The experiences of past Korean privatization provide us a
mixed signal; the privatization made some public enterprises
better and others worse. However, in general, privatized public
enterprises performed better. Under the pst privatization, the
shares of public enterprises were sold only to some interest
investors although there was a limit of number of shares.
Confinement of sales to some investors was criticized for
aggravating the economic power concentration problem.
The recent Korean privatization scheme, which is
characterized with the large scale Peoples's Share Program, may
be called a hybrid product of economics and politics. The
privatization scheme which seeks two different purposes,
efficiency and equity, concurrently, may be called too ambitious
because two different purposes, efficiency and equity, rae often
competitive each other.
The enhancement of equity seemed to be the priority
objective in the recent large scale People's Program. Government
not only focuses on the low income workers households and
eliminates the large firm investors this time, but also provides a
discount price with government loan, The idea of the People's
Share Program came form the political party of Democratic
Justice Party during he 1987 Presidential election period. The
President candidate Mr. Roh, the President of Korea now,
promised that five trillion own worth of Peoples's Shares will be
supplied to the general public during his term of 1988-92.
No problems of difficulties are seen for the smooth
implementation of the planned privatization. More focuses might
be given to purchasers of the shares, i.e. Low income
participants, government concern might be more on what price
they pay for the shares, how much financial gain they would
enjoy and how to make them to feel the government did the
right thing for them.
There could be a danger for the privatized public enterprises
to be inefficiently operated if their inefficiencies are not exposed
but covered up with subsidies or unit price increase. Government
may see the privatized public enterprises to cone for a help
under the name of People's Share. Government should be aware
of this danger and possibility.
(※ 본 보고서의 Conclusion 부분을 요약으로 대체)
Peoples's Share Program and Its Lessons for Equity
The Korean privatization through the People's Share
Program which was introduced first time in 1988 with the sale
of 37.3% of the Pohang Iron and Steel Company's Stock to the
general public and its employees, has been started with no
special oppositions or resistances from any sector of the people.
The Korean peoples's Share program seems to be welcomed by
the Korean general public.
It may be still too early to evaluate the Korean People's
Share Program and to dray any lessons form the privatization
experiences. However, several immediate impacts and long-term
implications may well be pointed out from both positive and
1. Privatization for Equitable Income Distribution
The Peoples's Share Program could enhance the equitable
income distribution. Low income classes purchased the shares at
a half price and earned almost 100% capital gain within a very
short period in the case of the Pohang iron and Steel Company.
The high capital gain for purchasers of the People's Share
Program was easily achieved from the beginning by the
Government to offer the shares ar a price well below the market
price. The income effect occurs only once for the quick sellers
when the purchased shares are sole at a higher price.
Consequently, the long term holding may not necessarily
increase the income effect, i.e. the capital gain. Even the
guaranteed dividends in the years to come for the shares sole
under the People's Share Program could well be reflected in the
present stock price. The market price of a traded stock will
reflect how good or stable the dividend of the stock. The
purchased shares under the People's Share Program are not the
geese which produce golden eggs in each fiscal year. Incentives
for long term holders may be necessary for some other
purposes, but not for equity or higher income earning purposes.
2. Government Selling Price of the Shares.
The offered price of the shares under the People's Share
Program was lowered on purpose in order to provide some
capital gains, i.e. income effect, for the share holders. In this
case, the lower the government selling price of the shares, the
better the income effect for the share holders. However, it is
irresponsible to offer some 49% of the shares of a large public
enterprise below the half price.
3. Employee Participation
Employee participation into privatization was developed as a
strategy to precent any possible labor disputes due to the fear of
being lay-off after privatization. But in cases of the Korean
People's Share Program. there would be no possibility of being
lay-off for employees of the public enterprises selected for the
Peoples's Share Program. Two reasons; Firstly, all public
enterprises selected for the People's Share Program are not
inefficient ones as is found in many other cases of privatization
in developing countries but very healthy and excellent
performing ones. Healthy public enterprises imply little excess
labor. Secondly, under the Korean People's Share Program, the
maximum proportion of divestiture is 49% and more than 51% of
the shares will still remain under government control.
Organizational structure and management style may not be
changed as we often observe in the case of traditional
The employee participation program in the Korean recent
privatization is not supported with rationales of equity objective
of prevention of labor unrest. In fact, it might deteriorate the
equitable income distribution if the allocation of the shares
within the public enterprise depend on the seniority. The 20% of
the total government offering shares went to employees, and
number of shares allocated per employee is more than 100 times
than the number of shares allocated per low income peopled
outside the public enterprises.
In conclusion, further considerations must be given to
employee participation program, incentive for long term holding
shares and the government selling prices for better results and
higher attainment of future privatization program objectives.
(※ 본 보고서의 Lessons and Conclusion 부분을 요약으로 대체)
Privatization of the POSCO: A Case Study of Public Offering
The effect of privatization can be maximized when the
Government's deregulation is put in force and competitive
environment is provided. For POSCO's case, the privatization did
not change the monopolistic characteristics of POSCO. The
Government still remains as majority stockholder, playing the
dominant role in the control of POSCO. Two issues should be
under examination. Firstly, the Government should study how to
make the iron and steel industry more competitive. Secondly, the
Government should establish management accountability while
reducing its intervention in the daily management of POSCO,
which should be dictated by the Board of Directors. Since the
fact that the Government is still a majority shareholder may
delay its deregulation, a complete disposal of the Government's
interests shall be considered. The point lies in measuring the
trade-off between the efficiency as a private enterprise and the
character as a public entity.