Do Chaebol Exist in Korea?

By Choi Yearn-hong

The Economist is discussing Korea Inc. and the chaebol in its current issue, while reporting on Lee Kun-hee's return to Samsung. The distinguished weekly economic journal positively appraised chaebol and South Korea's economic standing in the global economic crisis.

The Economist's view is somewhat archaic because Korean chaebol were dismantled some time ago. A chaebol is a conglomerate of business organizations under one leader ― the chairman. If that definition is valid, such chaebol no longer exist in Korea.

Lee Byung-chul was the founder and chairman of the Samsung Group, which includes Samsung Electronics, Samsung Engineering and Construction, and the Shilla Hotel among many others.

Chung Ju-young was the founder and chairman of the Hyundai Group, which includes Hyundai Motor, Hyundai Heavy Industries, and Hyundai Engineering and Construction.

LG and SK were the LG Group and SK Group. Such groups do not exist today.

The groups are gone. So the chaebol no longer exist in Korea. That is why I am uncomfortable in accepting The Economist's view on the Korean economy and the chaebol, even though I agree with its view on the former in this current worldwide economic crisis.

It is true that Samsung has both a good and bad image, as does Hyundai. In reality, Samsung is not a ``singular word,'' neither is Hyundai. Each business organization is run by its own president, chief executive officer and board of directors with its own account books.

During the Asian financial crisis of 1997-98, the chaebol were regarded as villains, because of their crony capitalism. Their shabby corporate governance and their dominance of the economy were widely criticized.

Since then, key figures at such firms have been jailed and served their sentences. Public sentiment against them was high under the liberal governments of Presidents Kim Dae-jung and Roh Moo-hyun.

Hyundai Motor's Chung Mong-koo served humiliating social service hours as opposed to a jail term. Lee Kun-hee was also found guilty for his evasion of inheritance tax, and forced out of the chairman's post and stripped of his International Olympic Committee (IOC) membership.

He was pardoned by the conservative government of Lee Myung-bak. Samsung's profits this year are forecast to hit a record high of $10 billion on sales of $130 billion, which would confirm its lead over Hewlett-Packard as the world's biggest information technology company by revenue.

Hyundai's cars sold nicely in the United States in the depression last year, and are doing well this year. This is admirable!

So pardoning was socially and political acceptable, not necessarily justifiable legally.

The age of the chaebol is gone. I am only nostalgic about the old dynasty under the founding chairmen. They were the engines of Korea's economic development programs under the late President Park Chung-hee.

They built a strong partnership toward one national goal ― getting out of poverty ― and they achieved that.

There was no capital; no technology; and there were only turn-key projects from foreign firms. So their passionate desire to improve the nation's economy created many miraculous success stories.

No one could beat the passion of the founding fathers of the chaebol. Their sons are now running their companies divided from central control, and they are doing fine on a much smaller scale.

They are working with professional managers and are innovating technologies with scientists and engineers. That is the only way to compete in the fiercely competitive market. No one can stifle entrepreneurialism ― something that is essential.

The Lee administration provided a huge stimulus. But it was not just domestic demand that kept the South Korean economy going. The export prowess of Samsung, Hyundai and LG was also responsible.

Korea's economy is still heavily reliant on exports, and the divided Samsung and Hyundai are doing very well, not one Samsung Group and another Hyundai Group.

Now, I see only dismantled chaebol.

The U.S. economy is returning to the good old days, which is a good signal for the world economy. Korea's exports have been diversified ― only one-10th of them go to the United States.

The export-oriented South Korean economy will face more competition with emerging market economies such as China, India and Brazil, and will achieve success with its ``divide and conquer'' attitude.

No doubt, Lee Kun-hee's presence will be visible in the operation of Samsung Electronics, however, the real work will be done by professional managers and outstanding staff as it has been in his absence. His return is nothing to do with the old days of the chaebol or their restoration. This is my humble prediction.

South Korean firms are very well institutionalized for their long-term strategy-setting and constant innovation. They are competitive with each other inside Korea.

They are watched by many interest groups and investors. Korean firms will do fine in the competitive world, but not necessarily as Korea Inc.

Dr. Choi is a retired college professor whose field was public policy analysis after long years of teaching in the United States and Korea. His memoir, ``Song of Myself: A Korean-American Life," has just been released by Poetic Matrix Press in California. He can be reached at yearnhc@hanmail.net.