How to avoid the winner’s curse

The Democratic Party must listen to its opponents and critics and learn to concede.

Lee Sang-ryeolThe author is a senior editorial writer of the JoongAng Ilbo. The winner’s curse can be at play in a competitive bidding when a too-eager bidder ends up overpaying and losing money. The now-defunct Kumho Asiana Group came under the spell. Chemical-strong Kumho capitalized on the Asian financial crisis when a slew of companies went on a fire sale to go on an acquisition spree. The business group acquired Daewoo Engineering & Construction and Korea Express in the late 2000s to ascend to No. 7 among local conglomerates. But its leveraged expansion backfired amid the global financial crisis in 2008, causing the group to let go of Daewoo E&C and Korea Express. By 2019, it had to sell its flagship Asiana Airlines.

STX Group, founded and raised by Chairman Kang Duk-soo, a business legend, successfully acquired a controlling stake in Ssayongyang Heavy Industries where he had worked. Through a succession of acquisitions of shipyards, the group became the 13th largest corporation with its revenue exceeding 18 trillion won ($13 billion) in a decade. But the global financial crisis that caused a prolonged slump in the shipping and shipbuilding industry upended the fortune and broke up the group.

The two conglomerations invited the winner’s curse through their reckless betting, lousy finance structure and weak fundamentals. Newfound fortune ruined corporate sentiment, and arrogance and self-complacency drowned companies. Intoxicated by new power and glory, they neglected their fundamental duties.

The unfortunate outcomes also fall on political winners. The opposition Democratic Party (DP) commanding 170 seats in the 300-member National Assembly fully exploited its majority power as soon as the 22nd legislature convened in June. It dominated the seats of the speaker and the chairmanship of the mighty Legislation and Judiciary Committee. It also pushed for the impeachments of the new Korea Communications Commission (KCC) chair and prosecutors behind a number of criminal cases related to its leader, as well as a hoard of ideology-driven bills.

Compromise or debate was not in their mind as they were set on removing the KCC chair the president appointed and passing four controversial revisions to the Broadcasting Act. Their formal cause was to ensure the political neutrality of public broadcasters and press freedom. But their real aim was to defend leftist broadcaster MBC. The DP was intent on stopping MBC from being controlled by the conservative administration through the replacement of the board members of the state-funded Foundation for Broadcast Culture which owns MBC.

It is shameful that public broadcasters serve as the trophy of the ruling power. Past governments, whether conservative or liberal, all attempted to reign in public broadcasters. But the DP should know that it lost the ruling power even after dominating KBS and MBC during the Moon Jae-in administration. A political party ultimately must win the hearts of the people, not broadcasters.

The majority party unilaterally passed the so-called Yellow Envelope Act strongly opposed by business groups in fear of encouraging strikes, as well as a universal gift voucher program aimed at handing out 250,000 won to every citizen even though they know the bills will be vetoed by the president. A party aspiring to win power should be reliable, responsible and competent. No governments would implement laws without discussions with the opposition. Democracy runs on the separation of powers.

Legislation without paying heed to criticism can bring about grave consequences. Good examples of this are the two acts designed to protect tenants’ rights, which were passed by the DP as the governing party in 2020. The bills were railroaded through the legislation committee and the plenary session in just two days regardless of deepening concerns about the ramifications on the rent market. As soon as the laws went into effect, the rent market dried up, sending rent and housing prices sky-high. The housing market disaster was a major cause behind the DP’s defeat in the 2022 presidential election. It was the winner’s curse.

The majority party clearly has not learned any lessons, given its reckless lawmaking spree in the new legislature. Public sentiment has quickly soured. Polls show the DP’s approval rating plunging to 27 percent, sharply lower than 35 percent of the governing People Power Party (PPP).

Not all companies that expand through M&As came under the winner’s curse. The survivors all had strong finance and fundamentals. The DP must change. It must listen to its opponents and critics and learn to concede. That’s the only way to avoid the winner’s curse.