The Current Status of the `Third-Sector Corporations`

The “third-sector corporations,” established with the intention of combining the public nature of local governments and the efficiency of private capital, are disappearing as a result of continuing mismanagement.

Some point out that they failed because of an insufficient competitive edge resulting from jumping in sectors in which competition was already fierce among private companies and because of a lack of management control.

The failure of the third-sector corporations is making the already-difficult local governments’ financial situation worse.

According to related government ministries and local governments yesterday, the Board of Audit and Inspection (BAI) conducted a focused audit of 38 third-sector corporations and recommended 29 of them to liquidate, including the collection of stakes.

Dong-A Ilbo found out that Tezroc Sports (Busan) and Bucheon Cartoon Network were already liquidated as of early this month.

Also, 12 corporations, including TINC (Daegu), decided to sell local governments’ stakes in them next year, while eight companies, including KISC, announced plans to sell stakes in the long-term.

Four corporations, including Songdo Resort, will make a decision later after monitoring the situation.

A sale of stakes by local governments means that they intend to take their hands off since they cannot handle the outcome of mismanagement.

Apart from well-functioning Kangwon Land and Daedeok Techno Valley, 36 third-sector corporations posted losses of 42.2 billion won in 2002, 30.8 billion won in 2003, and 15.6 billion won in 2004.

The BAI said that the reasons for poor management of the third-sector corporations are lower competitiveness compared with companies in the private sector, shrinking market size and economic recession, and insufficient management ability of public official-turned-managers.

Choi Yong-ho, economics and trade professor of Kyungpook National University, said, “The third-sector corporations began to mushroom 10 years ago,” pointing out, “Their capital from local governments stands at below 50 percent, but former public officials took charge of management because the capital from the private sector is scattered. That was an important factor in breeding inefficiency.”