[Expert Analysis] Labor Reform Should Revive Entrepreneurship

Labor reform is what President Yoon Suk Yeol, now entering his second year in office, has been especially emphasizing. In his New Year’s address on the 1st, President Yoon declared that “a country mired in preserving vested interests and rent-seeking has no future” and vowed to pursue the three major reforms of labor, pensions, and education, stressing that “we must first drive our economy’s growth through labor reform.”

At a time when this year’s outlook for the Korean economy is not bright—due to the aftereffects of the previous administration’s anti-market policy experiments and debt-fueled populist giveaways, as well as COVID-19 and the Russia-Ukraine war—it is only natural and proper that the government should place top priority on economic growth. Furthermore, the decision to pursue labor reform first in order to drive growth is an especially precise diagnosis and prescription. Even apart from the current economic difficulties, it has long been well understood that without addressing the problems in the labor market, the Korean economy cannot make a leap forward again.

Global institutions that assess international competitiveness consistently point to Korea’s rigid labor market and abnormal labor movement as the country’s weakest and most backward sectors. Among the many areas that determine national competitiveness, Korea ranks near the bottom—indeed, almost dead last—among surveyed countries in labor-management relations and the labor market, and this sector’s low competitiveness has long held back improvement in the country’s overall competitiveness. Under the pretext of various kinds of protection, all sorts of regulations have been imposed, and strikes have become almost routine in Korea, to the point that the country has earned the disgraceful label of a “republic of strikes.”

Frequent strikes are a problem, but what is even more problematic is their nature. A strike is supposed to be a last resort used by workers to improve wages or working conditions. In Korea, however, unions have been rampant in staging political and illegal strikes over social and political issues that have nothing whatsoever to do with wages or working conditions.

Moreover, these strikes are excessively violent and unlawful. Illegal occupation of business sites is commonplace; CEOs are sometimes confined in their offices and assaulted; workers who do not join strikes are beaten; property is damaged; and all manner of illegal acts are committed. In the recent truckers’ strike as well, steel balls were fired with slingshots at vehicles operated by non-union drivers, causing injuries.

President Yoon Suk Yeol said that “a country mired in preserving vested interests and rent-seeking has no future,” and he mentioned labor unions as a representative example. Among the various cases of corruption and illegality currently under government investigation involving unions, those taking place at construction sites vividly show that unions have become vested-interest groups and corrupt organizations that stand above the law. The Korean Confederation of Trade Unions demands that its members be hired at construction sites, and when those demands are rejected, it occupies the sites or halts ready-mix concrete pouring to obstruct construction and force builders into submission. When non-union workers are on the job, they are prevented from working through threats, verbal abuse, or even physical assault. In addition, pressure is sometimes applied to pay several million won a month to union officials who are not even stationed at the site. Some corporate collective agreements include preferential and special hiring clauses, resulting in hereditary employment provisions stating that “one direct family member of a union member who died of illness while employed, and the children of workers retiring at the mandatory age or with long service, shall be hired preferentially.” This reveals a double standard: while unions are willing to engage in illegal strikes because they are dissatisfied with the companies they work for, they still seek to secure privileged employment at those same companies for their children. A few years ago, so-called “hiring rackets” and “job rackets,” in which unions took money and controlled recruitment, were also exposed.

What the government must be is not pro-labor or pro-capital, but pro-market

Many causes are cited for why labor unions have come to wield such unchecked power while standing above the law, but the biggest reason, in particular, is said to be that the government and political circles have gone beyond mere leniency toward unions and pursued union-biased or labor-biased policies. In labor-management relations, it is not the role of government in a free-market economy to take one side and strengthen it in the name of balancing power. The claim that one must be either “pro-labor” or “pro-capital” is an outdated argument trapped in class-based and binary thinking. In fact, under the Moon Jae-in administration, there was even an eagerness to curry favor with the Korean Confederation of Trade Unions, described as a “comrade of the candlelight revolution.”

What the government must be is neither “pro-labor” nor “pro-capital,” but “pro-market.” And the most essential element of a pro-market policy is strict enforcement in accordance with the rule of law and principle. A market without law and principle cannot really be called a market at all. As the recent truckers’ strike once again showed, rigorous enforcement based on law and principle is the single most effective core element in establishing sound labor unions, healthy labor activity, and advanced labor-management culture. In this respect, President Yoon Suk Yeol’s emphasis on “law and principle” when referring to labor reform shows that he has accurately identified the heart of the matter.

