[Takryucheongron] Support for Large Corporations Affected by COVID-19... Restructuring Before Employment Retention

Juwon, Head of Economic Research Department at Hyundai Research Institute.

When the economy is in a recession, self-employed businesses and small and medium-sized enterprises (SMEs) tend to struggle relatively more. This is partly because the first wave of the recession hits these sectors first, and also because their financial capacity is weak. Therefore, during a recession, government measures for businesses often tend to be somewhat distant from large corporations. However, it has become clear that the current economic crisis caused by the novel coronavirus disease (COVID-19) is not a small wave in the usual economic cycle but a massive tsunami. The crisis is already intensifying in the aviation industry. Airports have long become parking lots for aircraft, and unpaid leave has become widespread among airline staff. If the government remains passive, the mutual destruction of the aviation industry is inevitable. Both low-cost carriers (LCCs) and major airlines may have to shut down. Even mentioning a 'tilted playing field' in this context can only be seen as a serious lack of realism.

The problem is that such situations are certain to occur in many leading export industries driven by large corporations in the future. According to the Korea Customs Service, exports from the beginning of this month until the 20th have decreased by 26.9% compared to the same period last year. Not only automobiles, petroleum products, and wireless communication devices but also semiconductors, which had been doing well, have seen significant export declines. We have witnessed what can happen when large corporations struggle in Geoje, Ulsan, and Gunsan. If large corporations cannot be saved, bankruptcies of partner companies and the collapse of regional economies will become widespread.

As Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), stated, this crisis is likely to be more severe than the 2009 financial crisis, and the global economy may face the worst situation since the Great Depression of the 1930s. This is the worst economic crisis that even large corporations find difficult to endure. Yet, government attention remains disproportionately focused on the self-employed and SMEs. Despite knowing well what can happen if large corporations collapse, the government seems to deliberately ignore it. Still, it appears positive that recently, decisive liquidity support has been provided to some deficit companies.

Although we hope it will not come to this, we must consider the extreme case where a significant number of large corporations face liquidity shortages. This may require a large-scale fund that is on a different level from support for the self-employed or SMEs. Therefore, unconditional support should be accompanied by self-help efforts, and priority support should be given to such companies. The criterion for support should not be employment retention, as some suggest. Self-help efforts ultimately mean restructuring. It involves creating the strength to overcome the crisis through downsizing assets, production facilities, and personnel. If the government cannot abandon the desire to maintain employment, a domino effect of corporate defaults and the collapse of the financial system, as seen during the foreign exchange crisis, could be repeated. Since no one can guarantee the end of the current crisis we are experiencing, there is no assurance that the painful memories of the foreign exchange crisis will not be recalled.

Of course, from a social perspective, employment stability is important. Companies clearly have an obligation to make every effort to prevent layoffs. However, this does not apply to companies whose competitiveness is exhausted and whose survival cannot be guaranteed. If a company disappears, jobs disappear as well. It would be fortunate if this COVID-19 crisis ends quickly, but it is hard to shake off the anxiety that many companies will face a crossroads between life and death in the future. Therefore, every time there are calls to make employment retention a condition for corporate support, I feel truly frustrated. Companies must survive for workers to survive, and for the economy to thrive.

Juwon, Head of Economic Research Division, Hyundai Research Institute

This content was produced with the assistance of AI translation services.