JANUARY 13, 1997
International Edition


Widespread strikes could thwart an effort to cut costs

They are the worst labor strikes ever to hit South Korea. Hundreds of thousands of workers walked off their jobs in late December to protest legislation that allows layoffs and so threatens the cherished tradition of lifetime employment. The resulting plant closings have cost the economy more than $1 billion in lost production, but that's not the worst of it.

The strikes dramatically illustrate the crisis confronting the corporate sector. Unless its conglomerates, or chaebol, can persuade restive workers to accept widespread restructuring, Korea's global competitiveness will keep eroding. ''The strikes could result in shutdowns of numerous plants and mass unemployment,'' said Prime Minister Lee Soo Sung in a nationwide address imploring strikers to go back to work.

TURBULENCE. The unions' militant stance reflects their rage at the chaebol, which want to cut fast-rising costs by laying off workers in Korea and investing billions abroad in low-wage areas. The chaebol lobbied hard for passage of the law allowing layoffs, a step that would introduce greater flexibility into Korea's labor markets. ''I think it will lead to improvement in the economy, but it's going to be a turbulent period,'' says Donald P. Gregg, a former U.S. ambassador to Seoul and currently chairman of the Korea Society in New York. Strikers at Hyundai Motor Co. have cost the company $55 million a day in lost production.

The chaebol were already suffering before the strikers took to the streets. The Korea Stock Exchange, dominated by chaebol stocks, was down 26% for 1996. Growth in gross domestic product, originally forecast at 7.5% for the year, may end up as low as 6.6%. And the current-account deficit, earlier forecast at $21.5 billion, ended the year at $23 billion. In mid-December, Samsung Group sacked the head of its electronics division. Analysts, who attribute the move to Samsung's overexpansion in the struggling semiconductor sector, expect the group to launch a sweeping restructuring.

The workers, for now, don't feel like giving the chaebol or the government a break. Many companies hope the new year holiday lull will dissipate the force of the strike. Not likely, say union organizers. ''We'll continue to fight to restore workers' basic human rights,'' says Kwon Young Kil, president of the outlawed Korean Confederation of Trade Unions, which claims 500,000 members.

And even if strikers go back to work by mid-January, the economy is still likely to suffer further. If the layoff law stays in force, unions will demand some sort of payback, probably in the form of higher wages when a new round of collective bargaining begins in April. ''I think this is going to be quite a major watershed between labor and management,'' says Gregg. There used to be a compact in Korea: The chaebol called the shots, but they provided workers security as well. If that covenant collapses, Korea will enter a scary era.

By Catherine Keumhyun Lee in Seoul and Sheri Prasso in New York