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Chaebols are large family business groups in South Korea, with political affiliations and most large ones owned by the government. They played a big role in Korea’s technological advancements and economic development, but only government-favored chaebols showed economic success, while others faced huge debts. The International Monetary Fund has suggested a total makeover for chaebols.
Chaebols are large family business groups in South Korea. Literally, the word chaebol, pronounced jay bol or chay bol, means trade association. Chaebols are said to have originated during the late Chosun dynasty before formal Japanese annexation in 1910. The oldest and largest chaebol in Korea is the Doosan group, founded in 1896.
In their current form, chaebols have political affiliations and most large ones are owned by the government. This form of government-owned chaebol emerged 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 Korean banks nationalized, it was possible for governments to manipulate the success of different chaebols. Government-sponsored chaebols received government funding and were given special privileges. Large companies were expected to serve the export market and achieve greater profitability through large-scale production.
During periods of inflation, the government favored chaebols in which it invested or which performed well. The government also provided them with foreign projects and loans. As a result, chaebols dominated Korea’s economic landscape in the late 1990s. The Korean government controlled these chaebols, allowing some to grow and others to decay.
Chaebols played a big role in Korea’s technological advancements and also helped to 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 enterprises in textiles, shipping, 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 showed economic success, while the others 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 top ten chaebols in 1965 survived the next ten years; these were Samsung, LG and Ssangyong. Due to their huge debts, the International Monetary Fund (IMF) has suggested that the chaebols undergo a total makeover. It is not an easy task to sever ties between Chaebol businessmen and South Korean politicians.
Asset Smart.
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