[THE VIEW] State Capital Investment in Corporations and the Role of Government

Earlier this year, there were various discussions regarding the so-called "K-Nvidia" investment mentioned by a political party leader, as well as the investment direction of public institutions and sovereign wealth funds. While sovereign wealth funds are fundamentally operated with the public goal of enhancing national wealth and securing resources for future generations, concerns have been raised that their participation as major shareholders in private companies could lead to unintended consequences. Some argue that, simply because they represent state-owned capital, these funds might prioritize the interests of specific companies or, conversely, intervene in corporate management based on national needs.

Of course, there are counterarguments that such concerns are excessive. Proponents assert that sovereign wealth funds are also investors seeking to maximize returns and that they make investment decisions based on rational judgment. However, it is by no means easy to accurately predict the future growth potential of a particular company and achieve significant investment returns. No matter how efficient financial markets may be, they are not perfect, and it is difficult for outside investors without inside information to consistently outperform the market.

In particular, sovereign wealth funds of countries dependent on specific resources are prone to portfolio concentration, making risk management through diversification essential. Nevertheless, investments do not always guarantee success, and not all capital providers achieve satisfactory results. Sovereign wealth funds are not immune to the uncertainties inherent in investing.

The problem arises when a sovereign wealth fund holds a significant stake in a particular company, such as more than 30%. At this level, the fund can block special resolutions at shareholder meetings and, if other shareholders' stakes are dispersed, it can effectively wield overwhelming influence as the largest shareholder. In such cases, it is difficult to rule out the possibility that the sovereign wealth fund may intervene in decision-making based on the country's political or economic interests, rather than considering the company's management expertise or market conditions. The fund may prioritize other national objectives over corporate management efficiency or exert pressure to maintain inefficient business divisions.

Even if the sovereign wealth fund refrains from direct management intervention, it is important not to overlook the fact that its mere presence can distort the way the market functions. The knowledge that a large and stable state-owned capital is a major shareholder may weaken the checks and balances from other potential investors. The activities of activist funds that challenge management's lax operations or poor decisions, as well as forces seeking to improve management efficiency through acquisitions, may be diminished. Ultimately, this can reduce the healthy tension in corporate management and, in the long run, pose the risk of declining corporate value. It is worth recalling past cases in which excessive government intervention in markets through state-owned enterprises led to inefficiency.

So, what is the desirable role of state capital? Rather than directly entering the market to guarantee the success of specific companies, a more fundamental solution would be to establish a robust institutional foundation that allows the entire market to function efficiently and to faithfully serve as a fair "referee." This is because unfair administrative and legal enforcement can undermine market credibility. It is an important responsibility of the state to create an environment in which market participants can compete and innovate freely in a predictable setting.

To this end, the government must establish and strictly enforce fair and transparent market rules. The priority should be to revise laws and systems that prevent monopolies, regulate unfair trading practices, and guarantee equal opportunities for all market participants.

In addition, a stable macroeconomic environment must be fostered. Through predictable monetary and fiscal policies, the government should manage inflation and exchange rate volatility, providing a foundation for economic agents to invest and grow with a long-term perspective.

State intervention in the market through capital is not necessarily negative in itself. If the nation's wealth is managed stably and returned to its citizens, it is, of course, a desirable outcome. However, true national competitiveness comes not from the government acting as a "player" itself, but from its ability to create and manage a "playing field" where all players can compete fairly and fully demonstrate their abilities.

Park Sungkyu, Professor at Willamette University, USA

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