This study investigates the economic rationale behind privatizing state-owned companies and helps future policy-making or further studies by analyzing the issues and agendas of the privatization plan, as the government plans to privatize public corporations.
Privatization of state-owned companies in Korea has been a concern since 1987, after the Korean government resolved to eliminate inefficiencies in running state companies, and to re-establish the role of public enterprise in terms of economic and social development. The government is considering large-scale privatizations through divestments.
Privatization through divesture can be effective through the instruments of the capital market, such as merger or bankruptcy, to reduce tax burdens with temporarily increased government revenues. This can be expected to control rent-seeking behavior of public employees who want more bonus and wages than private employees. Especially, real estate markets are currently experiencing a long period of stagnation, and investment in stocks are getting more attractive due to the fall in interest rates. Moreover, economic recovery triggered by the weakening of the U.S. dollar and the drop in oil prices has improved the profitability of listed companies remarkably. Also idle cash such as real estate funds, has contributed to enliven the stock market. Given that we must compete with the inflow of foreign capital following the liberalization of the capital market, progressive divesture is expected to contribute to the expansion of our stock market.
When using the method of divesture among target companies for privatization, the company that achieved its original purpose of establishment, does not need to remain as a government-owned corporation or competes severely with private corporations should be privatized in whole. However, partial privatization is preferable by gradually selling companies that are owned and run by the government, due to the influence they have in the national economy and related industries.
It is desirable to sell shares to employees when it comes to relatively labor intensive privatization agencies that are easily influenced by the labor unions. If a company’s specific expertise is required, there is a possibility that the buyer could be within the same industry, but it is recommended to prevent the formation of a monopoly. In addition, the contract system is expected to improve the efficiency of the public sector without transferring the ownership of the company, and it is considered to be an effective method. This is especially true when the target company is a monopoly, or the government continues to dominate the commodity and factor markets for the public good. However, the “free rider” problem and transaction costs can be an obstacle when establishing the contract.
Therefore, the government must consider these issues and conditions when planning to implement future privatizations.
공기업의 민영화에 관한 연구(Research on the privatization of state-owned companies)
|Series Title; No||연구보고 / 88-01|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||KDI; KDI School|