Chaebol Reform

Although they once were seen as omnipotent pillars of the South Korean economy, chaebols, massive family-run conglomerations, are facing a nearly unprecedented assault. This is most likely due to a decline in conservative economic sentiment, mostly driven by younger voters. Still the chaebols have survived previous attempts to dislodge them. However, their resilience will likely be put to the test in the near future. Of the three presidential candidates, all of them are running on a platform of “economic democratization.” Although the meaning of this phrase varies somewhat by candidate, all of them have made campaign promises to take on the chaebols and attempt to level the playing field for all players in the South Korean economy.

Although controversial today, chaebols were once not only widely accepted, but a source of pride for many South Koreans. Following the Korean War the country had been torn to shreds due to the conflict. Even before then, the Korean Peninsula had been an economic backwater for centuries. This had been further exacerbated by ruthless exploitation by Japanese colonialism. However, this changed when economic growth in South Korea exploded in the mid to late 20th Century1. Much of this was due to the amalgamation of various family businesses. Much like the trusts and monopolies of Gilded Age America, one of these groups would cover a wide swath of different industries at the same time. Thus the Chaebol was born. Part of the reason for their ascendance is the fact that Confucian infused Korean culture heavily emphasizes both family values and interdependence. However, the larger reason may have been that one right-wing military government after another would prop these up in an effort to expand growth.1 While they once were more favorably viewed by the South Korean public they have since become much more controversial. Much of the swing in public opinion is due to the impression that chaebols calcify income inequality and compete unfairly against newer companies. Although the constant stream of political scandals involving bribery of political officials and illegal business practices is also responsible. As a result, many Koreans, particularly younger voters, now view the chaebols as having a corrosive effect on democratic governance.5

The first attempt of reform was under Kim Young Sam, the President from 1992 to 1998. He came in as a fresh new figure ready to usher in a new age of transparency and honesty. However, his attempt to reform the Chaebols resulted in failure. This event hurt confidence in the markets and exacerbated the Asian Financial crisis. The opportunity for meaningful reform came up again in late 1997 when South Korea got a loan from the IMF. As a condition for the bailout the government was required to limit the dominance of the Chaebols. However, these attempts only resulted in economic power becoming more concentrated. While there were originally 30 chaebols they have since been whittled down to five. This failure, along with charges of corruption and incompetence, resulted in him leaving office with a 5 to 10 percent approval rating. 1 Therefore, it is important to not underestimate the forces opposed to any meaningful reform.

For left-of-center South Koreans Chaebol reform takes on a special significance. Since these were originally propped up by the hand of successive right wing dictatorships these may be seen as remnant of the old system. Hence political democratization must be followed by economic democratization as well. Additionally there is a natural left-wing aversion to a few politically connected companies dominating the economy, especially in the context of ever expanding income inequality. Furthermore, Lee Myung Bak the relatively unpopular outgoing conservative president was himself a high ranking executive at Hyundai, one of the most well-known Chaebols. By going after these companies it would offer a left-wing president a chance to differentiate himself from his predecessor. However, liberals are currently split between two candidates. The first is Moon Jae-in, a former human rights lawyer who is currently the head of the Democratic United Party. The second is Anh Cheol-soo, a prominent software entrepreneur.2

Currently their proposals are nearly exactly similar. The first of these is a ban on the controversial practice of cross shareholding. The second is reinstating a cap on how much Chaebols can invest in equity. The purpose of this ban was to limit money being transferred around between various parts of the conglomeration. This was first introduced in the late 1980s but was later repealed by the conservative Lee government in 2009.3 Anh particularly is well positioned to exploit this issue politically. As a young entrepreneur he holds credibility with younger voters who may not have the personal connections to easily succeed in a business environment dominated by a few powerful families.   Additionally, as a political outsider he can more credibly say that he will not simply be another Kim Young Sam. If they were running alone, the conditions could be favorable for either one of the two candidates. But the fact that they are running in a first past the post system without a runoff would mean that unless one of them drops out their base of support is likely to be split too much for either to pull off a victory.2

In a sign of the leftward shift of South Korean politics, even Park Geun-hye, the Presidential candidate for the conservative Saenuri Party, is endorsing chaebols reform. However she has not gone as far as her left leaning counterparts. While she has promised to stop additional cross-shareholding, she stops short of banning it all together. Additionally, she has not promised to reinstate the equity cap.3 Since her base of support consists of older Koreans with fond memories of the rapid economic growth under her father, General Park Chung-hee, she can hardly afford to be seen as abandoning the free-market ideals of her party. However, she needs to balance the nostalgia of a portion of the population with general sentiment as a whole. Already she has denounced the human rights abuses committed under her father’s command.4 Additionally, by running under the general banner of economic democratization she further accommodates the growing segment of the population which views the time General Park as a black eye on South Korea’s history. So by campaigning on moderated reform she may be able to position herself as somewhat of a modern day Theodore Roosevelt. A reformist political figure who takes on powerful business interests while remaining committed to free market conservatism.

Regardless of who wins, this election is illustrative of a turning point in South Korean politics. The era of growth by any means necessary seems to have come to an end as voters grow increasingly concerned with income inequality and economic fairness in general. Therefore, all left of center politicians cannot afford to give up the opportunity to voice their opposition to the Chaebol’s domination of the economy. To a lesser extent conservative candidates must jump on the populist bandwagon as well. However, if history is any guide, actually implementing the reforms may be harder than expected. Still it is unlikely that this reality will deter the three presidential candidates from making popular promises during the final three months of the campaign.


  1. Hayes, Louis D. Politics Systems of East Asia. London: East Gate Group, 2012.
  2. “It’s Ahn.” The Economist, September 19, 2012
  3. Byung-joon, Koh. “Presidential candidates double down on chaebol reform .” Yonhap News Agency.
  4. BBC. “South Korea presidential runner Park apologises for father.”
  5. Byong-Chul, Lee. “Korea’s Chaebol a Hot Election Issue.” Asia Sentinel, September 21, 2012.

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