[The Korea Herald] Should big firms have to share profits?

The proposal that large firms be compelled to “share” their profits with suppliers was just one of many ideas put forth for a “fairer” economy near the end of the President Lee Myung-bak administration. Such proposals especially gathered steam with the general leftward shift of the political landscape after Park Won-soon’s victory in the Seoul mayoral election in October 2011.  — John.

By John Power

The concept of profit-sharing has been controversial since its announcement in early 2011 by Chung Un-chan, a former prime minister and current head of the Commission on Shared Growth for Large and Small Companies.

Chung, appointed by a President Lee Myung-bak desperate to shake off his pro-big business image, rankled conglomerates by proposing that some of their “excess” profits be directed toward the growth of small and medium-sized businesses. After complaints that the commission was trying to force profit-sharing, and a boycott of related negotiations by the Federation of Korean Industries, Chung and his colleagues earlier this month agreed on a watered-down system, renamed “cooperation benefit sharing.”

Under the system, which is voluntary unlike the earlier proposal, large companies may share their profits with suppliers based on prior agreements. The commission will then grade large companies on their support for smaller firms, with high-scoring companies benefiting from government incentives such as advantages in winning public orders. While avoiding the uproar of the initial proposal, big business representatives complained the measures were vague and agreed to without them. To many businesses and supporters of the free market, the idea of any such commission at all is worrisome.

Economic Reform Research Institute researcher Wi Pyoung-ryang, however, believes the commission is a necessary counter to chaebol dominance.

“Of course, the organization is positive and necessary in the Korean economic structure in order to narrow the profit gap between large and small companies, and revitalize small companies,” Wi told Voice.

While he “can’t judge” yet whether profit-sharing should be compulsory, Wi also believes that certain industries should be left to small and medium-sized businesses. As part of its mandate, the commission has “recommended” that conglomerates stay out of, or withdraw from, certain industries such as tofu and cardboard boxes.

“Some business territories should be left for small companies for short terms such as three-five years. With this, small companies can have their competitiveness,” said Wi.

Chairman Chung Un-chan of the Commission of Shared Growth Between Large and Small Companies (Yonhap News)

Oh Jeong-suk of the Small & Medium Business Corporation said that small businesses are currently facing a number of stern challenges in the current environment.

“There are three different types of difficulty, one is the financial problem. The second is the lack of manpower. The third one is marketing. Korea’s market is so small and we have go abroad to sell our products,” said Oh, who stressed that he was speaking in a personal capacity only.

Accordingly, Oh believes that small companies need to be given a chance to grow out from the shadow of large conglomerates.

“Thing is, many chaebol dominate all our industry. It is such a big dominance compared to other nations so I think government will play a role in that,” said Oh, adding that he would support forced profit-sharing “if it is necessary.”

“The chaebol make some of sort of franchise … every corner, every street and they open a small bakery store and then they can be able to profit from them. So there is no place to go for small business owners and self-employed in these times; so the government has to get involved to balance small business and the chaebol.”

Those representing big businesses are less enthusiastic about being told in what areas they should or shouldn’t expand.

Industries suitable for SMEs may not be unilaterally designated, but refer to business sectors that SMEs have a competitive edge over large companies, for example, customized suits, house beer, special glass, special vehicles etc,” said a high-level source within FKI who did not wish named.

“In addition, suitability on the market is determined by consumers. As technology develops, an industry that used to be suitable for large companies can also turn into a field suitable for SMEs and vice versa. Therefore, it is impossible to say that some businesses are suitable only for large companies and others are only for SMEs.”

Kwon Hyuk-cheol, the head of the market economy research team at the Center for Free Enterprise in Seoul, said that consumers will suffer if businesses are restricted from certain industries.

“Regardless of big business or small business, the one that best serves the consumer will survive. If a big business offers a product at a cheap price, that is a big benefit for a consumer. In order for businesses to best serve the needs of the consumer, competition is by all means necessary,” he said.

Kwon also questions the common assumption that big business can only expand to the detriment of smaller players.

“People say that when a big business advances, a small business is bankrupted but that is only reporting one side. It is true that small business in direct competition with big business will face challenges. However, through such competition, a small business with a competitive edge will grow and develop.

Furthermore, the advantage of learning to reorganize resources for increased efficiency should not be overlooked,” he said.

