March 13, 2017 7:35 pm JST

After Park's impeachment, focus turns to chaebol reform

Economic problems will hinder successor's efforts to untangle cozy political ties

MASANORI YAMAKUCHI, Nikkei online news Asia section editor

TOKYO -- As South Korea prepares to hold a presidential election following Park Geun-hye's impeachment, one theme is coming to the fore: the need to reform the chaebol, which have for decades been entwined with the nation's politics.

Yet, even as public criticism of the country's sprawling conglomerates intensifies, it is plain that it will not easy to transform an economy that is heavily reliant on them.

In a statement endorsing the National Assemby's impeachment motion, the Constitutional Court on Friday cited several chaebol -- including Hyundai MotorPosco and Lotte -- as examples of abuse of power in relation to the scandal in which Park allowed Choi Soon-sil, her confidante, to influence national politics.

Lee Jae-yong, de facto leader of Samsung Electronics, the biggest of the chaebol, has been arrested on charges including bribery and embezzlement. Prosecutors appear eager to get to the bottom of his company's alleged ties to the administration, which may in turn lead to arrest of Park. Investigators are set to expand the scope of investigation to include leaders of other business groups.

While these conglomerates vehemently deny any unethical ties with politicians, some have recently left the Federation of Korean Industries, which played a prominent role in linking the government and businesses. Those that have left FKI include powerful members such as Samsung, LG and SK. In a related move, Samsung also plans to abolish its Future Strategy Office, which steered the group.

These moves signify that chaebol, prompted by public outrage, are increasingly willing to unpick their political ties.

Many of the leading business groups were nurtured by favorable government treatment and their exports in turn drove the country's rapid economic growth. But, as they expanded into ever more diverse areas, they left no room for smaller rivals to grow.

Furthermore, as there are only so many workers that even companies the size of the chaebol can hire, many young people who have studied hard amid intense competition and graduated from leading universities find themselves without satisfying jobs. The resulting income inequality has become a major source of public frustration.

A dissatisfied public proved unwilling to tolerate either Park and the businesses that allowed this state of affairs to arise -- or Choi, who allegedly unfairly took advantage of her close relationship with the president for her personal benefit. Several hundred thousand angry protesters have taken to the streets since the end of last year, an important factor in Park's removal from office.

A big question now is whether the next president can undo the cozy relationship between politicians and business.

"The public wants the government to do something to resolve income inequality and improve their living," said Hideki Okuzono, University of Shizuoka associate professor. "It's difficult to change South Korea's economic structure because it relies heavily on chaebol as a growth driver."

South Korean presidents have tried to revamp the chaebol, introducing measures to make management more transparent. They have made little headway. This is because they face a dilemma: they need the cooperation of the chaebol to enact reforms.

Park herself made an attempt soon after taking office, promoting a three-year plan aimed at narrowing income gaps through support for start-ups. In the end, she turned to big business for backing for the plans, which led to a suspicion of covert links with them.

Park's successor, to be elected in presidential elections that must take place within 60 days of the impeachment, will inherit an economy in a downward spiral. Real income and consumer spending have taken a downward turn, and total household debt exceeds 1.3 quadrillion won ($1.14 trillion). The current account balance is in surplus -- but this is only because imports have fallen more than exports, which have been slowed by a stronger won.

It is an inauspicious legacy for a new leader who will face unrelenting public pressure for far-reaching economic reform. 

Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 335,001.12M
Shares: 148.18M
Asia300

Hyundai Motor Co., Ltd.

South Korea

Market(Ticker): KRX(005380)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 33,312.12M
Shares: 285.47M
Asia300

POSCO

South Korea

Market(Ticker): KRX(005490)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 25,114.75M
Shares: 87.18M

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