The Rulers of South Korea: The Conglomerates that Dominate the Korean Economy

Successive attempts by South Korea’s government to rein in the country’s economic titans have been inadequate. As a result, the chaebols have only grown more powerful since the inception of the COVID-19 pandemic.

WHAT’S HAPPENING?

Successive attempts by South Korea’s government to rein in the country’s economic titans have been inadequate. As a result, the chaebols have only grown more powerful since the inception of the COVID-19 pandemic.

KEY INSIGHTS

– South Korea’s economy is dominated by its conglomerates, the chaebols. Their role in society has been an enduring point of contention due to their economic and political influence.
– South Koreans will elect a new president, but regardless of whether they choose a conservative or progressive candidate, the next president will likely be pro-chaebol.
– Because of COVID-19, while many smaller companies are struggling to survive, the chaebols have continued to become more powerful.

2022 PRESIDENTIAL ELECTIONS

On March 9, 2022, South Koreans will head to the polls to elect the country’s next president. Neither the ruling liberal Democratic Party’s (DP) Lee Jae-myung nor Yoon Seok-youl of the conservative People Power Party (PPP) has managed to take the lead. Instead, both candidates have been polling head-to-head. While both parties represent opposing ideological views — the DP representing progressivism, and the PPP championing conservatism, —  the core of their election promises are strikingly similar, rebuilding South Korea’s pandemic-stricken economy.

One popular topic of contention that has surfaced in previous election cycles has been South Korea’s “chaebols,” or powerful conglomerates. However, the issue of chaebol reform has been suspiciously absent from this year’s election rhetoric. South Korea’s chaebols are responsible for much of the economy’s output and are commonly seen as being above the law. As such, in previous election cycles, they have been the targets of successive presidential candidates. Nonetheless, because of their economic influence, both candidates have fought to have the chaebols on their side.

CHAMPIONS OF THE SOUTH KOREAN ECONOMY

There are currently around 40 chaebols in South Korea, with a handful making up the lion’s share of the country’s economic output. The publicly traded shares of the four largest — Samsung, LG, Hyundai, and SK — amount to one-half of the domestic stock market value. Samsung alone accounts for one-fifth of Korean exports. Even though nine out of ten South Korean employees work for small to medium-sized enterprises (SMEs), three-quarters of market capitalization is held by chaebols. Some Korean chaebols are global household names for certain specific industries — electronic goods for Samsung and LG, and automotive for Hyundai — but in reality, these companies create other products outside of what they are internationally known for. Hyundai, for example, is also a major shipbuilder, petrochemicals producer, petroleum refiner, a construction and civil engineering company, and even owns a department store chain. As for Samsung, its subsidiaries operate in real estate, retail, hospitality, insurance, medical science, car manufacturing, and within the media sector. 

The chaebols’ reach within the South Korean economy and society is extensive. During the 1960s, when then-president and de facto military dictator Park Chung-hee took over the country, South Korea was one of the poorest places on earth. Its GDP per capita was below $100 and its survival was largely dependent upon foreign aid. To remedy this, Park used his power to imitate the Japanese post-war economic success by subsidizing the country’s heavy industries, focusing specifically on exports. To this end, he actively supported the creation of private conglomerates that wielded massive economic power in exchange for obedience to Park’s economic plans. These included focusing on certain areas of manufacturing that were initially unprofitable, such as steel production and later the manufacturing of cars and electronic goods. The so-called “Miracle on the Han River” ensued and within a single generation, South Korea became one of the wealthiest countries on earth, with a GDP per capita of $32,000. While the dictatorship fell in 1988, the chaebols remained and adapted themselves to democracy. They were no longer at the whims of a government with absolute power over them; instead, they could help steer the democratic process through lobbying and exerting economic influence. 

Due to their history, public opinion over the role of the chaebols in Korean society has been complicated. Chaebols are both loved for being global Korean champions and resented for representing much of what is wrong with Korean society. This includes unwieldy and outdated corporate and social hierarchies that care more for seniority than skills, a lack of innovation, poor labor laws, and corruption. Many high-profile corruption scandals involving senior chaebol executives and politicians have occurred over the years, including the conviction of Samsung’s CEO, Lee Jae-yong, for bribery and embezzlement, alongside the country’s previous president, Park Geun-hye, in 2017. In the wake of such scandals, a major election promise of the current DP president, Moon Jae-in, was to rein in the chaebols and to crack down on corruption. The chaebols’ influence on society had already begun to wane in previous years because of the widespread public opposition to their political clout. The scandal involving Lee and Park only weakened their position. Then came COVID-19. 

President Moon had to shift his attention away from the social and economic reforms he had promised and refocus his efforts on fighting COVID-19 and trying to keep the economy afloat. This included a renewed focus on export industries and even turning South Korea into a global vaccine production hub, all with the help of the chaebols. Moon’s erstwhile enemies quickly became his partners. In close cooperation with the government, Samsung and SK each started work on major vaccine production sites in South Korea. Furthermore, Samsung’s imprisoned CEO was pardoned in August 2021, and the pardon for former President Park followed on Christmas Eve the same year. Because of the pandemic-induced economic hardship, public opinion has swayed towards the economic champions. The fact that some of South Korea’s major TV channels and newspapers are directly controlled by chaebols, while others depend on the advertising revenue from chaebol sources, has also helped in fomenting pro-chaebol sentiments. 

CHAEBOLS TO THE RESCUE

COVID-19 has taken a heavy toll on the South Korean economy. SMEs are being suffocated under the economic pressure, which weighs hard on a majority of the South Korean workforce. Although government spending is likely to increase further, this will do little to spur suppressed domestic consumer demand. This squeeze on SMEs will continue for some time, given that South Korea has consistently taken a tougher stance on fighting the pandemic than most Western economies. Meanwhile, export-oriented chaebols can expect record-breaking profits despite reduced domestic demand. 

Adding to these economic boons, the ongoing shift in public opinion and the renewed economic dependence on the chaebols have rendered meaningful social and economic reforms a non-starter for election promises. Social issues such as the gender wage gap and social immobility, on which South Korea trails far behind similarly developed nations, are not an election focus right now. However, it is probable that these problems will only expand given that the chaebols have traditionally supported the societal status quo. The result is that neither presidential candidate is likely to enact social or economic policy that could negatively impact the chaebols’ influence and South Korea’s economic recovery.

The winner of the presidential election in March will almost certainly be pro-chaebol. This may be bad news not only for Korea’s SMEs but also for foreign firms. Chaebols have historically sought to defend their turf from foreign competition, including with the help of lawmakers. If this trend continues, expect to see the chaebols’ share of the economy rise even further as the government looks to them to help repair the economy while giving them the leeway to do so. DP or PPP, whoever inhabits the Blue House, the rulers of the Korean economy — the chaebols — will be the real winners of this election.