The Ripple Effect of the COVID Profit-Sharing System: "Sharing Profits at the Growth Stage?"

Lee Nak-yeon, leader of the Democratic Party of Korea, is delivering opening remarks at a meeting to review the status of COVID-19 treatment development held at the National Assembly Members' Office Building on the 12th. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporters Park Cheol-eung, Kim Cheol-hyun, Bu Aeri] The Democratic Party of Korea’s recently launched ‘COVID-19 Profit Sharing System’ has faced strong opposition from opposition parties and the business community for two consecutive days. For now, the Democratic Party plans to target platform industries such as portals and delivery apps for the profit-sharing system, promoting it through fund formation and expanded social investment.

The idea is to reduce polarization as self-employed individuals have been pushed to the brink by the novel coronavirus infection (COVID-19), while non-face-to-face businesses have seen a surge in sales. However, criticisms ranging from “anti-market thinking” to “impossible profit calculation” and “coercive taxation disguised as autonomy” are strong, making actual implementation difficult.

◆ Democratic Party forms task force for full-scale review = Hong Ik-pyo, chairman of the Democratic Party’s Policy Committee and head of the Democratic Research Institute, said in a phone interview with Asia Economy on the 12th, “The Policy Committee and the Democratic Research Institute are planning to form a COVID-19 Profit Sharing Task Force (TF). We will review various measures to respond to the deepening polarization and social side effects caused by COVID-19.”

He added, “For example, companies that have made significant profits even during the COVID-19 situation could voluntarily establish a kind of social solidarity fund, and companies participating in it could receive tax benefits and other incentives. Tax increases require another social consensus and are linked to the welfare system, so we are not seriously considering them at this time.”

Social investment for the self-employed is also a strong alternative. Hong said, “There is a need for social investment in various fields such as online utilization by food service businesses, small-scale brand businesses in the form of cooperatives, or public apps. From an economic ecosystem perspective, social investment is also a stepping stone for large corporations to grow in the long term.”

Portals, specialized e-commerce companies such as Coupang and Market Kurly, and delivery app companies like Baedal Minjok, which have seen a sharp increase in e-commerce-related profits, could be the main targets of the profit-sharing system.

Yoo Dong-soo, vice chairman of the Democratic Party’s Policy Committee, pointed out, “Existing large corporations relatively share pain and make responsible efforts during national crises, but portal or platform operators monopolize or oligopolize profits due to the surge in non-face-to-face transactions and network effects (where one person’s demand for a product influences others’ demand) without showing activities to share the pain.”

He continued, “At least within the company’s operational structure, efforts for coexistence should be made. Temporarily lowering or eliminating restaurant commissions and improving treatment for riders should be undertaken. The government even directly distributes money in war-like situations, so this behavior looks almost predatory.”

However, the basic policy is to encourage voluntary participation in profit sharing rather than legislation. Yoo said, “During the IMF foreign exchange crisis, there was a gold collection campaign, and before that, there were traditional mutual aid practices such as Hyangyak, Dure, and Hwannansanghul (helping each other in times of disaster). If companies voluntarily step forward, it will ultimately help in the long term from a social responsibility perspective.”

◆ “It’s an industry in the growth stage... asking to share profits first” = The business community, which strongly opposed Representative Lee’s first remarks on the 11th, has raised the level of criticism and systematized its arguments within a day. A delivery app industry insider, identified as a sector that made large profits, said, “Although it is attracting attention, the structure does not generate much profit on the surface. It is not yet a time to say the industry has settled enough to discuss profit sharing.”

A portal industry insider, whose business is more stabilized than delivery apps, said, “While profits may have increased in certain business sectors due to COVID-19, some companies have suffered losses in other businesses, so it is difficult to generalize. The criteria for profits are unclear, and above all, there is concern about a coercive atmosphere that companies have no choice but to participate.” Lee Jong-bae, chairman of the People Power Party’s Policy Committee, criticized at the party’s floor strategy meeting that day, “Helping the socially vulnerable is a virtue, but the ruling party’s coercion is nothing but intimidation of companies. Ultimately, it is a shallow trick to cover up their own failures in quarantine and policy by dividing the people.”

Systems or laws similar to the profit-sharing concept have been a recurring topic of social controversy since the concept of economic democratization emerged. In 2011, the Lee Myung-bak administration attempted an excess profit-sharing system where large and small businesses would share profits exceeding a preset target, but it was scrapped due to opposition from the business community. Currently, only a performance-sharing system is implemented, where the entrusted company (small business) is supported by the entrusting company (large corporation) to achieve joint goals such as cost reduction and shares the results. The government and ruling party are pushing for legislation of a cooperative profit-sharing system that shares financial results such as the entrusting company’s profits.

Professor Ha Jun-kyung of Hanyang University’s Department of Economics said, “The COVID-19 profit-sharing system can be seen as a type of social insurance where companies contribute when they earn a lot and receive help when they face difficulties later. However, focusing on pain sharing rather than profit sharing is a way to reduce controversy, and it is necessary to uphold the principle of corporate autonomy.”

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