Most large Korean companies are family-owned or family-controlled, and most are corrupt. An unusually high percentage of the heads of these companies have criminal records for financial crimes, compared to other developed economies. For decades, presidents have frequently pardoned them -- and many other CEOs would be convicted of financial crimes if the government bothered to charge them.
Presidents of South Korea have often justified their pardons of criminal CEOs by stressing the consequences for the economy. Fortunately, those excuses are less widely accepted than they used to be. Besides, it's not healthy for an economy to be heavily dependent on a small number of family-controlled firms, whether they are corrupt or not. It's true that enforcing the law against those companies may cause a short-term economic downturn, but in the long term, the economy will have a more sustainable foundation.
Incidentally, the Korean term for these large conglomerates, chaebol, is cognate with the Japanese term zaibatsu, which dominated the pre-WWII Japanese economy and shared many characteristics, including family control and political and financial corruption. Japan was better off when they were broken up. Despite appearances, the current Japanese conglomerates are better than the zaibatsu in important ways: they are rarely family-controlled, and they are less corrupt, more accountable to shareholders, and have much better corporate governance as a result.
Some reform of the economy, and less tolerance for corruption among the voters, are likely to be the best things that comes out of the impeachment of the current president.
> Most large Korean companies are family-owned or family-controlled, and most are corrupt. An unusually high percentage of the heads of these companies have criminal records for financial crimes, compared to other developed economies.
> Presidents of South Korea have often justified their pardons of criminal CEOs by stressing the consequences for the economy. Fortunately, those excuses are less widely accepted than they used to be.
FWIW, similar justifications were brought out when HSBC was caught laundering drug-money, when LIBOR was found to be manipulated etc.
American companies are also extremely corrupt. The difference is that they operate through loopholes in the law, and pay armies of lawyers to find such loopholes. They also pay a fortune to lobbyists to maintain and expand these friendly laws.
It's amazing once you start looking into it and realize industry lobbies are the ones who create a lot of the draft legislation that turns into law. Not directly, they'll have people from their industries be on "working groups." It's all legal too. A lot of effort is put in to pass laws to legalize corruption in the US.
I'd suggest looking up the group behind the Anti-Corruption Act. They have some interesting ideas for solving corruption.
I agree with you, but I have to say it's probably better to have transparent corruption within the law, than opaqueness. In America, most of the corruption is open, people are just too busy with their own shit to worry about it.
> most of the corruption is open, people are just too busy with their own shit to worry about it
And this is reason, why Basic Income won't come easily. They (government, corporations) don't want people to have too much free time, to worry about theirs wrong-doing.
Basic Income is intended to be a more efficient and fairer way to provide social support and to eliminate the poverty trap that makes some people worse off if they get a job. It's actually designed to encourage more people to work and thus reduce aggregate free time. After all, the money to provide the Basic Income has to come from somewhere.
To the contrary, Basic Income means consumers will have to spend their money purchasing things from for-profit entities which were previously provided by the government. Except for the corporations which are government suppliers for existing social services and goods. They will oppose it.
When the only objective is money and profit other things such as honesty, moral, environment and public health become non-goals. The businesses prefer to reap the benefits and leave the messes for the public to pay. Good example is the food industry in the US that is costing billions in healthcare through obesity related sicknesses.
When you say the Japanese model is better, is this bearing out in the final financial picture? Samsung seems to have made a lot of the correct business decisions and is quite successful - even if they're corporate/ownership structure opaque and antiquated
> Samsung seems to have made a lot of the correct business decisions and is quite successful
That's because of the nature of the business in Korea. To make it big in Korea you need to be successful OUTSIDE of Korea as well, the domestic market is too small. Japan's domestic market is quite large in itself and many domestic companies can rely on it to survive, which is very bad for such large corporations, who stay reluctant in competing overseas.
Actually not. Even if Samsung fails it would not fail as a whole company. Samsung does everything from computers to cargo ships and manufacturing tools - there's a single umbrella name but there are tons of underlying separate entities inside the same group. Very much like Mitsubishi in Japan.
Mitsubishi is not under the control of a single family. It was one of the original zaibatsu, but it is now quite different.
Most of the large Japanese conglomerates do not have any kind of central control, and the top companies in the group are relative equals. They are not heavily dependent on each other. If one of the companies were to exercise poor judgment, most of the rest of the companies in the group would be fine. In contrast, Samsung may be incorporated as multiple companies, but one family and its loyalists call the shots at every company within the group. If that small group of people were to exercise poor judgment, the entire Samsung group would suffer.
It therefore is entirely possible for Samsung to fail as an entire company, just as Daewoo did in the late 1990s due to poor decisions and criminal fraud committed by the family that controlled it. Just like Samsung, Daewoo was a group of companies that transacted in many industries, but that didn't matter because one family called the shots at every company within the group. Samsung could fail in the same way.
