The Chaebol dynasties of South Korea

The Chaebol dynasties of South Korea: who are chaebol, and why do they hold such sway over the South Korean government?

Although corruption isn't a new phenomenon in the South Korean political sphere, the scandal that embroiled then-President Park Geun-hye sent shockwaves through society. President Park Geun-hye being found as held in a Rasputin-like grasp was met with anger and calls for justice. As a result of Park's impeachment, the investigation into her crimes also revealed the involvement of chaebol companies. This has once again opened up dialogue on the nature of chaebol companies, their role in society, and just how powerful they are to be colluding with the President and her second-in-command, Choi Soon-sil.

This essay will discuss who the South Korean chaebol are, beginning with the historical context that they arose in and how they played a vital role in lifting South Korea out of poverty. Next, the essay will focus on the economic responsibility that chaebol groups have in the South Korean economy, and the implications of this for other sectors. Lastly, the corruption allegations made against chaebol groups and individuals will be analysed, as well as the attempts by the government to combat the issue.

To begin, the term of 'chaebol' itself needs to be clarified. Its characters, meaning 'wealth' and 'clique', denote its definition. The chaebol are indeed 'wealth cliques' (in modern terms known as 'conglomerates'), which are usually family-dominated and control a major share of economic activity in South Korea. Their all-expansive influence in the South Korean economy can be shown through the five largest chaebol accounting for more than 55% of South Korea's GDP. Yet, to gain an understanding of how these independent companies reached the position they are in today, the country's circumstances after the Korean War (1950-3) must be taken into consideration.

The end of the Korean War in 1953 left South Korea in dire poverty. Such devastation was the product of fierce fighting on both sides, leaving the nation dependent on foreign aid (e.g. the United Nations Development Association, the United Nations Development Plan, the World Bank, and more). In fact, South Korea had, during the 1950s-1960s, a lower GDP than Bolivia and Mozambique. Their fortunes soon changed with the accession of Park Chun-hee's military dictatorship in the 1960s, which saw a regime of "state-orchestrated industrialisation" implemented.

But where do chaebol fall into this narrative? It was through Park Chun-hee's growth goals that chaebol groups were able to grow into the dominant position they hold today in South Korean society. In the years of 1905-1945, Park had cooperated with the Japanese colonisers of Korea and gained much knowledge of their successful zaibatsu groups. The zaibatsu were Japan's pre-World War Two family-owned capitalist enterprises, an example group being Mitsubishi. It was determined that the South Korean 'Chaebol System' would be modelled on its neighbour Japan's zaibatsu example.

Although some family-run companies were already successful in South Korea, such as Samsung and LG, Park's initiatives propelled to prominence companies barely established. An example is Chung Ju-yung; after being born into a peasant family and leaving school before ten, he went on to found Hyundai. At the time, Hyundai was a petty construction company, but went on to flourish thanks to the support of Park. In regards to the steel industry, the success of POSCO as a multinational powerhouse was made possible through Park's Japanese contacts providing him with superior steel technology to enter formidably into the sector. Park's aid included subsidising chaebol with low interest loans and other concessions in exchange for meeting set export targets.

By the end of Park Chun-hee's rule, ending sharply with his assassination, the GDP by 1979 had reached over $1,500; a stark contrast to the less than $100 per capital income of the 1950s-1960s. As a result of his involvement, Park had elevated the position of chaebol into multinational conglomerates that were, and still are, considered "too big to fail".6 This has translated now into a deep sense of dependence upon chaebol for the well-being of the nation.

Chaebol groups have been the backbone of the post-war South Korean economy. Not only have they propelled South Korean acceptance into the "rich man's club" of OECD, but also become a source of pride for the nation. Due to their expansive reach into South Korean society through numerous subsidiary companies, chaebol businesses are directly involved in citizen's lives "from the cradle to the grave". For example, LG not only makes smartphones and televisions, but chemicals and fertilizers - and even owns Korean baseball and basketball teams. Indeed, to have an idea of just how valuable chaebol are, it is only necessary to look at how Samsung is responsible for around 20% of the entire South Korean economy. That 85% of the economy is a product of the top 20 chaebol again cements their importance.

