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Economy > Focus ]
 high-ranking official of the Federation of Korean Trade Unions (FKTU), on his return from a recent visit to the United States wrote in a article published in a daily newspaper that he was very much surprised to see how negative was the view of American business towards Korean labor. The article stirred nationwide concern about the seriousness of Korean industrial relations since this was the first time that an official from a trade union confederation had discussed the issue so openly. Up until then, only those from the business sector and conservative politicians had voiced concerns that the confrontational nature of the nation’s industrial relations was causing foreign investment to decrease. Industrial relations in Korea are in such a serious state that even trade union officials admit how confrontational they are and the confusion they are causing throughout the country.
However, there seems to be a pronounced lack of understanding as to how and why the problem has developed. It appears that industrial relations problems can be blown out of proportion based on the experiences of one workplace, and thus there is a tendency to become overly optimistic or overly pessimistic depending upon fragmented news reports. The purpose of this article, therefore, is to address the misunderstandings surrounding Korean labor/management relations, highlight their problems more accurately, and finally to suggest a future course they might take in relation to foreign investment.
WEAK LINK BETWEEN STRIKES & FDI The newly inaugurated government of President Kim Young-Sam in 1993 decided to make the national economy more global competitive by actively attracting foreign investment. The annual number of cases of inbound foreign investment (on a notification basis), which had stood at lower than 300 for several years prior to 1993, rose to 423 in 1994, after which it started to increase rapidly. There was explosive growth following the Asian financial crisis of 1997/8 with the figure reaching 3,149 in 2000. Since then, the trend in foreign investment has been downward; the figure fell to 2,308 in 2001 and 1,584 in 2002. This situation causes concern not only within the business sector and government but also among trade union officials. Even the total amount of notified foreign investment has declined, falling from its 1999 peak of $15.54 billion, to a mere $4.63 billion for the first nine months of this year. If this trend goes unchecked, there is concern that Korea will fail to attract new investment, dampening prospects for long-term growth.
 What part, then, have national industrial relations played in the current downward trend of foreign investment? By looking only at superficial indexes, it is not clear that foreign investment is inversely proportional to figures indicative of the confrontational nature of industrial relations (See table). For eight years, the rate of unionization stood at about 12 percent of the workforce, which is lower than half the levels of Europe or Japan of 20 percent to 33 percent. It is also less than the United States level of 14 percent. Let’s look at the number of labor/management disputes that have occurred each year. The annual number of disputes was around 80 in the mid-1990s, but with the lay-offs brought on by the financial crisis, the number began to rise and reached 321 in 2002. As of the end of September, it reached 290, a 9.8-percent increase compared to the same period of the previous year.
However, the rate of change in the number of disputes has been much slower than that of the changes in foreign investment, namely its rapid increases, before and after the financial crisis and its recent sudden fall. Moreover, shortly after the financial crisis, labor disputes became more frequent while foreign investment increased apace. This indicates that foreign investment and labor disputes are not in an inversely proportional relationship.
LACK OF FDI BARGAINS Let’s look then at the number of workdays lost as a result of strikes. These have been on the decline since their peak of 1.89 million days in 2000, and the table below indicates that the figure rather fell this year at a time when certain disputes appeared to menace the economic health of the nation. Conversely, it is certain that the duration of strikes - currently about 30 days - has lengthened compared to the period before the financial crisis.
From the comparison of indices relating to foreign investment and industrial relations it can be inferred that it is an over-simplification to say that the decrease in foreign investment was due to labor/management disputes. It is necessary to remember that industrial relations are not the sole factor in making foreign investment decisions. Other matters of importance are a country’s social overhead capital, political and institutional stability, quality of human resources, market size, the degree to which related industries are developed, and the possibility of exporting to neighboring countries. Following the crisis, the Korean won depreciated, and other economic indicators like interest rates and wages were favorable enough to attract the interest of foreign investors. Besides, enterprises with good potential went bankrupt due to their debt loads and shortages of operating capital, which provided foreign investors the opportunity to buy them at fire sale prices. Attractions of this sort have continued to dwindle since 2000. Is it not likely that this is the cause behind the decrease in foreign investment?
