South Koreans Bristle At Growing Dominance Of Family-Run Conglomerates

Transcript

STEVE INSKEEP, HOST:

Now let's talk about the family business. Family-run businesses are responsible for well over half the economic activity in the United States. That's true even though many family businesses are small. In South Korea, some family businesses are huge. A handful of family-run conglomerates dominates the economy, which makes some Koreans uncomfortable. NPR's Ari Shapiro explains why.

ARI SHAPIRO, BYLINE: These companies are known as chaebols. The biggest chaebol of all started as a village store in 1938. Today it's controlled by the same family. And it's a household name, Samsung.

JADEN CHUNG: We are at the birthplace of Samsung Electronics.

SHAPIRO: This is digital city, about an hour outside of Seoul. Jaden Chung is giving us a tour of the Samsung Innovation Museum. He explains the company name means, three stars. The stars were in an old version of the logo.

CHUNG: Those are the three wishes of the founder. The founder wanted to grow this company bigger, stronger and forever.

SHAPIRO: And you don't mean the founder of Samsung Electronics. You mean the founder of Samsung, like, from 1938.

CHUNG: Right, yes.

SHAPIRO: So almost a century later, it seems that his wish has come true.

CHUNG: Yes (laughter).

SHAPIRO: Because Samsung is not only electronics. Today it's also the largest life insurance company in South Korea. The Samsung conglomerate includes fashion companies and manufacturing. That wide reach is what makes a chaebol different from a big, family-run American company, like Walmart. There are more than 40 chaebols in South Korea, including familiar brands like Hyundai and LG. Last year, the four largest ones made two-thirds of South Korea's corporate profits. Lotte group is one of the big ones. I meet economics professor Sangin Park of Seoul National University just outside of a shopping mall called Lotte World.

What else does the company do?

SANGIN PARK: Lotte has many subsidiaries. I think it has almost 80.

SHAPIRO: Eighty affiliated companies. Like, give me - like, what do they do, for example?

PARK: They do everything almost. They - you'll see over there there is apartment built by the Lotte construction. They have chemical companies.

SHAPIRO: They also make desserts, run amusement parks. Right next to the mall is a brand-new Lotte skyscraper. It towers above the Seoul skyline. A small airport nearby changed flight paths to avoid the new building. And Koreans are starting to bristle, feeling that these companies are getting too many special privileges.

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UNIDENTIFIED REPORTER: Korean Air's former vice president, at the heart of the so-called nut rage trial, sentenced to one year in prison.

SHAPIRO: Earlier this year, Heather Cho - aka, the nut rage lady - insisted that a Korean airplane turn around when she was served macadamia nuts the wrong way. She's just one of many chaebol executives who have been convicted of crimes over the years. And many of them have received presidential pardons. Mark Clifford directs the Asia Business Council. He says this system crowds out entrepreneurs.

MARK CLIFFORD: I was stunned when I moved to Korea to find that there were a lot more Korean and a lot better Korean green grocers in New York than there were in Korea. Entrepreneurial Koreans who are not working for the chaebol or government or in academia tend to emigrate because it's very difficult for them to get not only money but also permission to operate in what is an extremely bureaucratic country.

SHAPIRO: Everyone agrees chaebols served a valuable function in South Korea's development. In the second half the 20th century, they helped the country rocket into the top tier of highly developed economies, says Clifford.

CLIFFORD: Korea was a small, relatively primitive economy. And a chaebol had access to capital, had access to imported technology, but above all had access to people. And they could throw money and efforts and investments into lots of different areas and see what worked.

SHAPIRO: There's a lot more skepticism that they're the best thing for the president day.

JOHN DAVIS: Whenever you get such dominance by a few companies of any kind in an economy, you have to be a bit worried.

SHAPIRO: John Davis teaches at Harvard Business School and runs a firm that advises family businesses. So he believes family enterprise is the best thing for an economy.

DAVIS: And so this is not an argument, in any way, against family companies. It's an argument against companies that are so large and so dominant that the opportunities get picked off by the large companies so you eventually kill the entrepreneurial sector in your economy.

SHAPIRO: In 2012, South Korea's current president campaigned on the position that chaebols should be reined in. And she won office. But events this month show that things are not likely to change. The family that runs Samsung won approval to merge two of their companies. That consolidates the family's power and sends a strong signal that chaebols will continue to reign in South Korea. Ari Shapiro, NPR New, Seoul. Transcript provided by NPR, Copyright NPR.