It’s the season for conglomerate-bashing in South Korea. All three of the country’s presidential hopefuls are promising to clip the wings of the country’s powerful ‘chaebols’.
Faced with an outraged public, politicians don’t have much choice. Recent opinion polls show overwhelming support for “economic democratisation.” That’s not an arcane demand in a country where even the popcorn stalls in movie theatres are controlled by the same family that runs the cinema chain.
Yet while it’s important to give small companies and start-ups a fighting chance, the winner of the December 19 presidential race should nevertheless tread cautiously when turning tough talk into action.
At risk are the country’s exports, 70 per cent of which originate from big conglomerates like Samsung and LG. With global demand still weak, this may not be the right time to unleash a full-fledged assault on South Korea’s business landscape: the 1.2 per cent increase in shipments from in October was the first gain in four months.
Of the three candidates, the ruling party’s Park Geun-hye has the least audacious plan. She supports harsher jail terms for errant chaebol bosses, but is ambivalent about re-imposing limits on top chaebols’ investments in affiliate firms. The caps were scrapped in 2009.
By contrast, advisers to independent candidate Ahn Cheol-soo, a successful software entrepreneur, are talking about setting up a presidential chaebol reforms committee. Ahn’s campaign doesn’t rule out forcing conglomerates to undergo “structural reforms” - a euphemism for breaking up the family empires.
Somewhere in the middle is Moon Jae-in, the main opposition candidate. His plan to ban new cross-shareholdings among affiliates – the method families use exercise control with a sliver of their own equity – won’t threaten the status quo. But Moon is also proposing to eliminate existing cross-shareholdings in three years. That could be problematic: Samsung Group has 17 cross-holding structures; Hyundai Motor has three. If families scramble to raise cash in order to retain control, new investments might stall.
With Moon and Ahn deciding to merge their campaigns, the election will become a close, two-way contest. If, in the process, chaebol bashing becomes a more intense game of political brinksmanship, the economy could pay a price.
