts to protect the nation`s image in foreign markets and prevent an exodus of investors.

Roh will have to act quickly to show the economy won`t be held hostage by unions. The risk is that more investors dismiss Korea as a “labor state” where shareholder value is trumped by inflexible workers and over-employed companies.

Korea needs to move in the opposite direction to be globally competitive. Bringing labor laws in line with global standards would give executives more say over staffing and compensation levels and, ultimately, profits. Korea`s powerful unions are doing their job, of course, by protecting members` livelihoods. But they are going too far in protecting unneeded jobs, living up to their reputation for militancy.

Even before the Hyundai strike, that message was delivered loud and clear by Maurice Greenberg, chairman of American International Group Inc., the world`s biggest insurer. In a speech in Seoul in late June, he said: “You can`t have militant labor unions and expect foreign investment.” Moreover, Donald Johnston, secretary-general of the Organization for Economic Cooperation and Development, said last month: “It`s true that the labor issue is one of the biggest challenges facing the Korean economy.”

The irony is that unions are selling out longer-term gains in living standards for short-term ones. If Korean companies are to be globally competitive and more profitable, their high labor-cost structures will have to change. Korea, simply put, stands at a crossroads. One road will make Korean companies more competitive and give them bigger market capitalizations; the other has labor unions blocking economic progress to enrich thousands of workers at the expense of tens of millions.

What Korean executive in his or her right mind wouldn`t be stepping up efforts to shift more jobs to China or other low-cost production centers?