This is not that Korea’s industrial relations are problem-free. A closer and more thorough look at the above statistical indices reveals that the number of labor disputes, stable in the mid-1990s have increased since the crisis. However, on the basis of actual changes in the indices, it appears that people at home and abroad view Korean industrial relations to be worse than what they really are. Why is it so?
BAD IMAGE First, we can point to how labor unions act and the manner in which strikes are conducted. The typical Korean labor dispute, as broadcast worldwide, appears thus: a multitude of workers wearing red headbands shout slogans in unison in a combative fashion and sometimes demolish facilities. Or, an advance guard of strikers armed with iron pipes and their faces hidden by handkerchiefs stands watch outside a locked work-place. Sometimes, they lie down in the street in protest or engage in violent scuffles from which they emerge, bleeding. With the voice of a union organizer blaring from a loudspeaker drowning out all other sounds, a forest of placard obscuring the view, posters plastered across the walls of surrounding buildings, strikers occupying company offices or factories, the image being portrayed is hardly a favorable one. Such scenes are sufficient for TV viewers abroad to wonder if war going on in Korea.
Apart from the impact abroad of union behavior, the Korean peninsula has always been in a cycle of military and diplomatic crises, most recently because of the nuclear challenge from North Korea. Given this combination of internal and external factors, Korea is branded as an unstable nation. Since political stability is a prime condition for foreign investment, Korea’s culture of labor strife is bound to have a negative effect on foreign investment.
However, any foreigner who has been in Korea for any length of time takes such occurrences with a pinch of salt, just like the majority of Koreans. Over the last 30 years Koreans have long witnessed student and labor movements mobilize against authoritarian regimes and the conglomerate (chaebol) system and they consider the democratization of Korean society they have achieved in the process very important. It can be said that Koreans have developed a tolerance toward collective acts that entail violence. However, now that a formal democracy is in place, Korea needs a more rational approach to dispute resolution. Is it necessary to follow the patterns of the past when it is possible for the populace to express its views or opinions without resorting to force since it is guaranteed the freedom of speech, the right of assembly and association, and the right to work? Herein lies a challenge for Korean society.
PRO-LABOR PITFALLS However, Korea’s labor/management relations are too complex to be explained only in terms of its dispute culture. The second factor that can explain the dire state of Korean industrial relations and the decrease in foreign investment is government policy. With the launch of the government of President Roh Moo-Hyun, considered by many to be pro-labor, attention at home and abroad focused on what its labor policy would be. As expected, the government initially pursued a policy of tolerating collective acts by labor unions. On the one hand, the current government intended to correct the relational structure of the past in which labor was inferior to business in terms of power in the interests of “social unity.” On the other, the government expected that its friendly policy toward labor would encourage discipline and responsibility on its part.
However, the government made unprincipled concessions toward the unions in incidents such as the long running, illegal strike at Doosan Heavy Industries, the opposition of railroad employees toward privatization, as well the illegal strike at Chohung Bank prompted by its sale. The government finally lost its patience toward the labor when the Korea Cargo Transport Workers’ Union struck and began to emphasize the application of “laws and principles” in the manner of previous governments. The talk of “laws and principles” was code to mean that the government intends to respond with physical force to those elements within labor whose behavior falls short of international standards in regard to dispute resolution. That, in turn, has amplified the disappointment felt by labor toward a government previously considered labor-friendly, and exacerbated relations between labor and management, and between labor and government. As the summer of 2003 came to a close, there was a respite in conflict between labor and government. This is because the strike capabilities of union federations like the Federation of Korean Trade Unions (FKTU) to mobilize against the government have been impaired following the conclusion of the annual rounds of collective bargaining (the “spring offensives”) at major places of business.
TAKING A HARDER LINE A good example is that the unions failed to threaten a general strike, a tactic they have often resorted to for several years, when their demand for auxiliary conditions attached to the introduction of a five-day work week was not reflected in the amendment to the labor laws. At any rate, “dialogue and compromise,” the government’s principle in dealing with the unions at its early phase, failed to gain momentum and was hence replaced by the application of “law and principle.” On the one hand, this is because of the government’s awareness that the economic situation has deteriorated during the initial phase of its administration, and on the other, it was a form of expressing its disappointment with labor’s conduct. The combination of the downward trend in foreign investment, a serious economic downturn and the various collective acts by the unions has led the government to focus more achieving a $20,000-per capita income than on fostering “labor/management relations for the sake of social unity.”