Furthermore, about 20% of South Korea's GDP is produced by Samsung. There is no comparable situation in Japan or most other developed economies.
I do not disagree with your statements with regards to Korea (they match my relatively untutored understanding), but I would not describe my understanding of Japanese megacorps as untutored, and I find myself in violent disagreement with this line.
What's your over/under on what percentage of Toyota Industries' revenue comes from Toyota Motors? What is your over/under for what portion of the shares outstanding of Toyota Industries that Toyota Motors owns outright, in its own name?
The control issues are... nuanced. The financial entanglements? They're not nuanced.
> Furthermore, about 20% of South Korea's GDP is produced by Samsung. There is no comparable situation in Japan or most other developed economies.
Precisely because the domestic market in Korea is small compared to Japan's or any other developed country. When you have a worldwide market leader industry coming from a small country, this situation is bound to happen.
EDIT: note that in other developed countries you see the exact same phenomenon at region/metropolis level - look how Detroit was dependent on the whole GMC business and factories. This is the very same thing at play at a different level.
Honestly, if Toyota fails, so will several thousand large to small companies that are part of the vast pyramidal supply chain. That would be catastrophic.
If you remove their top three automobile companies and their top 3 Shosha firms (and maybe UFJ + Mizuho), they are not in good shape.
Samsung is a profitable company. This would potentially be a big economic problem if it they were cooking the books, but from what I've read that's not the case.
I don't know how particular this is to South Korea, or any nation. White collar crime has, at least since the 1980s (very possibly earlier, I simply have no knowledge of the topic whatsoever from before then), been normalized in the wealthy subcultures of industrialized nations. White collar crime kills more people, and does vastly more economic damage, than street crime does and has for a long time. But society looks the other way, and punishes it very little. As a result, it has become so commonplace amongst the wealthy that it would no longer be appropriate to refer to it as deviant behavior. It is normal.
(The Teaching Company produced a course called 'Explaining Social Deviance' which had a couple lectures specifically about white collar crime. That's where I learned about such things.)
I'm not sure shareholder accountability is in and of itself a better thing, a wise family held business may be able to better seek long term gains than one that is held responsible to the whims of shareholders.
Cabal would be a false cognate, as the two words are not linguistically related in any way. Chaebol (재벌) is "chae-" (wealth) and "-bol" (clan). Zaibatsu (財閥) is "zai-" (financial) and "-batsu" (clique). Cabal is ultimately from the Hebrew "kabbalah" (קַבָּלָה), which has to do with receiving, and has come to be its own word related to mystic tradition.[0]
Cognate means they share some etymological origin, which chaebol and zaibatsu do. Cabal is from Hebrew, and does not share the same roots.
A chaebol (/ˈtʃeɪbɒl/, Korean: 재벌, Korean: [tɕɛ̝bʌl]; from chae "wealth or property" + bol "faction or clan" – also written with the same Chinese characters 財閥 as Zaibatsu) is a South Korean form of business conglomerate.
The stranglehold that large "chaebols" (large family conglomerates) hold on the Korean economy and politics here is frightening. And it's still such an "honour" to work for them, a sign of social prestige, which makes change unlikely any time soon.
Kind of like publishing in top journals is so prestigious and career-advancing for scientists. It makes creeps like Elsevier "above the market laws", virtually undisruptible (as well as fabulously rich). It's a deeply cultural thing, with glacial inertia, not a question of technology/funding!
On a similar note, after the AlphaGo commotion, Korean government allocated some $860M to "AI innovation". I may be too cynical, but it wouldn't surprise me if the money ended up in "friendly hands", the likes of Samsung.
It doesn't help Lee Jaeyong that, unlike his ruthless father (who was somehow brutally efficient at making Samsung the most powerful company in Korea), Lee Jaeyong has the moniker of "Hand of Minus", after several of his pet projects that went nowhere.
Already some people are (somewhat jokingly) predicting that maybe his arrest would be a plus to Samsung...
That said, it was quite a bold move by prosecutors. Without the current scandal of president Park and puppetmaster Choi, I don't think they would have dared arrest Samsung's leader. (Well, the court may still say no to the arrest; we should wait and see.)
Despite the history of corruption in Korean politics up to the presidential level, my gut feeling is that the Park/Choi scandal is unprecedented in Korean history, both in terms of the scale of the revelations, and the low level of tolerance that regular Koreans are showing towards it.
I think in 20 years, people will talk about pre and post Park Geun-hye Korea because the difference will be that important.
Partly because they are involved in politics on a mostly cosmetic basis. It is much easier to imagine a specifically politically connected figure (imagine a John Podesta or Rick Perry level personality) being arrested for some sort of corruption; in SK evidently those figures are also businessmen of various sorts.
Right, they should follow our lead in the west where we recognize that campaign donations are speech and end up with the CEO of a major corporation as the next Sec. of State. We don't just do bribery, we've legalized it.
