As South Korea votes for their next Presidential candidate, where do the chaebol reforms stand? Unfortunately, the Moon-Jae In administration did little to change the status quo of chaebols. Despite promises of carrying out reforms targeting chaebols and eliminating business-politics collusion, another less than satisfactory attempt by the Moon administration only shows the depth to which the business-politics nexus runs in South Korea. Over the years chaebol reforms have continued to receive lip-service from Korean politicians but to no avail. The reform process is crucial to democratisation, yet the current two major-party candidates, Lee Jae-myung and Yoon Suk-yeol, have leaned further away from conversation surrounding reforms, suggesting that the ongoing chaebol-centric economic framework is likely to persist. But this bears with it adverse impact on Korea’s already declining democracy as well as risks exasperating social issues – such as rising housing prices, lack of employment opportunities, etc. Political favouritism towards family-owned large conglomerates, a legacy left behind by dictator Park-Chung Hee, has been retained by every succeeding Korean leader, even after democratisation in the 1980s. In fact the post-democracy era only witnessed a more entwined arrangement between business and politics with both becoming mutual hostages to one another. Eventually, chaebol-state activity – of exchanging policy for bribes – became quasi-institutionalised. This is evident in the numerous political scandals that have become a feature of South Korean society. As one scholar mentions, “the exchange of money for political influence has been not just an open secret but common knowledge” (Kang, 2002, p. 177).
Rise of Chaebols
From its very beginnings chaebols have been linked to their political masters (Rama and Bronwen, n.d.). The government-guided economy, with tight control over economic institutions, that prevailed in the post-Independence era inevitably made the industrial class dependant on the government for allocation of various resources such as raw material and commodities. This also included special bank loans, allocation of U.S. dollars at favourable rates of exchange, and capital sums imported in connection with foreign aid programmes. This policy, of providing strong financial incentives, was thus responsible for the swelling up of a few favoured businesses into big conglomerates during the period from the sixties to the eighties. Moreover, it also appeared to have been employed to make up for the lack of legitimacy of Park’s dictatorial regime at the time, by providing for quick income increases and to appease the university students, who were the centre of dissent, by providing more job opportunities (Kang, 2002). Albeit under Park-led DRP (Democratic Republican Party or Minju Gonghwa Dang) the country saw accelerated growth and transformed from being an agrarian society to an industrialised ‘tiger economy’, corruption was rampant as the state intervention disproportionately benefited small business groups and political elites. To fund their political operations, donations in forms of bi-chagums (secret funds), were taken by chaebols in return for loans and favourable deals (Kang, 2002). These funds were utilised by the DRP to manage their large staff and budgets, but also to buy votes. According to the financial report of the Central Election Management Committee, the annual costs of running the DRP were as high as 4.5 billion dollars in the 1960s. Thus under Park, this financial system of exchanging policy for bribes came to be quasi-institutionalised (Kang, 2002). The integrated, top-down state had developed an all-engulfing hold on chaebols, wherein if the business people did not provide politicians with sufficient funds when asked, the Bank of Korea called in their loans, or they suffered a tax audit, or their subsidy application was denied (Kang, 2002). Nonetheless, under the Park regime a balance of power had been established between business people and politicians that kept corruption from spinning out of control (Kang, 2002). Since the business class was fragmented against a unified, dictatorial state, the leverage that they held over the government was limited. This, however, witnessed a shift post-democratisation.
