The 'COVID-19 Profit Sharing System' Opposed by Both the Government and Business Circles

Lee Nak-yeon, leader of the Democratic Party of Korea, is attending the K-New Deal Committee National Crisis Recovery Headquarters inspection meeting held at the National Assembly on the 14th, delivering opening remarks. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Kim Hyewon] As discussions on the introduction of a profit-sharing system gain momentum mainly within the ruling party, the business community is strongly opposing it, calling it an anti-market and unconstitutional act that infringes on property rights. Although Lee Nak-yeon, leader of the Democratic Party of Korea, has emphasized voluntary participation in response to public opposition, there are concerns that private companies will find it difficult to refuse President Moon Jae-in’s pledge, effectively making it compulsory. Moreover, even if the issue of unconstitutionality is avoided by citing voluntariness, it seems unlikely to escape criticism as a government-controlled donation.

According to the Korea Industrial Federation Forum on the 15th, the so-called ‘COVID-19 profit-sharing system,’ justified as a measure to resolve polarization caused by the COVID-19 pandemic, has three major problems.

Although specific measures have not yet been announced, the first problem is that it is an anti-market system that infringes on the property rights of companies and shareholders. Even if a company benefits from COVID-19, the entity generating the profit is the company, and considering that the beneficiaries of that profit are the shareholders, requiring beneficiary companies to share profits with companies harmed by COVID-19, unrelated to their profit generation, constitutes an infringement of property rights.

The second issue is the ambiguity regarding the target companies benefiting from COVID-19 and the scope of operating profits related to COVID-19. It is inherently impossible to define these specifics. A business official lamented, "Even for companies benefiting from COVID-19, it is difficult to accept the demand to share profits simply based on environmental factors of management, ignoring voluntary cost reductions, productivity improvements, marketing, and other self-help efforts."

There is also a strong voice that voluntary participation is merely a means to avoid unconstitutionality but, in reality, forces donations. The Korea Industrial Federation Forum stated, "The COVID-19 profit-sharing system shifts the government’s role of supporting affected industries to companies, and the system itself is highly likely to be unconstitutional," urging its withdrawal.

From the business community’s perspective, the profit-sharing system is like an “eternal ember” that never goes out. It has repeatedly resurfaced with each change of administration amid debates over ‘tax increases on the wealthy.’ The system has only changed names?such as the performance-sharing system in 2004, excess profit-sharing system in 2011, cooperative profit distribution system in 2012, and cooperative profit-sharing system in 2018?but the underlying idea of sharing excess profits of large corporations remains the same.

There are also many differing opinions within central government ministries regarding the profit-sharing system. One ministry expressed a conservative stance during the review of the cooperative profit-sharing system, which is currently stalled at the legislative stage, stating that it can only be introduced when limited to cash profits from specific projects with prior agreements. They also conveyed that they cannot agree to a system targeting the entire operating profit of large corporations.

An executive from a major corporation pointed out, "I understand that the COVID-19 profit-sharing system, currently at the center of controversy, is being promoted through two proposals: incentives linked to platform fee reductions and the establishment of a fund based on large corporations’ resources. However, it effectively acts as a compulsion, potentially reducing funds available for investment or employment," adding, "It is also difficult to measure profits generated through cooperation between companies."

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