Jachi-hoesa

Jachi-hoesa (Sinmun: 자치 회사, Gomun: 自治會社, IPA [tɕ'atɕʰi h'øsa] pr. Chachi-Hwaysa) are a distinct form of business conglomerate unique to the Socialist Republic of Menghe. Most originated as state-owned enterprises, and they retain strong informal connections to the Menghean government or have the state as a major shareholder. Jachi-hoesa are run by a central manager or chairman and frequently have a large web of subsidiary companies extending into related industries.

The term Jachi-hoesa literally means "autonomous enterprise," but it has also been translated as "public-private enterprise," "quasi-public enterprise," "joint enterprise," "government-linked enterprise," and "state-guided enterprise." Today, it is increasingly common for English-language literature to use the Menghean term.

History

After the Decembrist Revolution in 1987, the new Menghean government inherited an economy dominated by inefficient state-run enterprises. Many of these were directly run by government agencies and had no financial independence from central and local government treasuries, allowing them to cover up losses by taking in additional funds if profits became negative. Even profits were hard to define in a context where most prices were set by the state and officials at all levels had incentives to overreport output.

Rather than privatizing state-run enterprises outright, the new regime sought to gradually restructure them, adding more market incentives but retaining a measure of state control. Scholars of comparative political economy have referred to this process as "corporatization," or "privatization within the state." Over the course of the early 1990s, facilities run by government agencies were separated out into their own enterprises and allowed to keep their own profits, with company officials paid and promoted based on their ability to generate economic growth.

In a few industries, the Menghean government took these reforms a step further, essentially allowing senior managers to conduct business as they pleased as long as the enterprise continued to grow and make profits. The National Law on Enterprise Restructuring passed in 1998 officially recognized Jachi-hoesa as a distinct category separate from Gukyŏng-hoesa, or state-owned enterprises, and drew up a formal set of rules regulating their status and ownership.

In order to encourage competition and prevent the emergence of monopolies, the central government divided state-run facilities in such a way that there were multiple SOEs or Jachi-hoesa in each area of production. After their 1998 legal reform, however, Jachi-hoesa were permitted (and encouraged) to establish or acquire subsidiary companies in related industries. For example, Samsan, Taekchŏn, and Chŏnsŏ all compete in the area of automobile production, but each group has holdings in areas such as steel, shipbuilding, construction, and machine tools.

Comparison with SOEs

During the 1990s, state-owned enterprises (or SOEs) also underwent streamlining and corporatization, but not all SOEs were formally re-designated as Jachi-hoesa. The boundary between the two is sometimes hard to define in practice, even after the National Law on Enterprise Restructuring applied formal definitions, but Jachi-hoesa can usually be distinguished from SOEs based on the following key characteristics:

• As their name implies, Jachi-hoesa are autonomous from government influence in their day-to-day operations, though they may still receive general guidance in coordinating and implementing development initiatives.
• Managing directors of Jachi-hoesa typically serve much longer terms than their SOE counterparts, and have more centralized control over the firm and its subsidiaries.
• SOEs usually have a representative of the Menghe Socialist Party formally built in to their upper administrative structure, while Jachi-hoesa do not.
• The government holds more than 50% of stock in all SOEs, if they are even publicly listed at all, while it may hold only a minority of Jachi-hoesa shares.
• Jachi-hoesa are forbidden from operating their own private investment banks. Instead, they depend on loans and capital from separate investment banks, which are exclusively controlled by SOEs or by the government. This regulation aims to maintain central control of finance and reduce speculation. It also allows the central government to cut off funds to a failing Jachi-hoesa and force a bankruptcy, avoiding the emergence of zombie banks and zombie corporations.

Generally, the government has allowed the "autonomization" of enterprises that occupy the commanding heights of the economy, such as steel, automobiles, construction, and electronics. Central planners see these areas as central to industrial growth, and have used Jachi-hoesa to promote increased productivity and efficiency in these areas while maintaining a degree of influence over development.

By contrast, the government has designated some "strategic services and sectors" as exclusively state-owned in order to maintain control over prices or services. Key examples include railways, mail, news media, medical care, and aerospace industries, though the degree of autonomy varies considerably within these. SOEs also dominate the provision of certain resources, such as oil, coal, and electricity, where they limit fluctuation in prices in order to improve stability for downstream Jachi-hoesa and private firms. Military-related industries are something of an intermediate case: SOEs usually handle design and final production, sometimes under direct management from the Army or Navy, but they often contract out components to subsidiaries of major Jachi-hoesa.

