On the Strike Path Again

KCTU News, 12 September 1997

KCTU, at its extraordinary National Congress on September 5, adopted a special resolution to organise and wage a general strike in order to defend and advance job security and economic democratisation. The resolution calls for all KCTU affiliated unions to undertake all possible organisational measures to prepare for a general strike by the end of September. The resolution mandated the KCTU leadership to organise the necessary programme and schedule of activities required for a successful general strike.

The decision of the National Congress, which at the same time decided to approve president Kwon Young-gil’s nomination as the People’s Candidate in the upcoming national presidential election [see KCTU News Sept. 6, 1997], comes in the wake of heightened attacks on workers by the government and employers and worsening of employment insecurity.

The Background

The renewed campaign—ideological and economic offensive—by the government and employers to make workers the sacrificial lamb for the various difficulties faced by Korean economy and corporations is fueling the momentum of resurgent resistance. Korean government and employers assert that Korean economy—in fact the dinosaur conglomerate chaebol groups—can only survive by giving the employers a blank cheque power to dismiss workers at any time, reduce wage levels, and roll-back the power and right of unions

The government and business are intent on introducing radical and indiscriminate weapons aimed at tearing apart whatever little there is in Korea of employment and social protection. They were once frustrated in their attempt due to the ‘unprecedented’ General Strike. They are exploiting the current society-wide anxiety over economic difficulties to revive those instruments they had to put on backburner due to the popular resistance.

The Weapons that Will Wreak Social Catastrophe

Government, backed by the employers who have always relied on it as their defender, is preparing to introduce an American-style labour market instruments and practices. These include ‘redundancy mass dismissal’, ‘contingency workforce’, lifting of legal protection on wages, and privatisation of various work related insurance programmes, such as, ‘Industrial Accident Compensation Insurance’.

Redundancy Dismissal

Legislative provisions for ‘redundancy dismissal’ was first introduced in the labour law bulldozed through the parliament in the early morning of December 26 last year, which triggered the unprecedented general strike. In subsequent the re-amendment forced by the general strike, the enforcement of the provision was postponed by two years. Furthermore, the general strike succeeded in removing the possibility of ‘redundancy dismissal’ at the time of company acquisition or merger. The legal provision, to come into effect in two years, allows ‘redundancy dismissal’ only when the employer fulfills a number of conditions and criteria (Article 31 [Employment Adjustment for Managerial Reasons] Labour Standard Act 9:

1. If an employer wants to dismiss a worker for managerial reasons, there shall be urgent managerial needs.
2. In the case of paragraph 1, an employer shall make every effort to avoid dismissal of workers and shall select workers to be dismissed by establishing rational and fair standard of dismissal.
3. Employer shall have sincere consultation regarding measures to avoid such dismissal and standards of dismissal stipulated in the provision of paragraph 2 with a trade union of business or workplace, in cases where a trade union is formed by the consent of the majority of all workers, or with a person who represents the majority of all workers (hereafter referred to as workers’ representative), in cases where there exists no trade union which is composed of majority of all workers.

The enforcement of the provisions for ‘justified’ redundancy dismissal or layoff was put back for 2 years by an Addenda to the Act (Article 1 Addenda): This Act shall take effect from the date of its promulgation, provided that the provision of Article 31 shall be effective 2 years after the date of promulgation.

Employers, unhappy with the moratorium, have repeatedly asserted the need to introduce the power to dismiss workers en masse. In order to bypass the legal trap, the government, led by the powerful Ministry of Finance and Economy, and the business, led by Korean Federation of Industries, an umbrella organisation of chaebol groups, have called for a new Industrial Structural Adjustment Act which would allow redundancy dismissal in cases of company acquisition or merger and weaken the conditionality (definition) of ‘urgency’.

The recent series of bankruptcies, effecting not only small to medium enterprises but also large conglomerate chaebol groups, have been used to justify their call for the new measure.

Contingency Workforce

Another weapon the employers want to deploy is temporary workforce system. Currently, it is illegal to engage in a business whose main work is supplying temporary workforce to other companies. There have been repeated calls by employers to foster ‘labour leasing business’ which would supply temporary workforce on demand. However, the issue was excluded from the discussions for the reform of the labour laws last year because of its explosive nature.

