‘Ahnomics’ in the making

Software guru may focus on helping small firms, reforming chaebol

After a state of indecision for months, computer software guru and Seoul National University dean Ahn Cheol-soo has finally thrown his hat into the presidential ring. But just who is he and what does he stand for?

Despite his immense popularity and the massive amount of ink and electrons spent covering him 24 hours a day, seven days a week, Ahn remains an enigmatic puzzle. The recent book, “Ahn Cheol-soo’s Thoughts’’ is built around conventional wisdom and polite evasion on critical subjects, providing only vague clues on where to find the facts.

It’s a given that voters will be most concerned about the economy when they head to the booths in December to pick a new president. Korea has been facing a disastrous vortex of declining exports, collapsing consumer spending and spiraling debt that appears to be creating a perfect storm of public discontent as polls approach.

The next president will obviously face a difficult quandary between jolting economic growth and spreading the wealth. For now, it’s hard to predict how Ahn will move when push comes to shove.

His all-star team of economic advisors includes former Finance and Prime Minister Lee Hun-jai, whose legacy as a policymaker was defined by aggressive growth-first agendas, and Lee Won-jae, ex-president of the leftist Hankyoreh Economic Research Institute.

In the book, Ahn claims the accelerating concentration of wealth and power at chaebol, Korea’s mighty family-owned conglomerates, is a critical problem hurting the country’s economic vibrancy and one of the reasons why the belief about social mobility continues to erode.

The future of the country’s economy hinges on helping small- and medium-sized companies and inspiring entrepreneurship, which would also help create more jobs and boost incomes more broadly, but the “extra-legal” presence of big businesses makes this difficult, Ahn said in the book.

He stressed the need for a legal framework to reform chaebol, frequently accused of anti-competitive behavior, corruption and opaque corporate governance. According to him, the rules must be aimed at stemming excessive transfer of corporate wealth to chaebol’s founding families and strengthening the cross-ownership ban between financial and non-financial businesses.

Ahn also backs the calls to sever the tradition of “circular equity investment’’ in chaebol, which allowed them to weave a complex web of corporate ownership that accelerates the transfer of wealth to the founding families.

For example, Samsung Electronics Chairman Lee Kun-hee owns 20.76 percent of Samsung Life, while Samsung Everland, essentially the holding company of the Samsung business empire, is the second-largest shareholder with a 19.34 percent stake. And the majority shareholder of Samsung Everland is Lee’s son, Jae-yong, a Samsung Electronics president.

Essentially, this means that Chairman Lee gets to maintain dominant control over his corporate empire by leveraging the assets of Samsung Life’s insurance customers.

Even as Korea’s growth in gross domestic product has pulled back sharply in recent years, the country’s leading business groups have been setting record after record in profits. Despite sitting on historic piles of cash, the companies have used only a tiny proportion of this on productive investment, which is the beef of politicians now.

Ahn also calls for bringing back ceilings on corporate equity investment, to restrict how much a business group can invest in its own subsidiaries. The restrictions were removed under the Lee Myung-bak government in 2009 to encourage companies to invest more and create quality jobs.

The move clearly didn’t work as prescribed as chaebol families used the freedom to set up their own companies and allow their children to make easy money by leaching off group affiliates.

While Ahn will talk the talk, it remains to be seen whether he is ready to walk the walk. Despite all the media debate surrounding the issue, it could be argued that banning circular equity investment will have no significant influence in reshaping chaebol ownership structures.

Among the country’s cream-of-the-crop conglomerates, only Samsung relies on circular investment, while SK and LG have nothing to do with it. And the talk about reviving the limitations on corporate equity investment aren’t that relevant because this time it’s Samsung, the undisputed corporate kingpin, that’s left out.

In a seminar Wednesday at the National Assembly, Hansung University economist Kim Sang-jo observed that Ahn has “done his homework’’ and seemed to have a balanced view on tricky economy-related subjects. The problem with Ahn, Kim said, is that he has been avoiding discussions on how he will set his priorities between these different matters.

It seems that the majority of voters rate, Lee, the country’s first CEO-turned-president, somewhere between a disappointment and an outright embarrassment. They will have to decide in the coming months whether Ahn would be a better choice. <The Korea Times/Kim Tong-hyung>

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