illegal.
Another significant difference between Korean chaebol and Japan’s pre-World War II zaibatsu is that the Japanese groups had their own banks to arrange financing for them, while the Korean chaebol did not. This made the Korean groups more dependent on the government and therefore more susceptible to pressure from the various agencies and ministries controlling finance, manufacturing, importing, and exporting. One of the results of this difference is that the larger and more successful the Korean companies became, the more independent their decisions and actions.
Like their Japanese zaibatsu role models, however, Korea’s chaebol were motivated by an urge to diversify and to control every aspect of their operations, from the sourcing of raw materials and manufacturing to marketing finished products. Most of the groups also entered totally unrelated businesses, taking advantage of their financial resources and government contacts. In many cases they were able to monopolize the categories they entered by emphasizing market share rather than profits. This compulsion to diversify included becoming major stockholders in other companies.
By the 1970s the chaebol were often referred to as muno (muu-noh), or “octopuses,” because they had their “tentacles” in many things. Part of this negative image arose from the general public opinion that the combines profited unfairly from their close ties with government officials and agencies. There were numerous accusations of pujong chuk chae (puu-johng chewk chay), or “illicit wealth accumulation,” that not only involved illegal activity but went against the Confucian concept of morality and virtue that went with political power.
The Vietnam War was a boon to the growing Korean chaebol, especially Hyundai and Hanjin. With the backing of the U.S. Army, Hanjin became virtually the sole operator of the key Vietnamese port of Qui Nhon and provided both marine and land transportation for the American forces in Vietnam. In support of this effort, Hanjin established an air and sea transport company in Korea to ferry supplies and workers to Vietnam. Using the enormous profits generated by this activity—and paid for by the American military forces in Vietnam—Hanjin bought the then ailing Korean Air (KAL) from the Korean government and subsequently turned it into one of the world’s premier airline companies.
Hyundai and the hurriedly established construction divisions of other chaebol were given major construction contracts in Korea by the U.S. Army, providing them with a fund of experience as well as huge profits, which made it possible for them to bid on and win numerous construction contracts in the Middle East and elsewhere when the Vietnam War ended. Records show that in just four years in the latter part of the 1970s Korea’s top ten chaebol made $22 billion on construction projects in the Middle East.
Each of Korea’s conglomerates has its own corporate culture that began as a manifestation of the background and beliefs of its founder. Samsung, for example, was founded by the youngest son of an old yangban (yahng-bahn) gentry family. Its employees regard the company and themselves as the best and the brightest. It emphasizes high-tech industries. Hyundai, on the other hand, was founded by the son of a farmer, is known for its conservatism, and emphasizes heavy industries. The first generation of post-World War II chaebol employees, tempered by the experience as a colony of Japan (1910-45) and the horrors of wars that had devastated their homeland, were educated, hardworking, totally diligent, and fiercely loyal.
Korean-American anthropologist Choong Soon Kim, in his book The Culture of Korean Industry, described the first generation of chaebol managers as authoritarian, inclusive, and worried about the continuity of their enterprises. This led them to staff their executive positions with sons, sons-in-law, and other close relatives. In the early days of the chaebol there were few stockholders. The founder and his family usually owned controlling interest. Stockholder meetings were programmed to last for only half an hour or so, with outside stockholders given no chance to speak up about anything.
Not surprisingly, the founders or chairmen of the largest conglomerates were generally referred to by the press and others as chongsu (chohng-suu), a military term meaning “commander in chief.” The personal income of some of the founders became enormous, amounting to several hundred million dollars a year, adding to criticism by those who saw the giant combines as immoral parasites.
Much of the unsavory reputation of the chaebol in the 1970s and 1980s was apparently well deserved. Their founders and senior executives (along with other companies and individuals who owned substantial real property assets) were accused of using kamyong (kah-myohng), or “pseudonyms,” and the names of relatives to disguise the true ownership of stocks, land, bank accounts, and so on. This practice, which goes back to ancient times in Korea, eventually became a national scandal, and in the early 1990s a law was passed forbidding the practice. But the law apparently succeeded only in reducing the use of the subterfuge, not eliminating it.
In some chaebol and other large firms the workday began with the playing of the national anthem over the public address system. During the playing, employees stood at attention. At 5:00 p.m. the national anthem was again played to signal the official end of the workday, but unlike some of their Western counterparts, employees made no mad dash for the door. Women usually continued working for another hour or so, while the majority of the male employees worked for two or three more hours. The few people who left the office at “quitting time” invariably had a special reason for leaving and did so only after clearing it with their superiors.
The reputation of the chaebol reached a low point in the 1970s and 1980s, particularly among their own employees. Union agitation and strikes increased. A number of the conglomerates created special strike forces called kusadae (kuu-sah-day), or “save the company corps,” made up of tough young men the companies used to physically break up strikes and other union activities.
Still, university graduates were so anxious to obtain employment with one of the chaebol that they would take the entrance exams of several firms in the hope of being accepted by at least one of them. This resulted in the government’s ordering the conglomerates to hold their ipsa sihom (eep-sah she-hohm), or “entrance examinations,” on the same day so that graduates from the most prestigious and best schools could not monopolize the available jobs. Smaller companies held their entrance exams on a later date. Candidates who passed the entrance exams then had to pass rigorous personal interviews that were designed to weed out prospects who did not meet the character and personality standards of the companies concerned.
By the early 1990s the chaebol had matured and reformed their managerial practices to the point that their labor problems had disappeared. They had also grown to the point that it was difficult to buy any domestically manufactured or imported item that had not been touched by one of the combines. The names of the leading groups had also become well known around the world. But in 1995 the close ties between the conglomerates and the government suddenly came to a head. President Young Sam Kim ordered the arrest of his two immediate predecessors, Doo Hwan Chun and Tae Woo Roh, on bribery charges, and implicated twenty-four of the country’s top chaebol in payoffs to the former presidents. Government officials were quick to point out, however, that they had no intention of dismantling the conglomerates because that would cripple the economy. They said their purpose in calling in and interrogating the leaders of the twenty-four chaebol was to impress on them the importance of their voluntarily reducing their role and power in the economy—something that, in keeping with their dedication to the well-being of the nation, most of them agreed to do.
In chaebol jargon, the founder company is often referred to as moche (moach-eh), or “the mother company,” while subsidiaries are often called chamae hoesa (chah-my hoh-eh-sah), or “sister companies.”
There was to be an even more serious downside to the rapid growth the chaebol had relentlessly pursued for more than three decades. In 1997 their overextended financial obligations caught up with them, and several of them went bankrupt—something that had been virtually inconceivable to Koreans up to that time.
However, by the year 2000 leading chaebol like LG, Samsung, and Hyundai had