However, many argue that this incredible hold of chaebol actually has a stifling effect on innovation. For the South Korean economy to survive and continue growing into the 21st century, the 'crony capitalism' of chaebol and their close ties to the government must be severed. Instead, more focus is argued to be needed on developing independent-minded companies, as well as honing in on cultivating their service sector away from their export-driven economy. Indeed, this is due to competition from cheaper Chinese manufacturing and high-end Japanese electronic producers, meaning that not only does South Korea have to increase their edge in these areas, but also expand and allow other companies to have a fair share in the market. This will in turn allow for greater competition, and benefits that may involve lowering prices of consumer goods.

Criticism about the nature of chaebol and their numerous corruption cases have been picking up speed for the past decade. Chaebol have been cited as a corrupt "feudal aristocracy", in relation to their family-based structures and bribing government officials. One comment condemns chaebol in harbouring too much control that inevitably leads to an abuse of power.11 Such examples are plentiful; take Samsung Chair Lee Kun-hee, who was pardoned by the government for his criminal tax evasion in 2008 with the excuse that he was essential to the 2018 PyeongChang Olympic Games bid. These cases have been fuelling the public's growing resentment over how chaebol are seen as "above the law".

But what steps is Seoul taking to address this issue? The Improper Solicitation and Graft Act, also known as the 'Kim Young-ran Act', came into effect in September 2016. The legislation directly affects around four million public servants, teachers and journalists through a strict limiting of 'gift-giving'. This targets any opportunity to bribe, including teachers in schools accepting presents from parents pushing for the betterment of their children's grades. Despite this appearing like a strong measure of affirmative action against corruption, it can be argued this is targeting minor offences whilst ignoring the bigger issues at hand. Furthermore, others protest that this contrasts traditional Korean culture, in which gifts are a show of respect. Indeed, the Act limits food and drink items given to just US$27, gifts to US$27 and US$90 for festive occasions and funerals. Teachers and police officers are barred from accepting even the smallest of items. As a result, many industries reliant upon these practices have been severely affected. 300 businesses (including floral and agriculture) surveyed said that their sales had plummeted by an average of 34.6% in the year after the law was enforced. This serves to illustrate the negative effects of the law on ordinary citizens.

Nevertheless, positive changes are evident as recorded by the Korea Herald, whose survey found that 89.4% believed the law has been effective in reducing bribery. Indeed, the five-year sentence of Samsung Group Chief Lee Jay-yong seems to show the government finally cracking down on illegalities by Chaebol organisations. It appears like the protective layer around chaebol is finally peeling away, making them just as accountable for their crimes as any other South Korean. However, this can be considered an over-optimistic view; the five-year sentence is a fraction of what Lee could have served, and being behind bars will most likely not hinder him from controlling the company.

While the first-generation of chaebol leaders may have been skilled in governing their companies, such 'skill' isn't necessarily inherent within a family's bloodline. Thus, even if chaebol must remain in their dominant societal role to sustain the South Korean economy, this does not excuse chaebol still only placing family members into key company positions. Such a practice in itself taking place in such large companies would be seen in the west as intrinsically corrupt. A famous case was made by Cho Hyun-ah, the daughter of Korean Air's company chairman who was made vice-president of in-flight service. When served her macadamia nuts not in a bowl but its original package when on a flight, she verbally abused the cabin crew, hit the head steward, made him kneel and then made him exit the about-to-leave aircraft. This inexcusable behaviour by chaebol heirs is not a one-off incident, and the privilege and sense of entitlement erodes the illusion of good corporate responsibility and operation.

While cultural differences could be used to excuse this family-run system, in order to keep their foot in the world economy South Korea must look towards a democratic option. A meritocratic formation should take the place of the elitist and hierarchal model, to encourage healthy competition and utilise the best minds that South Korea has to offer. Therefore, despite there being significant movements towards establishing justice, South Korea still needs to focus more on ending large-scale chaebol corruption, while still ensuring that small-scale 'petty' corruption in institutions such as school is tackled.