Big business and corruption in South Korea

Challenging the chaebol

In 2015, South Korean construction tycoon Sun Wan-jong was found hanging from a tree. His suicide note contained a list of eight politicians who had received bribes from him, including Lee Wan-koo (the then Prime Minister), the then President Park Geun-hye’s chief of staff, her two previous chiefs of staff, and the manager of her successful 2012 election campaign. Prime Minister Lee resigned the same month – and in 2016, was prosecuted for accepting bribes from Sun.

A far bigger scandal went on to engulf President Park last year, and corruption was again centre stage.

In 2016 South Korean media outlets reported that Choi Soon-sil, the daughter of a shaman-esque cult leader with no official government role, had access to secret state information through an extraordinarily close relationship with the President. As the story unfolded, a tragic narrative emerged, stretching back to troubling times in South Korea’s history. Park Geun-hye’s father was President Park Chung-hee, the country’s authoritarian leader between 1961 and 1979. Her mother, Yuk Young-soo, was assassinated in 1974 by a North Korean sympathiser. As Geun-hye grieved for her mother, the cult leader Choi Tai-min told her he could channel communication to the recently assassinated First Lady. Tai-min was close to Geun-hye until he died in 1994, after which she depended even more on his daughter Choi Soon-sil.

Geun-hye

Geun-hye was by all accounts a lonely woman: after her parents were both assassinated (her father was murdered in 1980 by the head of South Korea’s intelligence agency), she never married, and was estranged from both of her siblings. After Park ascended to South Korea’s highest office in 2013, Choi’s influence over her remained. Choi made decisions for the President on everything from how to deal with North Korea to what clothes to wear. The two now stand accused of colluding to extort tens millions of dollars in bribes from South Korean companies.

This came to worldwide attention thanks to a puppy. Choi had a “toy boy” lover whom she instructed to look after her daughter’s puppy, only for him to go off to play golf, leaving it alone. This led to a raging argument which prompted the lover to collect evidence against Choi and feed it to journalists. Protests erupted throughout South Korea. In December 2016, the legislature voted to impeach Park. In March 2017, the Constitutional Court upheld the vote, forcing her from office. She was arrested the same month, and is currently on trial for 18 charges of corruption and abuse of power. The charges include allegations that Park colluded with Choi to force 53 South Korean companies to give over $69 million to organisations controlled by Choi. The former resident of the Blue House, South Korea’s grand Presidential home—first as her father’s child, then as her country’s first woman head of state—was marched handcuffed into court with a badge indicating her prison number, 503. If found guilty, she could stay in prison for the rest of her life.

Lee Jae-yong

Lee Jae-yong, the de facto head of Samsung, was also indicted. The court accuses him of paying approximately $36 million in bribes to Choi in order to win the government’s support for a deal merging two Samsung affiliates in 2015. Eight other leaders of chaebol (big South Korean conglomerates such as Samsung, tightly controlled by individual families), including the head of Lotte—one of South Korea’s biggest companies, with a portfolio ranging from food processing to financial services—stand accused of corruption. As a New York Times report puts it, during the protests against Park “outrage […] turned to broader concerns about the political system: the power of the presidency, and its symbiotic relationship with the chaebol, the family-controlled conglomerates like Samsung that dominate the economy.” The same report emphasises that the protestors were chanting “Chaebol are accomplices!” while “carrying effigies of their leaders dressed in blue prison uniforms.”

This has its roots in the nature of South Korea’s rapid economic development in the ’60s and ’70s under Park Chung-hee. From this time on, “the relationship between corporations and the state has been very dependent,” says John Nilsson-Wright, South Korea expert at London-based think-tank Chatham House, in an interview with KYC360. “President Park [Chung-hee] used his political authoritarian rule as a means of putting pressure on corporate South Korea to fall into step with his developmental strategy—which was very dirigiste—so you had the basis of a dependent relationship between politicians and businessmen from that moment.”

“As the chaebol of course became more successful […] that relationship became much more influenced by money and it became quite commonplace for companies to provide financial incentives to the state and to individual leaders in order to privilege their own position.” Meanwhile, “the concentration of economic power in a handful of companies with family ties of course has meant that there hasn’t been lots of economic transparency.”

The Park Chung-hee paradigm

The Park Chung-hee paradigm—of sprawling family-controlled companies bolstered by strong state support—has been tremendously successful. South Korea was a largely agrarian, economically backward nation when the elder President Park took office in 1963. It was one of the poorest countries in the world. Its economy even lagged behind the communist dictatorship on its Northern border. Then, within one generation, South Korea attained the 11^th highest GDP in the world.

Corruption is effectively a by-product of the success of Park Chung-hee’s development strategy for South Korea. With sectors encompassing the whole economy under the control of just a few families, it was easy for President Park Chung-hee to strong-arm them into following his agenda—a restless push to consistently produce and invest more, force their products into developed markets and export the country’s way to growth.

President Moon Jae-in

That role of the chaebol in South Korea’s rapid growth explains why, for the country’s new President Moon Jae-in, dealing with the underlying causes of corruption will not be easy. But he has started on the right foot. A key policy in Moon’s platform in this year’s elections was increasing the power of minority shareholders in electing chaebol board members. The families who founded and run these businesses generally also maintain majority stakes, which they use to exert leverage over the management of the whole business. Diminishing this power by enhancing that of smaller investors—many of whom are foreigners from countries with more aggressive prosecutorial approaches to corruption—is crucial for cleaning up the chaebol.

So far, Moon has not introduced a significant piece of legislation to tackle corruption (in part because he has been preoccupied with foreign policy—specifically, the increasingly aggressive and potentially nuclear threat to the north). But other circumstances might make it easier for Moon to uproot the authoritarian-inflected economic model that gave rise to corruption in the chaebol. Growth has slowed in South Korea of late. In order to get the economy back on track, a climate of fostering innovation is needed. A less dirigiste, more free-market model will help with this. For that to come about there must be less conformity in businesses—with employees calling out problems and putting forward their own ideas.

Moon should look at ways to encourage this, and should impose harsh penalties on companies that retaliate against whisteblowers. He should also set up a national anti-corruption ombudsman, led by a respected figure from the country’s robustly independent judiciary. Tough penalties on gift-giving for could also be imposed—even low-level gift-giving, such as the common practice of giving small amounts of money to one’s children’s teachers in order to secure slightly higher grades for them. This would help impress an anti-corruption culture in South Korean society from the bottom up. Finally, the fight against corruption requires the government to rein in support for the chaebol, letting them compete with the disruptive innovation of start-ups.

Changing a country’s economic and business culture is difficult in all circumstances. And corruption can never be eradicated completely—it is an inherent part of economic activity that exists, to some extent, in every country. But in an atmosphere of continued public anger at the old way of doings things, Moon has an invaluable opportunity to move South Korea away from the modes of behaviour that brought down his predecessor.

Tom Wheeldon is a freelance journalist and political commentator at Radio France Internationale.