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Moving State Companies The government announced that 176 state enterprises and agencies are to be relocated to 12 provincial areas by 2012. This, along with the construction of an administrative capital about 200 km south of Seoul, is the core of the Roh administration's project to curb economic concentration in the capital in favor of a more balanced national development. The intention of the policy is simple, but putting it into action is not. A cautious, comprehensive approach is needed to ensure positive effects and prevent negative ones. As expected, the biggest problem was which area should have which companies. The two major criteria the government has cited are the firms' relationship with regional industries and the areas' "extent of backwardness." So, KEPCO, the state utility, will move to Kwangju, the least industrialized metropolis. But opposition parties and other local governments contend the decision is aimed at pulling the area back to the governing camp. There is room for suspicion but such an argument would have been inevitable anyway. All 12 local administrations had agreed on the overall relocation scheme, so protesting specific outcomes appears not so gentlemanly. Nor is the Grand National Party qualified to criticize the decision, as the main opposition party has intentionally turned away from this politically sensitive issue. It would be nearly impossible to relocate 176 agencies without the consent of their 30,000 employees and the residents of their new homes. Similar disputes should not recur among wards and counties in final site selection. The officials say the mass movement would create 133,000 new jobs and 9.3 trillion won in annual production. They estimate total costs at 12 trillion won, 3.3 trillion won more than the amount to be gained by selling existing assets. But actual costs may skyrocket if the project touches off real estate speculation fervor on a national scale. Land prices in some areas are already showing volatile signs, and the government should prevent the development boom from turning into property bubbles. No less important in cost-benefit terms is administrative efficiency. The central and provincial governments are urged to create good living environments, including schools, hospitals and leisure facilities, to ensure work efficiency and corporate profitability. Initial trial and error and some financial waste may be unavoidable, but should be minimized. The government should build a bipartisan rapport to keep the new government from revoking the entire project, as has often been the case before. This is a revolutionary experiment, unparalleled in the world, with the exception of Sweden. There will be more political and social controversies surrounding the project but that should never be the reason for the government to hurriedly push it through. It is only the beginning of a long-term project that needs a more comprehensive approach. Failed Venture Support Wrong Policy Results in Waste of Taxpayers' Money A government report claiming that half of its financial support to venture businesses went up in smoke disheartens many hard-working people. In implementing industrial policies, some loss of funds may be inevitable, but the money wasted is too much. One cannot help but wonder whether this was really a state-sponsored project, as the government let the money fall into the hands of vicious entrepreneurs without any supervision. More seriously, this can happen again at any time, unless all parties involved rectify their attitudes. In 2001, the Kim Dae-jung administration extended $2.2 billion won worth of credit guarantees to 808 venture businesses. The payment guarantees, extended through various agencies, including the Korea Technology Credit Guarantee Fund (KOTEC), were aimed at preventing the collapse of the venture boom. However, as the IMF pointed out later, the support ended up only boosting the artificial economic bubble. As of June 20, 409 recipients went bankrupt, inflicting eventual losses of more than $1 billion on KOTEC. The Ministry of Finance and Economy, well aware of the "president's intention," encouraged financial agencies to competitively provide payment guarantees. It even ignored reports that the guarantors had more than doubled the original guarantee limit of 1 trillion won. In the process, KOTEC did not even conduct technological evaluations when offering guarantees to 717 firms. The unqualified beneficiaries wasted the money buying stocks, real properties and golf club memberships before declaring insolvency. In sum, the venture fiasco was a joint production of an ill-conceived policy, reckless implementation and lax corporate ethics. For these government and business officials, the taxpayers' money was like a lost treasure up for grabs. Moreover, there is no guarantee this will not recur during the term of the incumbent administration, which is moving to rescue failed venture firms through a "consolation round." This time, the government plans to set up a $1-billion investment coop and provide $10 billion in guarantees. What the related officials should do is clear: do the opposite of what their predecessors did. The ministry ought to strictly supervise guarantors, while financial agencies carefully screen qualifications and follow the flow of funds until their full repayment. Businesses need to restore investors' trust through ethical management. The government-led industrial policies, however, maintain the flaws of irrationality and inefficiency due to a lack of incentives and a sense of responsibility among bureaucrats. Even in the United States, the chance of venture success remains at 5 percent. Backing up the market is private capital, which has raised investment returns and lowered risks through correct technological analysis and diversified portfolios. The government had best minimize its intervention, through either support or regulation, and focus on reinvigorating the high-risk, high-yield capital markets.