The family-owned chaebol are in everyone s sights in an election that could
change South Korea
Oct 13th 2012 | SEOUL | from the print edition
SINCE the days of Park Chung-hee s often brutal dictatorship (he seized power
in 1961 and was assassinated in 1979), South Korea has transformed itself as a
democratic nation. Its politics, enlivened by occasional fisticuffs in the
National Assembly, are among the most vibrant in Asia. The bid by the late
strongman s daughter, Park Geun-hye, to become the country s first woman
president is no throwback to the past. She faces two strong (male) challengers
in the election on December 19th, including one, Moon Jae-in, whom her father s
regime imprisoned. The two men may eventually unite. But at this stage, the
outcome is impossible to predict.
For all the candidates differences, a common theme has emerged in the
campaign. All three have criticised what they see as the unfair nature of the
South Korean economy. They focus on the family-controlled conglomerates, or
chaebol, which rose to prominence under the state-led finance and cronyism of
the Park Chung-hee era. Though greatly reformed since, the chaebol still
dominate the economy.
Bashing the chaebol is not new in South Korea, but this time the mood appears
to be hardening. Ordinary folk grumble at the scores of pardons issued to
convicted chaebol executives under Lee Myung-bak, the outgoing president
(himself a former executive in the Hyundai group of companies). Much as South
Koreans are proud of having Samsung Electronics, part of the biggest chaebol,
advertise on Manhattan s Times Square and act as sponsors of Chelsea Football
Club and the Olympics, they worry about the groups clout at home.
Recent data show chaebol engaged in more than two-thirds of 76 business
categories in South Korea. New fields range from pizzas to handbags to furs. In
the past decade the number of companies linked to the ten main chaebol has
almost doubled, to nearly 600. Between January and June, the operating profits
of the ten accounted for more than 70% of the profits of all the companies
listed on the Korea Exchange. Exports lead the way, and this success has helped
transform South Korea. Yet some also blame it for increasing inequality at a
time when the population is ageing and economic momentum may be ebbing.
And so the presidential campaign is revolving around the term economic
democratisation . It sounds woolly, but is used earnestly by all three
candidates. The most surprising advocate is Ms Park. She has swung the ruling
Saenuri Party away from the firmly pro-business Mr Lee. Members of her party
have now drafted legislation that would stiffen sentences for convicted chaebol
owners and their families, and restrict their business activities and
investments. Other pro-chaebol diehards in her party continue to dismiss all
this as empty populism.
Ms Park s two opponents, Mr Moon of the Democratic United Party and Ahn
Cheol-soo, a software entrepreneur and political independent, both claim to be
out to protect small businesses from the chaebol. Mr Moon describes South Korea
as a jungle economy in which the conglomerates enjoy unfair privileges . He
does not intend to break them up, but wants to strengthen antitrust powers and
to stop them from muscling into new territory where they jeopardise small
businesses, such as bakeries.
Mr Ahn, who founded South Korea s biggest antivirus software firm, accuses the
chaebol of snaffling up innovative small businesses which then stagnate inside
the conglomerates. His campaign was recently joined by Jang Ha-sung, dean of
one of the country s leading business schools. Mr Jang is a crusader for better
corporate governance at the chaebol. Back in 2001 he helped win one of the
first ever class-action lawsuits, against Samsung Electronics.
The chaebol are keeping their heads down, hoping that the hubbub will die away.
Their defenders note that however much people rail against the conglomerates,
most want their children to work at one of them when they grow up. Defenders
also say chaebol are so central to South Korea that to attack them would be to
attack the country s economy.
In fact, weaker chaebol could be just what the economy needs. According to the
OECD, other sectors, such as services, are highly inefficient and starved of
investment in research and development. That is because the country s
development strategy has focused on manufacturing, siphoning capital, talent
and other resources from services.
There is a danger in complacency. The pampered life of a unionised labour
aristocracy which works for the chaebol, compared with poor pay for those in
the rest of the economy, feeds a sense of injustice. Incestuous business
practices by the chaebol s rich owners add to the concerns. This month, the
Fair Trade Commission slapped a 4 billion won ($3.7m) fine on three companies
tied to Shinsegae, a big retailer linked to the Lee clan of Samsung, for
helping pizza and bakery businesses owned by the chairwoman s daughter.
Perhaps the strongest indication that times may be changing involves Kim
Seung-youn, chairman of the Hanwha group. He was once convicted for beating up
bar workers with an iron rod, after they had been involved in a scuffle with
his son. Mr Lee then promptly pardoned him. Convicted again this year, this
time for embezzlement, Mr Kim was jailed in August. He is a rare example of a
convicted chaebol chairman who spends time behind bars. Everyone is waiting to
see whether Mr Lee pardons him before stepping down.