Structure

Management

Each Jachi-hoesa is led by a managing director (전무 취체역, Jŏnmu Chwicheyŏk) who oversees its daily operations. Because the managing director also presides over meetings of the board of directors, he is equivalent to both chairman and CEO. During the 1990s, managing directors were appointed by the government to autonomously manage firm performance, but since 1998 they have been elected by the Board of Directors.

Managing directors are very powerful in decision-making within the company and exert direct control over lower-level management, routinely overruling the interests of private shareholders. They also tend to stay within the same company for their entire careers, and once elected, they can only be dismissed if found guilty of severe mismanagement. This forms a sharp contrast with the model of "Superstar CEOs" in many Western corporations, in which companies will compete to bring in charismatic leaders with less experience in a given firm. Some scholars have tried to explain this discrepancy by drawing cultural parallels between the managing directors of Jachi-hoesa and the image of the Emperor in the Menghean political system.

Subsidiaries

Jachi-hoesa often operate a variety of "daughter companies" as subsidiaries through majority shareholding. Parent-company ownership is commonly reinforced by a system of interlocking directorates: individual members of the central board of directors are also managing directors of daughter companies, and members of those boards of directors may operate their own subsidiaries. This system extends the conglomerate's centralized control pattern along informal channels, allowing it to run as a cohesive group.

In addition to these patterns of formal ownership, Jachi-hoesa and their subsidiaries often contract out work to Mingiŏb, or mid-size private businesses. This allows a certain level of flexibility in production, as small and medium private businesses do not have to offer their workers the same pay and benefits and can produce labor-intensive goods for a lower cost. It also gives individual Jachi-hoesa the ability to easily terminate business relationships with poorly performing contractors, creating an incentive for contractors to streamline their operations.

Combined with the legacy of state control, this results in a conglomerate structure in which individual Jachi-hoesa are concentrated in a given area but have acquired subsidiaries and contractors in related ones. This can take the form of both vertical and horizontal integration, though state regulations prevent the formation of full monopolies in any given area. To give an example, the Samsan Heavy Industries Group was originally concentrated in steel and automobiles, but it has expanded its operations to include mining, construction equipment, machine tools, and home appliances.

State influence

Despite what their name implies, Jachi-hoesa are never truly autonomous from state control. This is what inspired many alternative translations, such as "public-private enterprises," "joint enterprises," and "state-guided enterprises." Scholars of political economy classify them as an intermediate form between private and state-owned business forms.

Typically, government interference in Jachi-hoesa operations constitutes what political scientist An Yŏng-ju called "influence" rather than "direction." The Ministry of Economics and Industry (MEI) serves as a liaison with Jachi-hoesa, laying out broad guidelines for economic development and setting ambitious production targets. Managing directors and firm leadership are then free to interpret and approach these goals as they please, while also working to make a profit and expand operations on the side. Targets of this kind were ubiquitous in the 1990s but declined in number and importance as time progressed, eventually becoming general guidelines for expansion rather than specific tools for managing a command economy.

Alongside MEI guidance, the Menghean state has relied on less formal tools for coordinating with Jachi-hoesa. Many directors and managing directors cultivate close personal partnerships with government officials, especially at the Prefectural level and below, in order to gain their support in matters of development and allocation. These connections extend beyond corruption proper, and often include exchanges of information on local market conditions and coordination on how to conduct infrastructure development.

Workplace Culture

Day-to-day interactions within Jachi-hoesa are strongly conditioned by a paternalistic business culture which blends elements of Socialist welfare and Yuhak tradition. The workplace is very hierarchical, and workers are expected to show respect to their superiors, with the managing director serving as a "fatherly figure" or "demi-Emperor" at the apex of the social pyramid. Outside the upper tiers of management, promotions are usually handed out on the principle of seniority, so that status differences in age reinforce status differences in rank.

Central to this culture is a social contract in which management provides workers with better treatment than they would find at a small private company, but demands obedience and high productivity in return. By law, all Jachi-hoesa must have a union in which all workers are members, but in practice the union works to maintain order and increase productivity rather than agitating for higher wages. The same logic can be found in the principle of lifetime employment, in which skilled workers are offered stable jobs in exchange for a guarantee that that they will not leave the company for better offers elsewhere.

