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How the Rich Ate South Korea - YouTube
Channel: Asianometry
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one of south korea's greatest economic
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strengths is also one of their biggest
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economic weaknesses
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their country's economy is divine by a
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series of massive business groups with
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names familiar to everyone samsung
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hyundai and lg
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these groups power its export economy
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and dominate its people's everyday lives
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they also manipulate the korean economy
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to their own advantage and pay millions
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to maintain corrupt ties with the
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highest levels of power in korea
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corruption in korea predates the modern
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state the japanese colonial state and
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its agricultural economy was also quite
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corrupt and unequal the large landlords
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earned all the income and ruthlessly
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exploited the farmers
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this administration ended with world war
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ii much of its legacies however passed
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on to the new south korean government
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which fell under the western sphere of
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influence
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its first president sigmundry thus was a
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staunch anti-communist and i guess he
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proved it first by committing a variety
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of massacres against suspected
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communists that left some one hundred
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thousand dead
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the bordeaux league massacre in 1950 i
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felt was especially cruel
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and second
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recreated the chebul he needed to raise
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funds to fight the korean war so
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starting in 1946 and peaking in the
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1950s his government sold off many of
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the assets they seized from the old
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japanese state along with a few other
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prized state-owned entities
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the prices for these privatizations of
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public assets were determined by a
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private negotiation rather than public
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auction a steal by any value investing
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metric
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valuable companies like tong yang beers
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today oriental breweries de haan textile
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and tong yang cement heart of the
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tongyang group
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like with the zaibatsu of japan the
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purchasers of these amazing assets would
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eventually become the chebul
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then in 1961 a park tonghi led a
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military coup that ended the second
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republic immediately after the coup park
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arrested the heads of the chebul on the
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basis that they were corruptly
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accumulating wealth
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but very quickly afterwards his
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government negotiated a crony capitalism
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deal with the chable park wanted to
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emulate japan's industrialization
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process and sought the company's help
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the chebo would support parks policies
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for import substitution and later
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exports
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the korean government would in turn lend
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the table of foreign currency loans at
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below market interest rates so that they
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can acquire foreign technologies and
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build up their capacities in those
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industries
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and oh by the way the chable will also
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contribute funds for park's upcoming 200
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million dollar presidential election
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campaign
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these came in the form of 10 to 15
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percent loan commissions namely
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kickbacks
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companies realized that the best way to
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acquire cheap capital and get rich was
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to be good friends with the president
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for instance park chung maintained very
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close personal ties with cheung juyong
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of hyundai and kim woo-jong of daewoo
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the kickbacks also grew over the years
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adjusted to 1990 prices the top five
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chebul contributed over 800 million won
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annually to the park government before
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1972
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that grew to 1.5 billion after 1972.
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over the next 20 years the government
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and the chamber ran korean society as
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dominant actors the companies helped
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fund the government's political
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campaigns and satisfied social compact
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of growing the economy
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the government in turn granted the
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chable privileges and used this force to
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impose the costs of the chable's
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excesses onto greater society
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for instance in 1971 the triple found
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themselves over-leveraged and requested
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a bailout the korean government
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converted all the chapel's private
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market loans to five-year public ones
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and froze private interest rates
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small lenders got hosed since nominal
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listed interest rates for such public
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loans did not exceed inflation
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but as korea entered the turbulent 1980s
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the military dictatorship gradually lost
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its monopoly grip on power the
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partnership began to get a little shaky
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as the balance of power started to shift
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by the mid-1980s things had tipped
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decisively in the chambel's favor the
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top five chapel accounted for nearly
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twenty percent of the country's gdp and
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forty five percent of its mining slash
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manufacturing output
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the top ten table owned an average of
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8.6 manufacturing businesses 20 to 40
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businesses in total
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korea's chable-centric strategy had
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suffocated the country's small and
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medium-sized business sector from 1966
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to 1976 the number of manufacturing
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firms in korea grew just 10 percent but
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their size exploded 176 percent
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by contrast taiwan pursued a less cozy
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state business relationship with its
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corporate elites and also did not get
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hit with a devastating war they saw its
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number of manufacturing firms grow by
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150 percent and firm size by 29
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over the same period of time
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this vast imbalance between the chable
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and the rest of the country started to
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become an issue the people of south
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korea disapproved of the outsized power
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these big business groups had
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the people were getting richer and with
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that they wanted more than just higher
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wages they wanted better environmental
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regulations working conditions and a
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better life in general the government
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now increasingly democratic had to
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respond switching from a stance of
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support to one of regulation
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the problem was that the government's
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leader still needed the chairboa's
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financial contributions to stay in power
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this continued regardless of who was in
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charge
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pakchangi was assassinated and another
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military leader chun do huan came to
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lead south korea afterwards
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during his administration the chable
