A good analysis of the chaebol problem. In order for Korea to move on to the next phase of development, the chaebol issue is critical.
What this article doesn't address is the underlying factors of the chaebol system. Chaebols have been a part of Korea Inc. in order to tackle the chaebol problem, the state has to correct the problem of Korea Inc., which is extremely hard for the Korean power elite. Politics has overriden economics either in teh West or in the East.
In my view, the core idea of the so-called creative economy by the current Park Geun-hye regime is solid and promising for the next phase of Korea's development, economically, socially, and politically. What concerns us is that her administration doesn't seem to grasp where lies the problems deterring Korean SMEs from growing and thriving. They are complex and embedded in the old system. Once they do, thereby making some progress toward genuine infrastructure building for SMEs' prosperity, President Park Keun-hye would be remembered as a good president, beyond his father's (President Park Chung-hee) legacy (both desirable and undesirable).
Meanwhile, the Park regime should stop propping up any unproductive businesses (i.e., destructive force of financialization). Otherwise, she would be remembered as another failed president in the political history of Korea.
From the globe and mail:
In the war’s aftermath, though, and particularly after a military coup in 1961, something remarkable happened. Family-owned, South Korean firms – recognizable companies such as Samsung and Hyundai – struck an unlikely alliance with South Korea’s authoritarian government. Protected from competition, showered with cheap loans and encouraged to sprawl into new, strategic industries without fear of failing, these companies grew into global behemoths and built South Korea into a wealthy, export-oriented powerhouse in less than a generation.
But like many in South Korea, Mr. Eom, 66, has lost respect for the so-called chaebol – a term that combines the Korean words chae (wealth) and bol (clan). He works for a small manufacturing firm that sells to the chaebol, and he says the large firms often pay late, arbitrarily refuse shipments and use their huge market dominance to bully smaller firms. He and others have become increasingly frustrated with the chaebol’s growing power and influence in South Korean society, as well as what many perceive to be the arrogance of the children now taking control of the family-run firms as a widely-respected, older generation passes on control.
“Things are not the same,” Mr. Eom says. “The problem with the chaebol is that what they earn, they don’t give back to society – they simply spread out with more tentacles.”
The chaebol may deserve much of the credit for South Korea’s rapid economic development, but many now fear the country’s massive conglomerates have become far too powerful. Samsung Group alone now accounts for roughly 20 per cent of South Korea’s gross domestic product.
South Korea’s economy has slowed sharply in recent quarters, and is pushing up against the limits of its export-led growth. Economic observers say the chaebol’s dominance is now suffocating the country’s attempt to shift gears and foster a more innovative services-oriented economy powered by small businesses.
Powerful South Korean exporters are being hit at the low end by expanding Chinese manufacturers and at the high end by Japanese players who have benefited from a deliberately-weakened yen. Exporters are creating fewer jobs in South Korea as the chaebol move production offshore.
That has left large firms profitable, but the domestic economy hurting: South Korea’s household debt is now rising fast, small and medium-sized businesses are still unproductive and failing to grow larger, and the high-value services sector is lagging well behind other countries.
“This has raised concerns about Korea’s traditional catch-up strategy led by exports produced by large chaebol companies,” the Organization for Economic Co-operation and Development said in a report last year.
