As we’ve observed over and over again
in recent weeks at this site, the current conflicts over the
pro-liberty protesters in Hong Kong – and over the growing
arrogance of China generally in its relations with the free world –
have separated the sheep from the goats. Here are a couple of stories
we haven’t covered yet.
Quentin Tarantino
To begin with, there’s Quentin
Tarantino. We’ve criticized the brilliant, eccentric
writer-director on this site, but it’s important to give credit
where credit is due. His new Brad Pitt-Leonardo di Caprio vehicle,
Once upon a Time in Hollywood, has been generating
even more buzz than his pictures usually do, and looks like it has a
fair chance to pick up a few statuettes at Oscar time. But there’s
been one problem: the bigwigs in China, a top market for Hollywood
films these days, insisted that he make certain cuts before they
would allow the movie to be released there. To be sure, when Beijing
objected to scenes of violence and nudity in one of his previous
works, Django Unchained, he did agree to clip out a few of the
scenes that bothered them. But this time Tarantino – who has rights
to final cut – responded to their demands with a firm no.
Michael Chan
Then there’s Canadian politician
Michael Chan, a former minister of immigration and international
trade in the government of Ontario who now sits on the board of
governors of Seneca College. He’s come out firmly against the Hong
Kong protest, echoing
Beijing’s spurious claims that they’re the work of dark “foreign
forces” that are interfering in Hong Kong’s affairs and out to
make trouble for China. “I have been thinking, why are these young
people so radical, so passionate [and] committed to do these things?
And why so many people?” Chan said. “If there is no deeply hidden
organization in this, or deeply hidden push from the outside, there
is no way that such large-scale turmoil would happen in Hong Kong in
a few months.”
Chan’s career history is far from
irrelevant here. When he was in government, according to the Globe
and Mail, Canadian intelligence was seriously concerned about the
closeness of his relationship with Chinese consular officials in
Toronto and privately warned higher-ups about Chan’s “conduct and
the risk of foreign influence.” The Globe and Mail quoted
Gloria Fung, president of a group called Canada-Hong Kong Link, as
saying that Chan is clearly “not using Canadian values nor the
universal values of Western democracies in making all these comments.
Rather, he abides by the values of the Chinese Communist Party.”
Yesterday we began looking at the chaebols, the family-controlled conglomerates that dominate the South Korean business world. Here’s a quick overview of three of the very largest chaebols. See if you notice any running themes:
Lee Kun-hee
Samsung – the largest of all the chaebols, making up no less than 17% of the South Korean economy – is chaired by Lee Kun-hee, son of the firm’s founder. Lee resigned in 2008 after being caught with a secret slush fund that he used to bribe government officials, but was pardoned by President Lee Myung-bak and promptly resumed his chairmanship. He continues to stay in office despite a book, published in 2010, that describes in detail how he stole about $9 billion of Samsung’s money.
Chung Mong-koo
Hyundai is another of the so-called “Big Four” chaebols. Its chairman, Chung Mong-koo, son of the firm’s founder, was convicted in 2007 of embezzling $100 million to bribe government officials, but he was pardoned by Lee Myung-bak and remained in office.
Choi Tae-won
Yet another one of the “Big Four,” SK Group, is chaired by Choi Tae-won, son of the group’s founder. In 2013, Choi was found guilty of embezzling over $40 million and sentenced to four years behind bars, but was pardoned by President Park Geun-hye and still runs the company.
South Koreans have – to put it mildly – mixed feelings about the families that run the chaebols. They still respect the firms’ very elderly or (mostly) deceased founders who made South Korea rich; but they increasingly resent the outrageous sense of privilege enjoyed by those founders’ children and (especially) grandchildren – who are widely resented for their unearned wealth, their princely airs, their thoroughgoing corruption, and the impunity they enjoy no matter how massive their crimes.
Koo Bon-moo, CEO of LG
The simple fact is that pretty much everybody in the South Korean government is on the chaebols’ payrolls – or wants to be. And the growing popular resentment of this grand corruption is an extremely good sign. It tells us that a people who, not so long ago, were comfortable with a degree of authoritarianism are now impatient for more democracy. People who were accustomed to class division want more equal opportunity. Though grateful to the chaebols for their contribution to South Korea’s development, they’re not happy that those chaebols have developed into arrogant aristocratic dynasties, that they use their wealth to buy off public officials, and that their domination of the economy is impeding further development.
South Korean President Lee Myung-bak
How do they impede development? Well, for one thing, they make it extremely tough for aspiring entrepreneurs to make a go of it. “It’s almost impossible for a small Korean business to take on a chaebol subsidiary – and everything is a chaebol subsidiary,” wrote one observer in 2013. The chaebols’ dominance, reported the Toronto Globe and Mail last year, “is now suffocating the country’s attempt to shift gears and foster a more innovative services-oriented economy powered by small businesses.”
Former South Korean president Roh Tae-woo
Note well: what we’re talking about here isn’t ordinary crony capitalism or the kind of revolving-door system whereby state officials often go on to become corporate execs. And vice-versa. No, it’s more as if the chaebols are a separate, permanent branch of government, whose political sway is founded partly on decades-long personal ties (Choi Tae-won’s wife is the daughter of former President Roh Tae-woo), partly on those vast slush funds that they use to grease officials’ palms, and partly on everyone’s keen awareness that the country’s fate is inextricably tied to that of the chaebols, the top ten of which account for fully 80% of South Korea’s GDP.
