The verdict is in. Briefly put, 2018 was a bad year for the chaebols. A very bad year.
This news should not come as a big surprise to regular readers of this site.
In recent months, we’ve seen that entrepreneurs in South Korea have become increasingly outspoken in their resentment toward the giant family-run conglomerates, whose massive power enables them to smother competitors in their cradles.
We’ve seen that the chaebols’ continued dominance of the South Korean economy, by preventing the flowering of major new firms, has kept that economy from growing as fast as it used to.
We’ve seen that South Koreans generally are getting more and more tired of the privileged position of chaebol families, one consequence of which is that corruption in their ranks routinely goes unpunished.
Not least, we’ve seen that foreign chaebol stockholders who have begun to challenge the distinctively South Korean policies that deny those stockholders the ability to influence major chaebol decisions, even if they own bigger shares of the companies than the ruling families do.
Now all of these critics of the chaebols have more ammunition to use against the system. On December 27, 2018, it was reported that South Korea’s ten largest chaebols experienced a twenty percent reduction in market value over the course of 2018.
That’s a stunning number, especially given how robustly other Western economies – such as that of the U.S. – performed during the same year.
By the end of 2018, the combined value of the top ten chaebols was $173 billion. All by itself, Samsung, the largest of the chaebols, accounted for half of the loss. One of the companies that make up the Samsung Group, Samsung Electronics, dropped a full 30 percent in value.
But Samsung wasn’t alone in bleeding badly. LG Group lost 21 percent of its value. SK and Hyundai also posted huge losses. Only two major chaebols – Hyundai and GS – had a good year.
Obviously, these lousy results aren’t good news for the legendary families that run the chaebols. On the contrary. They also mean that shareholders in these firms lost a lot of money. And given the central importance of the chaebols to the South Korean economy, these figures will have a negative impact on South Koreans as a whole.
Then again, this isn’t entirely bad news. A dramatically poor showing almost all the way across the chaebol board may well help speed efforts at substantial systematic reform. One South Korean president after another has promised such reform and failed to deliver. The current president, Moon Jae-in, installed a so-called “chaebol sniper” who has proven to be a paper tiger.
Repeatedly, critics of the chaebols have been told that the chaebols are simply too vital to the South Korean economy to justify major overhauls. Break up Samsung? Knock the chaebol dynasties down a peg or two? Impossible! But numbers like the ones we’ve seen here may open up more people in power to the possibility of real change. South Koreans won’t endure too many years of chaebol contraction without accepting – indeed, clamoring for – radical transformation.
In short, 2019 promises to be an interesting year for the chaebols. Stay tuned.