DO ELECTIONS really make a difference? In the wake of parliamentary elections in South Korea last month, critics of the nation’s chaebols could be forgiven for thinking that they do not.
“Chaebol” is the Korean term for the large, family-controlled conglomerates that dominate the South Korean economy. They are particularly associated with the sort of alliances between the state and the private sector that developed under the authoritarian regime of Park Chung Hee (1961-1979).
Chaebols are also known for their large profits. Samsung Electronics alone made a record operating profit of 5.3 trillion won (S$5.8 billion) in the fourth quarter of last year, for example.
No longer regarded uncritically as engines of economic growth, the chaebols have come under criticism for various abuses in recent years, including tax evasion and various monopolistic practices. In January, for example, Samsung and LG were exposed for fixing the prices of laptop computers and flat-screen televisions in 2008 and 2009.
The chaebols have also been accused of squeezing their suppliers to prevent them from growing.
If a subcontractor does well, say the critics, the conglomerate slashes prices or sets up its own subsidiary that makes the same product. There are certainly very few success stories of companies which began as subcontractors and became major business groups. Public opinion surveys also show voters are increasingly viewing the activities of chaebols negatively.
So much so that in the weeks preceding the parliamentary elections last month, almost everybody was on the anti-chaebol bandwagon.
The left-wing Democrat United Party (DUP), which at one point was running neck and neck with the ruling conservative New Frontier Party in the opinion polls, was among the loudest critics. One measure it wanted to introduce involved limiting the ability of chaebol companies to hold cross shareholdings. This was widely seen as the key to the complex web of holdings that allowed these family-run corporate empires to retain control.
The DUP also proposed reinstating restrictions designed to prevent the chaebols from investing money in other companies greater than 30 per cent of their own net worth. The limit was introduced in 1987 to prevent reckless business expansion. Conservative President Lee Myung Bak removed it in 2009 as part of a wider effort to pursue business-friendly policies.
Responding to rising anti-chaebol sentiment, the New Frontier Party also began shedding its traditional pro-chaebol bias, announcing schemes to protect small enterprises and provide preferential lending programmes. The party also vowed to restore parity in business competition and strengthen fair trade rules.
Even the chaebols responded, with several announcing plans to close down their bakeries and other small food stores seen as encroaching on areas traditionally occupied by small vendors.
The whole atmosphere was in stark contrast to the early days of President Lee’s administration, when the government adopted a much more accommodating approach towards big business.
After the elections on April 11, however, the longstanding influence of the chaebols in national politics soon reasserted itself. Politicians in the ruling party, having unexpectedly retained control of Parliament albeit with a smaller majority, promptly dropped the idea of reining in the chaebols. Even opposition politicians seemed to have decided to let the issue rest – at least until the presidential election campaign later this year.
The point was well illustrated in the muted reaction to a recent survey that suggested that more than 90 per cent of the population was worried about the growing gap between the massive profits of the chaebols and struggling smaller businesses.
So why didn’t voters support the DUP’s radical reforms? Although concerned about the power of the chaebols, many older voters may have decided that the reactivation of North Korea’s missile and nuclear programmes required a firm response. Many South Koreans still associate liberal rule with the unsuccessful “sunshine policy” of reconciliation with the North pursued by former president Kim Dae Jung.
But the chaebols will have to either change their ways or be forced to do so. The old conventional wisdom that what is good for the chaebols is good for the South Korean economy is fading fast. With South Korea’s gross domestic product growing more slowly in recent years, more and more citizens are beginning to ask why the large profits made by the chaebols are not being used for productive investments.
The public is also becoming increasingly aware that the reason many goods are more expensive in South Korea than elsewhere is because pro-chaebol policies have discouraged competition.
The reformist lobby has been stymied for now. But it is unlikely to remain so.
(C) Singapore Press Holdings Limited