South Korean Leader Pursues Labor Reform: Lavish Benefits for Workers Make Seoul Less Competitive

Article excerpt

SEOUL - A barricade of armored green buses surrounding a demonstration by union workers in downtown Seoul last Sunday recalled an earlier era of military rule, with one big difference. A decade ago, riot police in Darth Vader helmets would have stormed from the buses, firing volleys of tear gas before cracking a few heads.

This time, the helmets and tear gas remained inside the buses. Police looked on as about 1,000 members of the outlawed Korean Federation of Trade Unions passed out box lunches, listened as leaders denounced the government and then quietly returned home.

As an economic reformer, South Korean President Kim Young-sam is gearing up for perhaps his biggest challenge yet with a proposed labor reform bill that would for the first time permit companies to lay off workers if business slumps.

The nation's two biggest labor groups, including the one that hosted Sunday's rally at Seoul Station, called for a series of general strikes this week to protest the legislation.

The government responded by postponing consideration of the legislation until sometime next year and labor groups called off the strikes, leaving both sides with an uneasy truce.

"The president is reluctant to force this [labor reform] measure through the National Assembly without first achieving some consensus with the opposition [political parties] and between labor and management," said Information Minister Oh In-whan.

Another reason cited by private analysts was waning support for a government-labor showdown within Mr. Kim's own New Korea Party, which maintains a slim three-seat majority in the 299-member National Assembly.

The pause gives labor time to campaign for a milder bill, a task made easier by the approach of the fall presidential campaign.

Still, labor reform tops virtually every list of prescriptions by both private and government analysts to keep Asia's biggest "tiger" economy from choking on its own success.

South Korean manufacturers, once lean and efficient exporters, find themselves strangled as global competitors by annual wage increases that have averaged nearly 20 percent since 1985 - a staggering amount for a nation that managed to keep inflation below 6 percent.


In addition to hefty pay increases, Korean workers won fringe-benefit packages that in most countries would be reserved for top-paid executives.

Big South Korean conglomerates often give assembly-line workers allowances to buy homes, pay their children's tuition at private schools and buy automobiles. They even provide free meals in company dining rooms during working hours.

"It's been a nice country for a worker," said Cho Yoon-jae, a senior counselor at South Korea's Finance Ministry.

But he added: "Our businesses can no longer compete effectively in the world market. What else can we do?"

Businesses have responded by voting with their feet.

"It's cheaper to manufacture overseas," said Lee Hahn-koo, president of Daewoo Economic Research Center, the policy research group funded by the Daewoo organization, one of the nation's top four industrial conglomerates.

In recent years, Daewoo has plowed more than $500 million into European ventures, including an electronics plant in Northern Ireland,{D-} a shipyard in Romania and a computer-parts company in France.

Daewoo's investments make sense as the company positions itself to compete in an expanding European Union. In addition, Mr. Lee said, it can save 10 percent to 20 percent in labor costs alone.

By moving offshore, Daewoo and other South Korean companies can also avoid other costs, including double-digit interest rates and soaring land prices.

Apart from labor, costs incurred by a South Korean company to build and equip a new factory or expand an existing facility are three times as high as in pricey Japan. …