Econ Club Leader and Club Marketing and Communications Manager
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Samsung. Do you recognize that name? I hope you do.
Now tell me, is Samsung an electronics company that produces a variety of electronic devices? If you said yes, my answer is no.
And my answer is no, because of something called chaebols.
Chaebols are one of the most interesting features of South Korea’s economy. The amount of economical and political influence and power these chaebols have on this nation is unique and frankly, as a South Korean myself, quite frightening.
Now you may be wondering what chaebols are, to be holding the reigns of a country’s economy so tightly. Before I explain, let us look at the economic historical context of South Korea.
South Korea has shown incredible economic development in just 60 years. South Korea’s GDP per capita was a mere $150. Compare that to the GDP per capita in 2020 of $30,600. After The Korean War in 1950, the economy of Korea was on its last legs. So how did the economy of South Korea not only survive but flourish, ranking among the top in the global economic rankings?
The answer to that is chaebols. The chaebols’ power and influence it had on Korea’s economic transformation is undeniable.
I’m saying chaebol, chaebol, chaebol. And at this point I’m hoping you’re asking me, “so what. is. it?”
Here’s the Wikipedia definition: Chaebols are large industrial conglomerates that are run and controlled by a person or family in South Korea. Korea’s chaebols are curious things — they’re very large, very diverse commercial conglomerates, not entirely unlike GE or Dupont, save for one little difference. Rather than dividing the leadership of the chaebol’s subsidiaries and interests among external candidates, all that power is contained within members of the family. Within blood relations. If you think of them as Asian analogues to family-driven empires like the Rockefellers you wouldn’t be completely off-base, but even that would be underestimating the amazing amount of political clout and influence these corporate bodies exhibit.
Samsung, LG, Hyundai, there are probably very few people who don’t know these names. And yes all of these are chaebols of Korea. Let’s look at Samsung as an example. When I asked you, “Is Samsung an electronics company?” I said no, at least not exactly, and that’s because Samsung has 59 companies with very different purposes and products under their name. Samsung Electronics, ofcourse, but also Samsung Engineering, Samsung Construction, Samsung Insurance, and the list goes on. Hyundai as well, are they only a car company? No. They have enormous shopping centres, they do construction, shipbuilding, credit cards and at some point video games. Crazy.
Now you know what chaebols are and you know that Samsung is not just an electronics company. But why? But why do these chaebols form?
When you’re stuck in a dangerous situation, who can you trust the most in that instant?
So what about during an economic crisis, who can corporations trust the most?
Another company? No. Chaebols, or family, helped their group companies at times of economic crisis. Or on the other hand, we reach out to family for help for the sake of pure convenience. The perfect example is Hyundai. We all know Hyundai Motors. Hyundai Motors wanted to ship their cars all over the world. So they created Hyundai Shipping. They realized that it would be much more convenient if they didn’t need to buy the actual ships from a different company. So they created the Hyundai Heavy Building to build their own ships. And to create ships you need steel, so guess what, they created Hyundai Steel. And to be globally shipping their products, they needed insurance, so they created Hyundai Marine Insurance. Because at this point, why not. Family is trusted, family is efficient and shown by these large Korean conglomerates, or chaebols, family is cheaper.
Pros and Cons of Chaebols
Pros: Yes, there are side effects to chaebols but let’s look at the pros first.
Chaebols are the cornerstone of Korea’s economic developments. The sales and profits of chaebol companies not only boost corporate growth but the country’s economic growth.
As companies grow larger and larger, the scale of job creation also increases by a lot
With the birth of global companies, such as the ones I named earlier, the world's view of Korea has been rewritten. In particular, after the Korean War, Korea escaped from its image that it was falling behind.
Economic crisis and capital liquidity crisis? No problem, chaebol companies formed their own survival methods rather than relying on state aid. Becoming very independent and self-sufficient.
Now onto the cons.
The chaebols unfortunately quite evidently had a negative impact on society despite the outstanding economic achievements above.
Lots of expedient actions in the process of growing into a chaebol - Chaebols can’t grow solely by its own will. It is clear that the national law and system helped this, meaning collusion with politics and involvement of corruption for this purpose caused various social problems, such as bribery of illegal funds by politicians.
The tyranny of the chaebol is another problem.When one of the numerous partner companies under a chaebol made unfavorable demands such as wage increase, price increase, and improvement of contract terms, the chaebol pressed them with their own power and dealt with them in a very dictatorial way.
For example, in the case of Samsung Electronics, a labor union did not exist for decades. They were making it impossible for unions to even form, and only just recently they have reluctantly stopped interfering with union formation.
How about “chaebols” in western society?
We can witness the birth of giant corporations in Western society as well. For example, in the case of Google, it is expanding into areas such as internet and mobile phone manufacturing, and in the case of Apple, it is also looking at electric vehicles.
But why is it difficult for chaebols to be born in the West? First, there is a strong system and people's awareness to legally prevent monopoly. For this reason, individual ability and individuality are more important than familialism. It is why professional corporate culture prioritizes maximizing and concentrating on their strengths rather than expanding the company into various fields.
Chaebols are such a unique part of Korea’s society and economy. It has literally altered all aspects of Korean life as one can expect if a country’s economy is completely transformed. But whether that economic transformation through the system of chaebols was right, well time will tell. Thank you.