Oases of privilege: the chaebols today

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Samsung headquarters in Seoul

The current South Korean corruption scandal (which we’ve been discussing this week) has blighted the images of the Brobdingnagian conglomerates – among them Samsung and Hyundai – that are known in that country as chaebols. Once admired – even revered – for helping transform South Korea into a respected powerhouse of technological production, the chaebols are now increasingly seen as oases of inherited wealth and privilege whose position of dominance and massive competitive advantage are unfair to start-up entrepreneurs and extremely unhealthful for the economy as a whole. That the chaebols have been shown again and again to be infected by immense levels of corruption at the loftiest levels has only further darkened their public image.

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SK Group headquarters, Seoul

So has the staggering degree of impunity enjoyed by the highest-ranking chaebol executives and their families. As we noted in September, “however criminal or incompetent the head of a chaebol may be, he enjoys invulnerability and unaccountability on a scale unheard of in any other developed democracy.” As one South Korean businessman put it: “At companies in advanced countries, a faulty CEO is replaced. But at South Korean conglomerates, the head of a conglomerate wields absolute authority and is not replaced no matter how grievous his mistakes are.”

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CJ Group headquarters, Seoul

One of the matters being investigated in connection with the current scandal is the charge that President Park Geun-hye, in 2013, ordered her then economics secretary to pressure CJ Group (one of the largest chaebols) to fire its chairwoman, Miky Lee Mie Kyung. Lee, the granddaughter of Samsung founder Lee Byung Chul, had apparently angered Park by producing entertainment programming that was “unfavourable to the government.” In a clandestinely recorded conversation, Cho darkly warned CJ Group executive Sohn Kyung Shik “that there would be consequences if the request was not followed.”

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Choi Tae-won

As we’ve seen, prosecutors have been interrogating some of the top guys at the very biggest chaebols. But prosecutors aren’t the only officials who want to talk to the chaebol honchos: on November 21, the ruling and opposition parties in the South Korean parliament agreed to summon the heads of the seven largest chaebols to testify as witnesses in that body’s own investigation of the scandal. Among them is Hyundai chairman Chung Mong-koo, who nine years ago was pardoned by then president Lee Myung-bak after being found guilty of embezzling $100 million to bribe government officials. Another prospective witness is SK Group chairman Choi Tae-won, who three years ago was pardoned by President Park after being found guilty of embezzling over $40 million. These guys, in short, are old hands at being caught with their hands in the till – and then being set free so they could resume their thievery.

Their testimonies are scheduled for the parliament’s first hearing on the scandal, on December 5; eight days later, Choi Soon-sil herself, the woman at the center of the whole shebang, will be questioned at another parliamentary hearing along with other suspected participants. We’ll be sure to keep our readers updated on developments.

Facing the music in South Korea

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Syngman Rhee in 1956

Corruption scandals involving presidents and top-flight business leaders are to South Korea what coq au vin is to France. Vote-rigging allegations drove Syngman Rhee (president from 1948 to 1960) into exile in Hawaii; after they left office, both Chun Doo-Hwan (1980-88) and Roh Tae-Woo (1988-93) were tried and found guilty of mutiny, treason, and bribe-taking; Kim Young-Sam (1993-98) wasn’t jailed for corruption, but his son was; Roh Moo-Hyun (2003-08) was impeached and later committed suicide amidst bribery allegations. And that’s just a sampling.

Now, as we saw yesterday, it’s President Park Geun-hye’s turn to face the music. Choi Soon-sil, her friend of forty years, has already been taken into custody for a scheme, in which both women were involved, to squeeze money out of the huge – and hugely corrupt – conglomerates called chaebols that are at the heart of the country’s economy and that invariably play a big role in every major South Korean financial scandal.

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Park Geun-Hye

In July of last year, according to the charges, Park met individually with the heads of the seven largest chaebols and demanded that they fork over millions to two Choi-run institutions, the Mir Foundartion and the K-Sports Foundation. Park refuses to quit over this affair, but national outrage is mounting steadily, and opposition parties are on track to impeach her. Something’s got to give, and soon.

Naturally, the whole ugly mess has also plunged the chaebols – for what feels like the hundredth time – into yet another calamity of their own making. For them, this crisis comes at an inopportune time. They’ve already endured years of weak domestic sales and low export levels. Now, thanks to the current scandal, the possibility of serious legal consequences looms – and something close to chaos reigns. “Normally,” one leading business figure told the Korea Times, “companies have an idea about what their business plans will be like around this time of the year. But as far as I know, many haven’t even begun drawing up plans yet due to increasing uncertainties.”

