Fortune Tellers of The South Korean Economy
Recently, Samsung had a showcase for its new release of the Galaxy Note 4 phone and new wearable smart watches at Internationale Funkausstellung Berlin (IFA). Many smartphone users and tech-lovers had been long waiting for the new release of smartphones armed with a faster processor as well as a more gorgeous design to replace their rapidly aging phones. Many critics and the media have praised Samsung’s successful efforts to meet the needs of potential consumers by incorporating a new curved screen to the smartphone while constantly advancing the power of the hardware and software. This effort places Samsung as a smartphone leader, in competition with the perceived leaders in the field: Apple and its iPhone.
Meanwhile, economists and policy makers in South Korea cautiously attempt to speculate the prospective growth of Korean economy by spectating the public and market reaction. Similarly, when LG comes out with a new 3D TV or when Hyundai starts manufacturing new cars, South Korean Economists and relevant economic entities again pay special attention to volumes of sales or more precisely the performance of these conglomerates(referred to as Chaebols in Korea). Chaebol refers to the South Korean form of business conglomerate that has expanded beyond Korea to own many multinational branches and international enterprises. Prime examples of these include Samsung, Hyundai, LG, and SK. Their main interest is in IT industry though not limited to it. One may wonder why economists and politicians in South Korea take such considerable attention to these few conglomerates. A simple answer is that they hold significant sway over the success and prosperity of the South Korean economy.
The South Korean economy has somewhat an unusual economic structure which is only prevailing in such countries who had implemented similar economic and social policy in their development stage. In 2012, Hankyoreh, a newspaper in South Korea, wrote an interesting article about current economic structure of South Korea. It observes that the ten largest chaebols’ share of South Korean Gross Domestic Product (GDP) is almost 80 percent of national GDP as a whole; this proportion has been continually rising, where in 2002 it was only 45.9 percent[1]. The South Korean economy is positioned where its fortune can be determined by the performance of the chaebols. Chaebols and the characteristic unequal economic structure have emerged due to unilateral economic and social policies conducted by past governments which benefited the chaebols with their large purchasing power and influence, but not so much with the smaller businesses. The extraordinarily unbalanced economic structure of today has a close relation to the development of South Korea and its history since the 1950s.
South Korea, also widely known as one of the Four Asian Tigers, had experienced an unprecedentedly fast rate of economic growth along with achievement of rapid industrialization and a democratic system of government between 1960s and 1990s. However, back in 1950s and 1960s, the economic, political and social systems of South Korea were devastated after the Korean War, which broke out in 1950 and lasted until 1953, as most of the existing production and governmental facilities were decimated and were unable to serve their functions. Payoff to democracy and freedom was painful. South Korea was even poorer than many Sub-Saharan African countries in the 1950s[2]. An American traveler, Isabella Bird Bishop, once ventured to South Korea and later described Korea as “hopeless”. Despite such miserable history, the gross domestic product (GDP), which is a good indicator of the economic health of a country, was approximately $1,304 billion USD and ranked 14th according to World Bank in 2013[3]. Although there is no reliable official data for the South Korean GDP in the 1950s available to public in neither the World Bank nor the Bank of Korea, many Economists assume that South Korean GDP must have been ranked somewhere between 180th and 190th.
Behind the rapid economic growth was the President Park JungHee who implemented unilateral economic, industrial, and social policies which heavily favored the few chaebols that were still in their burgeoning stages. These policies were often at the expense of the small and medium size companies who lacked the influence with the government and wealth-generating power. Over a prolonged one-man rule, the former President Park JungHee nurtured chaebols as development partners and provided various means and benefits to chaebols including government subsidies and financial aid. Also, the president had repressed various types of financial institutions including central bank and commercial banks in order to supply enough capital to implement his various policies to rebuild the nation. The state’s financial control became an effective means to guide chaebols toward investments into national properties. Also, protected by the state’s firm guarantee, the property rights and governance structure of chaebols were virtually untouchable by outsiders as well as workers[4]. This closed structure and lack of institutionalized regulation provided the means for a snowball effect of industrial dysfunction and corruption, which came to light as the president Park JungHee was assassinated. At this point, the government tried actively to stop the snowball and to inhibit the growing leverage of the chaebols. However, governments eventually stopped its active efforts to control the chaebols as soon as they realized that it was already too late to stop them.
Chaebols have been acting as central engines for rapid growth in last few decades. Despite so many professionals that now warn that current unbalanced economy must be transformed into a more equal structure as soon as possible due to several potential risks, their words mainly go unheeded. The experts cite the uncertainty of the future performance of chaebols. Many experts in IT agree that human race has now reached a peak level of technology. It does not necessarily mean that the technology has stopped its improvement but the new technological breakthroughs are more uncommon than the late 1990s and early 2000s the dotcom era drove innovative, life-changing technologies such as the internet and personal computers. Unlike natural resources or real estates, smartphones and TVs that cannot be further improved lose their market values as time goes by. This will weaken the performance of many chaebols in Korea which will eventually lead to the recession of Korean Economy. Also, because chaebols dominate market shares of various fields in the economy, most small businesses cannot hope to compete in their industries against these technological giants and often suffer from extremely weak leverage and influence in the economy.
South Korea had attempted to balance economic prosperity risk by containing it in a rather restricted economic structure in its early years of existence. What has resulted since then are massive inequalities in the economic sector between a very few number of conglomerates which hold a vast majority of economic power and influence in not only the economy but many aspects of Koreans’ lives such as society and politics. A social norm of being a successful man in South Korea these days is being a ‘Samsung Man’ or ‘Hyundai Man’ or ‘a chaebol man’ because of its higher wages and greater incentives compare to that of small and medium size businesses. This has made job seekers only to aim for being an employee at chaebols. Those who fail to get an offer get a feeling of relative deprivation and consider themselves incompetent in the society; such biased norm makes society as a whole unhealthy. Also, unlike small and medium size businesses, chaebols have huge influences on major media which are enough to affect people’s perspectives on certain policies as well as to inhibit the government’s influence on certain industries through various means including newspaper, news and etc. With such inequalities becoming more and more apparent, what the South Korean government must do now is to inhibit the further divergence of chaebols and small businesses. Government must try to distribute not only the market shares but also the political and social power more evenly between chaebols and small businesses so that the country’s fortunes can be determined by decisions made by the entire society, not just the chaebols.
[1] Eun-jung, Kwon. “Top Ten Chaebol Now Almost 80% of Korean Economy.” The Hankyoreh. The Hankyoreh, 28 Aug. 2012. Web. 22 Sept. 2014. <http://www.hani.co.kr/arti/english_edition/e_business/549028.html>.
[2] Rodrik, Dani, Gene Grossman, and Victor Norman. “Getting Interventions Right: How South Korea and Taiwan Grew Rich.” Economic Policy 4964 (1994): 55. National Bureau of Economic Research. Web. 21 Sept. 2014. <http://www.excellentfuture.ca/sites/default/files/How Korea and Taiwan grew rich.pdf>.
[3] “GDP Ranking.” The World Bank. The World Bank, 22 Sept. 2014. Web. 23 Sept. 2014.
[4] Jaewon, Choi, Kwak Andy, and Albert Kim. “The Chaebol.” Korea Modernization during Park Jung-Hee Era. Web. 20 Sept. 2014. <http://parkjunghee-turningpoint.weebly.com/the-chaebol.html>.
