Hailed as the “Miracle on the Han River,” South Korea’s rapid growth transformed the economy of one of the poorest countries in the world to one of the largest and most innovative. Today, the country is one of the largest exporters in the world, with exports totaling 40 percent of GDP in 2016—a massive rise from just four percent in 1961. In the same period of time, average income in South Korea increased from $120 per year to more than $27,000, adjusted for inflation. Yet, today’s South Koreans must face the repercussions of this “miraculous” growth: the chaebols. Faced with high youth unemployment and wage inequality, young Koreans feel increasingly disillusioned with their future. For many Koreans, the chaebol represents everything that is wrong with their country’s economy.
A chaebol, a combination of the Korean words chae (wealth) and bol (clan), is a conglomerate controlled by a family. Often, members of a corporation’s founding family still hold top management positions. While over forty conglomerates qualify as chaebols, only a handful have significant economic power. The top five chaebols—Samsung, LG, Hyundai, Lotte, and SK—collectively account for nearly half the dollar value of the South Korean stock market and are responsible for the bulk of research and development in South Korea. The country’s largest chaebol, Samsung, originally an exporter of food products to China, has diversified to include real estate, a university, hospitals, an amusement park, insurance, and shipping. Samsung’s subsidiary Samsung Electronics alone accounts for 14 percent of South Korea’s GDP.
The chaebol’s success and size is tied to close collaboration with the state: For decades, they have been granted subsidies, loans and tax incentives by the South Korean government. These corporations prospered during the dictatorial rule of Park Chung-hee, who came to power by military coup in 1961. Under Park, the Korean state took control of the country’s economic development. Through close state-business relations, the government promoted certain firms and industries, which drove the country’s economic growth. These firms, which later became the chaebols, also provided high-quality, stable jobs during a time when Korea only had a small welfare state.
However, today, chaebols are creating problems for young Koreans entering the workforce. The dominance of large corporations and price squeezing has created a challenging environment for smaller businesses, which struggle to compete for profits and talented employees. While chaebols only account for 10 percent of the country’s workers, they hold 77 percent of market capitalization, demonstrating the conglomerates’ monopolistic dominance over the South Korean economy. This has led to a significant wage gap between small and large firms, which is among the highest in the OECD countries. Moreover, South Korea lacks a vibrant startup culture—too many structural barriers to starting one’s own business combined with a risk-averse society hinder entrepreneurship. This is demonstrated by the 2020 list of South Korea’s top 10 companies: The search engine provider Naver was the only startup business listed. As a result, young Koreans are frustrated by their limited employment opportunities.
These chaebols also perpetuate Korea’s education arms race, as many young children—whether they know it or not—are already preparing to compete for jobs at one of these corporations. For most South Korean college students, working at a chaebol is their only acceptable employment option, and they typically provide the most high-paying jobs. Chaebols almost exclusively hire from the private SKY universities, the three most prestigious universities in South Korea. Distrust in the public education system and extreme academic competition has led South Korean parents to increasingly send their children to private schools: Total expenditure on private education, which includes spending on private tutoring and cram schools, increased by almost 11 percent in 2022 compared to the previous year. Additionally, many private cram schools specialize in the preparation for Korea’s highly competitive college admissions test. For low-income students who do not have the means for a private education or tutoring, gaining admission to a SKY university or employment at a chaebol is very difficult, ultimately helping to widen Korea’s wealth gap. However, even elite university graduates are struggling to find a job today. Life satisfaction among adolescents is much lower in South Korea than in other OECD countries at under 20 percent. With youth unemployment rising and social mobility decreasing, South Koreans are feeling increasingly pessimistic. In a survey, six out of 10 Koreans answered that they believed they had a low chance of improving their socioeconomic status. One in four Koreans between ages 15 and 29 were unemployed in 2019.
Furthermore, skyrocketing real estate prices have played a role in widening the generational wealth gap in South Korea since many young people can no longer afford a house or apartment in Seoul. Chaebols profited greatly from participating in the construction business and speculating on land, while state elites benefited from this speculation as they funded their campaigns with part of the profit. The sudden real estate boom in certain districts, for example the Gangnam district, led to an arbitrary distribution of wealth. Those who were fortunate enough to buy a house in the right neighborhood before the real estate prices skyrocketed suddenly accumulated large amounts of wealth for themselves and their children. Meanwhile, others missed valuable opportunities. The people whose wealth dramatically increased can provide for their children and avoid debt while others with similar backgrounds cannot even purchase a home anymore. This housing insecurity that affects only certain middle and lower class citizens creates another aspect of economic and social inequality. It has made it difficult for younger generations to build wealth and achieve social mobility through property ownership, which for South Koreans is a major source of wealth (over 60 percent of household assets).
Unsurprisingly, chaebols also have an adverse effect on South Korea’s democracy, further underlining the need for structural reform. Not only does extensive lobbying power of chaebols limit the extent to which the government can control them and enact reform, but the government and major corporations have been embroiled in countless bribery and embezzlement scandals over the past 20 years. South Koreans are fed up with this corruption spiral. In 2016, South Koreans poured into the streets in peaceful protest when the news of “Choi Soon-sil gate” broke. The vice chairman of Samsung, Lee Jae-yong, had bribed then-President Park Geun-hye in exchange for her support for a contentious merger that would have strengthened his control over the firm. In this Candlelight revolution, motivated by a shared resolve to take action against a system that seems to favor only those who are affluent and well-connected, 16 million South Koreans protested for Park’s impeachment. Eventually, President Park—and her predecessor Lee Myung-bak—were both convicted of embezzlement and accepting bribes from chaebol executives. However, corrupt chaebol executives and their enablers have repeatedly avoided being held accountable for their criminal actions by the government. Lee Jae-yong, Lee Myung-bak, and Park Geun-hye have all been pardoned. This is a slap in the face for the many struggling young people who had hoped for meaningful change following the Candlelight protests. A poll indicated that a two-thirds of Koreans and 75 percent of those in their 20s and 30s hold an unfavorable view of chaebols, citing their negative impact on the economy and role in rising inequality and corruption.
Evidently, Korea is in desperate need of chaebol and constitutional reform to put an end to the cycle of corruption. The benefits of a cozy relationship between state and business have long passed and are now having detrimental effects on South Korea’s economy, democracy and society. The power of the president and executives in chaebol management positions must be curtailed, and small and medium sized businesses must be able to grow. Though Korea’s current president, Yoon Suk-yeol, prosecuted corrupt officials and chaebol officials, chaebol reform is currently not at the top of his agenda. Instead, Yoon is focusing on the skyrocketing real estate prices, inflation, and the aftermath of the pandemic. His solution to these problems includes supporting business leaders who create jobs. The government must, however, tackle the root cause of South Korea’s economic problems that poses as its savior: the chaebol.