Park Geun-hye's Lump of Coal for Chaebol Haters

♠ Posted by Emmanuel in , at 12/20/2012 09:14:00 AM
When it comes to showing the West how things differ in Asian nations, I suppose nothing quite beats electing a military dictator's daughter to power via freely contested polls. But that of course is just what has transpired in prosperous South Korea. And General Park is a rather revered figure for spearheading their nation's rise to the top tier (OECD) of the global pecking order culminating with the hosting of the 1988 Seoul Olympics. Park Chung-hee has set off lots of debate about the merits of authoritarian development that continue to this day. For more on the specifics from an obviously supportive POV, I refer you to my current reference on the subject matter of Korean economic policymaking during the Park era by Kim Chung-yum.

Anyway, back to the subject matter at hand. Public debate in Korea has concerned continued favouritism shown towards large Korean conglomerates known as chaebol. These were of course modelled with a few modifications on Japanese zaibatsu. Despite differences here and there, the criticisms are remarkably similar, too. Because credit and whatnot have been preferentially allocated to these mega-firms, there has not been sufficient development of young, innovative firms. Insofar as alternative SMEs would be more geared towards meeting local tastes and customs, these countries also fail to become less dependent on export markets at a time when the West is, well, kaput. Lee Byong-chul notes how, in the run up to the elections, even mighty Samsung--vanquisher of Sony, highest-rising global brand, and the only real Apple rival--came under sustained criticism:
When asked to identify Samsung’s fiercest enemy, most people would name Apple, given ongoing patent lawsuits in various countries. But Samsung, the largest of South Korea’s chaebol (vast, politically connected, family-run conglomerates), has bigger problems at home. In the run-up to the December presidential election, the chaebol have become a target of growing popular anger...

But the conglomerates’ gluttonous business practices have suffocated small and medium-size firms, stifled innovation, undermined job creation, and left much of South Korea’s population in relative poverty, while catapulting their founding families to extreme wealth. As a result, what had once been a fount of pride for South Koreans has become a source of contention.

Chaebol reform is a defining issue in this year’s presidential campaign, epitomized in popular bumper stickers reading, “It’s the chaebol, stupid.” Past presidential candidates pledged to reform the chaebol – from cracking down on corruption to restructuring corporate governance – but delivered little, instead favoring short-term political gain from maintaining the status quo. Nevertheless, many anticipate that this year’s election will catalyze change, and that the cycle of greed and corruption that is weakening South Korea’s economy will finally be broken.
For all the huffing and puffing from the presidential contenders, though, Park's reforms are expected to be more cosmetic than a real change to Korea's political economy:
[G[iven that the Saenuri Party is traditionally pro-business, Park limits her reform pledges to harsher sentences for convicted chaebol executives and new restrictions on circular equity investment through chaebol affiliates.
Not pardoning convicted executives and cutting down on cross-shareholding doesn't count as a revolution in corporate governance in my books. While you can certainly have a debate on the merits of these practices, they are ultimately not very major efforts to begin with. Timing-wise, this election was doubly critical for reformers since a new generation of chaebol leaders--drawn from their families, naturally--are coming into power. From Reuters:
The election came at a sensitive time for Samsung and Hyundai as both are in the process of passing power to a third generation of their family owners, a process that left-wing candidate Moon Jae-in could have complicated with an attack on their shareholdings, had he won. "She doesn't have any plans to alter the structures of the chaebol ownership and their concentration of economic power," said Kim Sang-jo, an economist at Hansung University and executive director of a group urging reform of South Korea's economy...
Park Geun-hye is not likely to be as irascible as her father and her policies remain sketchy. She has promised to share wealth more widely but said no new taxes on individuals or companies, and no attack on the chaebol. "It is not my aim to dismantle or bash the chaebol," Park said in July. "The main aim is to fix negative parts such as abuse of economic power and to save the positive part the chaebol have such as job creation..." 
The chaebol themselves appeared to be happy with Wednesday's outcome and the prospect of being left alone. "We want (the president-elect) to undertake lots of economic policies that help investments and job creation so that our companies can focus on reviving the economy," chaebol lobby group the Federation of Korean Industries said in a congratulatory message.
I am not entirely sure if the chaebol inevitably "crowd out" SMEs. Anyone not hiding in a cave somewhere will have noticed Korea's newfound dominance in pop culture via the "Korean Wave." Its dominance is not an accident as the state once again has a strong hand in developing entertainment talent. Importantly for this discussion, it is not chaebol who are leading the charge here but smaller outfits alike Psy's YG Entertainment and a whole host of other acronym-heavy entertainment groups.

Botttom line: Korea is the envy of all Asia and perhaps the world for its economic dynamism and exceedingly popular entertainment. Why mess with a good thing? Economies of scale matter especially in export industries, hence the continuing relevance of chaebol. During the Asian financial crisis, Kia was bankrupted. In less than fifteen years, it is one of the world's top 100 global brands. As for the SMEs, I certainly think they can apply the lessons of the "Korean Wave" in extending the state-led model of development to smaller firms. Why should it not work for them as well?
Ultimately, Park Geun-hye gives lip service to reining in the chabeol. But honestly, they seem to be doing well enough to be left alone. As with many things, you can't argue with results. In a down world economy, you cannot ask for more.

PS: You may be wondering about the title. There is the oddly routine celebration of Christmas in any number of predominantly non-Christian nations that befuddles Westerners. Go to the lobby of any major international hotel and there will be the inevitably humongous Christmas tree. While their materialistic interpretation centred on gift-giving and a festive atmosphere kind of loses out on the core irony that the saviour of the world was born in a horse's stable, I just wanted to point out that a "lump of coal" is not an entirely foreign idiom. South Korea is rapidly gaining Catholic adherents as well, but I'll keep that idea for another post which will appear near December 25.