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contributed 15 to 22 billion won to
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high-level political campaigns and 21 to
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25 billion won during the subsequent
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administration of president rote wu
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this corrupt deal between the korean
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government and business evolved this way
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partly because of how weak korea's
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political parties have been
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during the military dictatorship era
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parties served as simple shells for
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their candidates people voted the party
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simply because they wanted to vote for
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the candidate
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then the country democratized in 1987
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holding free and open elections for the
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first time but after so many years of
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military dictatorship there had been no
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time to build suitable political
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campaigning
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norms without an above-board financing
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system parties and candidates found
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themselves starved for cash which made
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them vulnerable to corruption which
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means the chable are still able to get
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what they want government aid in the
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form of plentiful capital favorable
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regulations and protections from
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competition
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the asian financial crisis would
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demonstrate the consequences of korea's
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inability to rein in their big
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businesses
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in the 10 years after democratization in
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1987 the chable gained substantial
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political power
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for instance in 1988 daewoo group was
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able to force the national assembly to
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amend the law so to allow the government
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to bail out the ailing daewoo
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shipbuilding corporation
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they also used that power to get rapid
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liberalization reforms to aid their
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growth and expansion
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one of those reforms had been to allow
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the table to more easily access foreign
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capital financing in other words take
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out cheap loans denominated in foreign
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currencies this would eventually kick
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off a massive debt boom that ended in
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the asian financial crisis
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another major reform allowed the chebo
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to take limited ownership stakes and
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non-bank financial companies this
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encouraged super complicated
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cross-ownership structures obscuring
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their true size
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for instance the samsung group and its
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controlling lee family the lees own a
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minority of the shares in samsung
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affiliated firms yet through that small
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slice they exercise operating control
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over almost all of those companies
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these companies increasingly complex
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structures meant that nobody knew which
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subsidiaries made money and which ones
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burned it
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the profitable companies started
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propping up the weak ones leading to
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market inefficiencies and oversupply in
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certain industries
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this all came to a head in 1997 which
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vastly paired back the power of the
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chamber
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it left an open door for reforms
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encouraging a more
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unquote common prosperity to steal a
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term
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a variety of reforms were imposed on the
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ailing chebor by both the kim dae-chong
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and rue mu hyung administrations the
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goals were to prevent another financial
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crisis from ever happening again by
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limiting debt capacity and cross
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shareholder structures
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some of these reforms succeeded but not
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without wide ranging consequences for
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instance in my video about hunching
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shipping i talked about how the company
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had to reduce its debt to equity loads
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below 200 percent
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it forced hanjin to sell off ships and
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lease others to retain capacity
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converting those financing costs into
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operating ones
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reforms did cut a lot of the fat in the
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korean car industry in 1997 there had
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been five independent korean car
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companies soon after there would be just
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one hyundai
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the chambo dialed back their affiliates
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and further separated them in 1997 a
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sample of chebour showed 819 affiliates
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three years later that number became
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544.
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dividends to minority shareholders the
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ones getting stiff the most by the cross
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holdings structure increased from 2.2
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trillion won in 2001 to 10.8 trillion by
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2006.
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the crisis also helped create the korean
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export juggernaut realizing the
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unfriendly domestic environment the
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biggest charitable seized on a variety
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of free trade agreements in the 2000s
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and turned outwards
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they became wildly successful by 2013 86
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of samsung's revenue came from abroad
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and this success drove the korean
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economies a top-line recovery from 1998
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to 2010 korea's economy grew at an
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average rate of 5 percent
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a very good number but that shiny golden
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number hid a variety of troubling social
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issues beneath the
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surface on the basis of gdp growth alone
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the korean economy grew well and
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everything should be fine right
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the problem however was that the
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benefits of that growth fell to a very
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small cohort of people
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a significant gap opened up between the
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haves and the have-nots in korean
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society in 2013 the table brought in
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over 50 percent of revenue and value add
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in the manufacturing sector but they
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employed less than 20 percent of the
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sector's employees
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as part of the negotiations during the
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reform era after 1997 the government
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wanted the table to become more
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profitable so that they can more easily
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service their debts the table agreed but
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wanted to make it easier for them to lay
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people off the korean government agreed
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hundreds of thousands of people lost
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their jobs many of them have never found
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regular salaried work since and instead
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work
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irregularly elder poverty in korea has
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since reached four times the oecd
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average
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income share for the top 1 percent of
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korean society rose from 7
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before 1997 to 12 in the mid 2010s
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the korean people recognize this
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inequality that they have seen and
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shared none of the success by the
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country's so-called national champions
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and its plutocratic owners
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and that is why the korean people voted
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for a change of direction in 2007.
