Beyond the Export let Growth Model: Koreas Economic Struggle

with Their Conglomerates

Once the Korean conglomerates or the so called chaebols like Samsung, Hyundai, LG and SK were
the nations proud and jewels in the crown of Koreas miraculous economic development. However,
while the chaebols are still praised abroad at home times have been changed for the family owned
business groups. The term economic democratization became one of the main ingredients during
the 2012 presidential elections in which the presidential candidates from both the left and the right
were advocating a structural reform of the Korean economy dominated by conglomerates. The
export led growth model in which large family owned businesses were acting hand in hand with the
government seemed to have lost its legitimacy.
The rise of the chaebols under Park Chung-hee
The growth on which Korea relied for decades took serious forms when General Park Chung-hee
entered the political arena after a coup detat in 1961. His regime initiated an ambitious state guided
capitalism program to pull Korea out of poverty and after his reign (which ended abruptly after his
assassination in 1979) Korea has shown almost two decades of double digit growth. The chaebols
played a major role in achieving this and provided Korea with the desired economic recovery and by
doing so Parks legitimacy as well. The end of the dictatorial regimes in 1988 did not mean a burden to
grow for companies like LG, Hyundai and Samsung, because to this day their influence can be seen
everywhere in Asias fourth largest economy.
Father Parks legacy
Ironically the 2012 presidential elections ended in a victory for Park Geun-hye the daughter of the
above mentioned dictator Park Chung-hee. One of her main tasks is bringing the so called economic
democracy and get rid of the legacy her very own father created. There octopus like business groups
are dominating many parts of the economy and also their influence on the policymaking process and
media is questionable. Partly forced by electoral pressure the chaebols are more than ever under
attack and according to some critics they are the ones to blame for some of the countrys social
economic issues and they argue that the chaebols have given little back to the Korean society.
Blaming the chaebols
At home Chaebols are blamed for many reasons with some being more debatable than others. The
power big chaebols enjoy are according to critics the main reason for the absence of a strong Korean
SME sector. Small companies are not able to compete with the various privileges chaebols enjoy like,
access to talent, capital, technology and influencing policymakers. According to the new government
Korea needs a new growth model based on the development of a more creative economy to provide
the needed high skilled jobs for the high educated Korean society and curbing to the growing inequality.
This creativity has to come partly from the SME sector, but with the big chaebols above their heads
they are not able to flourish.
The size of the chaebols
Challaging the chaebols is easier said than done. When looking at some basic facts the dominance of
the large corporations can be revealed easily. Half of the value of the 2000 listed Korean companies
can be ascribed to the ten largest companies. They also dominate the countrys export with the 30
largest chaebols account for 80 % of the total amount. Samsung on its own even account for 20 %.
During the last five years the amount of companies dominated by the 35 largest chaebols increased up
to more than 600, while the biggest five account for more than 50 % of the countrys GDP. Also 80
percent of the new college graduates go to the 30 biggest chaebols.
Breaking chaebols is not new
Almost all chaebols leaders were onced arrested and found guilty for large tax evasions or illegal
business practices. However nearly in all cases they were pardoned by the government making it looks
like a symbolic act. These practices turned the public opinion against the chaebols resulting that a great
majority (74 % according to a Parks Saenuri party linked think tank) regard the chaebols business
practices as not moral. Chaebols also entered markets like food and bakeries which are dominated by
one man businesses. These practices do not contribute to the image of a social responsible company
either. Altough the national assembly passed some bills making it harder for them to monopolies
supply orders and entering new markets beyond their scope, new start-ups should boost the small
service sector creating the desired high skilled jobs and increase in productivity, but as long as the main
goal for young Korean graduates is joining a cheabol, the fundamentals for a thriving SME and service
sector are absent and chaebols do not have much to fear.
Parks dilemma
With an electorate demanding Park to attack the chaebols she finds herself in a difficult position. First
of all attacking chaebols is easier said than done. Their power has been penetrated well into the high
levels of the country and the collusive ties with the government have been there for decades. Secondly
it is still the question if chaebols are really are as poison for the Korean economy as some of their
critics state. The lack of a well-developed SME sector is often attributed to the very low entrepreneurial
culture in Korea rather than the presence of the chaebols. It is clear that Korea still depends heavily on
the chaebols especially abroad. When the chaebols are attacked to heavily the global competitiveness
of the whole country is at stake. With a lack of substitutes to earn the money to pay the bill Park finds
herself in a dangerous position. Korea has been addicted to economic growth which brought the
country its so called miracle on the Han river, but as long as this pervasive belief continues, chaebols
do not have much to fear.