Entrepreneur Ahn Cheol-soo
Simply put: at times it can be hard to know where the elected South Korean government ends and the unelected government of the chaebols begins. Not only do the chaebol kings hold sway over elected officials; they also wield extraordinary power over their mid- to lower-level employees – who have little leverage at contract time, because there’s not really anyplace else for them to go. (Chaebols, according to software start-up founder Ahn Cheol-soo, treat workers like “caged animals in a zoo”.) Operating in a mind-boggling range of sectors – Samsung has its fingers in everything from financial services to shipbuilding – they have the reach and resources to effortlessly crush fledgling would-be competitors in any of them.
A graph showing Samsung’s shareholder structure
Last but not least – and this is one bizarre detail that must certainly be unique to South Korea – not even the chaebols’ boards of directors can stand up to the hegemony of the family dynasties, even if the directors hold large stakes in the firms and the latter own almost no stock at all. Indeed, a 2012 study found that eight chaebol chairmen weren’t even on their firms’ boards, meaning that they exercised enormous power without shouldering a concomitant amount of responsibility.
What this means, in practice, is that 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 business journal has 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.” Or how horrendous his crimes.
A family tree showing the descendants of Samsung founder Lee Byung Chul, color-coding their involvement in different subsidiaries and their intermarriage with members of other chaebol families
No, the situation south of the DMZ isn’t remotely comparable to that in Kim Jong-un’s Hermit Kingdom. But, thanks to the chaebols, South Korea’s business community is characterized by a thuggishness, a creepiness, a crookedness, of which the outside world is almost entirely unaware. And those who continue to prop all this up – either out of some misguided sense of loyalty to dead or dying national idols, or out of sheer personal self-interest – are, quite simply, stooges, aiding and abetting a corrupt system that’s actively preventing the emergence of an even freer, more equitable, and more prosperous South Korea.
Corruption takes a variety of forms. In Brazil, as we’ve seen, innumerable politicians have grown rich by ripping off the state-owned oil firm, Petrobras. In neighboring Argentina, a gang of Kirchner cronies diverted billions from infrastructure projects into private offshore accounts. In Gabon, President Bongo plays it simple: he treats the national treasury as his own piggy bank and buys himself mansions, yachts, limos, and planes while the average Gabonese citizen scrapes by on $12 a day.
Seoul
Then there’s Korea. Not Kim Jong-un’s Hermit Kingdom, which is undoubtedly the most totalitarian corner of the planet. No, today we’re talking about South Korea.
“South Korea?” you ask. “Benign, prosperous, democratic, free-market South Korea, America’s steadfast ally and Ground Zero for the East Asian economic miracle? How corrupt can South Korea be?”
Samsung headquarters
This corrupt. In South Korea, as it happens, the power structure consists of two intimately interlocking parts: on the one hand, the president and other duly elected government leaders; on the other hand, a small number of huge family-run conglomerates that are uniquely South Korean in their origins, configuration, and societal significance, that have not been elected to anything by anybody, and that are, in effect, themselves the corporate equivalent of dictatorships.
These companies – among them such world-famous enterprises as Samsung, Hyundai, and LP – are known as chaebols, from the Korean words for wealth (chae) and clan (bol). They function like no other companies in the world.
Samsung chairman Lee Kun-hee was Fortune Korea’s CEO of the Decade
“In English-speaking countries,” explains a Seoul professor of public administration, “there really are no business groups, but singular companies that own [their] subsidiaries 100 percent. In Europe, conglomerates are never as big as the chaebols and ownership and management [are] usually strictly divided.” A chaebol, by contrast, consists of “multiple companies with robust internal transactions, all controlled by a single, near all-powerful chairman that act[s] as both manager and the de facto owner of the entire enterprise.”
It’s no exaggeration to say that the chaebols made South Korea. Over the last half century, they led the way in turning a poor agricultural backwater into an international technology center and economic powerhouse. In the process, they assumed a role in South Korean society that can be hard to explain to outsiders. The members of the families that run the chaebols are national celebrities; the companies themselves are mighty, majestic, nearly mythical colossi, looming above the everyday world of ordinary citizens in such a way that their very names almost carry a touch of magic.
SK Group headquarters
Look at it this way: elected officials are mere mortals who come and go; the chaebol clans, like so many royal families, stay on forever, never yielding power or stepping down from Olympus.
As Iain Marlow wrote last year in the Toronto Globe and Mail, “all South Korean mothers dream of their children working at chaebol companies.” And yet even those mothers realize that the chaebols – which a generation ago were universally revered for having effected South Korea’s miraculous transformation – now pose a threat to their country’s continued growth, to its people’s economic and political freedom, and to its attempts to achieve full legitimacy and recognition on the world stage.
They realize, indeed, that these conglomerates that liberated them from poverty now – in a very real sense – are enshackling them.
How so? We’ll get around to the fascinating details tomorrow.
