Chaebol System

Definition

The Redian analysis defines a chaebol as a form of monopoly capital whose ownership centres on a particular individual or family, and states that when chaebol come to lead a country's national economy, that is called a chaebol system; whether family-controlled business groups have captured the national economy is thus the criterion for the system's establishment. The same analysis contains an explicit reminder that the top 20 chaebols' share is measured as value-added production, not total sales. Wikipedia describes a chaebol as a large industrial South Korean conglomerate run and controlled by an individual or family, often consisting of multiple diversified affiliates controlled by a person or group, with several dozen large South Korean family-controlled corporate groups falling under the definition. Lee Byeong-cheon formulates the outcome of the military government's nationalization of banks and its granting of enormous privileges through policy finance and loan guarantees as a state-chaebol ruling alliance, a state-chaebol-bank triangular close-binding system, in which he says the light and shadow of the Korean development economy are concentrated. The word derives from the Sino-Japanese term zaibatsu (財閥) and has been loaned into English since at least 1972.

History

Business groups such as Samsung, Samho and Gaepung already existed in the 1950s, and Lucky, Daehan Industrial, Dongyang, Hyundai and Ssangyong were preparing to emerge as chaebols, but they were few in number, small in internal scale and slow-growing. After Park Chung Hee seized power in 1961 his policies spurred rapid industrialization by promoting large businesses, the First Five Year Economic Plan set industrial policy toward new investment, and chaebols were guaranteed loans from the banking sector. They grew through foreign loans, special favours and access to foreign technology, and production diversified from wigs and textiles in the 1950s and 1960s to heavy, defence and chemical industries by the 1970s and 1980s and to electronics and high technology by the 1990s. During the Japanese colonial period the colonial government co-opted local businessmen and a few Korean chaebols such as Kyungbang came into existence, and some businesses that acquired former Japanese assets later grew into chaebols and were closely tied to the Syngman Rhee government, allegedly trading favours for payments. Samsung differed from other chaebols in that it established its flagship firms Cheil Jedang (1953) and Cheil Industries (1954) without receiving ex-Japanese assets or enterprises.

The Encyclopedia of Korean Culture records the institutional formation. Preferential disposal of vested ex-Japanese property, privileged allocation of aid goods and preferential bank loans under the US military government and after the 1948 founding formed the material basis of chaebols in the 1950s, and the 'three whites' industries of flour milling, sugar refining and cotton spinning, which grew on aid-dependent raw materials and capital goods, let chaebols accumulate wealth. Enterprises that grew into chaebols in the early 1960s were not new firms but those with about a decade of business experience. The May 16 military regime supported export industries from the mid-1960s and concentrated support on a small number of experienced businessmen, and the major ten chaebols built light-industry foundations using low-wage labour and state support. Heavy-chemical industrialization and general trading company promotion in the 1970s let chaebols seize key industries and establish effective economic dominance. State-led 'compressed capitalization' from the early 1960s, and especially heavy-chemical industrialization from the mid-to-late 1970s, accelerated this development through preferential policies selecting particular firms.

Redian places the point at which family-controlled business groups formed in earnest under an owner-chairman (총수) and came to lead the Korean economy, that is the establishment of the system, in the early 1980s, which it reports as the general view of scholars. The top 20 chaebols' value-added share of GDP rose from 7.1% in 1973 to 16% in 1983, and the share of SMEs that were subcontractors jumped from 18.2% in 1978 to 48.5% in 1987; in the 1980s the basis of chaebol market dominance shifted from institutional entry barriers to technological factors, so that modern monopoly profit based on technological superiority was secured. The system nevertheless remained fragile, because bank credit was under strong state control and a genuine finance capital combining industrial monopoly and banking capital in the classical sense had not yet formed. The late-1970s crisis from overinvestment in heavy chemicals, world recession and the second oil shock led to restructuring through capital concentration, consolidation in major heavy-chemical sectors and third-party acquisition of failing firms, strengthening chaebol dominance through the 1980s along with subcontracting ties to SMEs and entry into finance.

