Chaebols are large family-owned companies in South Korea with political affiliations and government ownership. They originated during the late Chosun Dynasty and have played a significant role in Korea’s economic development. However, only government-favored chaebols have shown economic success, and the IMF has suggested a total reform due to their large debts.
Chaebols are large groups of family-owned companies in South Korea. Literally, the word chaebol, pronounced jay BOL or chay bol, means business association. Chaebols are said to have originated during the late Chosun Dynasty before the formal Japanese annexation in 1910. The largest and oldest chaebol in Korea is the Doosan group founded in 1896.
In their current form, chaebols have political affiliations, and most large chaebols are owned by the government. This government-owned form of chaebol originated during the rule of Park Chung Hee (1961-1979). Park based his chaebol model on the Japanese zaibatsu system, the only difference between chaebols and zaibatsu is the source of capital. Banks funded the zaibatsu while a chaebol cannot own a bank.
When South Korea’s banks were nationalized, it was possible for governments to manipulate the success of several chaebols. Government-sponsored chaebols were awarded government funds and given special privileges. Large companies had to satisfy the export market and achieve greater profitability through large-scale production.
During times of inflation, the government has favored chaebols in which it has invested or which have shown good performance. The government also provided them with foreign projects and loans. As a result, chaebols dominated Korea’s economic scene in the late 1990s. The Korean government has controlled these chaebols, allowing some to grow and some to decay.
Chaebols has played an important role in Korea’s technological advances and has also helped expand research and development (R&D) activities. It was because of these chaebols that, by the late 1970s, Korea had developed some of the largest industrial companies in textile, marine, plywood, cement, and heavy machinery.
Korea’s tremendous economic development over the past three decades is attributed to its chaebols. But in reality only the government-favored chaebols have shown economic success while the rest have faced the burden of huge debts. Because chaebols relied on political support rather than their own performance, their success rate fluctuated with changes in government. Only three of the ten largest chaebols in 1965 survived for the next ten years; these were Samsung, LG and Ssangyong. Due to their large debts, the International Monetary Fund (IMF) has suggested that the chaebols undergo a total reform. It is not an easy task to sever the ties between Chaebol businessmen and South Korean politicians.
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