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South Korea The Origins and Development of Chaebol
Although South Korea's major industrial programs did not
begin until the early 1960s, the origins of the country's
entrepreneurial elite were found in the political economy of the
1950s. Very few Koreans had owned or managed larger corporations
during the Japanese colonial period. After the departure of the
Japanese in 1945, some Korean businessmen obtained the assets of
some of the Japanese firms, a number of which grew into the
chaebol of the 1990s. These companies, as well as certain
other firms that were formed in the late 1940s and early 1950s,
had close links with Syngman Rhee's First Republic, which lasted
from 1948 to 1960
(see
The Syngman Rhee Era, 1946-60
, ch. 1). It
was alleged that many of these companies received special favors
from the government in return for kickbacks and other payments.
When the military took over the government in 1961, military
leaders announced that they would eradicate the corruption that
had plagued the Rhee administration and eliminate injustice from
society. Some leading industrialists were arrested and charged
with corruption, but the new government realized that it would
need the help of the entrepreneurs if the government's ambitious
plans to modernize the economy were to be fulfilled. A compromise
was reached, under which many of the accused corporate leaders
paid fines to the government. Subsequently, there was increased
cooperation between corporate and government leaders in
modernizing the economy.
Government-chaebol cooperation was essential to the
subsequent economic growth and astounding successes that began in
the early 1960s. Driven by the urgent need to turn the economy
away from consumer goods and light industries toward heavy,
chemical, and import-substitution industries, political leaders
and government planners relied on the ideas and cooperation of
the chaebol leaders. The government provided the
blueprints for industrial expansion; the chaebol realized
the plans. However, the chaebol-led industrialization
accelerated the monopolistic and oligopolistic concentration of
capital and economically profitable activities in the hands of a
limited number of conglomerates.
Park used the chaebol as a means towards economic
growth. Exports were encouraged, reversing Rhee's policy of
reliance on imports. Performance quotas were established.
The chaebol were able to grow because of two factors--
foreign loans and special favors. Access to foreign technology
also was critical to the growth of the chaebol through the
1980s. Under the guise of "guided capitalism," the government
selected companies to undertake projects and channeled funds from
foreign loans. The government guaranteed repayment should a
company be unable to repay its foreign creditors. Additional
loans were made available from domestic banks. In the late 1980s,
the chaebol dominated the industrial sector and were
especially prevalent in manufacturing, trading, and heavy
industries.
The chaebol were often compared with Japanese
keiretsu (the successor of the zaibatsu), but as
David I. Steinberg has noted, there were at least three major
differences. First, the chaebol were family dominated. In
1990, for example, in most cases the family that founded the
major business in the chaebol remained in control, while
in Japan the keiretsu were controlled by professional
corporate management. Second, individual chaebol were
prevented from buying controlling shares of banks, and in 1990
government regulations made it difficult for a chaebol to
develop an exclusive banking relationship. The keiretsu
usually worked with an affiliated bank and had almost unlimited
access to credit. Third, the chaebol often formed
subsidiaries to produce components for exports, while large
Japanese corporations often employed outside contractors.
The tremendous growth that the chaebol experienced,
beginning in the early 1960s, was closely tied to the expansion
of South Korean exports. Growth resulted from the production of a
diversity of goods rather than just one or two products.
Innovation and the willingness to develop new product lines were
critical. In the 1950s and early 1960s, chaebol
concentrated on wigs and textiles; by the mid-1970s and 1980s,
heavy, defense, and chemical industries had become predominant.
While these activities were important in the early 1990s, real
growth was occurring in the electronics and high-technology
industries. The chaebol also were responsible for turning
the trade deficit in 1985 to a trade surplus in 1986. The current
account balance, however, fell from more than US$14 billion in
1988 to US$5 billion in 1989.
The chaebol continued their explosive growth in export
markets in the 1980s. By 1990 the chaebol also had begun
to produce for a growing domestic market. By the late 1980s, the
chaebol had become financially independent and secure--
thereby eliminating the need for further government-sponsored
credit and assistance.
Another reason for the success of the chaebol was
their access to foreign technology. Rather than having to develop
new areas through research and technology, South Korean firms
could purchase foreign patents and technology and produce the
same goods made elsewhere at lower costs. Hyundai cars, for
example, used an engine developed by the Mitsubishi Corporation
of Japan.
The chaebol were powerful independent entities acting
in the economy and politics, but sometimes they cooperated with
the government in the areas of planning and innovation. The
government worked hard to encourage competition among the
chaebol in certain areas and to avoid total monopolies.
The role of big business extended to the political arena. In
1988 a member of a chaebol family, Chong Mong-jun,
president of Hyundai Heavy Industries, successfully ran for the
National Assembly. Other business leaders also were chosen to be
members of the National Assembly through the proportional
representation system.
Data as of June 1990
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