“If You Lose Credit, It’s Over”... Remember Chung Ju-yung’s Famous Saying!

Credit is reputation. Reputation is built through repeated processes. In that sense, because it is not achieved in an instant, credit is very similar in nature to capital.

Both East and West place great importance on credit, but while Western notions of credit are based on contractualism, Eastern ones are rooted in cronyism based on family ties, regional ties, and school ties.

In Korea as well, cronyism still exerts great influence. In companies, trustworthy people are put in charge of finance, and in supermarkets, family members are entrusted with the cashier’s counter. Thanks to computerization, even part-timers now work the register, but in the past, handling money was mainly entrusted to family.

Credit becomes firmly established not merely by keeping promises, but by having the ability to back them up. In other words, the essence of credit is possessing the capacity to follow through. Credit is built only when one’s ability to carry out work is proven in life, and once credit is accumulated, both individuals and companies can take on bigger responsibilities. That is because credit serves as highly important capital that creates new value.

What businesspeople value most is none other than credit. Chung Ju-yung, the late founder of Hyundai Group, left behind many memorable remarks in his lifetime, and one of them is still widely quoted today: “It’s okay if a business fails. But if you lose your credit, that’s the end.”

In a country with world-class construction capability, Korea has recently seen a string of defective apartment construction scandals. There was even an announcement that apartment buildings with insufficient rebar would be rebuilt. Advances in construction methods may mean that less rebar is needed in some cases, but if less rebar was used in order to siphon off money, that is clearly shoddy construction. For a company, more painful than the enormous financial damage will be the bitter regret of having lost its credit.

Although Korea’s construction capability is world-class, inadequate supervision has brought to light a problem more typical of developing countries. In the construction industry, there is still a rampant culture of funneling work to firms from certain regions. It is shameful that although Korea has entered the ranks of advanced countries, it still has not escaped cronyism. The reality is that because contractualism has not fully taken root, credit has not become firmly established either.

The social climate must change so that capital in the form of credit can be built through precise contracts and faithful fulfillment of promises. If work is divided up and carried out in a share-the-spoils fashion under cronyism, quality cannot be trusted, and credit will inevitably decline. With a cronyism that values personal relationships over quality, further progress is no longer possible. We must move toward a contract-based society, keep promises thoroughly, and raise our stock of credit capital.

Another harmful consequence alongside cronyism is conducting business through political favors. Political favoritism also cannot guarantee quality or build credit. When outsiders intervene in transactions or force choices, quality becomes difficult to maintain.

The path to building credit lies in repeated consumer choice. If you think of restaurants near train stations and restaurants near workplaces, you can understand the power of repetition. People have long said that restaurants around stations are not very good. Because they operate in a “transient market,” with passing customers stopping by only once, they have little incentive to pay close attention to quality. Of course, there are many exceptions.

Commercial areas crowded with office workers are full of popular restaurants. Diners frequented by taxi drivers are also generally known for good food. Because office workers eat every day and taxi drivers return often, restaurants build credit through the process of striving to provide delicious meals.

Repeated consumption and repeated choice build a culture of credit. When decisions are made not by repeated consumer choice but by someone else deciding on people’s behalf, or when coercion and suppression intervene, a credit-based society grows more distant.

One of the representative institutions that lacks public trust in Korea is the university. Because entering university is difficult, all kinds of dubious shortcuts are rampant. In particular, after the rolling admissions system was introduced, various improper methods were employed, and a noisy nationwide scandal resulting from that is still ongoing. In Korea, recommendation letters are written relatively easily, but in the contract-based societies of the West, they are written very carefully and precisely. Carelessly abusing recommendation letters runs counter to the order of a credit-based society.

The system under which students graduate from university too easily must also be changed. Under a university system in which people graduate no matter what, as long as they manage to get in—even by deception—it is hard to build credit. Since everyone graduates once admitted, it becomes impossible to predict, “If someone graduated from Seoul National University, this is roughly the caliber of talent they must be.”

Famous American universities dismiss 30–40% of their students before graduation. In Korea, however, even those admitted by dishonest means still graduate, so universities cannot be trusted. The reason universities cannot fail students is that they run their schools on tuition revenue.

The one indicator that can at least evaluate a graduate’s ability is GPA. Grades are the best information for understanding a person, yet in open corporate hiring, schools and GPAs are made blind. This is wrong. School and GPA are among the most important indicators for gauging a person’s diligence and problem-solving ability, so if those are hidden, what are employers supposed to judge candidates by?

Credit comes from reputation, and companies and individuals with good reputations come to possess brands. To achieve this, both companies and individuals must prove their ability, build reputation, and acquire a brand. When credit accumulates, many opportunities come your way. That is because credit is capital.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: "신용을 잃으면 그걸로 끝이야"... 정주영 어록 기억하라!

Author: Sung-no Choi

Date: 2023-09-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=3&idx=26033