Hyundai Motor Chairman Chung Mong-koo attends the company's opening ceremony for the year in Seoul in this January 2, 2012 file photo. South Korea's smartphones and cars may have won global acceptance, but back home Koreans are increasingly disturbed by the influence the chaebol have over their lives. That very public anxiety is coming at a sensitive time for the conglomerates as they prepare the transtion to a third generation of family owners and face a strong, unwelcome, focus of attention in the run-up to 2012's parliamentary election. Hyundai Motor's Chung Mong-koo was sentenced to a three year jail term in 2007 for fraud which was suspended in exchange for community service and a $1 billion charity donation as he was deemed too important to the economy to be jailed. To match Insight KOREA-CHAEBOL/ REUTERS/Kim Hong-Ji/Files
Hyundai Chairman Chung Mong-koo

One after another, the superstars of South Korean business are being called on the carpet. On the weekend of November 12-13, prosecutors interrogated Chung Mong-koo, chair of Hyundai Motor Group, Lotte Group chairman Shin Dong-bin, and Lee Jae-yong, vice chair of Samsung (and next in line to run the whole shop) about their firms’ irregular money transfers to Choi’s foundations. Two days later, as part of a probe of a suspicious payment made by Samsung to a company owned by Choi and her daughter, hard drives and financial records were confiscated in a raid on the offices of Samsung’s advertising unit, Cheil Worldwide. It now appears that Samsung (which makes up a whopping 17% of the South Korean economy) donated a total of over $15 million to Choi’s foundations, in addition to which it reportedly offered no less than $3.1 million to pay for Choi’s daughter’s equestrian training in Germany. Yes, you read that right: $3.1 million for one person’s equestrian training.

This is, as it happens, precisely the kind of royal extravagance that has turned so many South Koreans against the self-indulgent excesses of their political and corporate elite. More on that tomorrow.

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Park Chung-hee

It wasn’t much more than a couple of months ago that we took a gander at South Korea’s chaebols, the massive firms – such as Samsung and Hyundai – that make up a huge portion of that country’s economy and that have been at the center of one scandal after another, in which top politicians have been accused of taking huge sums from the giant companies in exchange for monopolies, patents, tax breaks, and the like.

This practice, known as rent sharing, became established during the dictatorship of Park Chung-hee (1963-79), and has continued into the country’s democratic era. Presidents Roh Tae Woo (1988-92) and Kim Dae-Jung (1998-2002) were both found guilty of taking chaebol cash; President Roh Moo-hyun (2003-08) responded to allegations of accepting chaebol bribes by jumping to his death in a ravine.

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Park Geun-hye

Now South Korea is embroiled in what may be the biggest chaebol scandal yet. In a case that began to make headlines just last month, President Park Geun-hye, the daughter of Park Chung-hee, has been accused of helping a longtime friend, Choi Soon-sil, extort some $69 million from several of the chaebols and letting her receive classified documents. On November 1, Choi was taken into custody by police.

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Seoul protest against Park

Members of Park’s own party have called for her impeachment; countless people have taken part in demonstrations around the country demanding her resignation or arrest; over half a million gathered in Seoul this past Saturday in the largest protest the country has experienced since the end of authoritarian government in 1987.

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Choi Soon-sil

The corruption scheme began when a South Korean TV network, JTBC, reported that Choi had improperly received secret government documents via e-mail. Choi, who is said to have received the above-mentioned $69 million through two foundations she controls, is widely viewed as the real power behind the president, who has been in office since 2013; editorial cartoons have depicted her as Park’s puppet master. Prior to her arrest, Choi apologized for having “committed a deadly sin” and asked the public for its forgiveness.

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Park Chung-hee (left) meeting with Choi Tae-min

Choi and Park go back a long way: Choi’s father, Choi Tae-min, was a shady character and ecclesiastical huckster (the New York Times has called him a “religious charlatan”) who, in addition to founding a marginal sect called the Church of Eternal Life, managed to wangle his way into the role of close friend and adviser to Park’s father.

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The Blue House

Like father, like daughter: the younger Choi not only succeeded her father as head of his daffy church; she also wields a great deal of power in the Blue House, the South Korean equivalent of the White House, even though she holds no official title. For years, according to CNN, Choi “has given Park spiritual guidance.” She’s seen, in fact, as something of a Rasputin, who’s dragged into the presidential orbit a load of astrological hogwash and mystical hocus-pocus.

