By Jaeho Jeon
Most Koreans are interested in two things now. Whether the people involved in the ‘Choi Soon-sil scandal,’ including President Park Geun-hye, Choi Soon-sil, and Lee Jae-yong, vice chairman of Samsung Electronics, will be punished and who will be the next president of South Korea.
The Constitutional Court is scheduled to make a decision on the impeachment of President Park in the middle of March. If the Constitutional Court dismisses the impeachment, President Park can continue her duties until early next year. If the Constitutional Court decides to uphold the impeachment, a presidential election will take place at the end of April or early May.
President Park has already entered the lame-duck phase of her term. Even if the Constitutional Court dismisses impeachment and President Park continues to perform her duties, people will listen more carefully to the remarks of the next presidential candidate than hers.
Currently, the leading presidential candidates are Moon Jae-in, former head of Democratic Party of Korea, and former UN Secretary-General Ban Ki-moon. In addition to these, Lee Jae-myeong, the mayor of Seongnam, Ahn Cheol-soo, the former chairman of the People’s party, Ahn Hee-jung, the governor of Chungnam, and Yoo Seung-min, a member of the new Bareun party, have declared or are expected to run in the presidential race.
The potential presidential candidates have announced a variety of pledges, including on ‘Chaebol reform.’ Moon Jae-in emphasized that he will reform the governance structure of the Chaebols by strengthening the separation of banking and commerce. If the separation of banking and commerce is strictly applied, it will become more difficult for financial companies to own shares in non-financial companies.
For example, Samsung Life Insurance currently owns 7.55 percent of Samsung Electronics’ shares, which is more than Lee Kun-hee’s ownership, 3.5 percent, as well as Lee Jae-yong’s 0.6 percent. If Samsung Life Insurance’s ability to hold shares in Samsung Electronics is reduced or its voting rights are restricted, Lee Jae-Yong may be unable to dominate Samsung Electronics through Samsung Life Insurance.
Ban Ki-moon also insisted that the Chaebol’s family inheritance and the structure of their circular investments should be reviewed. He recently said in an interview with KBS that “In the United States 80 percent of the billionaires are founders, but in Korea 80% of Chaebols are inherited. It gives many people a sense of depression and deprivation.”
Other candidates have also insisted that Korea could continue to grow by reforming the economic structure focused on Chaebols.
Although the presidential candidates say that they will thoroughly reform the Chaebol system, there are not only detriments to the Chaebol system. One of the biggest merits of the Chaebol system is that Chaebol can make bold investment with a focus on long-term growth rather than short-term profits.
In the 1990s, Samsung did not exist in the global market. However, Samsung invested heavily in rechargeable batteries, flash memory, and LCD panels, and is now number one in a variety of fields, including smartphones, TVs, and semiconductors. The reason why Samsung could be in its current position is because it was able to invest for more than 10 years. If Samsung’s shareholders could easily dismiss Lee Kun-hee, he would not have been able to boldly invest in uncertain businesses.
Chaebol reform has been on the agenda before and was one of the main campaign issues in 2012. It has returned as a result of the Choi Soon-sil scandal. The scandal has exposed the shameful, dirty collusion between politics and business. Seeing the Chaebol pay bribes to those in power for their private interest, many Koreans were disappointed with the Chaebol and hope the next government will institute reforms.
It is true that the Chaebol system has many negative effects that have been exposed by the recent scandal. But it is also hard to deny that the Chaebol system led the economic development of Korea. In order to reform the Chaebol, accurate analysis must be undertaken. A half-baked Chaebol reform could poison the Korean economy.
Jaeho Jeon is a reporter at ChosunBiz and a visiting fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.
Photo from Stanley Young’s photostream on flickr Creative Commons.