Rushing toward 'Kospi 5000' puts the cart before the horse

Lee Hyun-sang


The author is the head of the editorial board at the JoongAng Ilbo.
 
 
In the two decades that Jack Welch led General Electric (GE) from 1981 to 2001, he became the global face of shareholder capitalism. Early in his tenure, Welch declared that a company’s top priority should be delivering returns to investors by becoming No. 1 or 2 in its market. That statement helped trigger a global movement to maximize shareholder value. Even without an immediate crisis, Welch cut the bottom 10 percent of employees annually and shut down underperforming units. GE’s once-consensus-driven corporate culture transformed into a brutal game of elimination. Investors cheered, and GE’s stock price soared more than 50-fold during his leadership.
 
But in 2009, as the effects of the global financial crisis hit GE, Welch offered a different perspective in an interview with the Financial Times. “Shareholder value is the dumbest idea in the world,” he said, claiming he had never actually used the term himself. He argued that shareholder returns were the result of good management — not its goal. Some viewed his remarks as a reflection, others as self-serving revisionism. Either way, GE’s downfall is widely attributed to an obsession with short-term profits, dressed up in the language of shareholder value.
 

A news broadcast reports the conclusion of U.S.-Japan tariff negotiations at the main branch dealing room of Hana Bank in Jung District, central Seoul, on the afternoon of July 23. The Kospi closed at 3,183.77, up 13.83 points, or 0.44 percent, from the previous session. [YONHAP]

 
This episode is worth recalling as Korea’s Lee Jae Myung administration pushes a new target: the "Kospi 5000." The stated rationale for proposed amendments to commercial law includes ending the so-called Korea discount, revitalizing capital markets and boosting economic momentum. But the immediate focus seems to be on inflating the stock market. The Democratic Party (DP) has launched a "Kospi 5000 Special Committee" and a "Digital Assets Committee," framing the coming years as an era of 1 quadrillion won ($725 billion) in cryptocurrency and 5,000-point stock indices.
 
The real concern lies in how this is being pursued. The government and DP are advancing competing proposals to further tighten commercial laws. Some go as far as mandating the retirement of treasury shares — now the last line of defense for corporate control. Retail investors may welcome rising prices, but such pressure risks squeezing out corporate capacity for long-term investment and competitiveness.
 
Using stock prices as a policy target is dangerous. Share prices are a mirror of the real economy, not a substitute for it. Policymakers may hope for a “wealth effect” to boost consumption, but evidence shows that such effects are limited and unreliable. Korea could be repeating the same mistake as the Moon Jae-in administration’s income-led growth policy: putting the cart before the horse.
 

Related Article

• To reach Kospi 5000, Korea must embrace bold reform

• What it takes for the Kospi to hit 5,000

• JP Morgan: Kospi to hit 5,000 ‘over a two year period’

• DP takes 'pass first, revise later' stance on commercial code amendment, much to business community's chagrin

 
Earlier campaigns by academics like Jang Ha-sung and Kim Sang-jo promoted shareholder activism to rein in chaebol excesses. But these movements were gradually co-opted by individual investors chasing short-term gains. In that vacuum, foreign activist funds such as Sovereign, Elliott, Icahn, Affinity and Truston made aggressive bids for control of Korean firms. Their playbook relied on raising share prices quickly — even at the cost of undermining long-term growth potential.
 
GE is not alone in suffering from this shortsighted approach. IBM, under pressure to deliver quarterly results, struggled with its shift in business strategy. Boeing prioritized shareholder returns over safety and engineering investment, contributing to major crashes and reputational damage. Kraft Heinz, too, pursued extreme cost-cutting and overambitious mergers, only to see its brand value collapse and share price tumble.
 
Korean conglomerates once addressed their weak governance legitimacy by creating jobs, minimizing layoffs and contributing socially. These were forms of compromise in a state-mediated economy. The 1997 financial crisis upended this balance, and shareholder capitalism accelerated its decline. What is notable now is that the pressure on companies is not about social good, but explicitly shareholder returns.
 

Rep. Kim Tae-nyeon of the Democratic Party speaks during a forum titled “Economy and the Democratic Party: What the Democratic Party Must Do to Achieve the 'Kospi 5000' Era — Stock Market Session,” held at the National Assembly Members’ Office Building in Yeouido, Seoul, on July 15. [YONHAP]

 
That said, equating shareholder capitalism with job losses or short-termism is overly simplistic. Korean firms have indeed been stingy with dividends and dismissive of shareholder value. But that does not justify coercive policies that prioritize share prices above all else. Nor is there any guarantee that such policies will benefit other stakeholders, such as workers and consumers. If Korean companies start contemplating moving their headquarters overseas to escape such regulatory pressure, will the government try to block that, too? It would be neither effective nor wise.
 
Most individual investors — the so-called ants — are also wage earners. They are unlikely to support a stock market engineered for the benefit of short-term players. Even President Lee, who once called himself a “king ant,” probably does not envision this version of shareholder capitalism. What is needed is balance.
 
Korea should not treat the stock market as a magic lever for economic growth. It must consider how to activate capital markets while retaining the strengths of past compromise models between state and business. Making stock prices a policy goal without scrutiny is like cutting open a goose for its golden eggs.
 
Instead, the path forward lies in supporting companies' long-term growth potential, ensuring employment stability and fostering innovation. If Jack Welch’s later regret was a warning, Korea would do well to listen.


Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.