Chaebol lack both halos and hornsEconomic democratization has become the latest financial buzzword on the political stage ahead of December’s presidential election as candidates pledge to bring justice to the economy, which also means clamping down on and reforming the chaebol, or major family-owned business groups.
While users of the term argue about what it exactly means, the ultimate goal boils own to balancing wealth and income. And while the large conglomerates’ excesses clearly need to be reined in, reorganizing them will not necessarily ease the growing economic polarization in the country. The superrich chaebol that have reaped the rewards of their rapid industrial growth for decades, but cracking down on them may not be the tonic some hope in terms of fixing various socioeconomic problems.
In fact, it’s not even clear how politicians have arrived at the conclusion that attacking the chaebol can redress society’s financial ills. Conglomerates were blamed for causing the 1997 financial crisis and some were forcibly dismantled. Even after their names were cleared, however, they still took a pounding. Let there be no misunderstanding. They were not the principle wrongdoers, although they were also not entirely free of blame. The main culprits were the government and politicians.
Lawmakers liberalized the financial sector without establishing a solid economic paradigm at a time when Korea was going through a dramatic transitional period. But they needed a scapegoat when imbalances started to become highly visible, and the chaebol fit the bill. The same kind of thing may be happening this time. The rhetorical slogan of “economic democratization,” with the image of a chaebol pinned in the bull’s eye, makes for an easy target during this time of electioneering.
But the chaebol were never the main cause of the inequalities causing unrest in society. No matter how much they are reorganized and restructured, it won’t help to ease economic polarization. In this respect, the United States stands as a perfect example, as the inequality between the top 1 percent and the rest of the U.S. population is far more severe than in Korea. But this is more due to the fallout of excessive neoliberalism and relentless globalization than the corporations themselves.
Voices calling to reform the chaebol target three main areas that need fixing: their hereditary ownership and management structure; capital concentration through sprawling business operations; and unfair and predatory practices against smaller-sized companies and merchants. Many suggestions have been proposed and debated, such as a ban on cross-affiliate investments and share-holding, the revival of a cap on equity investments by the parent company, and the separation of industrial and financial capital. Other suggestions include stopping their affiliates from sharing business deals, allowing small- and midsize companies the authority to engage in collective negotiations, and implementing stricter punitive actions to compensate for subcontractors’ losses.
There are so many proposals being banded about to clamp down on the chaebol that it’s easy to lose count. But again, can any of them really help ease polarization? Can such problems be solved simply by sending the chaebol owners to prison? In the past, when ownership of the large conglomerates was more problematic, the gap between the rich and poor was not so pronounced, even though the quantity and quality of unfair practices was much more extreme than perhaps it is nowadays.
Putting a lid on unfair practices is clearly the right way to go, but it is no magic formula for easing inequality. For example, companies that deal with affiliates of the chaebol tend to earn more profits than those that do not. Even if unfair practices and deals among chaebol companies and subcontractors are rooted out, the competitiveness of smaller merchants will not suddenly improve. And even if the smaller companies fare better, it does not mean their employees will get paid more.
If economic inequalities fail to improve even after the Lee Kun-hee clan at Samsung Group, and the family of Hyundai Motor Group Chairman Chung Mong-koo - considered the royal families of the chaebol world - wield less power over their respective corporate empires, it will rapidly become clear that we have been barking up the wrong tree.
What people really need are stable jobs, better income and greater social welfare security. Policy makers need not be obsessed with the chaebol. They should focus instead on improving unfair and predatory practices if they want to shake up the corporate sector and instill a greater sense of economic justice.
Restricting capital and equity investment will be of little avail. As such, I cannot stress enough that, while the chaebol cause many problems and need to be better regulated, the problems lie much deeper. If politicians really want to change the chaebol, they need to grasp the bigger picture and be clear on what their goals are. They also need feasible and long-term goals.
* The author is an editorial writer of the JoongAng Ilbo.
by Kim Young-ook