What Lotte owes to people

By Park Yoon-bae

When I was in middle and high school in the 1970s, I often wondered why the National Library of Korea building stood at the foot of Mount Nam, denying schoolchildren easy access to it.

Recently, I came to know the reason why the library was located there. The family feud over management control of Lotte Group, the country’s fifth-largest conglomerate, helped me figure out what happened to the library.

The library had to move from its previous location in Sogong-dong, downtown Seoul, to the hillside of the mountain in December 1974. (It is now located in Banpo-dong, southern Seoul.)

The reason for the relocation was that the authoritarian Park Chung-hee regime offered the site and its surrounding area to Lotte founder Shin Kyuk-ho, a Korean-Japanese business mogul, to build “Lotte Town” in the heart of Seoul. Park’s intention was to let Shin invest money in Korea, which at that time was a developing country that badly needed foreign capital to speed up its economic development and industrialization.

Sohn Jung-mok, then city planning director at the Seoul metropolitan government, said Nov. 13, 1974 was a shameful day for Shin as health authorities imposed a production ban on Lotte’s chewing gum, which was found to contain metal powder.

That day ultimately changed the fate of Lotte. The late Park, father of incumbent President Park Geun-hye, called Shin into his office at Cheong Wa Dae and asked him to build a hotel in Sogong-dong.

It seemed Park’s proposal was too good to turn down for Shin. This wasn’t surprising ― a man with shrewd business acumen like Shin would never fail to seize a once-in-a-lifetime opportunity such as this.

Lotte purchased the site, where the national library, state-owned Bando Hotel and other private buildings were located, at the knock-down price of 4.2 billion won. The government and the municipal authorities then designated the site as a special zone to speed up construction of the Lotte complex. The group received all types of business favors in the name of making foreign direct investment here. Such benefits included tax exemptions, bank loans with low interest rates and other administrative support.

Finally, the construction of the 37-story Lotte Hotel was completed on the 24,000-square-meter plot in 1979. Soon the Lotte Department Store was also built there. The store was called Lotte Shopping Center at the time in order to avoid a ban on opening a new department store in central and northern Seoul to prevent the concentration of population there.

It is no exaggeration to say that Lotte Group was the product of business favors under state-led capitalism in the 1970s. In other words, the group achieved rapid growth with great assistance from taxpayers. In this sense, Shin and his conglomerate owe much to the nation.

In his book “The Story of Seoul City Planning,” Sohn said he realized that the combination of capital and political power made nothing impossible (no matter what happened to the people and the nation). Sohn, a professor emeritus at the University of Seoul and vocal critic of the previous municipal administration, implied that the state and the municipality provided undue business favors for Lotte.

The family-run chaebol continued to enjoy special favors from the state. The Lotte World project was another example in the 1980s when the Chun Doo-hwan regime pushed for the development of Jamsil, southern Seoul, on the occasion of the 1986 Seoul Asian Games and the 1988 Seoul Olympics.

The company’s latest project ― the 123-story skyscraper Lotte World Tower and the Lotte World Mall ― has also created controversy. It was unprecedented that the pro-business Lee Myung-bak administration allowed Lotte to build the mega complex in Jamsil by changing the course of the runway at a nearby military airport in Seongnam City, Gyeonggi Province.

Critics have accused the government of compromising national defense and security in favor of Lotte. Some experts still worry that the skyscraper may pose a risk to military aircraft, particularly in times of emergency.

People cannot help but feel a sense of betrayal following the row between Shin’s two sons over the control of Lotte Group both in Korea and Japan. Dong-bin, the founder’s younger son seems to have won the dispute with his elder brother Dong-joo after having his leadership endorsed at the shareholders meeting of Lotte Holdings in Japan on Monday.

Lotte should be reborn as a new entity to regain the trust of the public. Most of all, it must press ahead with governance reform to break out of its opaque and outdated management structure.

Chairman Shin Dong-bin should first end the cross-shareholding system under which he and his family control the entire group by holding only a 2.4-percent stake. He also has to provide transparent and accountable management. Only then can he begin to pay back what Lotte owes the Korean people.