On Sunday, lead prosecutor Lee Young-ryol said that he would investigate President Park, whom he called an “accomplice” of Choi’s in the scandal and who has so far refused to be interrogated by police. (Park now becomes the first South Korean president to be criminally investigated while still in office.) Lee also announced that he had indicted Choi on charges of extortion and abuse of power and had charged two former Park aides with pressuring firms to donate to Choi’s foundations and handing her classified documents.

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Hwang Kyo-ahn

Fortunately for Park – who has already dismissed ten senior policy aides, several cabinet members, and the prime minister, Hwang Kyo-ahn – she’s protected by the Constitution from prosecution (except in cases of treason and insurrection) as long as she stays in office. But her approval rating is at a miserable 5%, and things are changing quickly as the investigation passes into the hands of a parliament-appointed special prosecutor. If she gets impeached, she may go straight from the Blue House to the Big House.

Meanwhile, of course, all this has shaken up several of the chaebols, whose leaders have been questioned by the police. We’ll get to that tomorrow.

Revising his life: Howard Fast

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Howard Fast

After leaving the Communist Party in 1957, writer Howard Fast went on to even greater professional success. The 1960 film version of his novel Spartacus was a huge hit and remains a classic. He wrote a series of highly popular historical novels. Even after he left the Party, his work continued to be shot through with heavy-handed politics. He wrote a draft screenplay for Spartacus, but Kirk Douglas, the star and producer, rejected it, calling it “a disaster, unusable” because “[i]t was just characters spouting ideas.”

Fast also published not one but two accounts of his involvement with Communism. What is striking are the differences between the two books. In his 1957 Saturday Review piece he had written that while the U.S. was not perfect, “it is a land where the individual, in his work and in his rights, is recognized and defended”; the Communist Party however, was “a prison for man’s best and boldest dreams.”

godIn his book The Naked God: The Writer and the Communist Party, published the same year, Fast continued to take this line, describing Communism as being rooted in “naked terror, awful brutality, and frightening ignorance” and saying that Communists had sold their souls when they joined the Party. Thirty-three years later, however, he wrote another book, Being Red, in which – to quote a review by Gerald Meyer – he covered “much of the same material, but from a very different perspective and for a very different purpose.”

red1That’s putting it mildly. As Meyer himself put it, “Being Red describes Fast’s membership in the Party as the best years of his life.” Dropping The Naked God down the memory hole, Fast “insisted that the Party was not dominated by the Soviet Union,” praised the USSR for having vanquished Hitler and saved “three million Polish and Ukrainian Jews,” maintained that the Daily Worker “never compromised with the truth as it saw the truth,” and resumed saying, as he had during his Party days, that he and his fellow Reds were “priests in the brotherhood of man” and members of “the company of the good.” Meyer summed it up this way: “Without ever mentioning The Naked God, in Being Red Fast refuted the damning criticisms of the Party he made in the earlier memoir.” He even made up at least one story out of whole cloth. (This was far from the only lie he told about his career in later years. At one point he even claimed that Ronald Reagan had applied to join the CPUSA in 1938 but had been rejected as “too stupid” – a tale that was sheer invention.) Significantly, the list of “Books by Howard Fast” in the front of Being Red omitted The Naked God. “Clearly,” wrote Meyer, “The Naked God is something Fast wanted to forget, and amazingly the reviewers of Being Red have allowed it to be forgotten.”

Why did Fast revise the story of his life? Meyer got it right: he was 85 (he would die three years later) and “wanted to be remembered as a man of the Left.” While The Naked God had been a good career move in 1957, enabling him to resuscitate his career as a mainstream novelist, Being Red was an equally good career move in 1990, when the most honorable items a writer could have on his CV, in the eyes of the literary establishment, were a stint in the CPUSA and a period on the Hollywood blacklist. Historian Ron Capshaw’s summation seems fair enough: “Howard Fast, among the writers attracted to communism, emerges as the worst example for the CPUSA: simultaneously dupe and careerist, a propaganda merchant and a groupie.”

Embodying orthodoxy: Howard Fast and the Party

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Howard Fast

The 1957 Saturday Review article in which novelist Howard Fast recounted his history in the Communist Party – and declared his resignation therefrom – provided an illuminating look behind the scenes of an ugly system that thrived on useful stoogery.