[732]
president lee myeongbok is a
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conservative from the pakchangi line a
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former businessman and ceo of hyundai
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construction his 2007 presidential
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campaign emphasized economic recovery
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after what he called a lost decade of
[746]
liberal rule
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note again that the korean economy grew
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5 a year from 1997 to 2007.
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nothing like the glory years of the 80s
[757]
and early 90s but very good by almost
[760]
any measure
[762]
lee's campaign made the 747 promise to
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the korean people by bringing ceo style
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management to korea he would raise gdp
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growth to 7 percent achieve a per capita
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income of forty thousand dollars and
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make korea the seventh largest economy
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lee won with the highest margin in years
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but record low voter participation
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indicated that the korean people were
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starting to lose faith in their
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government's ability to curb the
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country's social inequalities and bring
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the good times back
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fundamentally lee's business policies
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indicated that he felt the previous 10
[798]
years had held back the chairboard's
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abilities to compete against other
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multinational corporate giants
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thus not that big business was too big
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for korea but big business was too small
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for the world
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he lowered the corporate tax rate from
[813]
25 to 20
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raised the ceiling on non-bank financial
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investment and amnestied a number of
[820]
executives convicted in wake of the
[822]
financial crisis
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he also oversaw a continuation of
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market-oriented reforms giving more
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decision-making powers to the industry
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one can argue that lee's goal would
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bring back the era of pakchanghi's rapid
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economic growth and development lee
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traded on those sentiments especially
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when he added puck era economic planners
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to his administration
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but unlike with park lee did not force
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the chebo to funnel profits into new and
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risky industries something wild and
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crazy like quantum computers offshore
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wind or fusion energy that the chamber
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would otherwise not really invest in
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the government failed to do that and
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instead funneled money to rust-built
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industries like construction and
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infrastructure in the end the lee
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administration could not deliver the
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growth that they promised gdp growth has
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continued to decline throughout the
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2000s
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korean presidents only have one term so
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lee soon stepped down in 2018 he was
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arrested for charges of bribery
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embezzlement and tax fraud
[888]
during the next presidential election in
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2012 conservative park geun-hye moved
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leftwards on her messaging she combined
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her platform of nostalgia for the glory
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years with stronger emphasis on welfare
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notably however she did not advocate for
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a higher capital gains tax
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key to the accelerating korean wealth
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gap
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modern corruption committed by the cebu
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is done to maximize their wealth and
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market power in korea and elsewhere two
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areas in particular focus maintaining
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control of their empire mostly through
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the use of tax manipulations and
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legislation and regulatory capture
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i want to talk more on the latter
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a lot of people today take a nihilistic
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perspective to the wealth inequality and
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big business corruption problem gosh it
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might even be
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cool to do so now
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who cares we can't do anything about it
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they got all the politicians in their
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pockets
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the reality is that these actions have
[949]
consequences and that came to be most
[951]
apparent with the 2014 said wool sinking
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which claimed 304 lives most of them
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high school students
[959]
a variety of things have been said about
[961]
the say well sinking most of them are
[963]
true
[965]
for instance i mentioned that the ferry
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already had been quite old when it was
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first purchased and converted to
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passenger use and that it had been very
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overloaded when it set off on its
[975]
journey
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the most proximate reason why the death
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rate was so high however was that safety
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and rescue regulations were ignored and
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had been so for a while
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for too long the regulatory agency and
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the company worked closely together to
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ignore violations and keep the
[992]
profitable status quo
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a status quo which included the
[996]
continued rotation of government
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employees into the industry and the
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ferry companies continued monopoly
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privilege of the lucrative incheon jeju
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ferry route
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without pressure from either government
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or market why should a ferry company try
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harder why should any company
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south korea's struggle with its biggest
[1017]
companies continues
[1019]
president park geun-hye's administration
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ended in a spate of corruption scandals
[1024]
and impeachment
[1026]
her successor president moon jae-in has
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responded with certain business reforms
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and higher tax rates and it seems to
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have brought about a bit of an
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improvement at least in the court of
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public opinion
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however the south korean economy like
[1040]
taiwan's to some extent is now quite
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dependent on its handful of super
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powerful global companies
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it is more than likely that substantial
[1049]
reform will weaken their place in the
[1051]
world marketplace against companies in
[1054]
the united states europe and china
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south korean democratic society has
[1059]
become increasingly polarized like many
[1062]
others in the world and the issue will
[1063]
be furiously debated chible reform and
[1066]
what to do about it continues to be an
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issue in south korean presidential
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politics right up there with what to do
[1072]
about north korea
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alright that's it for tonight thanks for
[1077]
watching subscribe to the channel sign
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up for the newsletter and i'll see you
[1080]
guys next time
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