While even the KFI said “that the Commission of Shared Growth will play an important role in enhancing competitiveness of domestic industries and in strengthening and developing the national economy for all Korean citizens,”

Kwon doesn’t believe it has any legitimate function.

“The presence and activities of the Commission on Shared Growth for Large and Small Companies are entirely unnecessary. Big and small businesses alike should voluntarily strive for their growth. To force businesses to grow is a laughable matter. I do not think the Commission on Shared Growth for Large and Small Companies is more interested in the growth and development of small businesses than that of the big businesses,” he said.

But moves to restrict the growth of conglomerates in favor of small businesses haven’t just come from the commission on shared growth. The Democratic United Party recently announced a plan to ban affiliates of the top 10 chaebol from making investments in companies above 40 percent of their worth.

Some, such as civic group Citizens’ Coalition for Economic Justice, even believe such measures should go further.

“Target companies should be large companies whose total assets are more than 5 trillion won,” said a spokeswoman for CCEJ who did not wish to be named.

“However, the DUP only argues about the top 10 conglomerates. Secondly, we also argue that the investment limit (be) 25 percent, which is also different from the DUP’s proposal. The DUP argues for 40 percent. We (also) strongly argue that cross-holding should be prohibited, we mean a total ban.”

Ultimately, the question of whether to intervene in the market can be about practicality as much as ideology. Yonsei School of Management professor Shin Dong-youb recognizes the merits of profit-sharing but wonders about its feasibility.

“Profit-sharing in this form has a lot good purposes but it has a lot problems too so it should be examined quite carefully because profit sharing asks companies to reduce their profits so that others, for example suppliers and smaller companies, can increase profits,” Shin said.

“The general purpose itself is good but the practical way to make this kind of thing is quite a tough challenge.”

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[The Korea Herald] Is Seoul’s student rights ordinance good policy?

The subject of education exercises Korean society like few other topics. A student rights ordinance passed by the Seoul education office became a major clash point between conservatives and liberals in early 2012. — John.

By John Power

In an election year, little can be considered above ideological conflict. Education is no exception.

An ordinance on student rights, passed by Seoul Metropolitan Office of Education late last month, is the latest source of controversy within an education system recently rocked by extreme bullying and student suicides.

Liberal superintendent Kwak No-hyun, returning to work after being fined for bribery during his 2010 election campaign, proclaimed the passage of the Ordinance for Students’ Human Rights as a “historic event.” The Ministry of Education Science and Technology, teachers’ groups and many conservatives see it differently. Arguing that the ordinance will lead to confusion within schools and strip teachers of authority, the Education Ministry has taken the case to the Supreme Court to have it overturned.

“I can say that we sympathize with the spirit of the ordinance, that we understand student rights already exist in the Constitution and law. (But) the Ministry of Education is afraid the ordinance might hinder or restrict school autonomy in Seoul. Because it stresses only students’ rights, not students’ responsibilities. We think they should put a more balanced rights and responsibilities (approach in place),” an Education Ministry official who did not wish to be named told Voice.

The ordinance, which bans corporal punishment and discrimination against homosexual and pregnant students, and allows students to protest on school grounds and choose their own hairstyle and dress, follows similarly controversial decrees in Gyeonggi Province and Gwangju Metropolitan City, also in the name of students’ human rights.

Jung Un-soo, International coordinator of the Korean Federation of Teachers’ Association, campaigned for an ordinance on student rights in the early 1990s. But he said the ordinance passed by SMOE has little to do with the cause he fought for.

“ … This policy is clearly something driven by a political agenda regarding the organizational gains involved in the election of provincial superintendents, and with no regards to the actual human rights of students,” Jung said.

Jung said the KFTA is firmly against the “deceptive” ordinance on judicial and pragmatic grounds as well as out of concern for students.

Civic activists protest the student rights ordinance in Seoul. (Yonhap News)

“If someone in the school discriminates against students or violates their human rights, they can be punished by law. So to insist that this ordinance is necessary to protect human rights of students is a total lie. Moreover, we are giving each school the right to enact and amend its regulations according to the ‘Enforcement Decree of the Elementary and Secondary Education Act’ so schools can restrict the freedom of some students in cases to protect the human rights of other students. But this ordinance is limiting the rights of individual schools ― and its students ― to decide their rights and responsibilities on their own.”