Both are indeed bad, but the original comment was an exhortion to "[move] away from this oligarchical bs and embrace a true liberal democracy and market economy." It's almost as if it's implicit there is some model "true liberal democracy and market economy," an instantiation of a noble ideal in the real world to look to...but it can't be us. Unless they to embrace an ideal that we ourselves haven't been able to achieve, which if they could, would be great.
Not that it isn't noble to strive for liberal democracy, but market based, liberal democracy in our case, has of late merely had the vestiges of a free market and democracy but is more and more like an oligarchy, not too unlike what we see here in SK.
Given the choices, I'd much rather see legalized, but fully transparent political donations. That way, voters will at least know which of the parties are more prone to Chaebol influences.
They are very different. Most CEOs come from a business background and possess related skills. Secretary of State on the other hand needs to have a deep understanding of history, world affairs and international politics.
CEO of an international company needs to know exactly these things. To me it seems like a much closer fit than a politician who's campaigning all the time, or a university professor.
The problem isn't that it's oligarchical, the problem is corruption. You don't need to look far to see that democracy and free markets aren't exactly free of corruption either.
By oligarchy I mean it's gotten to the point where they have such an influence as kicking an MP out [1] for exposing their connections with the prosecutors office.
Sure modern democracy and free market aren't free of problems, but Korea can use some Rule of Law.
That's corruption for you. No matter what form of power structure is employed, if you don't have good laws that are uniformly enforced, you'll get corruption, be the structure oligarchical or democratic.
Of course by "oligarchy" I only mean it figuratively. Formally Korea is democracy _de jure_. But the situation is so bad that I'm calling out as an oligarchy _de facto_.
What I'm attempting to get across is that oligarchies by themselves aren't inherently any worse than other forms of rule. Corruption is what makes them and other forms bad.
Debatable. First, moral and ethical arguments for democracy: fairness, pursuit of happiness etc. Second, empirical argument: in this modern age, democracy tends to fare pretty well in comparison to other forms of government.
You mean Switzerland of course? Elsewhere is a republic. They fare as differently as there are countries that employ it. And each has a different flavour.
Switzerland is a republic too. Most democracies are either republics or constitutional monarchies.
There is no contradiction between being a republic and a democracy unless one unreasonably restricts the definition of democracy to direct democracy. Reasonable definitions of democracy include representative democracy, which is practiced in many republics.
Democracy and Republic aren't mutually exclusive. I'd call rule of law with a democratic constitution (written or unwritten), political representation (direct or indirect), respect of human rights and civil rights to be the elements of modern liberal democracy.
And democracies have attempted to abridge power via separation, rule of law and representation principles.
As we see, many republics face problems with all of the above. Including US. Technicalities such as non-majority presidents and strict bipartisan systems...
In certain countries like UK, where apparently ruling party was against the strict referendum results.
In Poland, where the ruling party is changing the judicial branch to their benefit.
Why? The model has worked for Korea in many ways. Korea was an absolute disaster in the 1950s and unprecedented cooperation between private enterprise and government was one of the primary reasons why a tiny half-peninsula with no natural resources is now a very significant player in the world economy.
Very few of the problems Korea is facing would be solved by a shift to "a true liberal democracy", whatever that means.
Ethics and morality aside (Can you really divorce them from the political economy, though), what worked at a particular context at a particular time doesn't necessary entail that such arrangement will work forever. Different stage in social and economic development calls for a different model.
I recommend Jonathan Tepperman's book "The Fix" [1]. His chapter on Korea is, in my point of view, fair, forgiving and sympathetic towards Chaebol system.
He divides the development in Korea into three periods: Dictatorial development (which I think what you call cooperation b/w private enterprise and government) 1962~1987 and democratization 1987~1997 and liberalization 1997~. I think he presents a case of what would've worked in a cheap labor export economy wouldn't work well in a post-industrial advanced economy, and how the country should move on.
It's not clear that the approach used to lift the Korean economy out of the poverty of the 50s to today's levels is the approach that needs to continue. The population, resources and global connection Korea has now has radically transformed the kinds of economic approaches the country needs to try.
For example, in the 50s through the 70s, an important economic initiative was getting shoes for people. It both created jobs (making the shoes) and enabled people to get to work cheaply. Thus the gomusin was created.
It would be crazy today to have the same initiative in place. Times are different.
When South Korea was coming out the war, it was around the poorest country on Earth. The generation who lived through the war, or who grew up right after saw their country going from being literal rubble to being a global powerhouse -- and lots of the credit is given to the dictatorship of Park Chung Hee and the particulars of the economic development program he initiated. The downside to that program, and much of it still exists today, is that is was designed to operate in a way that tolerated lots of corruption in both government and industry.
