July 2, 2017 1:00 pm JST
Comment

Philanthro-capitalism sprouts in South Korea

Public outcry over economic disparity has companies advancing a social agenda

MAKOTO KAJIWARA, Nikkei commentator

Even on holidays, many patients go to a hospital operated by TMSS in Bangladesh.

TOKYO -- Mezzanine I-Pack is a South Korean company located within a 10-minute drive from the Demilitarized Zone on the Korean Peninsula. It is based in the city of Paju and faces the heavily fortified border with North Korea, and when I recently visited the premises, employees were busy making paper packaging for cosmetics, food products and other merchandise at a plant adjacent to its office. 

Mezzanine was founded in 2008 to help North Koreans who fled their homeland settle in South Korea. At present, 10 of its 50 employees are defectors. The company has a unique mission and strives to stay in the black and continue on its quest.

"We want to be a model for socially conscious enterprises," Mezzanine President Park Sang-duk, 56, said.

Park Sang-duk, president of Mezzanine I-Pack in Paju, South Korea, runs a small company that hires North Korea defectors, helping them start a new life. (Photo by Makoto Kajiwara)

There is a continuous flow of North Koreans making their way to South Korea in pursuit of a better life. However, a considerable number of them fail to adapt in South Korea, with its capitalistic society and a now different culture after decades of separation. Some turn to crime or commit suicide. 

Park specifically chose the English word "mezzanine" for his company, tying it to that intermediary space between two floors of a building because of his wish to "serve as a bridge between ordinary people and the weak."

I was drawn to Mezzanine because it is linked to MYSC, a Seoul-based company investing in or advising social businesses. MYSC, which has invested in Mezzanine to provide financial support, is holding talks with Park on a plan to have Mezzanine go public in three years. 

The relationship between Mezzanine and MYSC reflects a contemporary financial arrangement in which venture capital is used to not only reward investors but help disadvantaged members of society. In South Korea, it represents a new kind of ecological system for business, a two-pronged approach friendly to both shareholders and workers.  

This wave of social business is now garnering attention from the family-run conglomerates that control the South Korean economy. Proposals for joint work from conglomerates are increasing, MYSC Chairman Jinho Chung, 62, said.

To this end, MYSC has already launched activities to nurture social entrepreneurs in cooperation with Hyundai Motor and SK group.

About-face

The conglomerates are becoming more socially aware because of increased public criticism being hurled at them. Fueled by high-profile scandals, the outcry is only growing louder. 

The global presence of these massive companies has sharply increased based on their ability to operate better than other businesses throughout the world. However, the downside is that this growth -- and the fruits of its success -- has not been shared widely in South Korea. 

The adverse effects of such rapid growth have come to the fore instead. For example, excessive pressure on subcontractors for price cuts has widened social disparities and left South Korea with the highest suicide rate and youth unemployment figure among advanced economies. 

The explosion of popular discontent resulted last year in the downfall of former President Park Geun-hye and the arrest of the de facto leader of Samsung Group, the biggest South Korean conglomerate, earlier this year.

The conglomerates have painted themselves into a corner and have no choice but to listen to this public uproar. In a promising start, Samsung Electronics earlier in June set up a fund of about $445 million to help raise funds for sub-subcontractors.

After the fall

The rising tide of public anger and shift toward a socially aware business model that has become evident in South Korea is a worldwide phenomenon which I believe is traceable to the global financial crisis triggered by the collapse of Lehman Brothers in 2008. 

That U.S. financial institution, which pursued only short-term profit, took excessive risks and went down in flames as a result. The fall of Lehman Brothers unleashed a wave that ultimately threatened the world economy, provoking popular anger across the globe. 

This fever manifested itself in Britain's decision to leave the European Union and the election of U.S. President Donald Trump last year. Rage over social disparities resulting from globalization has become apparent, making companies throughout the world more nervous than usual.

One result of all this is that the public has come to see business as an enemy.

Recognizing the fragility of their position, other Wall Street players reacted to this development. JPMorgan Chase began helping Detroit -- the home of an American auto empire in the doldrums -- revive economically as part of its core business. Harvard Business School, the alma mater of many on Wall Street, has postulated the concept of "creating shared value," or CSV, which envisions coexistence between corporate economic value and social progress. 

The global financial crisis also led to a decrease in donations to philanthropic organizations, despite even greater need for such groups in the face of the economic downturn. 

While nongovernmental organizations and other philanthropic groups have been moving ahead with socially oriented activities, I expect them to grow more corporatized.

Businesses that provide indispensable products for society chalk up stable earnings. Stimulated by Bill Gates and other well-meaning capitalists, the concept of Philanthro-capitalism, which seeks greater social returns through charitable organizations run by those with strong business management skills, is on the rise. 

Moving forward together

Three years ago I visited TMSS, a Bangladeshi NGO with 30,000 employees that is working to reduce poverty. The organization relies on donations for only 4% of its revenues: It earns the rest from paper recycling operations and other social business undertakings. 

I vividly remember TMSS founder Hosne-Ara Begum say that the organization would like to launch more businesses so that it can raise workers' incomes. 

Companies and philanthropic organizations as well as developed and developing nations appear to be demonstrating in competitive markets that profit in tandem with social advancement can bring about sustainable growth. 

American capitalism and its quest for short-term gain have failed in the eyes of many people, and a new form of capitalism is dawning at long last. 

South Korea may be at the vanguard of this movement. Moon Jae-in, the country's new president, is standing up for the weak as he stresses the need for a "human-centered economy."

Most major conglomerates here have established foundations intended for social contribution. These funds -- equivalent to about $6.23 billion -- will be a central issue moving forward. Most of them are sitting idly waiting for good investment opportunities, according to MYSC. But if they are used to support the growth of Mezzanine and other socially focused companies, key players in the South Korean economy will change, drawing world attention in the process. 

"I changed my mind after I returned from the bathroom," is a South Korean adage. It means that people will do almost anything when boxed in a corner, but attitudes change when relieved of that tension. 

In today's South Korea, both politics and conglomerates are under unprecedented social pressure. The time is ripe for advancing into a new age that permits no return to the negative ways of the past. 

Asia300

Hyundai Motor Co., Ltd.

South Korea

Market(Ticker): KRX(005380)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 35,371.73M
Shares: 285.47M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 323,129.55M
Shares: 149.31M

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