Jung further objects to the way the measure was passed. He has particularly harsh words for the Seoul head of education, convicted of bribing an electoral rival to drop out of the race for the post.

“Superintendent Kwak has been convicted for bribery with the highest fine allowed in the law. This sentence makes the election invalid. The reason Kwak is not out of his post is that there was an appeal to the higher court. But someone who was already convicted for bribery in the first trial, and who was clearly involved in the corruption of an election, can’t be a chief of education. What shall children learn from him? They will learn that you can be a superintendent through bribery if you have 200 million won. That’s what the students are saying nowadays in schools.

“What Kwak has to do now is not to enforce his election pledges, or political deals in other words. What he has to do is to step down from his post, and say sorry for the corruption of the election and the harm he has caused in the schools. That is what an educator should do. He is now just revealing that he is no kind of educator but just a political fraud.”

But Chang Suh-yeon, of Gong-Gam Korean Public Interest Lawyers’ Group, said that Kwak’s conviction is a separate issue from the ordinance.

“The bribery is not directly related to the ordinance. It was the opinion of 97,000 Seoul citizens (who signed a petition) who wanted the ordinance enacted, so it was through a legal procedure that it was possible,” Chang said.
Chang said that student rights have been ignored for too long in schools across the nation, resulting in an abnormally high suicide rate among students. The issue of school violence and its possible effects became a topic of national conversation after details of a Daegu student’s suicide note became public in December.

“I can’t understand how people could be against something as self-evident as ‘all students have the right to be free from violence,’” Chang said. “In 1991, Korea joined the U.N. Convention on the Rights of the Child, and according to article 6 of the Constitution, the U.N. convention should have the same weight as national law. The U.N. committee on children has demanded that all corporal punishment be banned by law and they advised the Korean government this on several occasions. In this and day age it doesn’t make any sense that a teacher should use corporal punishment as discipline.”

For Chang, it is also important to allow students express their individuality.

“All human beings have the right to express themselves but due to the militarized culture resulting from Japanese colonialism, students have been forced to abide by a strict dress and hairstyle code. Is school the army? (In any case) with the current ordinance, uniform, unlike hair, can be regulated by individual schools,” she said.

But others such as Jung fear that class discipline will break down without rules and adequate methods of punishment.

“The provisions regarding school dress is one of the typical provisions showing the problem of this ordinance. On the surface it is to protect the freedom of students. But the actual result of banning all school uniforms is causing discrimination based on economic status. These days there are even ‘classes’ in classrooms divided by the price of the overcoats of students. So this is violating their right of equality. And it is contradictory to the provisions regarding discrimination,” said Jung.

“The more serious problem is that the ordinance is saying ‘Students are free from all violence,’ and this sounds good. But the reality is that students are more suffering from violence because the ordinance is tying the hands of teachers who want to help students in school violence situations by forbidding all kind of physical intervention and immediate discipline ― even non-physical guidance also.”

The battle for the future of the capital’s education shows few signs of abating. But for now the fate of the ordinance lies with the Supreme Court, which could make a ruling before the end of the month.

“I don’t think the case will be successful because the ordinance does not go against any law,” said Chang. “The ordinance was proposed by the Seoul citizens and passed by the Seoul government, and the Education Ministry going against it is damaging to the local government.”

[The Korea Herald] Rogue travel agent indicted for fraud

Part four of the Zenith Travel scam series of articles. — John.

By John Power and Robert Lee

A Seoul travel agent has been indicted on charges of fraud and embezzlement for scamming at least 60 customers out of more than 170 million won ($150,000), Seoul Eastern District Prosecutors’ Office said Thursday.

Initially operating as Zenith Travel, the man, Wystan Kang, canceled and pocketed the money for dozens of mostly foreign customers’ flights, often without notice.

Kang also embezzled some 60 million won in travel certificates allocated to him by an unnamed travel agency, according to prosecutors.

According to prosecutors, Kang began targeting customers in January 2011. The list of victims includes Korea residents from the U.S., U.K., France, Canada, Ireland, Israel, India, Uganda, Pakistan and South Africa. Kang, who is currently being detained, is expected to undergo a jury trial within the month.

Seocho Police Station was first made aware of Zenith Travel in early August, but Kang was not arrested until mid-October. A Seoul court, however, denied prosecutors’ request for his detention, deeming him not to be a flight risk.

