Last updated on November 12, 2023
Within the last decade, Korean media and culture have influenced Western media, from K-pop to Korean food, and fashion to beauty standards. Yet, Korea’s seemingly explosive cultural power stems from a more sinister source. The money had to come from somewhere. Like the office K-dramas, we often see on Netflix, Chaebols, large family conglomerate firms push and pull Korean politics behind the scenes, a dark reminder of private corporations’ vast influence on the world.
But Korea hasn’t been the cultural and economic powerhouse we see today. From the late 1890s and into the mid-20th century, Korea was a puppet state under Japanese Imperialist rule. By the end of World War II, the U.S. had sustained less damage than their war-torn European counterparts. With an unprecedented level of global political power, both as a strong industrial state and economic powerhouse, the U.S. was particularly well positioned to exert its influence on the world stage. Having just won the Pacific theater, the U.S. occupied Japan, Korea, Taiwan, and others.
One element of the U.S.’s involvement in South Korea was constructing the country’s antitrust policy. Given the U.S.’s concerns about economic concentration and the rise of authoritarianism, you’d expect the Korean economy to be optimized for economic competition. Instead, the post-war Korean economy had heavily concentrated markets dominated by chaebols. Despite the U.S.’s involvement in constructing Korea’s antitrust regulatory infrastructure, U.S. involvement in Korea ceased in 1950, leaving the peninsula to its own. The Korean government became increasingly corrupt without U.S. oversight, allowing corporate power to concentrate quickly.
Korea’s largest chaebols, like Samsung, Hyundai, SK, LG, and Lotte, often focused on petrochemicals, automobiles, electronics, and heavy machines and rose to power in the earlier days of the new South Korean government. Throughout the mid-20th century, chaebol businesses and companies were Korea’s representatives in the global market. The Korean government subsidized, bailed, and preferred chaebols, as chaebols acted as the backbone of South Korea’s GDP. Chaebol power depended upon three major factors: 1) State policies encouraging the creation of conglomerates to compete with foreign companies, 2) successful Chaebols were involved in war-related business during the Vietnam War and continued to grow after the war ended, and 3) the GTC (General Trade Company) encouraged chaebols to diversify their businesses and to merge or acquire other firms. The courts also took a hands-off approach, allowing companies to operate with little oversight.
In fact, in the 1950s chaebols had a 100% monopolization on sugar and textiles, monopolies in shipbuilding and automobiles through the 1960s and 1970s, and by 1978, over 200 enterprises had either a monopoly or oligopoly (multiple companies controlling a majority of a market) in 148 products. The government had its hands tied because it could not let these large companies fail, otherwise, they would drag the Korean economy down. Backed up by the state if they failed, Chaebols spent money on speculative ventures and purchased lands and buildings.
From 1973 to 1978, 46 of the largest chaebol business groups grew at an average rate of 22.8%, while the national GDP was 9.9%. Large chaebols that followed the recommendations of the Korean Government became faithful partners and established a stronger and more intimate relationship with the state. They could concentrate capital more efficiently and diversify in unrelated and related areas. In 1972, the 30 largest chaebols owned an average of 7.5 firms, whereas in 1979, the top 30 chaebols had an average of 25.4 firms spread through 17.6 different sectors.
However, the market didn’t grow competitively. Years of government corruption and bribery lead to inappropriate incentives and rewards, leading to increased sales growth and not profitability. This negligence prevented the market from naturally growing and distorted industries. Chaebol conglomerates were responsible for bribing the government to receive preferential treatment and grants to key industries. Though new economic policies sought to break up monopolies, the court’s generally vague and ineffective application did little to change chaebol domination. Competition became distorted, and firms in the government’s good graces only further benefitted and stalled economic development. Despite the apparent flaws, the South Korean government officials did little to make any substantial change, doing little to help its citizens. During the 1997 Asian Financial Crisis, the Korean Won nearly collapsed and the country suffered a recession, forcing the government to overhaul economic regulation and policies.
If not economic concentration, Korea’s rapid success can be attributed to the rapid rise of human capital to young people that facilitated training through conventional educational institutions or even the increase in university graduates specialized in science and engineering. Increasing human capital could have just been a continuation of growth pre-war, bolstered by South Korea investing roughly 30% of GDP for several decades. In short, South Korea was well-positioned for rapid economic growth. At least some of what occurred would appear to be simply an example of neoclassical convergence from an unusual starting point.
Since the late 1990s, new fast-growing self-made chaebols such as Naver and Kakao have grown exponentially, expanding into global market spaces. While those companies have grown into considerable conglomerates and corporations, they’ve at least grown without the crutch of government favoritism. In June 2020, Hyundai Heavy Industries was fined 970 million won for unfair trade with its subcontractors, and in 2021, the KFTC fined five Samsung Group affiliates 234.9 billion won for sweetheart deals with its affiliate, Samsung Welstory. However, despite more recent reforms, chaebols historically have circumvented the Korean legal system. In fact, up until recently, it was widely acceptable for a politician to ask chaebol executives for money in exchange for political favors. Chaebols often serve lighter legal sentences, and continue to dominate the East Asian market.
With what seems to be a million billion more pressing issues within the US and most of our lives, what Korea does may seem like a negligible issue. But Korea’s chaebol problem mirrors private corporations in the US as well. Monopolies are precisely what keep prices high and new features minimal. Tech giants like Amazon, Apple, Meta, and Google dictate what we buy, how we buy those things, and who and how we talk to people. This growing trend of economic concentration for cross-compatibility in the US has gone on with little to no repercussions, and other privately owned companies like Nestle leave incredible environmental footprints. The issue of lax company regulation is worrying and requires immediate action.