Why heads of Korea’s chaebol ate tteokbokki with Yoon

Posted on : 2023-12-13 17:08 KST Modified on : 2023-12-13 17:08 KST
A cozy relationship between political power and the corporate sector basically involves “give and take” — but what did Korea’s chaebol take in this equation?
President Yoon Suk-yeol of South Korea (fourth from left) eats tteokbokki with business bigwigs at a market in Busan on Dec. 6. From left to right: SK Group Executive Vice Chairperson Chey Jae-won, Samsung Electronics Executive Chairperson Lee Jae-yong, Hyosung Group Chairperson Cho Hyun-joon, Yoon, LG Group Chairperson Koo Kwang-mo, Hanwha Group Vice Chairperson Kim Dong-kwan and HD Hyundai Group Vice Chairperson Chung Ki-sun. (Yonhap)
President Yoon Suk-yeol of South Korea (fourth from left) eats tteokbokki with business bigwigs at a market in Busan on Dec. 6. From left to right: SK Group Executive Vice Chairperson Chey Jae-won, Samsung Electronics Executive Chairperson Lee Jae-yong, Hyosung Group Chairperson Cho Hyun-joon, Yoon, LG Group Chairperson Koo Kwang-mo, Hanwha Group Vice Chairperson Kim Dong-kwan and HD Hyundai Group Vice Chairperson Chung Ki-sun. (Yonhap)

Critics of the ownership structure of South Korea’s chaebol (large family-controlled conglomerates) say that a key issue is the tendency for the owning families (that is, the majority shareholders) to make decisions for their own personal benefit, rather than for the benefit of their companies.

The families that control the chaebol frequently spend company money on themselves. Along with causing inefficient resource distribution, lowering productivity and discounting stock prices, that also can lead to corporate crime.

For such reasons as these, I’ve often criticized the chaebol in the past, but this time, I think I need to take their side.

The behavior of the Yoon Suk-yeol administration and the chaebol during their campaign to promote Busan’s bid to host the World Expo illustrates the worst parts of the cozy relationship between the Korean government and the corporate sector. At the heart of that is the failure to distinguish between public and private resources and the president and his aides’ tendency to mobilize anything and everything for their political purposes, as well as their focus on personal gain and their hierarchical mindset.

That mindset is itself a risk factor in this administration.

A cozy relationship between political power and the corporate sector basically involves “give and take.” The basic formula is for corporations to “give” political donations during the election in exchange for political access to the president and his aides after the election, which can enable them to “take” what they want in terms of winning government contracts and dodging regulations.

A famous example is how the US Federal Trade Commission handled a semi-monopoly case involving Google during the Obama administration.

One of the most memorable instances of government-business collusion in the current century is the 2002 “cash truck incident.” Leading up to the 2002 presidential election, Lee Hoi-chang, a candidate running under the Grand National Party, received a literal truckload full of cash from chaebol connections. Lee accepted millions of dollars in illegal campaign funds.

Another notable incident is the Choi Soon-sil scandal during the Park Geun-hye administration. This was a much more sophisticated and complex form of corruption, with Choi utilizing Park as a political puppet as she administered the state from behind the scenes. To finance her schemes, Choi established non-profit foundations, to which major corporations donated. Choi even took corporate money to finance her daughter’s equestrian career. Choi represented an evolution in government-business collusion.

In that regard, let’s examine the bid for Busan to host the 2030 World Expo.

What did the chaebol give Yoon?

Firstly, what did the chaebol offer? It’s widely known that Yoon placed a high priority on foreign affairs and the Busan expo. This information surely found its way to the chaebol as soon as Yoon formed his transition committee as president-elect. It’s obvious that Yoon was eyeing the expo as a selling point for the 2024 general election. With the presidential election being his sole political experience, the idea of bringing the World Expo to Busan was probably very important on a personal level.

So where does the money come from? Who is the “give” in give and take? In Park’s case, it was Choi Soon-sil. Media reports indicate that the heads of South Korea’s Big 4 conglomerates (Samsung, SK, Hyundai Motor Company and LG) have accompanied Yoon on five of his overseas tours. They accompanied him on his official visits to Switzerland, the United Arab Emirates, Japan, the United States, France and Vietnam. They also accompanied him on his official visits to France and the UK in November. During this Anglo-Franco tour, Yoon attended a state banquet in London on Nov. 21, the UK-Korea Business Forum on Nov. 22 and meetings with delegates from the Bureau International des Expositions (the agency behind the World Expo) in Paris on Nov. 23-24.

