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Korea's chaebol in the firing line

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COMMENTS

15 June 2012 10:54

John Larkin reported from Asia for more than a decade for the Wall Street Journal and Time Magazine, and is now a writer based in Australia.

Korea's giant conglomerates, the chaebol, have dominated the economic landscape for decades. Nearly a third of Korea's GDP is produced by the top 30 chaebols, and the biggest have interests in virtually every corner of Asia's third-biggest economy, helping propel its rapid growth through the 1970s and 1980s. The likes of Samsung and LG are now global companies with footholds in most markets, including Australia.

Now however, there is growing impatience with the greed of chaebol families and the impact of their dominance on the rest of the economy. A popular new film, 'The Taste of Money' (trailer above), captures public sentiment toward the chaebol by depicting top executives as amoral and corrupt.

The type-casting is justified.

For several years the chaebol have resisted efforts to unwind cross-shareholdings that critics say allow owning families to illegally retain control. Prosecutors are seeking convictions on corruption charges of the heads of SK and Hanwha groups, and Samsung and LG were recently fined for price-fixing of laptop PCs. Chaebols are also accused of monopolising key sectors (Hyundai has 80% of the car market), destroying entrepreneurial capacity by hoovering up the best minds, and squeezing the life out of start-ups and other small businesses. A recent foray by the daughters of chaebol owners into fancy bakeries ended badly when they had to close them down in the face of a public furore.

Many Koreans now want to see real reform of the chaebol, and political parties seem intent on delivering. The opposition Democratic Unity Party has vowed to revive a cap on equity investments by chaebol and crack down on the web of cross-shareholdings that keep affiliates under family control. If an opposition candidate wins the presidential election in December, chaebols can expect unprecedented restrictions, especially as conservatives who control the legislature have pledged similar crackdowns.

Questions remain, however: are the chaebols too powerful to rein in, and if they can be controlled, what are the risks to Korea's economy?

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