When Korean chaebols are involved in a labor round

Side effects of the “drug dose” of chaebol

Referring to chaebol is referring to Korea. Korea’s rapid economic growth since the 1960s – known as the “Miracle on the Han River” – is closely linked to a government-led chaebol-centered development strategy.

Immediately after taking over the Government in 1963, President Park Chung Hee launched an effort to modernize the country, in which companies selected by the government to carry out large projects often financed with loans that can guaranteed. As of 2019, there are 45 corporations that fit the definition of a chaebol, according to the Korean Fair Trade Commission. The top 10 own more than 27% of all business assets in Korea.

While chaebol’s contribution to the country’s economic development is undeniable, they also cause numerous economic and social problems. Chaebol was identified as the root cause of Korea’s 1997 financial crisis. The deviant, economic crimes of these nepotist corporations have also been widely criticized. However, the chaebol still dominates the domestic economy.

Between 2009 and 2017, insider trading took place in about 80% of chaebols, accounting for almost 13% of total sales. The Fair Trade and Monopolistic Regulations Act of 2014 introduced new rules for chaebol insider transactions, but ineffective regulations meant that such transactions could not be abolished.

Economic concentration and industrial consolidation accelerated after the 1997 Asian financial crisis. In the Korean auto industry, between 1998 and 2004, Hyundai Motors acquired Kia Motors while other car manufacturers other major bankruptcies before selling themselves to foreign countries. Mergers and reorganizations led to a monopoly in the auto, parts and accessories market. Today, Hyundai Motors accounts for about 80% of domestic car sales.

Once the monopoly company establishes an exclusive supply chain with suppliers of parts and components, they begin to engage in price pressure, exploiting intellectual property rights when negotiating. Subcontractors understand that they may be excluded from the oligopolistic supply chain and have no alternative buyers. Faced with the reality of hundreds of road damage, passive contractors have no incentive to innovate. They become difficult to distinguish, easy to replace, even more susceptible to price pressure. This is why small and medium-sized enterprises (SMEs) lose both their drive and capacity to innovate, forcing them to compete on price, rather than improve quality or technology.

However, the price squeeze is reaching a limit on popular models since new names – especially from China – emerge on the market. The slow pace of innovation by South Korean car and parts manufacturers jeopardizes the country’s auto industry as smart and electric vehicles garner interest.

When an economy is concentrated in the hands of a few large corporations, monopolistic and monopolistic supply chains lead to a widening wage gap between workers in SME and in chaebol. That difference reflects the price pressure of leading companies with subcontractors.

Reduced competition also occurs in other manufacturing industries. The country’s export growth from around 12% in 2001-2011 to 3% in 2011-2017.

Chaebol is not a “killing card”

An ordinary Korean can also easily recognize the inadequacy in the world of chaebol. People no longer have “closed eyes, open eyes” before illegal and improper relationships between the government and businesses as before. Amid public criticism, authorities and investors are also pushing to unravel cross-ownership and change chaebol’s governance structure.

At the beginning of his 2017 term, South Korean President Moon Jae In made a strong statement about reforming chaebols, completely abolishing the “cozy” relationship between the political world and business people. The jailing of Samsung heir – Lee Jae Yong – is part of this effort.

Mr. Lee Jae Yong is serving a 2.5-year prison sentence for bribing former South Korean President Park Geun Hye, expanding the list of conglomerate owners accused of similar crimes in the past.

Although Mr. Lee is the first Samsung leader to be jailed and sentenced twice – once in 2021 and once in 2017, Mr. Lee Byung Chul, the late founder of Samsung Group, has also been investigated without notice. indicted. Mr. Lee Kun Hee, the late father of Mr. Lee Jae Yong – Chairman of Samsung from 1987 to 2008 and 2010 to 2020 – was sentenced to 3 years in prison, delayed execution for 5 years and fined 110 billion won after being convicted. He was charged with embezzlement and tax evasion in 2008. He resigned after leading the company for 20 years and was pardoned by South Korean President Lee Myung Bak in 2009.

South Korea’s other major chaebol conglomerates are no strangers to this. Honorary Chairman Chung Mong Koo of Hyundai Motor Group was arrested and charged with corruption and bribery in 2006. He was sentenced to 3 years in prison in the first trial in 2007. However, following an appeal, His sentence was suspended for 5 years. This is not the first time Mr. Chung has been arrested. In 1978, he and his father were investigated for bribery while holding senior roles at HDC Hyundai Development Company. He was detained for 75 days and found to have violated the Construction Law.

In 2014, the Korean Supreme Court approved a 4-year prison sentence for SK Chairman Chey Tae Won for embezzling company funds. He was found to have 46.5 billion won from two SK affiliates, including SK Telecom, for personal investments in securities. His younger brother, Chey Jae Won, was also arrested for conspiring with his brother in the embezzlement case.

In 2017, Shin Kyuk Ho, the founder of Lotte Group, was found guilty of embezzlement and sentenced to four years in prison at the age of 95. However, he was released outside during the appeal period due to health reasons.

The chaebol leader’s history of “jail and out” shows that Korea is not lenient when it comes to handling this super-rich. However, the road to chaebol reform, which many experts consider important to the country’s future, is not simple and is unlikely to end anytime soon. Currently, the administration of President Moon Jae In is under pressure to pardon Mr. Lee Jae Yong or not. Samsung emphasized that they need the Vice President to return to operate in the context of increasingly intense global competition. Five large domestic corporations also applied for amnesty to the Blue House in April.

Justice Minister Park Beom Kye insisted that “never considered pardoning Mr. Lee”. Meanwhile, when asked questions by the media, President Moon said he was “listening to many opinions”. “We must make efforts to promote competition in the semiconductor industry, but it is also important to consider fairness, past precedent and public sentiment,” the Korean leader said.