“Economic democratization” is neither the spirit of the times nor in step with them—it runs against the times.

Economic Democracy Originated in the Tradition of Revolutionary Socialism

The Moon Jae-in Government’s Imitation of Chávez: Economic Liberalization Is the Prescription

Recently, economic democratization surrounding the “Three Fair Economy Acts,” packaged as the “three corporate regulation bills,” has emerged as a hot issue. Despite objections from the business community, not only the ruling government party but even the emergency committee chair of the right-wing opposition party—which ought to defend the free-market economy—has joined in, expressing agreement with the “three regulation bills” in broad terms.

Few concepts in South Korea wield as much influence as economic democratization, yet few are more ambiguous. Those advocating economic democratization insist that it is already the “current of the times” or the “spirit of the age” that transcends both progressives and conservatives. They also disparage scholars who criticize economic democratization as neoliberal economists engaging in “red-baiting,” or even issue warnings such as: “Political forces that engage in such foolish brainwashing should be democratically purged.”

Is economic democratization truly South Korea’s “spirit of the age,” and not a choice but a necessity for an advanced economic order? In fact, economic democratization is nothing more than an anachronistic product that no advanced country actually implements.

Why, then, has such a grave misunderstanding arisen? The reason seems to be that most of those advocating economic democratization either do not understand the historical background and theoretical development of economic democracy in the West, where it originated, or, even if they do, deliberately avoid revealing its socialist character.

With few exceptions, advocates of economic democratization argue that it does not deny the market economy and is instead necessary to supplement its shortcomings. But they do not know—or choose to ignore—that economic democracy originated in the line of revolutionary socialism and that, although there are differences among groups around the world that advocate economic democracy today, it is fundamentally anti-capitalist in character.

◆ Economic Democracy Began in the Tradition of Revolutionary Socialism

In Germany, where the concept of economic democracy first developed, economic democracy was a concept proposed and systematized in 1928 by Fritz Naphtali of the General German Trade Union Federation (ADGB) as a program for transition to socialism. It was based on the theory of “organized capitalism,” established by the Marxist theorist Rudolf Hilferding during the Weimar Republic as a preliminary stage in the transition to socialism.

Naphtali clearly defined economic democracy as a concrete and realistic path from capitalism to socialism, stating that socialism and economic democracy were inseparably linked as the ultimate goal. At the same time, Naphtali emphasized the importance of individual policies, saying, “Each small, individual advance in economic democracy is at the same time a cornerstone for realizing the great ideal world of the future.” Although Naphtali’s program for economic democracy was never carried through, it has continued to be discussed until recently as a theoretical source for criticizing capitalism and presenting alternatives.

Economic democracy has appeared in various forms in individual countries up to recent times. In Germany, after World War II, the Social Democratic Party (SPD), which advocated economic democracy, lost elections, and the Christian Democratic Union (CDU)’s social market economy became established as the economic order. At the same time, codetermination—under which worker representatives participate on supervisory boards at the corporate level—was institutionalized to promote cooperative labor-management relations.

The worker-director system now being pursued in Korea is practiced in Germany and many other European countries. However, because of inefficiency, the proportion of firms adopting codetermination has continued to decline, and many German companies are converting into European Companies (SE), where the smaller number of supervisory directors enables faster management decisions.

Meanwhile, the Social Democratic Party, which had led the cause of economic democracy, effectively abandoned it after the 2007 Hamburg Program, and today only the far-left Left Party (Die Linke) and labor unions (DGB) continue to advocate economic democracy in Germany.

Outside Germany, economic democracy has appeared in other forms as well: Israel’s kibbutz collective agricultural communities; the “self-management socialism” of Tito’s former Yugoslavia; the “humanistic economic democracy” advocated by Ota Šik in Czechoslovakia; autogestion that appeared in France in the 1960s and 1970s; “wage-earner funds,” proposed by Meidner and passed at the 1976 congress of the Swedish Trade Union Confederation (LO); and Spain’s Mondragon community, organized in the form of cooperatives. In addition, the Chávez regime’s “worker control” and “communal councils” are a Venezuelan model of economic democracy derived from Yugoslavia’s self-management socialism.

More recently, after the 2008 global financial crisis, economic democracy has been discussed in some left-wing circles as a social democratic strategy that encompasses a variety of efforts seeking an anti-capitalist path—not the discredited Soviet model—as a critique of and alternative to neoliberalism.