The Yellow Envelope Act (Revised Labor Commission Act) is a law that encourages illegal strikes

Examples from abroad likewise show clearly that responding according to law and principle is the only solution capable of putting an end to illegal and violent labor movements and achieving labor reform. One classic example is Prime Minister Thatcher, who neutralized union power by consistently adhering to law and principle during the 363-day miners’ strike in Britain in 1984. Another is President Reagan, who in 1981 dismissed en masse more than 11,500 of the approximately 13,000 federal air traffic controllers who failed to return to work within 48 hours after going on full-scale strike. When New York City’s transit union went on strike in December 2005, a New York court immediately imposed fines on the union, ruling that the strike was illegal from the outset. In that strike—the first in 25 years—the New York transit union had no choice but to surrender after just three days.

The Yoon Suk Yeol administration has said it will thoroughly hold those responsible for the losses caused by the recent truckers’ strike. This is something that must, of course, be done. Some say it is better to “let bygones be bygones” and call for lenient handling of losses caused by strikes, but we must remember that this sort of after-the-fact leniency is exactly what has encouraged unions’ illegal and violent behavior up to now. Why else would labor unions be so desperately clinging to passage in the National Assembly of the so-called Yellow Envelope Act (Revised Labor Commission Act), which would block damages claims and provisional seizure lawsuits against striking workers? Restricting damages claims and provisional seizure for illegal strikes is essentially an “illegal strike encouragement law” that grants immunity to carry out illegal strikes without fear.

If this law is passed, the government and businesses will be stripped of effective means to respond to labor unions’ illegal strikes and will be left helpless against them.

For the triumph of law and principle, government resolve is important, but so too are the public’s awareness of and attitude toward labor unions’ illegal strikes. Prime Minister Thatcher was able to carry out labor reform because the public endured the inconvenience caused by illegal union strikes and gave absolute support to the government’s decisions. Without such public support, labor reform can only stall or be halted midway. That was the case with Prime Minister Heath, who pursued labor reform before Thatcher. Heath also pushed labor reform, but when he failed to secure wholehearted public backing, he ultimately had to retreat.

In Korea as well, the public’s view of labor unions and the labor movement has changed considerably. Whereas labor activism was once seen as part of the broader democratization movement, there is now a widespread perception that strikes are largely a festival for “aristocratic unions” and “aristocratic workers” centered on large corporations, and that strikes involving illegality and violence are unacceptable. According to a survey by one business organization, more than 50 percent of the public view labor union strikes negatively. The fact that President Yoon’s approval rating rose when the government responded to the recent illegal truckers’ strike with law and principle appears to reflect this changed public perception. It may be interpreted to mean that a certain degree of public support for labor reform has now been secured.

Labor reform aimed at breaking the vicious cycle of unions’ illegal and violent strikes and fostering a healthy labor movement is no longer a task that can be avoided. In this regard, what must not be overlooked is the need to abolish or ease the various regulations that currently leave businesses defenseless in the face of strikes or illegal and unjust union demands. A recent example speaks for itself: on January 9, former GM Korea president Kaher Kazem, who had been indicted on charges of illegally receiving 1,700 dispatched workers from subcontractors, was found guilty. This case plainly shows the rigidity of Korea’s labor market and the existence of absurd regulations. The basis for the conviction was that “although it was in-house subcontracting, it was substantively recognized as illegal dispatch.” And this is not the only problem. Even when a company is on the brink of shutting down, it cannot dismiss workers, and even in the event of an illegal strike, it cannot use replacement workers. The reality is that companies have virtually no means to defend themselves against or push back against unions’ illegal and unjust conduct. The institutional tasks for labor reform announced by the Yoon administration include only such items as making the 52-hour workweek more flexible and reforming the wage system. Measures that would give firms means of defense and response—such as allowing replacement workers and expanding the scope of legal dispatch—have been postponed for later discussion.

If this continues, labor reform may end up as only a half-finished reform. When asked what the secret of the success of her reforms was, Prime Minister Thatcher answered as follows: “The secret of success can be summed up in a single word: ‘enterprise.’” That is why the goal of labor reform must be to create an environment conducive to doing business and to reviving entrepreneurship.

Hyukchul Kwon, Director, Freedom and Market Institute

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Original title: [전문가 진단] 노동개혁의 지향점은 기업가정신을 살리는 것이다

Author: Hyeok-cheol Kwon

Date: 2023-01-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=25299