The <40 generations, who remember, at the earliest, leaving behind the military dictatorship and emergence as a fledgling democracy are far less tolerant of the excesses that the old system tolerated and want to raise expectations, bring about accountability, "deconfucionize" the national leadership (both political and industrial/commercial), and I think along with that further diversify the economy.
South Koreans are tremendously entrepreneurial, there are many many small businesses that are formed every year, and they operate in some ways in the shadows of the offerings from the major conglomerates. The government, for what it's worth, has been toying around with growing and promoting VC-like startups to help formalize the grow-and-sell approach. But there's still a tremendous disconnect and you find very few medium-sized, or even large businesses, as the conglomerates tend to either out-compete or buy up all of those companies.
From the normal person's perspective you find yourself trapped in a cycle of "making it big" and getting into a salary-man's life with a big firm (and all the downsides of that lifestyle), or doing similar jobs with less security and less pay for tiny companies. Many people don't want either choice, they want a third-way, even if they're having difficulty articulating this desire, and I think the country may be on the verge of this transformation into a more fully diversified economy.
Superficially it's hard for outsiders to see or understand this, since you can get all of the first-world fixings you would expect...except that they all seem to come from the same 4 or 5 companies and it keeps the economy perpetually trapped.
However, Korea's global position is precarious, cheaper manufacturing and goods are an hour flight away to the West (China), and higher-quality precision engineering is an hour flight away to the East (Japan). Korea has neither the money, or population to really directly compete with either and thus tries to use both the bulk of the conglomerates to act as economic gate crashers into global trade and then massive cultural subsidies and funding to push in awareness of Korean cultural properties and the network that comes with that (oh, so you like K-POP? you'll love Kimchi!). Politicians are rightly terrified of losing the relative power the conglomerates give the nation as powerful chess pieces.
The recent presidential crisis and the continuing revelations of how corrupt, and tied together the government and the conglomerates are has been a major revelation to millions of young Koreans. This crisis could become a watershed moment that could radically transform the entire political and economic landscape in the country. It's not clear at all what that could look like or if it would be beneficial for the country.
I have been convinced that NAND chips have been price-fixed for years now, similar to how the exact same companies (Samsung a big one) involved in their production price-fixed RAM chips and then LCD panels. A few years ago, there was an investigation launched into exactly this. South Korea, however, closed that investigation. Has anyone heard whether that investigation was closed as one of the 'political favors' the bribes facilitated? Given the production processes involved, the materials involved, and the sheer titanic scale of the number of products which include NAND chips, it is absurd that we do not yet have SSDs which are significantly larger, and significantly cheaper, than any mechanical hard drives.
Reading this, it would seem the President of Samsung is more important to Korea than their National President. One is mentioned in every paragraph; the other in only one, offhand.
There were HUGE protests [1][2] last year with the President of South Korea, so people do not really like/trust their president right now. Also, I've always been told by Koreans how Samsung is a great Korean company in a way that it shows that it's a big national pride.
There is a hint of irony to this. Many Koreans (especially the younger crowd) views Samsung-like chaebols with disdain not unlike many have towards Wall Street, and yet getting an offer from one of these companies is a dream come true.
It is perhaps ironic, but not surprising. Familiar human nature shouldn't surprise anyone.
I'm a damn lib, but a year or so ago, a fellow graduate student left to become a VP at JP Morgan (he's a well connected fellow). I was damn well tempted to follow him but I eventually decided against it.
Many Koreans do believe that the President of Samsung is more powerful than the president. Though the current president of Samsung is relatively new since his father had an unexpected stroke in 2014. The succession of power wasn't complete at the time so they had to pull some legal/financial gymnastics with some "help" of the president to keep control.
Aside from its size, keep in mind that Park is a lame duck (her term is up soon & SK requires only 1 term) and the damage there has been done - she's been dead meat for months, but this comes at a bad time for Samsung and further, this guy was expected to run Samsung for decades (he's only 48).
Presidents of South Korea have often justified their pardons of criminal CEOs by stressing the consequences for the economy. Fortunately, those excuses are less widely accepted than they used to be. Besides, it's not healthy for an economy to be heavily dependent on a small number of family-controlled firms, whether they are corrupt or not. It's true that enforcing the law against those companies may cause a short-term economic downturn, but in the long term, the economy will have a more sustainable foundation.
Incidentally, the Korean term for these large conglomerates, chaebol, is cognate with the Japanese term zaibatsu, which dominated the pre-WWII Japanese economy and shared many characteristics, including family control and political and financial corruption. Japan was better off when they were broken up. Despite appearances, the current Japanese conglomerates are better than the zaibatsu in important ways: they are rarely family-controlled, and they are less corrupt, more accountable to shareholders, and have much better corporate governance as a result.
Some reform of the economy, and less tolerance for corruption among the voters, are likely to be the best things that comes out of the impeachment of the current president.