Samsung Group founder Lee Byung-chull writes "gyeomheo" (humbleness) in Chinese calligraphy at his office in Seoul in 1987. / Korea Times file
By Andrei Lankov
The history of South Korea after 1945 was of tremendous and almost unprecedented economic success. The country, which as recently as 1960 was universally seen as a basket case, a nation without any economic prospects, was transformed into one of the worldmajor economies within the lifespan of just one generation.
This impressive transformation was led by large business conglomerates known as chaebol. The South Korean economy has been dominated by these vast enterprises, producing everything from supertankers and passenger cars to petrochemicals. The majority of these conglomerates are essentially grossly overgrown family businesses. Each chaebol was (and most still are) owned and managed by a particular extended family.
There are black myths that surround the chaebol as well. According to the left in South Korea, the chaebol are an embodiment of the evil capitalist forces. Their rise was possible through collusion with corrupt politicians and greedy, ruthless profiteers. According to this myth, the corporations were established by former pro-Japanese collaborators and grew only because of the preferential treatment granted to them by the South’s military dictators.
So were the chaebol agents of economic breakthrough whose efforts brought affluence, education and health to millions of Koreans? Or were they the incarnation of corruption and back room dealing? As is usually the case, both myths contain a kernel of truth, but are wrong on some important counts as well.
Nowadays the best known and arguably most powerful group is Samsung. And it seems that its history is the best illustration of the history of Korean business, with its dirty deals and brilliant breakthroughs.
It is often stated by left-wing intellectuals in Korea that the nation’s chaebol were once founded by pro-Japanese collaborators. It is partially true but there is one important caveat — most present-day chaebol were very humble businesses before 1945. Their founders had cozy relations with colonial administrators (otherwise they wouldn’t be allowed to run anything more than a market stall), but none of them were big time collaborators in that era. Those Korean businessmen who were most notorious for their collaboration did not fare well after 1945.
Samsung was typical in this regard. Its founder, Lee Byung-chull, was born into a landlords’ family. He would briefly study at Waseda University in Japan but didn’t graduate and came back home where he was involved with a number of family business ventures.
In 1938, then exactly 30 years old, Lee established a small trading company in his native city of Daegu. It specialized in imports and exports, and eventually began to produce alcoholic beverages and foodstuff. For investment he used 30,000 won which was given to him by his family. At the time it was equal to 2,000 average monthly salaries, so it roughly had the purchasing power of about $5 million in today’s money. The company was called Samsung or “three stars.” Indeed the Samsung logo included the depiction of three stars until 1993 when the company decided to go international big time and got rid of its old symbolic heritage.
Most of the chaebol were once established by the scions of landowning families. However, while the inherited wealth did matter enormously, it did not guarantee anything. Many thousands of landlords’ sons joined the race, but merely a few hundred succeeded and only a few dozen struck it really big, becoming chaebol owners. A lot of other qualities, both “good” and “bad” were necessary to develop a small family business into a huge conglomerate.
With the collapse of the colonial regime, Lee made a brave and smart move: in 1947 he moved the company’s headquarters to Seoul. For all practical purposes, Seoul had become Korea itself. The nation’s capital was the only place where names and fortunes were made.
Both the company and its founder survived the turbulent years of the Korean War (not a foregone conclusion since many an aspiring entrepreneur faced a North Korean firing squad in those times). Lee knew how to succeed. He maintained cozy relations with the Rhee Syng-man government and this helped him to secure the most profitable contracts, often related to foreign trade. Samsung also produced sugar and textile. By the late 1950s, Lee was reputed to be the richest man in Korea, but was also seen as a symbol of corruption.
Therefore we should not be too surprised that the downfall of Rhee in 1960 had a major negative impact on Samsung’s standing. When in May 1961 the Korean army staged a military coup, then lauded by the army propagandists as the “May 16th Revolution,” Lee was overseas, in the house of his Japanese wife. He had a Korean wife too, but East Asian businessmen have never been known for their phobia of polygamy (he maintained two households almost openly).
In Tokyo he learned that he was at the very top of the list of corrupt businessmen to be investigated by the new regime. After some deliberation, he came back to Seoul to hold meetings with Major General Park Chung-hee, head of the emerging military regime. They made a deal: all of his past misdeeds would be forgiven so long as he would be willing to work toward the major goal of the new government, that being the transformation of Korea into an industrial nation.
Park and his group were firm believers in economic efficiency and growth. They wanted to remake Korea, then one of the poorest nations in all of Asia, into an industrial powerhouse. Back then, this would have been seen as a pipe dream, since Korea had no resources, no capital and no expertise, even though it did have an abundance of cheap and disciplined labor.
Korea’s government decided to remake the country into a huge factory which would import raw materials and technology and then export the finished products overseas.
But Park believed that only big companies could succeed in the international market. So, he handpicked a few dozen firms which were given major privileges and government support. Their mission was to produce and export as much as possible.
The choice of the candidates was largely based on the personal preference of Park himself. At the time, most outside observers were not approving of the Korean approach, insisting that it would bring about much corruption while the then laissez-faire policies of Taiwan were more preferable. Surprisingly, the critics were proved wrong. The potential for corruption was present, but it never became a reality — at least on the scale that was feared and expected in the 1960s.
Needless to say, Korean capitalists did not become squeaky clean overnight — old habits lingered (and still do). In 1966 Samsung found itself at the centre of a major scandal related to illegal imports. Lee had to resign and spend a few years in self-imposed exile. Nonetheless on balance graft remained under control.
From the 1960s and until the present day, Samsung has remained one of Korea’s largest companies (usually it has been either the largest or second largest chaebol). Initially Samsung Group concentrated on light industry, but as the economy grew and experience was amassed, the company began to venture into new, far more challenging areas. Samsung Electronics was founded in 1969 and in the 1970s the Samsung Group was selected by Park’s government to become the leader of the emerging shipbuilding industry.
Nowadays, Samsung Heavy Industries, a subsidiary of the Samsung Group, is the world’s second largest shipbuilder. Meanwhile, Samsung Electronics is the world’s biggest producer of LCD and LED displays and computer chips.
Like most other founding fathers of the Korean industry, Lee demonstrated not only shrewdness, but also great business acumen and unbelievable industriousness. During his lifetime, Samsung had the reputation of a tightly managed company where the boss knew everything. He allegedly always sat in on every hiring interview for every new employee from 1957 until 1986 — a total of some 100,000 interviews. He liked to cultivate an image of a paternalistic, caring employer but was also notoriously nasty when it came to dealing with trade unions.
Lee died in 1987 leaving the company to his son Lee Kun-hee. Unlike his father who never graduated from a university, Lee junior has degrees from prestigious schools in Korea, Japan and the United States. Interestingly he graduated from Waseda University (which his father had attended).
The large Lee family with its conflicts, quarrels and political influence, has kept Korean journalists busy for a quarter of a century. They have succeeded in one regard: Samsung Group has not just stayed at the top of Korea’s business hierarchy but managed to remain a family conglomerate even in the most difficult times.
In the late 1990s, in the aftermath of the Asian Financial Crisis, many chaebol were dismantled or the founders lost control. However this did not happen to Samsung. It is still run by the numerous descendants of Lee Byung-chull and the centenary of his birth in 2010 being celebrated with much pomp.
He was shrewd, hardworking, ruthless, smart and a brilliant manipulator of men, like most of his peers, the founding fathers of the modern Korean economy.
Professor Andrei Lankov was born in St. Petersburg, Russia, and now teaches at Kookmin University in Seoul. He can be reached at email@example.com.