On Oct. 25, just days after his release, Kang set up a new company, Travel Expert, through which he continued his scam under the alias “Joseph Kim,” according to prosecutors.

The Korea Herald revealed the operations of Travel Expert in January, five months after Kang was first reported to the police and three months after he had his business license for Zenith Travel revoked by Seocho District Office on Oct. 6. Kang had registered Travel Expert with Songpa District Office under someone else’s name on Nov. 24.

[The Korea Herald] Does Confucianism have a role in Korea today?

I enjoyed researching this article as the role of Confucianism in Korean society is a common subject of debate among foreigners living in Korea. It is also a subject that seems to provoke very emotional responses at times. The idea for the piece came from a long term Korea expatriate. — John.

By John Power

The teachings of Chinese philosopher Confucius have had a profound influence on South Korea. So much so, that the nation is sometimes referred to as the most Confucian society on earth.

An emphasis on family, personal betterment and respect for age and authority continue to feature highly in Korean life to this day, some 2,500 years after the philosopher’s death.

Ethicist and director of the Institute for Advanced Humanistic Studies at Peking University, Tu Weiming is adamant Confucianism still has much to offer a modern society such as Korea.

“Confucianism is arguably the most comprehensive and integrated humanism in world history. It is also one of the most important and significant rational ways of learning to be human among all Axial-Age Civilizations, namely Greek philosophy, Judaism ― by implication Christianity and Islam ― Hinduism, Buddhism, Confucianism and Daoism. It offers Korea the ‘core values’ that will make her a standard of moral excellence in the developing as well as the developed world,” Tu said.

Tu says that key values set it apart from Western notions of ethics such as “The Golden Rule.”

“Just to name two of these values: the spirit of humanity ― sympathy and compassion ― and the practice of reciprocity. I would argue that the Confucian idea of reciprocity is more congenial to inter-religious and dialogue among civilizations.”

Tu even argues that Confucian values of the common good and hard work without immediate reward contributed to Korea’s rapid recovery from the 2009 financial crisis. In 2010, the country grew its economy by 6 percent while most of the developed world remained stagnant or saw negative growth.

“Similar examples can be found in other Confucian societies, such as Japan and Singapore. In all these societies, the leadership ― often the collaboration between the political and business elite ― can mobilize the whole society ― including the labor and the citizens ― to deal with the national crisis as a collective enterprise. This phenomenon is difficult to imagine in many contemporary societies such as USA, England, France, or Greece,” Tu said.

Hahm Chai-bong, president of the Asan Institute for Policy Studies and co-author of “Confucianism for the Modern World,” agrees that Confucianism has been instrumental in Koreans’ propensity to rally around a common cause.

“Back in 1997 when the Asian financial crisis hit, we had Koreans giving up gold. The huge spectacle of people lining up in the streets and giving up their gold because they thought our country was going under. We still sort of contrast that with how the Greeks or the Italians or the Spaniards are responding to their financial crisis where they just simply blame politicians and others. You really cannot explain that without Confucianism, where that sense of economic nationalism comes from or the sense that this nation is all on the same boat,” Hahm said.

He also believes the philosophy’s rigorous ethical standards have largely been a positive influence on the nation, despite numerous past and present improprieties in the political and business worlds.

“Confucianism still requires a lot from people in power or authority. That has really served us quite well and it has been a major source of social development and political development in society,” Hahm said.

But Confucianism has its critics, with charges against it ranging from its view of women to its reinforcement of hierarchies, whether deserving or not. In “Outliers,” author Malcolm Gladwell cited deference toward superiors, a Confucian trait deeply embedded in Korean culture, as a major factor in Korean Air having one of the world’s worst safety records from 1988-1998.

“Confucianism began with so little mobility of households et al, and it relies on an unchanging hierarchy, women come up short in almost all relationships,” said Jerome F. Keating, a former professor at National Taipei University and the author of the paper “The Dark side of Confucianism.”

“The 21st century has a growing sense of democracy; even the Arab Spring senses this, where people want the right to choose their leaders and they don’t want to depend on the ‘benevolence’ of those above. Technically, Confucianism relegates responsibility up and down the ladder, but that is more honored in the breach than reality.”

To Keating, Confucianism is largely ill-suited to modern life.