Jachi-hoesa also try to cultivate feelings of solidarity and brand loyalty among their employees, organizing company dinners and social events where attendance is compulsory. Some companies organize morning assemblies in which workers march, sing, or conduct synchronized martial arts. Because military service is mandatory for male citizens, Jachi-hoesa often recruit from military networks and allude to military values in everyday work.

Criticisms

Corruption

Even before Jachi-hoesa even acquired their own legal category, mid-level managers and local government officials frequently engaged in upper-level corruption. Typically, this took the form of preferential treatment running along personal networks: the Prefectural leadership would offer discounted land and start-up loans to major companies which built factories on their territory, as this would allow them to report higher GDP growth during their time in office. Street-level bureaucratic officials also allowed Jachi-hoesa and their subsidiaries to bypass certain fees and regulations.

During the 1990s and early 2000s, the central government tolerated and even tacitly encouraged these agreements, seeing them as a way to promote industrial growth in the semi-private sector and spur competition between administrative divisions. Rents from these preferential deals were usually split between companies and government agencies and invested back into development, reducing the drag on growth; economists still debate whether this policy was beneficial or harmful to the Menghean economic miracle.

As time passed, however, the predominant type of corruption shifted from preferential agreements over development to large-scale bribes between government officials and company managers, usually diverted to personal wealth rather than company funds. The central government has been much less tolerant of this form of corruption, and in 2012 Choe Sŭng-min ordered the judicial branch and Anti-Corruption Office to step up enforcement. In 2015, the managing director of Samsan was arrested and jailed for taking public-sector bribes amounting to ₩1.5 billion, signaling that even powerful company officials were not immune to prosecution. Even so, both domestic and foreign observers have complained that the scale of corruption is rising beyond what the government can safely manage, and that the largest Jachi-hoesa have gained pervasive political influence over the state at the local level.

Gender discrimination

Another major criticism of Jachi-hoesa relates to allegations of gender discrimination. Among the ten largest Jachi-hoesa, none have ever had a female managing director, and men make up a vast majority of director and upper management positions. Some feminist writers attribute this to a conservative interpretation of Yuhak culture, which ranks the man as the head of the household and government and women as subordinates.

Female employees of Jachi-hoesa also face greater challenges in job security, which also contributes to the personnel gap in upper management. Middle management officials often encourage women to "seek extended leave" when they become pregnant, allowing the company to replace them with more active employees. Married women also tend to receive less pay than their male colleagues, on the basis that their husbands should be able to supply a larger share of household income. For both of these reasons, women are largely excluded from the offers of "lifetime employment" and promotion by seniority. Menghean feminists have criticized the government for dragging its heels in responding to this problem, and accused it of backsliding on issues of gender equality.

List of major Jachi-hoesa

Logo	Name (EN)	Sinmun	Gomun	Assets (NSD)	Assets (₩)	List of key industries, including subsidiaries
Example	Samsan Heavy Industries	삼산	三山	$352bn	₩7,885bn	Steel, automobiles, machine parts, construction, chemicals, shipping, insurance
Example	Taesan Group	태산	泰山	$283bn	₩6,339bn	Steel, construction, chemicals, phones, computers, retail, shipping, insurance, airline
Example	Kimsŏng Group	김성	金星	$182bn	₩4,077bn	Computers, phones, chemicals, retail, insurance, phone service
Example	Chŏnsŏ Heavy Industries	천서	川西	$121bn	₩2,710bn	Steel, automobiles, chemicals, machine parts, shipping, airline
Example	Mengguk Jŏnjin	맹국 전진	孟國前進	$94bn	₩2,106bn	Automobiles, construction, shipping, insurance, airline, phone service
Example	Taekchŏn Motor Works	택천	澤川	$88bn	₩1,971bn	Steel, automobiles, chemicals, construction
Example	Yongrak Hwangje	영락 황제	永樂皇帝	$83bn	₩1,859bn	Retail, insurance
Example	Ilchul Group	일출	日出	$63bn	₩1,411bn	Steel, construction, computers
Example	Hamhŭng Group	함흥	咸興	$59bn	₩1,322bn	Steel, construction, chemicals
Example	Sinsegye Electronics	신세계	新世界	$52bn	₩1,165bn	Computers, retail, phone service

See also

• Economy of Menghe
• Economic reform in Menghe
• 1999 Menghean financial crisis