Privatisation, conflict and discontent

Prof. Kim Jin Soo
Citizens' Coalition for Economic Justice (CCEJ)

Privatisation in Korea has aroused intense debate and inspired many citizen mobilisations. While voices from the government insist that privatisation will strengthen industrial competitiveness and resolve the ill-effects of monopolies, labour unions, civil society and academia cry out that it will drain national wealth through sales abroad, degrade public services and deepen social inequality. Since there is no precedent of a successful privatisation and restructuring process being carried out without social consensus, the government should try to take the advice of civic groups rather than follow its present course.

On11 November 2002, the Minister of Budget and Planning, Jang Seung-woo, said thatthe Southeast Subsidiary that split from the Korea Electric Power Corporation(KEPCO) would be sold off within the year. Also the two subsidiaries of theKorea Gas Corporation and some shares were to be disposed of within the year andthe Korea District Heating Corporation was to be handed over to private ownersthrough public subscription and open bidding. In addition, subsidiaries of 12other public corporations are under reorganisation. In this way, and accordingto schedule, the privatisation of public corporations is to be rushed through2003.

Betweenthe nation and the market

Koreaneconomic development has been led historically by the government on the basis ofa 'development first' strategy. The government has not only played a big role indistribution but also become the champion of industrialisation by establishingcorporations, the chaebol, groups ofspecialised companies with interrelated management. In the late 1980s the chaeboldominated South Korea's economy and were responsible for the expansion ofthe country’s export capacity. For instance, in 1987 the revenues of the fourlargest chaebol were USD 80.7 billion, a figure equivalent to two-thirdsof Seoul's total GNP. The top ten chaebol represented 40% of all bankcredit in the country, 30% of value added in manufacturing, and approximately66% of the value of all South Korean exports in 1987.

ThePohang Steel and Iron Company (POSCO) is typical of the former Korean model;founded as a state-run corporation, it became one of the largest steelcompanies, not only in Korea, but also all over the world. However, after theeconomic crisis at the end of 1997, because of restructuring and economic reformmeasures, full-scale privatisation has become government policy. The state-heldmajority shares of big corporations like POSCO and Korea Telecom were quicklydisposed of.

Althoughnetwork industries such as railways and electricity were regarded traditionallyas beyond competition due to economic volume and the need for efficient systemintegration, the policy makers have pushed privatisation ahead, following modelslike those in England, New Zealand, Japan and California. Besides, thegovernment’s concern with international evaluation has sped up the process.

ShinKook-hwan, Minister of Commerce, Industry and Energy, has stated, “If wepostpone privatisation, the national credit of our economy will become aproblem. Unless restructuring goes as planned, the sovereign rating will go downand it will cause a loss to the national economy worth trillions of dollars.”

Whilethe voices from the government insist that privatisation will strengthenindustrial competitiveness and resolve the ill-effects of monopolies, labourunions, civil society and academia are worried that privatisation will drainnational wealth through sales abroad, degrade the quality of public services,deepen social inequality and increase price-fixing by dealers who are concernedonly with profits (as in the power generating incident in California).[1]

InOctober 2001, labour unions of the transport, power and gas corporationstogether with social organisations established the Pan National CommitteeAgainst the Privatisation and the Sale Abroad of National Basic Industries.Conflicts between the government and civil society regarding privatisationincreased. Following a labour meeting on 24 February 2002, in which more than20,000 unionists participated—and although Korean law prohibits public-serviceemployees from striking—the rail, gas and power labour unions went on a jointstrike. After an agreement was reached regarding the rail and gas sectors, thepower union—the utility where privatisation was being processed mostquickly—went on a 35-day strike involving 5,300 people (95% of the workers).

Thisstrike has shown that consensus on privatisation has not yet been reached inKorea; on the contrary, the widespread discontent about the enforcedprivatisation plan has increased.