“With any philosophy, religion, ideology you have to examine it from the standpoint of the world for which it set about presenting answers to living. Confucianism was constructed for an agricultural based society and economy: note the low rank given to businessmen at the bottom of the ladder ― how that has changed. That is one of the issues I see. The world of today is not that agriculturally based, it is a globalized society where people are very mobile and the majority of workers make money differently.”

While traces of the philosophy can be found in the earliest records of the Korean Peninsula, its influence grew considerably from the 14th century onward during the Joseon Dynasty. By the 1500s, Neo-Confucianism had come to dominate thought and social mores in the kingdom, largely due to the influence of Yi Hwang and Yi I, the two most prominent scholars of the time who appear today on the 1,000 and 5,000 won notes.

Confucianism emphasizes harmony and the importance of family, recognizing that, in Tu’s words, “the family is indispensable for human survival and flourishing.” Accordingly, societies influenced by the tradition such as Korea, Japan and Taiwan tend to have enviably low levels of violent crime and family breakdown. Keating argues, however, that such positive social indicators shouldn’t be taken at face value.

“In Taiwan, and I am sure in other Asian countries, incest and abuse and rape by uncles, etc. goes unreported because of the shame factor in preserving family image. Similarly I have noted that there is no lessening of extra-marital affairs, etc. Family stays together but at what price? In the West, we call a mistress a mistress. In Asia it gets a (euphemistic) phrase like sciau tai-tai (little wife). You are dealing with cultures where image and face rank higher than honesty and straightforwardness,” he said.

Hahm, too, acknowledges the philosophy’s limitations, noting that the strict dictates of Confucianism are often at odds with the reality of morally weak people.

“Because it is such a highly set standard people try to sometimes shirk it, sometimes to circumvent it. It also leads to a lot of hypocrisy, which leads to a terrible deal of widespread cynicism in society, a sense of betrayal,” Hahm said.

Not only is the ethical bar high, it is distinct from other societies, adds Hahm.

“They are different standards as well. Something like a Lewinsky scandal, I don’t think any Korea politician could survive something like that. So in that sense we have a much higher standard than the western societies where they think that’s a private issue, it’s a private affair as long as the guy is doing OK as a president, that’s what we should worry about, not so much what kind of private life that person has. It’s the kind of distinction Koreans still fail to make.”

Hahm doesn’t advocate a societal return to Confucianism. But he believes where it could be most relevant today is as a counterweight to other modes of thought.

“I think what (role) Confucianism can play, or any kind communitarian traditional order value system can do, is sort of (be) a mitigating factor in whatever excesses individualism in society might create.”

[The Korea Herald] Should Korea sign an FTA with China?

By John Power

Free trade agreements have been a cornerstone of Korean economic policy in recent years. Since Korea reached its first FTA with Chile in 2004, the country has signed deals with the European Union, Singapore, the Association of Southeast Asian Nations and, most recently, the U.S. Now attention has turned to the possibility of an FTA with the nation’s biggest trading partner of all, China.

On a state trip to Beijing earlier this month, President Lee Myung-bak said that official negotiations on a pact, first broached by the two countries in 2004, should begin in the next month or two. Building the government’s case, the Ministry of Foreign Affairs and Trade last week released a report claiming an FTA would boost exports to China and lead to new manufacturing jobs here.

Kim Young-gui, of the Korea Institute for International Economic Policy, says KIEP research bears out the benefits of a deal between the two economies, which saw trade of $224.8 billion in the first 11 months of 2011.

“It is known that the Korean economy has experienced high economic growth by pursuing export-oriented policies. Moreover, many countries have pursued further trade liberalization by agreeing on FTAs with one another. Therefore, FTAs are an inevitable strategy to Korea in the sense that Korea would lose a large share of the world market otherwise. If we consider direct positive effects from FTAs, as well as these opportunity costs of losing markets, it is widely agreed that the FTA is a fairly important and urgent agenda for the Korean economy,” Kim told Voice.

Kim notes that an FTA with China would likely have a greater impact than the one with the U.S passed at the National Assembly in November.

“What is interesting is that China has higher tariff and non-tariff barriers compared to Korea’s other trading partners such as the U.S. and the EU. This implies that the economic effects of tariff and non-tariff reduction through the Korea-China FTA would be greater than the Korea-U.S. FTA or Korea-EU FTA,” he said.

