The Korean Economy: The Chaebol Economy

1. INTRODUCTION

The Chaebol Economy

The modern structure of Chaebol groups developed under Park Chung Hee’s authoritarian government. The Park administration modeled Korea’s development after the Japanese zaibatsu. At the early stage of economic development in the 1960s, The Korean government gave the Chaebol groups many incentives ranging from exclusive support and protection, monopolistic access to resources, right to engage in businesses exclusive to the Chaebol and to take risks necessary for rapid industrialization. The Korean Government took a consistent policy which favors the Chaebol group, such as financial assistance, low interest rates, tax benefits, foreign exchange allocations, import and export licenses and incentives for foreign

Many Koreans come to see these massive conglomerates as predators and parasites. One of the key issue raising conflicts in the Korean society is the predatory nature of the Chaebol group. These large firms often pay late, enjoyed unrestrained market power and expansion, which have caused enormous damage to the Korean economy especially in 1997. The predatory nature of Chaebol on the Korean economy also includes excessive and illegal debt financing, boundless expansion of capacity, changing excessively high prices, driving rival firms and small industries out of industry through predatory tactics, persuading government to restrict new entry or open market policies, speculation in real estate and stock market, illegal inheritance or transfer of property. Economic observers suggest that the Chaebol are now thriving to the detriment of other players in the economy- holding profits, increasingly focusing on overseas factories, squeezing domestic suppliers and preventing the growth of small and medium-sized enterprises (SMEs) that employ nearly 90% of South Korean

The competitive nature of South Korean economy has greatly been dependent on the ability of the Chaebols to maximize profits, this been achieved by exploiting cheap labor backed up by the state support. However, Democratic transition of 1987 helped to project the emergence of a strong independent and democratic labor movement in key sectors, including the automobile industry, and therefore became a major issue for both the state and Chaebols. Despite the states activities over the past decades to repress labor, increased labor activism is still viewed as having a direct negative impact on the competitiveness of Chaebols. Since the South Korean industrialists relied on state-supported labor control, they ignored the development of sophisticated labor management (Koo, 2001: 30–33). The effect of the state’s strong pro-capital and anti-labor policies during the authoritarian period has contributed to unstable Industrial Relations even in the democratic era. In short, the state’s influential role in IR and the EOI policy have led to labor’s marginal position in the policy-making process. Since the fall of the authoritarian regime in South Korea, the democratization of 1987 has provided a vital opportunity for workers to organize themselves and improve their own interest and