Korea has long held the nickname “Republic of Chaebol,” but a recent report on economic concentration supports this satirical moniker with hard facts and figures

2014-01-14 17:18

Widening economic gap

Korea has long held the nickname “Republic of Chaebol,” but a recent report on economic concentration supports this satirical moniker with hard facts and figures.
In the report, CEO Score, a local corporate consultant, said the combined sale of the nation’s two largest family-controlled conglomerates ― Samsung and Hyundai ― is equivalent to 35 percent of the nation’s gross domestic product. The aggregate market value of their affiliates also account for 37 percent of all companies listed on the local bourses.  Comparing corporate sales to national GDP has of course some technical problems, but such an attempt may be helpful for understanding the ever widening economic gap between chaebol and the rest of the economy, and even among chaebol ― between the big 10 and smaller ones.
In a worst-case scenario, a sales slump for Samsung’s mobile phones caused by a market glut or rapid chase of Chinese rivals, or Hyundai cars being pushed to the sidelines by Japanese vehicles armed with new, competitive price tags, could deal a serious blow to the overall economy ― just as Nokia’s fall impacted the Finnish economy.
Something must be done, and quickly, to reduce “chaebol risks,” most economic experts say in unison. But they differ on how, depending on whose interests they represent more.
Egalitarian economists stress the need to curb the unchecked power of chaebol, and developing small- and medium-sized enterprises and venture firms, while shifting the focus of economic policy from export to domestic demand and from manufacturing to services. Their counterparts in the free-market camp, on the other hand, call for creating a second Samsung Electronics or Hyundai Motor, as national champions which can vie with multinational rivals in global markets.
Any Koreans who feel pride when they see the almost ubiquitous advertising for the Samsung Galaxy or the Hyundai Sonata while traveling abroad will hardly agree to weaken the nation’s most famous companies. So it would be best if, and that’s a very, very big if, the nation can do both ― helping enlarge the existing champions while nurturing new ones, too.
Given the limited means of and resources for policy supports, however, a paradigm shift seems inevitable. What’s certain is that Korea cannot create another Samsung or Hyundai if it wants to, under the present situation. It’s noteworthy in this regard that the nation has not even seen the emergence of new chaebol since the 1970s, as shown by the eventual collapses of aspiring chaebol, such as Daewoo, STX, Ungjin and Pantec, indicating how the playground is tilted in favor of existing players.
The government has few other choices but to focus its support on new promising firms and industries to help them grow into new growth engines. Samsung and Hyundai should be left to survive on their own ― whether by developing new products or widening the gap with rivals in the existing markets ― without government support or regulations as long as they observe fair trade laws and rules.
Now is the time to create a new corporate ecosystem in which large and small firms can coprosper.