Korea’s tariff burden is also considerably lower than China’s, amplifying the potential of an FTA to benefit Korean exporters, according to a 2006 report by KIEP, which said the average tariff on goods imposed by Korea was 11.2 percent to China’s 56.9 percent.

A Korea-China FTA would also benefit consumers here, according to Dilip K. Das, a professor of SolBridge International School of Business at Woosong University.

President Lee Myung-bak met with Chinese President Hu Jintao in January to discuss a possible Korea-China FTA among other issues.

“The prices of foods in Korea should come down after the agreement. In Canada, my weekly grocery bill is about $22-25. Here my weekly grocery bill is around $80. Korean food prices are way too high. Looking at the wealth of the nation, these prices just don’t gel,” he said.

Das also believes an FTA could improve relations between the countries, especially in light of contentious incidents such as the recent killing of a Korean coast guard officer by Chinese fishermen.

“As you noticed during President Lee’s state visit to China, while this issue was discussed it did not overshadow the negotiations of the two parties, and they know that the two neighbors, or I repeat the two dynamic economies, have a lot going for them and there are far more important issues than this one incident which sort of could mar the relationship.”

The region’s recent economic history, Das says, has convinced countries of the advantages of easier trade.

“The Asian crisis changed everything because all these countries together had to fight this crisis and it weighed heavily on many countries including Korea, not so much China. And so they thought, OK, if we have to come to help each other at a time of economic distress, well why not get into FTAs and BTAs. And economically, in the regional economy, that’s what they started doing.”

But even before a single round of FTA negotiations has taken place, opposition has been strong. The main opposition Democratic United Party recently called on the government to halt plans for talks with China, with Floor Leader Kim Jin-pyo claiming the deal would have a “nuclear” impact on Korean farmers and fishermen. KIEP estimates that an agreement that lowered tariffs on agricultural products by 50 percent would cause up to $2.8 billion worth of damage to the local industry.

“We have to look at this scenario in its totality,” said Das, “that whenever an FTA is negotiated, there are some sectors that lose and they are some sectors that gain. And here in Korea it is the farming sector that would lose.”

DUP lawmaker Park Joo-sun says not enough information has yet become available for him to take a stance on the FTA, but he is adamant that it should not follow the example of the U.S. pact.

“Firstly, amending the law and system of Korea through a single FTA treaty should not be repeated. Secondly, products produced in Gaeseong Industrial Complex should be recognized as products of South Korea. Thirdly, effects on agriculture, livestock and fishing industries should be minimized through policies such as specifying sensitive products,” Park said.

Park says that a pact with China has the potential to be even more damaging to local agriculture than the Korea-U.S. FTA his party opposed in its previous incarnation as the Democratic Party.

“Agriculture, livestock and fishing industries should be dealt with extreme caution. Unlike the U.S., China produces the same agricultural products as South Korea does. Also, its geographical proximity eliminates concerns regarding freshness of the products which is the most important aspect of trading agricultural products. Furthermore, regarding the price competitiveness, Chinese agricultural products are overwhelming priced at 1/3-1/4 of the price of Korean products,” Park said.

Nam Hee-sob, who was a chief member of the policy committee of the Korean Alliance against the Korea-U.S. FTA, shares many of Park’s concerns.

“In general, the FTA is to reduce the tariffs which may lead to a reduction of prices. But I think it is just one side of the thing. I think it is meaningless to get a cheaper product at the expense of our food system. We cannot entirely rely on the Chinese food,” Nam said.

KIEP’s Kim, too, acknowledges that farmers would need to be compensated for their losses.

“It is also very important for the Korean government to make appropriate policies to share fruits from free trade and to help the people who would be unfavorably affected by the FTAs,” he said.

But Nam says that rather than seeking cheaper imports to tackle high food prices, the focus should be on reform of the local industry.

“We need to reform our domestic industry first and then if we can make mutual benefits with our trading partner in some specific products, then we can open our markets,” he said.

And while he accepts an FTA would benefit big exporters such as Samsung and Hyundai, Nam sees little benefits trickling down to the average person.

“The benefits they can get from exporting are not shared by the general public. Last year, I heard that Samsung made extra record profit but I haven’t heard any news that the ordinary people can have benefits from Samsung’s profit.”