A Fox in the Hen House

A fox in the hen house
In restructuring of the South Korean economy
January 25, 2001

When a hen house is in greatly disrepair, it is surely wise step for the owner to call a repairman to fix the damage and ask him how to keep a hen house in good shape.
However, when the repairman has an entrenched self-interest on the hen house, as in the case of a fox given a task to guard chickens, the whole shebang of hen house repair falls apart and eventually there is no more hen house to keep chickens safe.

Though the fox metaphor may sound too crude or simple to describe what South Korean economy has encountered in these days, DJ Kim, as a poster boy for globalization, has called in a bunch of Wall Street financiers, bankers, and investors to repair (invest) the South Korean hen house and placed them in major positions from the financial regulatory institutions to the corporate management circles. (Major banking and finance institutions keep foreigners as director, vice president, or consultant, who keeps tabs on daily management of the corporation.)
When Hyundai group has announced their restructuring scheme in a recent press conference, there were group of blue-eyed, high-nosed, and baggy-jowled financiers from Salomon Brothers watching over the squint-eyed, yellow-skinned, and obsequious Hyundai executive’s shoulder.

Since the hen house owner, DJ Kim, holds no academic, professional, or any other credentials (he has a high school diploma) regarding economics or finances, he wholeheartedly relies on the expertise from these group of transnational “free-marketeers”, whose mantra dictates that the marketplace will solve all evils if it were left alone, and every South Koreans will enjoy economic expansion, individual freedom, and unlimited bliss by fully privatizing the South Korean socio-economic institutions.
In addition to the owner’s illiteracy on economics and finances, South Korean chickens in his hen house find comfort under the guidance of Papa DJ portrayed by the mass media as a humanistic and trusted custodian who supervises the chicken’s interests, because they were told that it is wise to trust in Papa DJ whose international reputation as a humanist are amply proven through the Nobel Peace Prize Award, a symbol that has been coveted by every mortals.

When the renovation of a hen house is to fix the damaged areas, such as fence, shelves, feeding holes, sanitation facilities, or taking out sick chickens for veterinarian cares, one could call the operation as restructuring, reform, repair, or redress the condition of living quarters and surroundings.
However, if the repairmen (the world bankers) barged in en mass, bulldoze the whole structure, and rebuild a new house (the global market) that does not facilitate safe and healthy environment for the South Koreans but for the repairman to scoop out repair costs and run with the interest on loan that was held lien to the house, then the fix is not a repair but dynamite the whole structure and build a new type of a hen house. Papa DJ is destroying the basic foothold of the national sovereignty under the guise of economic restructuring, that is, an act of treason.
Leave aside the sovereignty issues, take privatization and deregulation into perspective.

A few days ago, DJ directed his transportation secretary to fulfill the task of privatizing the National Railroad System before the year-end, emphasizing that the future of the South Korean economy rests on the fast forward implementation of privatizing the government-controlled public facilities. (Already on the international chopping block are ginseng, tobacco, Tele-communication, steel industries, banks, financial institutions, electric power plants and prisons.)
For Papa DJ, it does not matter whether the public-owned facilities have been running efficiently with profit or crucial for common good keeping it under the national ownership, because his regime has run out of money pouring into the bottomless pit of bailing out financial institutions, Hyundai and Daiwoo Conglomerates, mastodons he has to rescue in the name of the soundness of the economic system.

In Britain, once wholly owned public railway system was privatized and split in 25 new railways with the government assuring that private-run rail system would provide more improved service through healthy competition resulting in lower fares.
The result has been chaos…there were significant decline in the quality of passenger service, frequent cancellations and delays in addition to many fatal accidents resulting in human losses. The only beneficiary for the privatization appears to be investors on a gravy train: the government is still paying out millions of pounds in subsidy for maintenance and other costs.
What the South Koreans have to expect after the privatization is deregulation that American mantra for free market capitalism highly and strongly advises.

Consider the result of deregulation of the airline industry in the United States that promised the public benefit of lower fares, improved services, and more competition.
Instead of efficiency, merger and acquisition brought only in passenger health hazard, delay, cancellation, arbitrary realignment of routes, and higher fares.
The American mantra claims that the prices will fall to the lowest levels and consumers will benefit from unlimited competition under the market system if the government divests from their involvement in public ownership.
In California, two largest private power utilities are almost into bankruptcy after the deregulation of the power industries, and the state government has to buy the electricity from Canada and out of state facilities with over $400 million to prevent the blackout in entire states.

Last year, Papa DJ has announced that he will privatize the prison facilities as in the United States as soon as the feasibility study comes in.
The current incarceration by private company began with a Reagan sponsored experiment to house immigration detainees at private detention centers in Houston, Texas, a brainchild of then-Attorney General Edwin Meese.
Fifteen years after its implementation, corporate jailers, including one of biggest Corrections Corporation of America (CCA), now hold roughly 100,000 prison beds nationwide in three dozen states, and CCA hold market share of 50 percent of all-privatized prison beds.

In 1995, CCA went public at $8 a share, now trading with healthy $37 a share and the investors dubbed the facilities a hotel with a guaranteed occupancy.
According to the study by the Government Accounting Office (GAO), public and private prisons cost taxpayers roughly the same, while private prisons are only to stockholders interests.
Papa DJ may persuade South Koreans that it is about time to reduce the cost of incarceration, to exploit the prison labor to produce export items for the international market, and create jobs for prison guards.
As a Machiavellian, Papa DJ knows well that men ought either be well treated or crushed…he seems to be enjoying to crush his people with steel batons and incarcerate anyone dares to oppose him as former military generals habitually abused, tortured, murdered, and incarcerated innocent people.

Contrary to the assertion that privatization and deregulation of public facilities would bring in the effective, competitive, and convenient edge over the public ownership, myth of the free market system in the West begins to unravel its lack of socio-economic accountability and there are serious debates over the benefit of privatization and deregulation in the supply industries of power, water, and public utilities.
If privatized public facilities go bankrupt due to the mismanagement, the public has no choice but to bail it out with taxpayers money, placing corporate stock holders always win-win situation and people always pay the costs of moral hazard that corporations caused to inflict.
As Harvard economist John Kenneth Galbraith said that market booms are always brought about by incantation –the hypnotic recitation of phrases over and over again—of enchanted words like new economy and venture capital, Papa DJ’s incantation for privatization would make South Koreans escape into the new world of fantasy that a fox (banker) is best for a rent-a-cop at the South Korean hen house.