For example, Fast recalled a New York conference at which the American author Mary McCarthy asked a high-profile Soviet author, Alexander Fadayev, what had happened to a number of Soviet writers whom they carefully named,” in reply to which Fadayev

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Mary McCarthy

not only gave his solemn word as a Soviet citizen that all of the named writers were alive and well, but…brilliantly ticked off the titles and description of the work that each particular writer was engaged upon. He told where they lived, when he had seen them, and even repeated details of their merry reaction to the “capitalist slander” that they were being persecuted. So smooth and ready was his rejoinder, so rich was the substance of his quickly supplied background, that one might well credit him with more creative imagination than he had ever shown in his own books. As chairman of the panel, I was quite naturally provoked that Miss McCarthy and her friends should so embarrass this fine and distinguished guest. His conviction and meticulous sincerity were above suspicion, and I think, if I remember correctly, that not only myself but Miss McCarthy and her friends were at least in some measure convinced that he spoke the truth. Like myself, how could they possibly have believed that a man would create such a monstrous and detailed lie and expect it to hold water?

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Alexander Fadayev

Yet Fast later learned that every last one of the writers McCarthy had asked about had, in fact, at the time of that New York conference, been “either dead from the torture chambers of the secret police or by firing squads, or lying in prison being tortured and beaten.” Fast had imagined that a respected writer like Fadayev was constitutionally incapable of telling such a massive lie, especially about such a serious matter as the well-being (or not) of his own literary colleagues; but in reality Fadayev had been a bald-faced liar, a thoroughly obedient tool of the Kremlin – ready, willing, and able to serve up utter fabrications in the service of a monstrous tyranny.

Fast admitted that he himself had been capable of doing this sort of thing:

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Albert Maltz

When Albert Maltz, in 1946, sent to the New Masses an article that contained a rather mild criticism of the narrow and sectarian Communist attitude toward literature, he was treated as if he had committed a major crime. I include myself among those who blew up his criticism all out of proportion to its intent – a matter for which I have never forgiven myself, even though Maltz found it so easy to forgive and forget. Meetings were held. Mike Gold denounced Maltz with passion and language that a civilized person would reserve for pathological criminals. The fact that Albert Maltz was a writer of talent and unshakable integrity meant absolutely nothing.

Recalling this episode, historian Ron Capshaw wrote that Fast wasn’t just one of several people who criticized Maltz – he was, on the contrary, a brutal ringleader, an ideological enforcer out of Central Casting, “the embodiment of orthodoxy” who was “one of the most vicious of [John Howard] Lawson’s minions” (Lawson being the screenwriter who ran the Party’s Hollywood branch). To quote Capshaw, Fast “pounced” on Maltz.

More tomorrow.

Leaving the Party: Howard Fast

Portrait of American author Howard Fast (1914 - 2003), 1962. (Photo by Fred Stein Archive/Archive Photos/Getty Images)
Howard Fast

We’ve seen how novelist Howard Fast was supposedly disillusioned by Nikita Khrushchev’s “secret speech” about the evil deeds of Fast’s longtime hero, Josef Stalin. In a 1957 essay for Saturday Review, Fast publicly declared that he’d left the Communist Party. (He wasn’t alone: a large majority of American Communists quit in the wake of Khrushchev’s revelations and the Soviet invasion of Hungary, also in 1956.)

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Josef Stalin

That essay is a curious piece of work. On the one hand, he professed to be stunned by the reality of Stalin’s terror. On the other hand, he goes on to describe, with a novelist’s flair, the reality of life inside the Party, of which he had been a member for thirteen years. It is not a pretty picture. It is a grim portrait of a life made up of meetings with shifty, slimy, barely human characters – men and women who spouted dogma like robots, who feared original thinking “as the devil himself,” who bowed and scraped to their superiors, who systematically intimidate their inferiors, and who routinely listened for the slightest possible deviation from Party orthodoxy by their fellow members so that they could then set about denouncing them, humiliating them, and driving them from the fold.

The Party described by Fast was also populated by people utterly lacking in artistic taste or cultural sophistication – which was all to the good, from a Communist perspective, for art and culture, unless entirely devoted to promoting the Party, are anathema. It was also a fount of hypocrisy: Fast remembered a lunch meeting with the Romanian ambassador to the U.S., who was appalled when Fast and his colleagues from a Communist magazine, Mainstream, suggested that, in line with Communist doctrines of equality, the ambassador’s chauffeur be invited to join them at table. Moreover, the Party was a hive of envy: while Stalin and his henchmen in the Kremlin celebrated Fast, the local CPUSA hacks in New York saw him as an underling who was too big for his britches.

