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[Editorial] Reckless management

Despite plunge in operating profit, public companies make no effort to reduce debt

The total operating profit of all state-owned enterprises has plunged 69.9 percent under the current administration.

The poor performance of seven energy enterprises, including the Korea Electric Power Corp. and Korea Hydro & Nuclear Power Co., is largely to blame.

The number of public enterprises that posted an operating loss more than tripled to 17 last year, from five in 2016.

However, their payroll costs increased about 2 trillion won ($1.7 billion) over the same time frame. This was largely attributable to an 18.2 percent increase in the number of employees. The average annual pay of a public enterprise employee rose from 78.39 million won to 81.55 million won in those four years.

Rep. Choo Kyung-ho of the People Power Party released the information as part of an analysis of data on all 36 of South Korea’s state-owned enterprises.

The primary responsibility for the deteriorating performance of public enterprises lies with the current regime.

It used them as a tool to realize the current government’s policies and Moon’s election pledges, such as upgrading the status of all nonregular employees of contractors to regular employees of prime contractors. The president’s nuclear phaseout policy cut into the overall profit of the energy enterprises by reducing the use of nuclear power plants.

The administration’s evaluation criteria for public enterprises are problematic too. It allotted the most points to a new item it made up, the “realization of social values” such as job creation and equal opportunity. On the other hand, it allotted fewer points to items directly related to management efficiency. Naturally, this system put a damper on incentives to generate profit.

Appointing outsiders to CEO or other executive posts through influence from above is a chronic source of malaise and causes reckless management. Appointed that way, they cannot but be submissive to those in power and will curry favor with labor unions. It is hard to expect them to act responsibly. They are just a burden on their organizations.

Kim Woo-nam, a former three-term lawmaker affiliated with the ruling Democratic Party of Korea, was appointed by the president as chief executive of the Korea Racing Authority in February. He became embroiled in controversy after using violent language with an employee who tried to dissuade him from recruiting one of his aides under a “special” process.

Hong Jang-pyo, appointed as president of the Korea Development Institute in May, was Moon’s chief secretary for economic affairs. He is best known as the architect of the president’s signature “income-led growth policy,” which led to steep increases in the minimum wage and the expansion of public-sector employment. Hong stepped down from that role after a year amid worsening economic indicators. He did not seem qualified to lead the Korea Development Institute, but Moon appointed him regardless.

The total debts owed by all 347 of the nation’s public institutions, including its state-owned enterprises, amounted to 544.8 trillion won last year, according to the Ministry of Economy and Finance on Sunday.

Their debts had increased 17.9 trillion won in one year and 49.7 trillion won in the four years from 2017.

This is the outcome of the government policy to fulfill Moon’s election pledges no matter what. The Ministry of Education authorized the establishment of the Korea Institute of Energy Technology in Naju, South Jeolla Province, at a cost of 1.6 trillion won even though the school-age population is shrinking and many local universities are mired in financial troubles. As a presidential candidate, Moon promised an engineering university to voters in the region. Debt owed by Kepco, which will fund the university, increased by 3.8 trillion won last year alone.

The government is effectively the ultimate guarantor of public institutions’ debts, so the debts will make it difficult to manage government finances. The financial difficulties of public organizations are deepening while their debts are snowballing. And yet lax management and moral hazard remain.

Past governments seem to have tried to streamline public institutions, but this government has not even pretended to do so.

If the current government continues to neglect its duties, an investigation or inspection agency should conduct a thorough probe to pinpoint who is responsible.