The Samsung Group and other chaebols, corporate conglomerates, faced increasing scrutiny this week for their dominance in the South Korean economy and for instances of lack of transparency. Newsjelly, a South Korean data journalism media group, debuted an interactive web application on their website earlier in the week to offer a seemingly balanced discussion of the central role played by the handful of chaebols that have such a dominant role in the Korean economy.
Newsjelly, as it presents the economic history of South Korea’s industrialization, notes the importance of the chaebols to creating the growing industrial economy through close cooperation with the Korean government beginning in the 1960’s. By the 1980’s the chaebols were a dominant force in the Korean economy. Three chaebols, Samsung, Hyundai and LG account for 50% of the GDP today, in comparison with the US where 131 corporations control 50% of its GDP. The sophisticated interactive graphic of the Korean economy uses the visual metaphor of a planetary map to represent the affiliate companies as clusters of differently sized planets that can be dragged around the screen. The graphic has rich animation that introduces a swirling and bouncing quality as a viewer drags elements apart to clarify relationships and view details of percentages of ownership.
The elasticity and flux of this system matches the patterns of repeated restructuring of companies within the Samsung Group during the last year, in part to reduce the dominance of Samsung Electronics, which though highly successful, faces strong competition in the electronics field. Samsung Group offers more details than the other chaebols about the structure of compensation offered directors. Reports from April 7 detailed the scrutiny given to details of salary and bonus compensation for top executives, beyond the issue of huge profits earned by the chaebols.
The Samsung Group and the chaebols have faced scrutiny for their economic dominance, collusion and the lack of transparency. The chaebols now face penalties for price collusion and rigged bids in connection with contracting for construction of Korea’s canal system. The South Korean equivalent of the Fair Trade Commission in the US, levied fines totaling $94 million against engineering and construction companies, some connected to the chaebols.
Between 2009-2011, during the presidency of Lee Myung-bak, construction on the Four Rivers Restoration project with a budget of $17.3 billion, produced similar charges against some of these same companies. Nicknamed the “Bulldozer,” he pushed this “Green New Deal” through General Assembly approval. During the 1970’s and 1980’s, he was chairman and CEO of Hyundai Engineering and Construction (E&C), named in both recent scandals. Hyundai E&C, Daewoo E&C, SK E&C, and Daelim Industrial face fines of more than $9.5 million each. Samsung C&T, Hyundai Amco, Hyundai Development, GS E&C, Dong-A Industrial, Halla E&C and Dongbu have been levied smaller fines. Five senior executives who remain unnamed will face penalties as well. Allegedly these five met at a restaurant in 2009 and discussed bids and the apportioning of work on the project.
The Samsung Group and the chaebols face growing scrutiny for their economic dominance and instances of the lack of transparency. According to Newsjelly, the top 30 chaebols control 90% of Korean GDP. The prevalent practice of Samsung and Hyundai of circular shareholding within the chaebols is forbidden under the recently passed Monopoly Regulation and The Fair Trade Act. In the second half of 2014 these laws will go into effect and produce significant changes in the way chaebols and Samsung Group do business.
Commentary by Lawrence Shapiro