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A 1945 front page of the Daily Worker, edited at the time by Howard Fast

Fast maintained that he had never in his life experienced outside of the Party the kind of consistently repulsive behavior he had experienced and observed inside it. “Not even the warden of the Federal prison where I served a sentence as a political prisoner years later,” he wrote, “ever treated me or anyone else with such inhuman disdain and contempt.”

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Nikita Khrushchev

It’s all very interesting. But also deeply puzzling. For by the time the Times published Khrushchev’s speech, Fast had been a member of the Party for a full thirteen years. He had long since noticed all the unpleasant things about the Party that he would detail in his Saturday Review piece. How, then, could he have been surprised, as he claimed to be, by the revelations contained in Khrushchev’s speech? Since he already knew how far short the Party fell of what it professed to be, why did it take Khrushchev’s speech to make him leave? Wouldn’t it have made more sense, on the contrary, if Fast, aware as he was of the corruption and cynicism of the Party, had welcomed Khrushchev’s speech as a breath of fresh air and as a reason to hope that, with Nikita rather than Uncle Joe at the helm, the whole operation might actually reform itself into something that actually was dedicated to brotherhood and all that? And in that case, why didn’t the Khrushchev speech cause him to rededicate himself to the Party rather than to leave it?

A master propagandist

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Howard Fast

As we saw yesterday, joining the Communist Party was a great career move for the novelist Howard Fast. He became a superstar behind the Iron Curtain and acquired influential comrades in the highest cultural and intellectual circles in the West. He hobnobbed with other members of the Red elite – French Communist author Louis Aragon, Chilean Communist Pablo Neruda. When Soviet writers came to the U.S., he played host to them; when he visited Paris, he was granted an audience with fellow Party superstar Pablo Picasso, who “kissed him on the mouth and offered him any painting he chose.”

Meanwhile, Fast lent his talents to the cause. He wrote pamphlets at the Party’s direction. He edited the American Communist Party’s house organ, the Daily Worker, from 1952 to 1954. He ran for Congress in 1952 on the American Labor ticket.

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Pablo Picasso

But his main contribution to Communism was this. He was a historical novelist whose novels revised history – especially American history – by consistently viewing it through a red-tinted lens. To quote Gerald Mayer, he “refitted the genre of the historical novel to the requirements of Popular Front culture.” Which is another way of saying that he was a master propagandist, distorting events of the past to make it look as if they were all about class struggle. As historian Ron Capshaw has put it, Fast “inserted the class struggle into U.S. history by filtering Tom Paine, slavery, Reconstruction, and Indian reservations through a radical lens. He did the same for figures in Western history including Moses and, most famously, Spartacus, the Thracian gladiator and slave of the Romans.”

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Dashiell Hammett

In all these writings, according to Capshaw, Fast eagerly complied “with the directives of the Party to blue-pencil any ideologically incorrect sentiments (such as suggesting that a capitalist character could have any humane qualities).” Even Dashiell Hammett, whom Capshaw calls “one of the most obedient of Marxists,” despised Fast’s fiction, accusing him of “oversimplifying to death” his themes, more in the manner of a propagandist than of a literary artist. But the bottom line is that Fast’s fiction represented an invaluable service to the CPUSA, whose General Secretary, Earl Browder, believed that such efforts on the cultural front were vital if Communism hoped to win the hearts and minds of middle America.

Fast hit a bump after the war. Summoned by the House Un-American Activities Committee to talk about his Communist activities, he was imprisoned for three months for refusing to provide HUAC with the records of a Party front called the Joint Anti-Fascist Refugee Committee. But according to Capshaw, Fast “ruined, with his self-serving egoism, any chance for fellow communists to admire his fortitude. His depiction of his time in prison was so Christ-like that Dashiell Hammett (who also went to prison for refusing to betray his comrades) accused him of trying to wear a ‘crown of thorns.’” In any event Fast’s prison term was only a blip in his success within the Party, which was capped by his winning of the Stalin Peace Prize in 1954.

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Nikita Khrushchev

Two years later, however, everything changed. Stalin had died in 1953, and on June 5, 1956, the New York Times published the text of the so-called “secret speech” by his successor, Nikita Khrushchev. In the speech, Khrushchev acknowledged Stalin’s reign of terror, described it in horrific detail, and condemned it utterly. A year later, in an article for the Saturday Review, Fast would recount what supposedly happened the next morning at the offices of the Daily Worker, where the question of the day was whether to print the speech or not. Fast and his colleagues, he maintained, were all shell-shocked. They had sacrificed “brilliant careers” to fight for “brotherhood and justice.” And yet now they knew they had hitched their wagons to an evil monster who, if given the opportunity, would likely have executed all of them.