Post-Democracy Era
The transition to democracy benefited businesses more than the state as the state was now weakened with the rise of multiple parties and imposition of various bureaucratic procedures and institutions. Power that was centrally exercised by the government, under Park’s dictatorship, had too now become distributed. This resulted in chaebols being able to exert greater influence than usual over policy decisions. Democratisation did not change the business sector’s general high demand for rents, but it did affect the supply. With more politicians competing on the supply side, fewer limits were placed on the behaviour of the business sector (Kang, 2002). Thus, money began to be flushed into the political system at a much higher proportion (Kang, 2002). The chaebols increased their expenditure towards political funding so as to obtain orders to undertake any project in South Korea. Hence, for the chaebols, it could be said, that the ease of doing business was more restricted. Since even the smaller bureaucratic wing had veto power and thus money had to be siphoned at every stage before getting a bureaucratic approval (Kang, 2002). In 1996, political parties officially reported raising 420 million dollars. If compared to the United States, a country six times the population and an economy fifteen times larger, the Republican Party’s fundraising goal was 179 million dollars in 2000 (Kang, 2002). This phase also witnessed the formation of an interdependent relationship between the political and economic elites, who mutually reinforced the legitimacy of each other’s practices: with the state defending its behaviour as ethical as it disciplined the chaebols to deliver economic growth, while the chaebols argued that the Korean economy would not have propelled to the high levels it had achieved had chaebols not been granted extensive privileges by the government (Hidehiko, 2018). This, of course, came at the cost of – 1) small and middle scale businesses who simply could not compete and hence either got amalgamated into larger companies or failed to operate and 2) static legal and corporate reforms that were overlooked to allow for corrupt activities to flow.
Chaebol-State Relationship
Thus, the politics-business collusion is of grave importance to Korean society that severely undermines its democratic fabric as well as limits the proliferation of a socially integrated market economy. Chaebols absorb technology from SMEs (Small and Mid-Sized Enterprises), while also putting them under constant pressure to reduce prices. This not only results in wage inequality, but also deprives SMEs of the resources needed to pursue business innovation (Hidehiko, 2018). The 1997 Asian financial crisis was expected to act as a watershed moment for Korea’s political economy. Unfortunately, except for a few minor, internal, corporate changes and need of the hour government policy reforms, not much changed. The reforms particularly focused on structural improvements; since governance deficiencies, including inadequate corporate governance and government supervisory systems, were one of the factors that led to the currency crisis (Hidehiko, 2018). Specific measures were based on the items on which agreement had already been reached with the chaebol, including increased management transparency, the elimination of reciprocal debt guarantees, the improvement of financial structures, specialisation in particular industries, and the improvement of management accountability (Rama and Bronwen, n.d.). Albeit no radical changes concerning the control of the chaebol by their founding families were made. Where the crisis would have been considered as a catalyst, even today Korean politicians have typically tried to excuse their relationship with chaebol through political corruption as functional (it is not wrong because it is good for the economy), as an institutional privilege (it is not wrong because other members accept it) or as an institutional fault (it is not wrong because other members do it) (Rama and Bronwen, n.d.).
In modern South Korea, the vast majority of capital has been channelled into state-approved chaebol projects and thus political influence becomes crucial to chaebol’s capacity to secure access to capital. In this context, institutional and legal arrangements emerged to both facilitate and disguise the consequent flow of funds from the corporate world into the political sphere (Rama and Bronwen, n.d.). For instance, it has been a standard practice for the heads of chaebols to be given lenient sentences followed by presidential pardons when they are found guilty of crimes. Since 1990, the heads of seven of the ten biggest chaebols have been convicted for bribery, tax-evasion or embezzlement. All received presidential pardons, and all returned to management positions (Rama and Bronwen, n.d.). The same impunity also extends to previous political leaders – former President Park Geun-hye who got impeached and arrested, but later released, following the exposure of series of scandals related to leaking confidential government information in exchange for contribution. Moon administration, much like every preceding administration, although initially took a strong stance against chaebol-politician collusion, did little to change the status quo. Instead, much like the nature of Korean politics in the past, even his administration came under attack for collusion with the chaebols. Furthermore, Moon’s reliance on the chaebols to bring about change through self-reform was short-sighted and served little to no purpose.
Conclusion
Ahead of the current election, both Lee Jae-myung and Yoon Suk-yeol have already been associated with scandals. Furthermore, unlike during previous elections when chaebol reform was one of the key issues, the presidential candidates this time have barely talked about it during their respective campaigns. By addressing the current issues of high housing rates and unemployment in isolation to the chaebol-centric economy, both Lee and Yoon show lack of vision to reform the existing structure. ‘Political retribution’ has been internalised by the economic and political elites and has become an essential tenet of governance in South Korea. This in turn has aided in perpetuating a cycle of preserving an economic policy that bears expedient gains for the political class but hurts discernible socio-economic interests of the people and degrades the political fabric of the state.