The 'three lows' boom of the mid-to-late 1980s and financial liberalization let chaebols turn into genuine finance capital by the mid-1980s to early 1990s: institutionalization of the non-bank sector and direct chaebol entry into it gave them stable short- and long-term funding free from state credit allocation, while external opening pressure, including US pressure from 1988, Kim Young-sam's segyehwa policy and OECD accession, peaked with the mass licensing of merchant banks able to bring short-term capital freely from international markets, a root cause of the 1997 crisis. Lee Byeong-cheon describes the 1997 IMF crisis as domestically the accumulated contradictions of an irresponsible market economy deeply entangled with chaebol and externally the pressure of the US-international financial capital-IMF complex, appearing as chain bankruptcies of large firms. Kim Dae-jung's chaebol reform (the 5+3 principles) was genuinely reformist but ended halfway, the three supplementary principles being nominal, and the reform line retreated rapidly under the latter-term recession and chaebol deregulation offensive, with the designated-conglomerate and total-investment-limit systems hollowed out and separation of industrial and financial capital undermined. After the crisis the Korean economy shifted into a fully opened neoliberal system modelled on US capitalism, with chaebols forming an adaptive partnership with international financial capital. The Asian crisis began with a speculative attack on the Thai baht and spread through financial deregulation across East Asia, causing a downward spiral in the won. The government's own chaebol reform policy at the time included managerial transparency, abolition of cross-debt guarantees, financial restructuring to cut debt ratios, business exchange concentrating on core sectors and stronger manager accountability; in January 1998 the president agreed with the five largest chaebols on halving affiliates and swapping core sectors, introducing the core business specialization system with relaxed credit-management and total-investment rules.

Redian periodizes the post-crisis phase as a chaebol-oligarchy system running from the IMF crisis to the present. After the crisis chaebols' weight and influence in the Korean economy expanded further rather than weakening, economic power concentrated in a few surviving top chaebols, and the gaps among chaebols widened; surviving Samsung, Hyundai, LG and SK greatly strengthened their dominance. Redian links this to the notion of financial-oligarchic rule discussed by Bukharin, under which the state was effectively a committee elected by finance-capitalist groups.

Distinctions

The Encyclopedia of Korean Culture situates chaebol within monopoly-capital forms: cartels are agreements among same or related industries to limit or ease competition; trusts involve firms losing individual independence and merging to monopolize a market; konzerns are capital combinations in which member firms remain legally independent corporations, coordinated through shareholding, loans and personnel ties; and chaebol is a monopoly form in which the konzern is more highly developed than cartel or trust. It notes that Japanese zaibatsu split around the Second World War into zaibatsu versus keiretsu: in zaibatsu the chaebol family is the de facto major shareholder with exclusive control over affiliates, whereas keiretsu centre on a presidents' council with mutual shareholding and no de facto major shareholder. Wikipedia likewise contrasts chaebol with Japan's keiretsu, the successors of the pre-war zaibatsu: chaebol control is mostly family-based whereas keiretsu are run by professional corporate management; chaebol banks were prevented from buying controlling shares whereas keiretsu worked with an affiliated bank granting almost full credit access; and chaebol formed subsidiaries for export production whereas keiretsu often employed outside contractors.

Global comparisons are also given. Pre-Second World War China had the Zhejiang (Ningbo) chaebol centred on Shanghai, dismantled after 1949 when most assets were confiscated; the Rothschilds spanned British and French financial institutions; the United States had 'big eight' groups including Mellon, Morgan, Rockefeller, du Pont and Kuhn Loeb plus regional groups; India had five major chaebols including Tata, which controlled 185 companies; and Germany had Krupp capital.

Redian distinguishes chaebol from jaedan (group or financial-capital group). Both constitute a business group through ownership relations, but a jaedan may have a legal person rather than only a natural person or family at the apex of the pyramid, so jaedan is the broader concept encompassing chaebol. A chaebol corresponds roughly to the first or second of four historical types of monopoly capital and is defined by a natural person or family at the apex. The same analysis contrasts the chaebol's family and owner-centred ownership with the Western fourth type, as in most large US firms, where no individual owner dominates and several comparable major shareholders must combine to control a firm; in such a structure an exclusive owner-family pyramid and a chaebol-oligarchy system are virtually impossible.