Despite its trials and errors in the first eight months of its administration, the Roh government’s policy towards industrial relations has swung in favor of foreign investment. However, the attitude of foreign and the domestic business toward labor remain chilly. Certainly, attitudes cannot change overnight. This cannot explain, though, why perceptions of Korean industrial relations remain unchanged.
Therefore, we must look to a third factor, namely, how the press covers the issue. The domestic news media, in particular the major newspapers, maintained a strained relationship with Roh Moo-Hyun when he was a presidential candidate, and the relationship has soured even further since he took over the helm of state affairs. The government argues that rather than sticking to pure journalism, the (largely) conservative press is distorting national opinion in order to pursue their own agenda and that of the conservative political opposition.
FAULTFINDING PRESS The major newspapers counter-argue that this view of the government is nothing less than a strategy to infringe upon the freedom of the press and eventually tame it. Aside from the merits of this argument, the press is doubtless faultfinding with the government, magnifying its failures and intensively covering news involving industrial relations to highlight the nature of the current administration as “labor-friendly” to reveal its problems.
As a result, even though there has not been an explosive growth in disputes following the financial crisis, viewers or readers of the press at home and abroad have come to believe that Korean economy and society are in serious crisis due to union action. Without attempting to dismiss concerns about Korean industrial relations, an antagonistic press can and does exaggerate their seriousness.
Now, what of the problems involving industrial relations in Korea? Labor/management relations are a complex combination of human acts and drives influenced by national political, economic, societal and cultural aspects. Analysis here will be limited to the degree to which industrial relations impact upon the flexibility of the labor market.
Korea’s process of rapid economic development that began in the 1960s was underpinned by a labor policy best summarized as “growth first and distribution second” and entailed low wages and long working hours. To implement this policy, autonomous and democratic activities of trade unions were completely suppressed under a succession of authoritative regimes. With the advent of democratization in 1987, which involved the right to strike, the frustrations of workers long repressed for decades were unleashed in explosive form. The major demand by unions was for increased wages. By the mid-1990s, industrial relations centering on wages and income distribution had become somewhat regulated and orderly, and, as confirmed by the above table, entered into a phase of stability. However, with the onset of the financial crisis, corporate restructuring became inevitable, and in the process the issue of job security has emerged as a key issue in industrial relations.
JOB SECURITY VS. LABOR FLEXIBILITY During several decades of high growth, employment dislocation was not an issue for society, and a system of lifetime employment similar to Japan’s had been in place. However, with the close of the age of high growth and the spread of global competition, enterprises came to demand employment flexibility. This manifested itself as an increasing trend toward pursuing a policy of free dismissal and irregular employment practices such as replacement workers, plus temporary and daily jobs. From the point of view of the unions, though, this threatens the job security of their members. They therefore protested against such practices claiming that, without asocial safety net or welfare system in place, pursuing policies that would ultimately drive workers out of the workplace poses a threat to the right to live. In fact, a major cause of labor unrest in recent years has been attempts at employment adjustment and the introduction of irregular employment practices, with the effect of deepening mistrust between employers and employees.
In this respect, Korea has yet to establish alternative employment practices comparable to the use of lay-offs in Britain or the United States, work sharing in continental Europe and the lifetime employment of core workers of Japan. The absence of an alternative employment system has become the most important factor determining the course of industrial relations in Korea and the source of much conflict. At the base of such conflicts lie different strategies of business and the labor: business favors an American style of employment practice while labor prefers a European approach. What it is necessary to recall at thus juncture is that it was only after several decades of conflict from the end of the 19th century to the mid-20th century that advanced nations finally achieved industrial relations models that fit their circumstances. By contrast, since Korea started its industrialization process much later than advanced nations, its history of labor relations is a little more than 20 years old.
A PLACE IN MANAGEMENT? It may be predicted with some confidence that Korea will eventually have the kind of employment practices and a model of industrial relations that fits its social and economic systems, given the track record of Koreans in catching up with the advanced nations in almost all areas of society and economy.
A related issue to employment adjustment is participation in management at all levels by labor. In short, the labor movement recognizes that the thrust of the past, centering on improving wage and worker welfare cannot resolve the problem of employment insecurity. Thus theunions have begun to demand the right to participate in decision-making with corporate management. However, business maintains its American- or Japanese-style management prerogative of keeping by trade unions out of the boardroom, unwilling to trust them because of their past behavior. Thus conflicts are increasing between labor and management in this area, the long-running dispute at Nestles (at the time of writing) being a case in point.