The reason for explosiveness of this issue lies in the fact that people are acutely aware of the intentions behind introducing such a system. Temporary workforce system, in Korean context and given the attitude of employers, cannot be short-term supplement to the regular employees. Workers believe that companies will replace the existing jobs with temporary contracts. It will mean that the existing regular employees will be forced to abandon their regular status and be hired back as temporary workers—perhaps contracted to a labour supply agency—on permanent basis.

The temporary workforce system will have two major effects. One is the drastic downgrading of wage and benefit conditions. This is only natural if such a system has to provide ‘profit’ to the labour supply company. Even if a company’s wage cost remains the same for hiring a temporary employee as for a regular employee, the fact that labour supply agency has to make profit means a reduction in income for the temporary worker. Furthermore, temporarily contracted workers will also lose other benefits given to regular employees. The worst consequence are the continuing or permanent insecurity that will arise from temporary status and the fact that workers—even more starkly—will be reduced to mere ‘disposal’ equipment or parts.

Ripping Off Workers of Their Retirement Allowance The crisis felt by ordinary working people are exacerbated by a recent decision of the Constitutional Court concerning the priority given to the payment of wage and retirement [severance] allowance in liquidation of a company. The decision, coming at a time when there is a growing concern over unilateral layoff and company bankruptcy, has galvanised the anxiety and anger of ordinary working people.

On August 21, 1997, the Constitutional Court found the Paragraph 2 Article 37 of the Labour Standard Act inconsistent with the Constitution. The legislation in question states:

wages for the latest three months, retirement allowance and accident compensation shall be paid in preference to any obligation, taxes, public levies and other claims secured by pledges or mortgages as to the total property of an employer.

The Constitutional Court’s ruling, heralded by business as godsend news, means that the companies can attend to other debt obligations in the process of liquidation following bankruptcy. It has the effect of flushing away a lump sum savings which workers have counted on as retirement fund. This will free companies from the obligation to maintain a separate (untouchable) fund with regular deposits, as is the case in some companies on the basis of a collective agreement with the trade unions.

Retirement allowance is a legal obligation for a company set by the Labour Standard Act in Paragraph 1 Article 34:

An employer shall establish a retirement allowance system whereby an average wage of more than 30 days shall be paid for each year of consecutive years employed as a retirement allowance to a retired worker.

‘Retirement allowance’ is perceived and accepted as ‘delayed wage payment’, an integral part of a worker’s wage. It has always been included, in Korea, in the calculation of total wage of a worker. It has become established as a savings scheme for post-retirement in the absence of a universal old age or retirement pension programme provided through national welfare system. Workers have also utilised ’retirement allowance’ just like any other long-term savings scheme. It is a wide spread practice among workers to draw on ‘retirement allowance’ in times of economic emergency or use it as collateral for loans.

Given that ‘retirement allowance’ is the only substantial ‘social security’ scheme, the decision of the Constitutional Court sent seismic waves across the entire society. The impact of the decision took on an even greater dimension because of the economic and social atmosphere of hopelessness brought about by the unending series of bankruptcies.

The Economy—the New Battle Ground

Korean economy is gripped by a new round of crisis and capital offensive. Newspapers are awashed with stories of unending company bankruptcies and collapses. The current ‘crisis’ exposes critical problems in the Korean economy, society, and politics.

The crisis is brought about by the inability of the ‘champions’ of export- led economic growth to respond effectively to the mounting pressures of new economic environment triggered by the changes in the external conditions and internal dynamics and system.

The Chaebol System—At the Heart of the Structural Problem

The prospect of exposure to competition in a globalised economic environment has exposed the vulnerability and fragility of the chaebol centred economy and the chaebol system itself.

