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Good cop, bad cop

May 11,2019
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During an economic tour to Ulsan last month, President Moon Jae-in stresses the importance of a new growth engine based on hydrogen technology. [NEWS1]
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Lee Hyun-sang
The author is an editorial writer at the JoongAng Ilbo.

“Animal spirits” are what guide consumer and corporate decisions and behavior, according to British economist John Maynard Keynes. Companies move on “gut instincts” rather than objective grounds for investment. Animal intuition of Korea’s two household corporate names are being tested. Samsung Electronics has placed an expensive bet on non-memory semiconductors and Hyundai Motor on hydrogen fuel vehicles.

The world’s top chipmaker pledged an investment of 133 trillion won ($113 billion) to become as big in the non-memory sector as the memory segment it dominates. Non-memory chipmaking is a vast market that makes up two-thirds of global revenue from semiconductors. If competition in the memory sector can be likened to a field battle, the non-memory is more like elaborate siege warfare. As in memory, non-memory chipmaking is divided into fabless and foundry manufacturing. Fabless chipmakers design chips and outsource manufacturing to foundries. Samsung Electronics ultimately aims to overtake Taiwan Semiconductor Manufacturing Company (TSMC) in consignment chipmaking, but the plan remains far-fetched. Integrated fabless chip companies like Intel and Qualcomm won’t yield their position in the market easily. It would be great if one excels in every field. But choice and concentration has always been a better management decision. Intel was able to rise back up after it gave up memory fabrication in the 1980s.

In the meantime, Hyundai Motor is mostly alone in the pursuit of hydrogen to power future mobility. Most carmakers have turned to electric vehicles. The United States, which had pledged commercialization of hydrogen vehicles under President George W. Bush in 2003, shifted to electric vehicles (EVs) due to economic questions about hydrogen fuel. Hydrogen car technology is still uncharted waters. While Hyundai Motor digs into hydrogen vehicles, China has made rapid advancements in electric cars. According to market researcher EV Sales, half of the top 10 EV carmakers last year were Chinese names. Hyundai Motor was the sole Korean name, ranked eighth.

The government should back companies in their pioneering quest. The Moon Jae-in administration, under fire for doing little to nurture future growth, promised full support to non-memory semiconductors and hydrogen vehicles. In March, the president ordered his administration to come up with measures to hone competitiveness in the non-memory sector. Moon even attended Hyundai Motor’s promotional event and volunteered as a marketing model for hydrogen cars. Last month, the government designated non-memory chips, future mobility and bioengineering as “strategically-focused industries.” It would be a lie if enterprises don’t consider the government in their management decisions.

Moon’s attendance to a Samsung Electronics opening created a buzz. Moon standing next to Lee Jae-yong, vice chairman of Samsung Electronics, drew criticism from a progressive anti-chaebol group. One official from the group pointed out that Moon’s action is ill-timed because Lee awaits a Supreme Court ruling on the bribery case and because the prosecution’s investigation of accounting irregularities at Samsung BioLogics is ongoing. Kim Sang-jo, chairman of Fair Trade Commission and an outspoken chaebol critic, made it clear that Moon’s meeting with Lee does not suggest any retreat in the government’s will on reforming chaebol. Every time the president makes a corporate-friendly gesture, albeit reluctantly, his liberal aides and the ruling party quickly downplay it.

The liberal government may be playing good cop, bad cop. One wields a carrot and the other a stick. As a result, companies are on a roller-coaster ride — ever watchful of the government moves. The mixed signs and ambiguity dumb the “animal spirits” in enterprises and make the game one of survival. The president may have attended corporate events, but speaks differently once he is back at the Blue House. “There may be differences over the minimum wage hike and the 52-hour workweek, but we must seek broader social consensus,” he told our society’s leaders, possibly to suggest that his keystone economic policies remain unchanged.

U.S. President Donald Trump has excited “animal instincts” in American enterprises not through his bullying or sweet talk. He took dramatic actions to remove regulations and lower corporate taxes. That may never take place in Korea, where even the head of state’s attendance to a corporate event raises so much fuss.