On the run

Jul 04 2005 by Max McKeown Print This Article

Kim Woo-Choong has been on the run for six years (rather like Forest Gump only with less actual running and more hiding out in Vietnam) since the company he had grown from a small textiles producer to become South Korea's second largest industrial conglomerate crashed with debts of over $70 billion.

He's 69 years old so spent about a tenth of his life dodging from one luxury home to another with the shame of accounting fraud hanging over him.

On 14 June, he arrived in Seoul to give himself up to the authorities, and seemed relatively happy to do so:

"I will take whatever responsibility I am supposed to take over the Daewoo Group incident", he said - although this didn't exactly amount to a confession.

Elsewhere, Kofi Annan continues to be implicated in the scandal surrounded the oil for food programme, JP Morgan pay $2.2bn to settle the Enron fraud law suit, the deputy president of South Africa has been sacked for involved in business corruption, and Dick Cheney is still in post despite his own unethical, money-spinning, power-generating schemes.

And yet some voices advocate a reduction of regulation because they feel that the market can manage itself.

That's what John Stossel, a presenter on ABC's 20/20 consumer show, feels when he says, "I moved from seeing regulation as a good thing to seeing it as a necessary evil. More years of reporting led me to conclude that much of it is an unnecessary evil."

His argument follows the line that, "we don't need a million rules because free markets police themselves. Bad guys who cheat get a reputation for cheating. They lose customers, lose investors, and go out of business."

In his mind, as those of many free market fanatics, Enron and other business disasters "are evidence of the market working" because "the cheaters have been caught, or the cheaters stopped". But Stossel is wrong for a number of reasons, among which is the fact that the market didn't stop Enron for many years and many involved in the Enron debacle - and similar large scale frauds - are still rich and still laughing all the way to the bank.

Another argument Stossel sites is how his own employer, ABC, allows him to campaign against bad behaviour by corporations despite the way that he criticises some of the network's biggest advertisers.

Is this proof that free markets work better than government? Or has he considered the more likely explanation that advertisers continue to advertise only because his programming isn't all that effective at turning consumers away from cheating companies?

Of course he is very right when he talks about the many problems that have magically been solved by 'relaxing the rules a little' in the 1980s.

He mentions service improvements and cost reduction in the parcel delivery, fuel, and airline industries. We see the results in such fabulous companies as Federal Express, Southwest Airlines, and Jet Blue. So it appears that market competition is a more effective mechanism than regulation in some cases.

But this is far from the full story.

There is little pressing incentive for employers to look after the well-being of their workers

Employee safety is one area where the free market does not work well because there is little pressing incentive for employers to look after the well-being of their workers. Fast Food Nation chronicled what happens to some such under-protected workers in the USA in a series of horrific but easily-avoidable deaths. Here, at least, does willingness to convict managers and publicise wrongdoing do more than the free market ever will?

Education and health are also sadly neglected when the government does not provide financial and legislative support. Doctors make their worst decisions when faced with profit motives. Studies have shown, for example, that where the birth rate reduces private gynaecologists will increase the number of caesarean sections that they perform to make up the shortfall!

Employers may want well educated workers but they won't pay wages that will allow their front line workers to afford to send their children to university. Only when government taxes the rich and commerce is there any way to provide universal primary, secondary, and tertiary education. But back to Kim Woo-Choong. Would regulation have stopped him? Well, clearly what he did was illegal and it didn't stop him defrauding investors (and workers) for some months.

On the other hand it's hard to see how less regulation could have stopped him any earlier. There needed to be a law to protect investors or he would not have feared cheating. Indeed South Korea, like many other countries, has a reputation for being tolerant of corruption at the highest level even after it is made public.

The lesson for efforts to better society or organisations would appear to be that real freedom does work best but that individuals in positions of power or influence often only want freedom for themselves.

Meanwhile, the disempowered are left out of the market because they lack the 'perfect information' or 'mobility' required in order to create wealth and happiness for their families.

Likewise, the disempowered at work find that they are prevented from contributing anything beyond their job description and so must choose to tolerate the status quo - with its limited financial and emotional rewards - or leave. Either way society and commerce loses out.

Stossel is probably right with most of facts given in his individual examples and even in his pinpointing of some of the problems. His solutions can be criticised appropriately for being simplistic and naÔve but the fact that he is making them at all also gives a clue as to how to improve the state of freedom. And that clue is "transparency".

The less people can hide (specifically in their business and government roles) and the more people can find out about their own possibilities (jobs, prices, education, health) from affordable (or free-at-the-point-of-use) services, then the more likely freedom is to be real for everyone.

And that is the quickest route to a better society and organisations that create more wealth and happiness.

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About The Author

Max McKeown
Max McKeown

Max McKeown works as a strategic adviser for four of the five most admired companies in the world. He is a well-known speaker on subjects including innovation and competitive advantage. His latest book, #NOW: The Surprising Truth About the Power of Now, was published in July 2016.