Korean chaebols—which may have been an effective business organisation in the past—are found to be unsuitable for the new economic environment. A typical chaebol group is composed of several tens of separate companies operating in different business areas, ranging from furniture to fashion, semi-conductors to securities, and automobile to construction. The chaebol system has acted as an insurance system for these companies. When one company is in trouble—perhaps because it is a new entrant or it is in the early stages of investment and market creation or due to unforeseen shifts in the export prices, as in the recent collapse of the semi-conductor prices—it could rely on other companies within the group—which are faring better—to bail it out. The need to create such a ‘self-help’ backup network of support led to the expansion and consolidation of the chaebol system.

In order to expand their ‘insurance coverage’, the chaebol groups have spread their tentacles into all possible, available, and promising fields of business activities. The overall consequence of the ‘chaebol’ system is two-fold.

On the one hand, the resources of each chaebol group are spread thin. A successful company within a group is not given an opportunity to develop into a specialist enterprise within its own field of expertise, through research and development and market entrenchment. Such a problem occurs because the ‘profit’ obtained by this company is re- channeled to fund or support other companies within the group which are either having difficulties or new ventures. Furthermore, its assets are used as collateral for loans obtained by other members within the family. (This is known as ‘cross loan guarantee’.) It may, therefore, be forced to shoulder the burden of debt repayment in some cases. Thus companies within a group is faced with financial vulnerability and the possible failure to develop into a stable specialised business organisation.

On the other hand, any given field of economy—or a promising new industry—becomes crowded by indiscriminate entry by a number of companies of different chaebol groups. The result is competitive overlapping and excessive investment—and overall over-capacity. (All of this activity is funded by bank loans and re-channeling of ‘profit’ from other members within the chaebol group.)

Much of the pressure for ‘structural adjustment’, therefore, stems from this practice rooted in the chaebol system.

The current Kia Group case is just one demonstration of the common problem faced by all Korea chaebol groups. The Kia Group, the eighth largest business group in Korea with 28 individual companies has a total debt of 9.54 trillion Won with an overall debt-to-equity ratio of 523%. The capital required for Kia Group’s expansion was mostly obtained through loans from various financial institutions. As a result, Kia Motors, the flag-carrier of the group, with 7 billion Won in net profit in 1996, had to bear the burden of ‘keeping alive’ other members in the group, such as, Kia Steel, which had a loss of 89.5 billion in 1996.

The collateral or guarantee of repayment for the loans is provided by other companies within the group—just as Kia Motors served as the guarantor of loans obtained by other companies within the Kia Group -- in a system of ‘criss-crossing re-payment guarantee’ among the companies within a chaebol group. As much of the expansion of chaebol groups is financed by loans, most chaebol groups are heavily indebted.

The fact that the loans were obtained on the basis of collateral and guarantees from other members in the group means that a bankruptcy at one company in the group may catapult into a chain reaction of serial bankruptcies within the entire group.

Falling Dinosaurs—Chaebols Are Not Immune from Bankruptcies

This year a number of major business groups have gone into bankruptcy. Hanbo, Sammi, Jinro, Daenong, Kia, all ranked to within the 30 largest groups, have either gone down or on the verge of bankruptcy.

The bankruptcies of large chaebols do not just end with their collapse. They produce a chain reaction among the suppliers and subcontractors, affecting thousands of smaller companies. For example, the current difficulty in the Kia Group has forced some 18,000 ‘cooperating’ companies—with a total workforce of 550,000—into irrecoverable trouble, many ending in bankruptcy.

The problem is exacerbated by the unique system of ‘settlement of accounts’. The final product producers usually settle their accounts with suppliers and subcontractors with ‘promissory notes’ due in 2 to 6 months. (It is also common for companies to obtain cash from a lender -- usually banks and secondary financial institutions—in exchange for advance interest payment and promissory notes.) The bankruptcy occurs when the issuer of the promissory notes is unable to settle them as they return on their due date. (Lending banks usually hold on to the promissory notes. But, it is also common for lending financial institutions to circulate the IOU cheques just as they would with cash. Once the promissory note enters circulation, anyone who has the cheque can demand the original issuer to fulfill the monetary obligation.) It is customary for banks to guarantee the promissory notes on the basis of the collateral and guarantee put up by the original producer. Sometimes, the banks chip in to bail out the company which is unable to settle the promissory notes that return. But bankruptcy occurs—when the original issuer is incapacitated—when the banks, for various combined (political and economic) reasons refuse to settle the returning promissory notes.

