Chaebol State

Origins in the developmental state

The concept of the chaebol state reads the relation between state and conglomerate not as one-sided control or simple collusion but as a structure of mutual dependence. Its origin lies in the developmental state of the 1960s and 1970s, in which the government selectively fostered particular business groups through policy finance, the allocation of foreign capital, and import-substitution protection, and the groups answered with export performance and investment in heavy and chemical industry.

In that period the state held the upper hand. With banking nationalized and foreign borrowing subject to government approval, the survival of the groups depended on policy decisions. The expression collusion between politics and business named the form corruption took in this phase.

The shift after democratization

The balance moved from the late 1980s. Financial liberalization and the opening of capital markets let the groups raise funds without relying on policy finance, and their growth increased their weight in the national economy. At the same time the introduction of electoral competition structured a demand for political money.

Chaebol reform was attempted after the currency crisis of 1997. Debt-ratio regulation, prohibition of cross guarantees, combined financial statements, and restructuring through business swaps proceeded, and some groups were broken up. The controlling families' hold was nonetheless preserved through circular shareholding and conversion to holding companies, and the economic weight of the surviving groups in fact increased.

Mechanisms of persistence

Three reasons are given for the structure's persistence regardless of changes of government. First, support through tax expenditures, regulatory relief, and the socialization of infrastructure costs continues in the form of industrial policy. Second, because employment, export, and investment figures feed directly into a government's performance indicators, no administration can easily bear a deterioration in large-firm results. Third, the repetition of pardons and restorations of rights following criminal convictions of controlling shareholders has limited the effectiveness of legal constraint.

There are counterarguments to the concept. One holds that the growth of the business groups cannot be explained by state selection alone and that the role of technological accumulation and organizational capability must be considered. Another is that the concept treats structural change in the Korean economy too statically. The focus of the argument is not the existence of the chaebol but whether the concentration of economic power can be placed under democratic control.