Yoon spent over a year promoting Busan as the ideal host for the 2030 World Expo. During that time, delegates from 12 major Korean conglomerates met with delegates from 175 countries, including over 3,000 high-level officials. Chaebol heads or CEOs have personally attended half of the more than 1,600 meetings related to the expo. When considering the “carrots” that Korean firms offered to expo voter nations and other additional funds involved, the amount of cash tied to the expo is probably astronomical. Now, consider the opportunity costs expended by chaebol resources that could have otherwise gone into domestic investments and businesses in an economy that is struggling both internally and on the export front.

Here comes the important bit. What do the chaebol get in return? What is the “take” in give and take? It may sound comedic, but as shameful as it may be to the chaebol, and as tragic as it may be to the average working Korean, the most likely outcome is that the chaebol practically get nothing in return. There is no take.

Aside from the value judgments regarding business-government collusion, the actual structure holding up the collusion is based on the critical assumption that both parties are rational. In short, there needs to be a concrete “take” for every “give.” The entire transaction is based on the presumption that Yoon and his key insiders are prepared to provide something in return for the precious time and resources provided by the chaebol.

Yoon moved with unprecedented speed to apologize to the Korean people after Busan failed to win its bid to host the 2030 World Expo. He said that everything was his fault. Yet only a week later, on Dec. 6, he visited Busan’s Kkangtong Market, where he ate tteokbokki with chaebol heads in what looked like a scene of local thugs flexing their muscle. The purported purpose of the visit was to “console the citizens of Busan.” This reflected just how crass Yoon’s level of thinking is.

His thought process is basically this: “Everyone will see these conglomerate leaders fawn over me, which will inspire respect and admiration for me and my grand foreign policy plans. The chaebol heads do my bidding. When I say jump, they say, ‘how high.’”

One of the president’s roles is to efficiently and effectively allocate and utilize the country’s resources. He needs to use public funds for the right purpose at the right time, and he needs to encourage the efficient allocation of private resources. Yoon has a “Chun Doo-hwan” dictator mentality of utilizing both private and public resources toward achieving his personal political aims. But perhaps the biggest public tragedy of all is that it doesn’t stop there.

The question is whether Yoon differentiates between public and private at all. That’s why seeing third- and fourth-generation chaebol grovel beside him in a Busan market for a photograph to prove their political connections as they navigate corporate successions makes these bigwigs look like a bunch of groupies.

Another interesting point in this farce is how chaebol carry out internal calculations regarding profit and loss. The chaebol have a lot of experience and know-how in business-government collusion. They’ve been practicing it since the Park Chung-hee era. In other words, they’ve already made their calculations and analyses pertaining to Yoon, and have concluded that they ultimately have more to gain than lose by investing in their relationship with his administration. And yet they still tag along obsequiously as he goes to eat tteokbokki.

Typically, the chaebol collude with the government in hopes of relaxing corporate regulations and winning bids for government contracts. Rather than contracts and deregulation that benefit the financial health of their enterprises, the elite among them prioritize regulations that directly impact their personal legal troubles or corporate structures that affect the chaebol’s direct control and ownership. In short, the chaebol prioritize personal gain over maximizing corporate profits.

What can Yoon offer to the chaebol?

Many observers point to chaebol heads looking for favorable rulings in ongoing trials. Samsung Electronics Chairperson Lee Jae-yong is tied up in accusations over meddling in the merger between Samsung C&T and Cheil Industries. SK Group Chairperson Chey Tae-won is currently going through a messy divorce trial.

Key strategists within the conglomerates, however, probably have a different outlook. The political checks and balances that guard the judicial branch’s independence. The relationship between Yoon, a former prosecutor, and the judicial branch. The judicial branch’s recent shift in stances regarding chaebol cases. The discretionary power of individual judges. These factors make it very unclear as to whether Yoon will interfere in judicial processes to extract favorable rulings for chaebol heads.

Chaebol heads have traditionally salivated over the idea of relaxing regulations pertaining to holding companies and the division between banks and corporations. Yet most observers won’t say that Lee Jae-yong is maintaining ties with Yoon to fulfill the dreams of his predecessors by jumping into the banking business. Additionally, impacting legislation and regulations require cooperation from the National Assembly, but it’s unlikely that chaebol strategists are expecting an overwhelming victory by the People Power Party in next year’s general election.

This leaves only one thing: blocking the wave of legal retribution that could fall on future chaebol successors. Effectively, they’re utilizing company funds to pay for personal and family insurance policies. This, right here, is key. The chaebol think the Yoon administration’s machine gun nest is built on the country’s intelligence and inspection agencies, and they’re expecting it to fire indiscriminately in any given direction at any point in time. Business-government collusion in Korea has essentially regressed to the 1980s under the Chun Doo-hwan administration, and the current administration is entirely responsible. The chaebol have simply refined their methods of “giving” in the give and take.

By Lee Chang-min, professor of economics at Hanyang University

Please direct questions or comments to [english@hani.co.kr]

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