The chaebol advantage
The author is an editorial writer of the JoongAng Ilbo.
I had an opportunity to tour Taiwan. South Korea and Taiwan stole the global spotlight for their staggering economic progress through the 1990s. Both economies ran on exports. The difference was that Taiwan fielded small- and medium-sized enterprises while Korea chose big chaebol, or family-run corporate conglomerates. The progressives in Korea have criticized the government’s promotion of selective chaebol and pitched for the Taiwan model. I wished to learn where Taiwan stands today.
Its prospects were as dark as Korea’s. But, to my surprise, many businessmen in Taiwan envied Korea. The Taiwan economy has lost much of its self-sufficiency under Chinese domination. Korea at least was running on its own.
Taiwan claims it has been mired in stagnation since 2001. The economy did not suffer a financial crisis. But since the global dotcom bubble burst, the economy has been skidding. Since 2012, the gross domestic product (GDP) has grown at a snail’s pace of 1 percent to 2 percent.
What killed one of the four Asian tigers? Small- and medium-sized enterprises in Taiwan moved their factories to the mainland to save costs in the 2000s. A small number of large companies, including Hon Hai Precision Industry, which assembles iPhones, also moved capacity to the mainland. In the 2010s, many of Taiwan’s best brains were lost to the mainland. They preferred to work in a larger economy offering better opportunities and paychecks. IT talent was lured with salaries three or four times larger. Over one million Taiwan-born people are estimated to be working in China. Taiwan’s capital, companies and brains have been sucked.
Small- and medium-sized companies in Taiwan faced intrinsic limitations in going global. They were handicapped and engaged in consignment and assembly works due to a lack of a technological edge. They did not have enough capacity to resist the temptations of the colossal mainland market. Taiwan’s per-capita income remains at $25,000.
Korea’s income per person is now over $30,000. It largely has the chaebol to thank for their riches and global reputation. Korean names have become among the top in electronics, automobiles, steel and petrochemicals. Although they contribute less to creating jobs, they support social welfare and government coffers through massive tax payments.
Yet chaebol are still regarded as greedy and corrupt. Owners of the country’s two full-service airliners were pushed out of management. The government, market players and auditors are determined not to tolerate any more domineering or questionable management and bookkeeping at the family-run chaebol. Activists-turned policymakers want to dismantle chaebol organizations, blaming them for polarization in the economy and society.
But chaebol are our unique asset and the pillars of the Korean economy. If they have flaws, they can be fixed. Even if it is a family business, the owner can be pushed out by the market forces if they lack management capacity and undermine corporate value.
Chaebol entities must also change. They must stop predatory and unfair practices against companies in their supply chain and work to build a symbiotic industrial habitat. They must make room for small players and concentrate on global outreach and building a fortress for the economy.
JoongAng Ilbo, April 3, Page 27