Hyundai Motors’ 2003 collective bargaining agreement came under fire by the conservative press since it included a clause allowing union participation in management. Other demands the company acceded to in response to an overtimen by the union and a 40-day intermittent strike included an 8.63-per cent wage increase and a five-day workweek. The press condemned the move as an impediment to the speediness and flexibility of corporate management.
The contentious clause in question requires agreement between the management and the union on the employment of union members when subcontracting or outsourcing processes, or when acquisitions, mergers or the transfer of company or its factories, or the introduction of new machinery or technologies take place. However, the clause was not introduced this year; it was agreed upon in 2001 but it is only this year that some of the procedures were finalized.
HYUNDAI DEFENDS ITS POSITION For the past two years Hyundai Motors has experienced two-digit annual growth and recorded net profit of over 1 trillion won ($830 million). Citing these figures, Hyundai Motors protested that this clause of the collective bargaining agreement was indeed suitable to Korean circumstances and dismissed the outside criticism as being inappropriate.
 A closer look at the company’s history will help clarify its position. In 1998, in order to overcome the financial crisis, Hyundai Motors shed some 10,000 employees. Since then, its trade union has demanded job security at every opportunity. Despite the management’s promise of an employment guarantee, the union has requested stronger protection mechanisms at every annual revision of the collective bargaining agreement. With the strengthening of Hyundai Motor’s financial and market position in recent years, plus the fact it has cut its workforce to the bone, the company felt it could at last accede to its trade union’s request.
As one might imagine, given the low rate of unionization in Korea, irregular workers as well as employees of the country’s smalland medium-sized enterprises cannot help but look with envy at the high wages and job security enjoyed by their counterparts at Hyundai Motors. Statistical evidence indicates that Korea’s labor market flexibility is nearing American levels. However, difficulties in making adjustments in employment experienced by some state-run enterprises and public corporations like Hyundai Motors suggest (erroneously) that Korea’s labor market is quite rigid. Except in a few cases, Korean trade unions are not capable of winning a seat at the board to direct employment policy. In this regard, press claims that management sovereignty is under assault by the trade unions are somewhat exaggerated. More accurately, they should be viewed as conflicts surrounding employment guarantees, which will not come to the fore if corporate management is carried out transparently and trust between labor and management is built.
LOW UNIONIZATION RATE With expanding gaps in working conditions among companies, Korea’s enterprise-level trade union system is unfavorable to labor and works against the principle of labor solidarity. As a result, there has been an ongoing struggle to build industry-level trade unions and conduct bargaining by industry as has happened in some industries such as the metal industry. This is another element that creates instability in labor relations. Despite such efforts, company-based bargaining is still the most widespread, and, even in industries with an industry-level trade union, local chapters (branches) by region or company tend to be vested with more discretionary power. This corresponds to the tendency toward decentralization among Western trade unions.
While unions seem to occupy a central position in the thinking of both business and government, the rate of unionization in Korea is lower than in Western countries. This rate currently stands at 11 percent; of this, hard-line Korea Confederation of Trade Unions (KCTU) accounts for only 5 percent, and the more compromise-oriented Federation of Korean Trade Unions (FKTU), the remaining 6 percent. The KCTU has only a small proportion of all trade unions under its aegis, and by no means are all these combative in nature.
Corporations who invest beyond their borders ideally “apply” their unique management methods there while “adapting” themselves to the circumstances of the nation they are investing in. The same is true of companies who find their way into Korea: in applying their practices here, they must take account of, and adapt themselves to Korean sentiment. Problems will be in store if foreign philosophy and Korean sentiment collide with each other, but the chances of that happening are slim. Korea has been riding the waves of globalization since the early 1990s and thus it does not look with indifference at global standards.
Any foreign company will reap the advantages of Korea as the economic hub of the East Asia if they manage their labor affairs in ways that regard their workers as their important asset, take the lead in solving their problems and sincerely listen to them either via a trade union or a labor/management council.
by Cho Seong-Jae(syo@kinu.or.kr)
Research Fellow, Korea Labor Institute
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