[Economic Organization Shin Ji-hyung's Map] Behind the Integration Theory... The Difficult Realities of Securing Operating Expenses

Since Last Year, 'FKI-KCCI Integration Theory' Has Been Consistently Raised
Many Oppose... Strengthened Separate Activities After New Government
Sharp Decrease in Operating Expenses After Political Scandal Also a Cause

[Asia Economy Reporter Kiho Sung] The integration theory of economic organizations began to be discussed after the political scandal involving state affairs led to a decline in the status of business groups. In particular, during the previous administration, as a series of anti-corporate regulations passed through the National Assembly, economic organizations failed to exert significant influence, leading to a consensus on uniting into one.

However, the positions of the economic organizations that would be the main actors in the integration are all different, and since the new government took office, each has been strengthening activities in their own areas, making it difficult to unite under one roof. Nonetheless, some analyses suggest that the underlying cause of the integration theory is the difficult business environment, indicating that the economic organization integration theory will continue to be an issue going forward.

Economic Organization Integration Theory Emerges Annually... But Each Organization Has Different Views

The most representative places where the economic organization integration theory is mentioned are the Federation of Korean Industries (FKI) and the Korea Employers Federation (KEF). The integration theory between the two organizations was formalized early last year when KEF Chairman Kyung-sik Sohn emphasized the need for integration with FKI. Since then, Chairman Sohn has repeatedly mentioned the integration theory with FKI, consistently proposing that the two organizations should merge.

The integration theory was partly driven by the decline in FKI's status after the 2016 political scandal. Since its establishment in 1961, FKI had always played the role of the eldest brother among economic organizations. However, as FKI officials were implicated in the scandal and the Moon Jae-in administration increasingly 'passed over' FKI, its status significantly declined.

Moreover, the lack of a unified voice from business leaders meant that the business community could not effectively respond to the then-government and ruling party's anti-business legislative spree, including the three corporate regulation laws (amendments to the Commercial Act and the Fair Trade Act, and the enactment of the Financial Group Supervision Act) and the Labor Union Act, which further fueled the integration theory.

However, critics argue that such integration theory is difficult to materialize due to numerous challenges, including differences in the nature, roles, and functions of each organization, internal member company consent, and legal issues. Above all, it is rumored that FKI, mentioned as the integration partner, internally showed discomfort. This is partly because KEF was established in 1970 after splitting from FKI as a user organization specializing in labor-management relations.

Worsening Financial Conditions of Economic Organizations... "Financial Issues Are Key to Integration Theory" Also Pointed Out

Although integration was canceled due to FKI's refusal, the business community expects the integration theory to continue to be discussed. This is because the operations of each economic organization have become very difficult, and it is calculated that survival will be hard without merging into one.

According to FKI's 2021 business report, it earned 9.7 billion KRW in membership fees annually. This is less than a quarter of the 40.9 billion KRW in 2016. The reason is that the four major groups, which accounted for most of the membership fees, withdrew from FKI after the political scandal. Still, this is 2.6 billion KRW more than the 7.1 billion KRW in 2020, when COVID-19 was at its peak.

In addition to membership fees, FKI earns revenue from rent and other sources. In 2016, membership fee revenue exceeded rental income (33 billion KRW), but last year, membership fee revenue shrank to about one-third of rental income (31.7 billion KRW), making FKI heavily dependent on rental income. Even rental income is decreasing. During the same period, total operating profit (revenue minus expenses) shrank from 26.1 billion KRW to 4.1 billion KRW, about one-sixth.

Unlike FKI, KEF has almost no rental income and operates mostly on membership fees. Considering the significant decrease in FKI's membership fees, it is expected that KEF's operating funds are not abundant either.

The business community believes that economic organizations will find it difficult to develop further without financial independence. Chairman Sohn cites the Heritage Foundation in the United States as a benchmarking model for economic organization integration. However, since the Heritage Foundation operates mostly on voluntary individual donations, even if economic organizations merge, it will be difficult to find a clear financial solution.

A business community official said, "Even if economic organizations physically merge, it is hard to guarantee that the financial situation will improve accordingly, which weakens the justification for integration. Especially with recently growing companies in IT and big tech ignoring economic organizations, finding a clear financial solution will be even more difficult."

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