Giant conglomerate chaebol groups have held the government, economy, sub-contractor small to medium enterprises, and workers at ransom. Exploiting the potential immensity of the impact and reverberation of their collapse, chaebol groups have been able to extract considerable concessions and privileges from the government. Their indiscriminate entry into new business activities, supplementary loans to cover for their debt obligations, special assistance by the central bank, mobilisation of state resources and coercive instruments to repress trade union movement, and abuses against suppliers and subcontractors were all made possible by the preponderance of the chaebol system.

The chaebol system flourished during the development dictatorship of former (military) dictatorial regimes. However, the combined effect of increasing democratic pressure—created and fuelled in some part by the growth of democratic trade union movement—and liberalisation—both domestic and global—have began to wash away the ground on which it was built and maintained.

A careful examination of the structure and shape of Korean economy points to the chaebol system as the heart of the problem. Indiscriminate business expansion into unrelated industries, overlapping excessive investment, over-capacity, and structural indebtedness—causing such problems as increased financial cost, deterioration of business profitability, and destabilisation of financial structure—are the key features of the problem. Chaebols’ effectiveness stemmed from their size, volume, and extension rather than competitive edge based on sophistication, refinement, and resilience. They are all inherent elements of the chaebol system. They are also the central problems that need to be tackled by any structural adjustment.

Workers Not the Scapegoat, But the Force for Fundamental Change

But public discussion of ‘structural adjustment’—conducted by government, employers, and mass media—are devoid of mentions on these problems. Rather, it centres on wage, workforce, and welfare—that there is too much of these. It is clear that the government and big business are intent on making the workers the scapegoat of the problem, and attempt to ‘rise’ out of the problem by trampling on them.

The general strike earlier this year, however, demonstrated Korean workers’ will and determination clearly.

While the immediate issues centre around employment security, the central significance of the current momentum of trade union activism focus on the question of a fundamental restructuring of Korean society, economy, and politics.

The question is: will the working people—and their organisational representative in the form of trade union movement—be excluded from the re-shaping of economy and society? The current economic, social, and political system is firmly based on exclusion of labour. This is found in many aspects of the Korean society. The absence of meaningful social security and welfare system, the non-existence of a political party capable of representing or claiming to represent working people, and the very lack of any form of ‘co-determination’ in workplaces are the very manifestation and result of decades of exclusion.

The two decisions adopted by the KCTU National Congress on September 5, 1997, reflects the approach taken by KCTU to the current problem. KCTU has decided to meet the current challenge on the basis of a long-term strategy for political empowerment and industrial militancy.

KCTU’s commitment to industrial militancy involves short term and long term programmes. In the short term, KCTU will mobilise its members to remain vigilant against the attempts of the government and employers to introduce anti-labour measures by stealth. It is determined to counter demands for ‘flexibility’—which calls for legislation and other institutional measure to allow business to retrench workers, rip off workers retirement allowance, to exploit temporary labour—whipped up by the government and business. This will involve galvanising the entire organisation and society to prepare for a general strike.

In the long term, KCTU will develop a society-wide movement to build genuine social security and welfare system and to reform the current economic structure dominated and strangled by monopoly chaebols. This requires a social movement and an active industrial relations engagement at the plant level.

While social movement is needed to build up a society-wide consensus, company level efforts are needed to advance and institutionalise (through collective bargaining agreement) the participation of workers and unions in corporate governance.

(Trade union participation in managerial strategic decision making would have prevented the excessive and over-stretching ventures into new business fields which could jeopardise the corporate health. President Kwon Young-gil, in a recent statement, declared, an active trade union engagement and participation would have prevented the current Kia problem.)

The decision of the KCTU National Congress to approve President Kwon Young-gil’s candidacy in the upcoming national presidential election is, also, closely linked to the long term strategy. It reflects an awareness of the need to bring about political change which can underwrite and complete the institutional reform.

KCTU is, therefore, set to begin a new general strike.