New scheme suggested as alternative to controversial ‘profit-sharing’ plan


The government will encourage big businesses to share the benefits of cost reduction and technology development with their smaller subcontractors, as an alternative scheme after conglomerates blasted its controversial profit-sharing plan.

The Ministry of Knowledge Economy said that sharing benefits would be a more viable option than the profit-sharing plan suggested by former Prime Minister Chung Un-chan in February, which had ignited a debate in the business community.

“Excess profit-sharing is technically hard to put into practice, and corporate benefit-sharing is a more practical approach to helping subcontractors,” the ministry said.

The alternative plan came after Chung’s idea to push big businesses to share excess profit sparked fury among conglomerates, politicians and academics who called it a “radical leftist” attempt to disturb the free market economy.

The alternative suggested by the Knowledge Economy Ministry, dubbed the “benefit sharing program,” seeks joint efforts between big and smaller firms to cut costs and deliver technological breakthroughs and encourages the benefits to be shared before they become excess profit to conglomerates.

Chung, who now heads the semi-official commission for “shared growth,” announced on Feb. 23 that his team will develop a new index to measure large corporations’ devotion to the goal of mutual growth and curb their rampant mistreatment of smaller partner firms.

The idea was part of the Lee Myung-bak administration’s policy of promoting fair society which prioritized wide diffusion of wealth. It began when Lee included a fairness mantra in August 2010 in his Liberation Day speech where he vowed to fix the lopsided relationship between big corporations and their smaller partners.

Chung, appointed to head the fair society campaign at the commission launched in December, has been advocating a profit sharing system to repair Korea’s feeble social welfare system.

But big businesses instantly slammed the plan, with Samsung Electronics chairman Lee Kun-hee saying of it, “I simply don’t understand what it is or what it means.”

Chung later stopped using the term profit sharing system.

“The goal is to keep alive the broad spirit of sharing profits between big and smaller companies that can be maintained without generating unnecessary controversy,” a commission source said without going into details.

The Federation of Korean Industries, the largest lobby group for businesses, in 2004 recommended that its member companies share profits with their suppliers. But only steelmaker POSCO has adopted the system since.

Hyundai Motor Co, the largest carmaker in the country, has a benefit-sharing program with its suppliers.

By Cynthia J. Kim (cynthiak@heraldcorp.com)