Railwaysand power: competitiveness vs. labour insecurity

Thegovernment claims that privatisation is absolutely necessary to strengthencompetitiveness in the railway industry. However, labour unions oppose itbecause the public service function will be de-emphasised as lines that do notgenerate a profit will be closed and fees will increase rapidly. About 7,300employees, most of whom were in low-level positions, were laid off in therailway sector after 1998. Accordingly, the intensity of work by railway workershas greatly increased and the 24-hour shift became ordinary. During 2001, 34railway workers died in industrial accidents. The ratio of railway workers whodied in industrial accidents is 8.1%, which is four times the rate in thegeneral workplace. Unionists equate privatisation with increased reductions ofemployees and labour insecurity.

Inthe power generating industry, the government plans to sell off KEPCO, avertical monopoly, to private industry by separating power generating,transmission and distribution and dividing power generating into five parts. Thepower distribution is also to be divided and a new system (that governmentlabels “competitive”) will be introduced. However, this plan facesopposition by people from every walk of life who are concerned with insecurityof the power supply and the scope of fees. During the power-workers’ strike,people from civil society, the education and religion sectors, and scholars inpolitical science and sociology raised questions about the government'shigh-handedness and pointed out the lack of public agreement aboutprivatisation. Even the junior level of management in the power generatingcompany issued a statement criticising the government.

Dr.Park Tae-joo, a scholar from the Korea Institute for Industrial Economics andTrade, has pointed to an alternative to privatisation, proposing a coalition ofpublic and private ownership within a competitive system. He took the Nordicenergy model as an example, where power generation and distribution are dividedand both state and privately run companies compete with each other. Dr. Parkbelieves this is an ideal model for Korea because the security of the powersupply and commercial self-management are organically linked together.

Publichealth, absolute shortage

Afterthe 1997 economic crisis, the ideology and trend of widespread privatisation hascaused the public health system to introduce a business philosophy and toemphasize efficiency over service. The public health institutions have beencommissioned into private hands.

Becauseof the reduction in the number of public health institutions and the ideology oftransforming them into competitive businesses there are problems, such as thedecrease in medical services for the most vulnerable class, and the increase incostly treatments centred on services that provide good profits. In fact, about90% of the Korean public health medical institutions are now funded by privatefunds. The private medical supply system and a weak public health system showthe weaknesses of the government’s policy.

Thepublic health institutions in Korea are in short supply and most facilities aremanaged by public corporations or by civil commissions. Because of therestructuring of public health institutions, which now comprise only 16.7% ofthe country’s medical institutions, the public health system has becomeweaker. The government implemented restructuring twice in June 1998 and June2001 and closed 164 public health centres. Accordingly, the ratio of beds topotential patients decreased.

Inthe wake of a recent medical strike, not only the government but also civilgroups and specialists in health and medicine have become acutely aware that itis necessary to expand the public health system. However, it seems that in theshort run expanding and improving the public health institutions will be verydifficult.


TheKorean economy has recovered admirably since the 1997 crisis, but this recoveryhas had side effects, such as a widening gap between rich and poor, increasingnumbers of part-time workers, and the augment of the national debt due to thespending of public funds to overcome economic difficulties. Although one of themost promoted results of economic recovery is a sharp decrease of theunemployment rate (in May 2002, the unemployment rate was 2.9%, down frombetween 3 and 4% in 2001), part-time workers have increased by 51.5% (whilepermanent workers have increased by 48.5%). Of the part-time workers, temporaryworkers account for 34.3% and day workers for 17.1%. Management often forcesworkers into part-time status. The decline of the unemployment rate looks likeincreased employment stability, but as a matter of fact jobs are now consideredless secure.

Thislabour instability is untenable ground for any process of privatisation andespecially for the current plan of privatising viaquick sales. Polls show that a vast percentage of the Korean population is veryanxious about it. Since there is no precedent of a successful privatisation andrestructuring process being carried out without social consensus, the governmentshould try to take the advice of civic groups rather than follow its presentcourse.


[1] In 2001 California experienced a severe shortage of power stemming from deregulation of the state's energy market in 1996. Deregulation barred utilities from passing on higher prices for wholesale electricity to consumers.


The author is a member of CCEJ Social Welfare Committee and also of the Department of Social Welfare at Kangnam University.