Jekyll and Hyde: South Korea’s Family Businesses

Illustration by Jungyeon Roh
Illustration by Jungyeon Roh

Sayantan Chanda talks about the yet existing stronghold of the ‘Chaebols’ in South Korea and what consequences it holds for the South Korean economy and society.

The Republic of Samsung-land is the name that many South Koreans these days have given to their country.[i] Founded in a by-gone era of instability and uncertainty, Samsung has gone on to comprise one-fifth of the economy of South Korea and wields influence that some say rivals the governments’. Along with other multi-nationals such as LG, Hyundai and Hanwha, the family of South Korean chaebols have successfully remade and breathed life into a nation that at one point was poorer that Ghana.[ii] Despite this apparently rosy picture, there has been a dark side to The Miracle on the Han River. The chairman of Samsung Electronics, Lee Kun-Hee was indicted on financial fraud and bribery in 2008 to which he admitted responsibility. Despite being slapped with a seven year jail term and fined upwards of 300 million won, he eventually paid barely a third of the sum with the former being reduced to a three year suspended sentence.[iii] He was eventually pardoned altogether to ensure he kept his place on the International Olympic Committee. A year later, Pyeongchang was chosen to host the 2018 Winter Olympics, Lee having championed the bid across the globe, bringing a 20 million dollar windfall for the country in the midst of a global economic slowdown.[iv]

This is one instance in a series which exhibit how, according to some, the chaebols and those who run them have become too powerful, enough to sway the government. The current administration prefers to characterize the conduct of these conglomerates as unruly and not sinister though evidence suggests that this may be a rather optimistic outlook that overlooks multiple corruption scandals, bribery, price-fixing and other assorted behaviours which may be described from a legal perspective as criminal and from a business perspective as monopolistic. To be clear, South Korea is far away from the endemic corruption that characterizes much of Asia however some chaebol practices have been accused of shutting out smaller and medium-sized firms from competing in the market. Lee’s example is just a drop in the bucket of the overall scenario of how these family-run businesses have come to define and divide Korean politics and society. [v]

The Korean Peninsula was an area of perpetual turmoil for several decades prior to the split between North and South. Dominated over and passed around between larger powers such as China, Russia and Japan, the Korean War gave birth to a country with rampant poverty, no natural resources and a defunct economy. The East Asian nation survived on financial aid for the first decade of its existence till a military coup in 1961 placed General Park Chung-hee at the helm of the struggling country. Criticized for using autocratic methods of governance, Park kick-started the Korean economy, emphasizing on exports, and improved the country’s transport and economic infrastructure. His assassination in 1979 ended an 18 year reign that saw an exponential increase in living standards and material wealth.[vi]

This period saw the rise of chaebols, or family run businesses. In Korean, ‘chae’ means wealth and ‘bol’ means clan.[vii] These ‘Wealth-clans’ were supported and backed by Park’s government in order to aid in the revitalization of the economy. Funds were channelled from foreign loans to purchase state of the art technology while the state implemented several policies that were favourable to the growth of its brain-children. Even after Park’s assassination, subsequent governments continued to follow this strategy leading up to the current administration headed by Park’s daughter, Park Geun-Hye. As a result, Samsung Electronics and Hyundai Heavy Motors have gone on to dominate their respective fields, the SK Group provides arguably the fastest broadband in the world and Hanwha has been asked to build an entire town in Iraq by the United States.[viii] Now with the older generation of CEO’s and leaders approaching the twilight of their careers, the government and society are anxiously watching to see how their offspring will follow in their footsteps.

One incident that does not engender optimism is the Korean ‘nut rage’ fiasco.[ix] Cho Hyun-ah, daughter of the chairman of the chaebol that owns Korean Airlines, was reportedly served Macadamia nuts in a packet rather than on a plate while on board a taxiing Korean Air flight at JFK. She proceeded to order the take-off to be delayed so that the flight attendant guilty of the offence could be ejected thus breaking air traffic regulation and being charged with a one year jail term. Absurd incidents such as these do not, of course, tarnish the image or reputation of all the next generation but it does, however, lend credence to the idea that while the current corporate heads are seasoned veterans who indulge in malicious business practices, their heirs are little more that erratic youngsters born with silver spoons in their mouths. While this may seem an over-generalization, seniority is a very important aspect in South Korean culture.[x]

The Asian Financial Crisis in 1997 signalled the end of the honeymoon period for chaebols and triggered a wave of regulations that placed new restrictions on those corporations that managed to survive the economic meltdown. Big names like Daewoo and Kia went bankrupt and were sold off along with approximately sixteen other prominent chaebols. The reason for this was narrowed down to reckless diversification carried out by almost all the firms coupled with an overtly centralized bureaucracy. Banks in Korea, afraid that a slowdown in the performance of the chaebols would adversely affect the entire economy as a whole, continued to lend money to these companies to pursue their ill-advised business strategy. “Too big to fail” was the term used to reassure the public and themselves. This prediction turned out to be exceedingly romantic as the year wore on and the said conglomerates fell like dominos taking the rest of the economy with them. The government soon clamped down on the exhausted and battered giants that remained and ordered an end to the diversification policy and a more flexible leadership structure. The former ironically worked out very favourably for firms like Samsung and LG and led to even greater profitability and consolidation of their position in the chaebol hierarchy. A complex system of cross-holding meanwhile ensured that the business stayed within the family, so to speak.[xi]

The success of several chaebols is undoubtedly a matter of great pride,. The past, present and future are almost assuredly in the hands of Samsung, LG, Hyundai and its ilk. Chaebols have a stake in almost every industry or service that currently exists, providing quality that can compete with the very best across the world. It is almost unimaginable to think of the Asian nation sans them. The concerns over the excesses of these corporations are however valid and the future of the foremost Asian Tiger will depend on how it can balance control and liberalism with regards to these behemoth corporations.

Sayantan Chanda is a 2nd year undergraduate at Jindal Global Law School

References

[i] Cho Mu-hyun (April 2015), The Chaebols, The Rise of South Korea’s Conglomerates, CNET

[ii] “chaebol” Merriam-Webster (2011)

[iii] Cho Mu-hyun (April 2015), The Chaebols, The Rise of South Korea’s Conglomerates, CNET

[iv] Ibid

[v] Ian Marlow (24th April 2015), South Korea’s chaebol problem, theglobeandmail.com

[vi] ‘In the Republic of Samsung’, Washington Post,

[vii] Cho Mu-hyun (April 2015), The Chaebols, The Rise of South Korea’s Conglomerates, CNET

[viii] Cho Sang-hun (6th November 2007), Corruption scandal snowballs at South Korea’s Samsung Group, New York Times

[ix] Government pardons former Samsung Chairman (December 29, 2009), Joongangdaily.joins.com

[x] Stephen Evans (10th August 2015), Can South Korea’s family run businesses maintain their grip?, BBC

[xi] Ibid

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