In sum, economic democracy originated in the tradition of social democracy or revolutionary socialism, and can be divided into one line that makes codetermination or the socialization of control its primary task, and another that advocates abolishing the principle of private ownership or capitalist property relations.

◆ Korea’s Economic Democratization: From Critical Discourse to Power Discourse ... A Flood of Anti-Market Regulation

Kim Chongin, who styles himself the godfather of economic democratization in Korea, has never disclosed these historical roots of economic democracy, and has subtly distorted the facts by suggesting that social market economy and economic democracy—opposing concepts—are essentially the same. Because these foreign historical experiences and theories were never properly introduced in Korea, even liberal-leaning intellectuals have come to mistake economic democratization for the spirit of the age. Since the phrase “democratization of the economy” was quietly inserted into Article 119(2) of the 1987 Constitution without consensus among the drafters, Korea’s economic democratization has carried a theoretical flaw in that its concept has still not been clearly established.

Instead, economic democratization has shifted from a “critical discourse” to a “power discourse,” recklessly expanding its domain through a flood of anti-market regulations in the name of economic democratization, and amplifying social deprivation and social conflict with the notion that all of Korea’s problems can be reduced to the greed of the chaebol—the theory that “chaebol are the root of all evil.” Yet advocates of economic democratization ignore the fact that the rent-seeking forces that actually disrupt Korea’s economic ecosystem are predatory speculative capital, giant public enterprises, the state’s monopolistic administration, and organized labor unions.

The group leading chaebol reform in Korea claims to advocate shareholder capitalism to break up the distorted monopolistic structure of the chaebol. In reality, however, it is serving the interests of domestic and foreign speculative capital allied under the banner of shareholder activism. As the U.S. case has repeatedly shown, shareholder activism can damage an economy.

Korea already has many regulations rarely seen in other countries, such as the ban on new circular shareholding, conduct regulations on holding companies, and a treble punitive damages system through compulsory compliance fines. These regulations are premised on the idea that large corporations are inherently evil, and they hinder the Fourth Industrial Revolution while discriminating against domestic firms in the global market. Excessive regulation is preventing the emergence of new unicorn and decacorn companies in the Korean economy.

◆ The 3% Voting Cap on Largest Shareholders Is Unprecedented in Capitalist Countries

The “three corporate regulation bills” now being pushed by the government—multiple derivative suits, separate election of audit committee members and a 3% cap on the voting rights of largest shareholders, and expanded exclusive prosecutorial authority for the Korea Fair Trade Commission—will clearly undermine corporate management rights at a fundamental level and shrink the economy. In particular, the separate election of audit committee members and the 3% voting cap on largest shareholders are unprecedented in capitalist countries, and are pernicious laws that open the door for outside forces to join corporate boards, effectively throwing companies built through the blood, sweat, and tears of the people to speculative capital as prey. Moreover, in foreign countries where punitive damages and class action systems have been introduced, the side effects from abuse have been severe.

Countries around the world protect management rights in domestic firms and reduce corporate burdens through various policies such as dual-class shares and poison pills. Korea, by contrast, is doing the opposite: rather than protecting its own companies, it is filling in the moat and opening the gates of the castle to the enemy. If large corporations, which must undertake large-scale new investment, are strangled, who will prepare the industries that will feed us in the future?

One more point must be mentioned: in contrast to other countries’ historical experience, the existing discussion of economic democratization in Korea—centered on groups advocating shareholder capitalism and taking issue with the ownership and governance structure of large corporations—is undergoing a qualitative change. Under the pretext of economic democratization, after binding the hands and feet of the chaebol through various corporate regulations, the movement is increasingly likely to shift toward strengthening workers’ control over firms and emphasizing workers’ ownership of firms or the socialization of ownership. This is already visible in the separate election system for audit committee members, the worker-director system introduced first in the public sector, and the realization of pension socialism through the stewardship code.

In this way, we are heading toward a country we have never been to before. What should be purged are not neoliberal economists accused of engaging in “red-baiting,” but certain animals that speak of equality while being “more equal than others.” We must quickly awaken from the anachronistic delusion that economic democratization and excessive corporate regulation—measures not adopted in advanced countries—constitute intervention to establish a market-competition order, and instead strengthen corporate competitiveness through economic liberalization to achieve Korea’s economic recovery and renewed takeoff.

Sangcheol Kim, President of the Korean Society for Ordoliberalism and Professor at Hansei University

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Original title: 경제민주화는 시대정신 아닌 시대착오에다 시대역행

Author: Sang-cheol Kim

Date: 2020-10-29

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=23371