Relations

Lee Byeong-cheon describes the state-chaebol relation as a ruling alliance: the state granted privileges through policy finance and loan guarantees, chaebols took the main fruits of growth, and chaebol losses were shifted onto society and the whole population. Labour served the growth-first, distribution-later system under barrack-style repression while SMEs were underdeveloped as chaebols grew. He adds that under democratization economic liberalization produced a 'chaebol-despoiling market economy', in which power shifted toward a weakened state and strong chaebols, and that after the state retreated no mechanism could discipline chaebols.

Redian argues that the chaebol relationship to political power became oligarchic: state power is generally a committee of the ruling class's interests, but in the chaebol-oligarchy system a few chaebols place political power under their influence. This is rule by extremely few individual monopoly capitals, distinct from the rule of monopoly capital in general, and the Korean state became a committee representing the interests of a handful of top chaebols rather than the capitalist class in general. The 'Samsung Republic' phenomenon exemplifies this, and Samsung's chaebol status rose sharply after the IMF crisis. Kim Yong-cheol, who exposed Samsung's irregularities in 2007, wrote that around 1997 Samsung's standing was much lower and it lacked the power to seize courts, government and media wholesale, but after the 1997 crisis, with competitors collapsing, it became the number-one chaebol and a giant power controlled by no one. Redian adds that in the 2000s Samsung extended influence into politics, bureaucracy, media, the judiciary, religion and civil society, and that its slush funds to manage 'Samsung scholarship' networks already reached 4 trillion won.

Wikipedia also records chaebol political participation. In 1988 Chung Mong-joon, president of Hyundai Heavy Industries, won a National Assembly seat, and other business leaders entered via proportional representation. Many family-run chaebols have been criticized for low dividend payouts and other governance practices that favour controlling shareholders at the expense of ordinary investors. Historically most successful political elections were won with chaebol support and each new administration geared its platform to chaebol revitalization, though leading parties have recently shifted toward economic diversification.

Examples

According to Wikipedia, 11 of the 30 largest chaebols collapsed during the 1997 financial crisis. Before the crisis the country had seven major automobile manufacturers; only two remained intact, with two more continuing in smaller capacity under GM and Renault. The Daewoo Group's mid-1999 collapse involved some US$80 billion in unpaid debt and was then the largest corporate bankruptcy in history. Investigations exposed widespread corruption in the chaebols, particularly fraudulent accounting and bribery. Samsung's 2019 revenue was about 17% of South Korean GDP; in 2023 the top four chaebols (Samsung, SK, Hyundai, LG) were 40.8% of GDP and the top thirty were 76.9%. The top groups by assets as of 1 May 2025 were Samsung 589.1, SK 363, Hyundai Motor 306.6 and LG 186.1 trillion KRW. The same source's claim that 80% of the country's GDP is derived from chaebols is unsourced and conflicts with these 2023 figures.

Redian gives Samsung concentration in the oligarchy period: its assets rose to 35% of the top five chaebols and 20% of GDP, up from 26% and 10% in 1997, and its sales to 48% of the top five and 20% of GDP, up from 29% and 15% in 1997; Samsung Electronics' net profit in the second quarter of 2017 was 38.18% of the combined net profits of all other KOSPI-listed companies. Kim Yong-cheol assessed that Samsung had become the number-one chaebol controlled by no one.

The Encyclopedia of Korean Culture summarizes post-crisis examples and effects. Through restructuring the 2000s saw the emergence of global firms such as Samsung, LG, Hyundai and SK. Positive effects include chaebols using internal cash flows, cushioning external shocks (top-ten chaebol revenue fell 39% in the 1997 crisis against 43% nationally) and contributing to competitive global firms. Negative effects include inhibiting SMEs' self-sustaining growth through octopus-like expansion, creating monopoly and oligopoly positions with tacit collusion, and inefficiency from owner-chairmen directly participating in core management in a top-down organization. In 2009 the top ten companies accounted for 37.3% and the top fifty for 60.9% of Korean exports.

Note on dating

This entry separates formation from the establishment of the system. The 1960s is when chaebol formation began under state-led industrialization, while the establishment of the system, when family-controlled business groups came to lead the national economy, is dated by one view, reported as the general scholarly view, to the early 1980s. Both are documented, so they are recorded side by side rather than merged. The system is described as continuing to the present, and Wikipedia's unsourced statement that chaebols produce 80% of GDP conflicts with its own 2023 figures, so the specific dated figures are preferred.