Samsung’s dominance over the South Korean GDP
Avneet Singh
South Korea holds one of the largest economies with its nominal GDP valued at $1.72 trillion, deservingly giving South Korea a rank at fourteenth place in the world and fourth in all of Asia. And so, you may wonder. How did South Korea’s economy grow this large?
Firstly, if we look at South Korea’s imports, we see that they consist largely of Crude Petroleum ($89.1B), Integrated Circuits ($56.4B), Petroleum Gas ($46.9B), Coal Briquettes ($26.8B), and Refined Petroleum ($26.1B). The reason why South Korea imports these natural resources are due to the lack of them within the country. South Korea’s coal reserves ware ranked 62 in the world with 359 million short tons, paling in comparison to other countries around the world.
If natural resources aren’t responsible for their economic growth, then what is? To answer that we need to look at the country’s history. The Korean war ended in 1953 where it was left devastated with the only assets of value left in the country were Japanese colonial assets from previous wars. With infrastructure destroyed and industry on the decline the economy seemed as if it was to fall, however with president Syngman Rhee leading reconstruction efforts and international aid arriving, South Korea’s industry expanded, and the economy was revived where then the Samsung group was founded.
The Samsung group had expanded rapidly and experienced great growth, having close ties with political parties, then later acquiring ANUK (a fire and marine insurance company) as well as Chohung bank whilst also acquiring major shares in several banks across the country, in turn making Samsung the most powerful conglomerate within the nation making up 19% of the entire nation’s wealth. However, due to heavy reconstruction and recovery efforts the country was still poor during the time, when in turn important consumer goods were not being produced and the agricultural industry was on a decline due to a lack of fertile land.
Over time, tensions emerged within the nation pressuring the current leader. With tensions bubbling up, the military overthrew Rhee’s leadership in 1960 where Park Chung-Hee was elected president by the people. With Park’s leadership, South Korea’s GDP grew annually by a large margin due to his decision to assign the Conglomerates the role of producing consumer goods which targeted internationally to be exported.
The government further supported this by providing great subsidies for steel and lowering the interest rates on loans making them more assessable for producers. Moreover, the government decided to implement the radical idea of tax breaks for the largest Conglomerates in the nation: Samsung, LG, Hyundai and the SK group. These conglomerates became known as chaebols, a name given to the four largest conglomerates in the country. Samsung was considered the largest and most dominant chaebol producing a plethora of goods ranging from electronics such as tv’s as well as superconductors.
Samsung only continued to grow where over time statistics show that as of year 2022 Samsung contributed upwards of 22.4% to the nation's GDP. Samsungs dominance of South Korea is to an extreme extent and is unparalleled to any other nation in the world. Samsung has become so integrated into South Korean society where a term for the perfect man in South Korea called the ‘Samsung man’, a title given to those who have proven their worth in terms of academics and skills, where they are deemed worthy to work at the largest company in the country. Students around the nation study day and night to take the Samsung attitude test where over a hundred thousand students take the test annually. Those who don’t have the ability to take the test or did not get through then apply to the other chaebols LG and Hyundai, presenting the control and impact these conglomerates have on the country itself.
So, you may ask the question, how did Samsung amass so much power? This is due to the sheer number of acquisitions Samsung has made over the course of their business venture in various industries, such as in construction, healthcare, life insurance and electronics. The two major affiliates that Samsung has ownership over are Samsung C&T (Samsung construction and technology) and Cheil Industries which holds ownerships in several industries such electronics. Whilst Samsung did exert great influence over these firms, in the early 2000s they began losing ownership due to a large number of shares being bought by foreign investors. With Samsung facing the risk of losing ownership over their two major affiliates, Samsung conveniently had connections to a third-party Choi Soon-Sil, daughter of an influential family, who had deep roots within the government. It was quite well known that power brokers exerted great influence over the South Korean government where even during President Park Guen-Hye rule Choi Soon-Sil influenced the president’s important decision making and speeches. With this backdoor, in 2015 Samsung’s merger was approved by the government with the help of Choi Soon-Sil. In return, Samsung donated an undisclosed amount of funds to her shell companies. Once the merger was approved, Samsung gained complete control over the firm. All foreign investors were kicked out of the country resulting in Samsung becoming a monopoly dominating the market.
Whilst this interaction was quite confidential, the media had found out and news stations around the country covered the scandal leading to the impeachment and sentence of Park Guen-Hye and Lee Jae-Yong, the vice chairman of Samsung. The former president Park was pardoned in 2021. Following, in 2022 the vice chairman Lee’s pardon was issued by the president Yoon Suk-Yeol, once again, using bribery and was justified by how Lee Jae-Yong leadership of Samsung was pivotal for the South Korean economy restoring complete power of the Lee family. In turn, it reflects the immense influence Samsung has over the South Korean economy and its GDP.
Now with the Lee family back in power, the dominance of the Chaebol has contributed to an increase in income inequality in South Korea where a small number of families control vast wealth and resources, while many South Koreans struggle to make ends meet. With the Chaebol having significant political influence, corruption can greatly rise within the country where the ability to bribe government officials and shape policies can eliminate market competition and decrease economic efficiency. Further also affecting innovation within the country as Samsung might not be inclined to producing high quality or unique products because of no competition present. This may hinder Samsungs sales if Samsung does not remain competitive.
The chaebol system can further discourage risk-taking and innovation as large. Established conglomerates may prioritize stability and maintaining their market position over pursuing disruptive, high-risk business ventures. The concentration of economic power spread out to a few large corporations can make South Korea's economy vulnerable to global economic shocks where downturn in the performance of a major chaebol can have significant negative consequences for the overall economy.
As for the rest of the world, Samsung's integration in both South Korea and other nations around the world being a MNC, Samsung has vast global supply chain involving numerous countries which In turn create many jobs and stimulate major economic activity in regions across the world, where the failure or bad business performance can disrupt global supply chains and lead to staff turn over. Moreover, with Samsung’s great market Influence as a major player in multiple markets, Samsung's decisions can have a ripple effect on global supply chains, consumer behavior and industry trends.
Also, with great market dominance in certain markets and the nation as a while Samsung like any large corporation faces continuous scrutiny over labor practices, environmental impact and other ethical issues. And with the extent of power that Samsung has Samsung is exposed to geopolitical risks, where trade disputes and geopolitical tensions can affect people around the world.
While South Korea's chaebol system has driven rapid economic growth, it has also raised concerns about its potential negative impacts on the global economy and consumers. The concentration of economic power within a few large conglomerates can lead to market distortions, reduced competition and limited innovation. Additionally, the influence of these chaebol on government policies can raise concerns about corporate governance and ethical business practices. As South Korea continues to evolve, addressing these challenges will be crucial to ensure a sustainable and ethical future for the nation and the global economy
Sources:
https://www.statista.com/statistics/263579/gross-domestic-product-gdp-in-south-korea/
https://oec.world/en/profile/country/kor
https://www.britannica.com/event/Korean-War
https://www.investopedia.com/terms/c/chaebol-structure.asp
https://www.eia.gov/international/rankings/world?pa=264&u=0&f=A&v=none&y=01%2F01%2F2023&ev=fals
https://www.macrotrends.net/global-metrics/countries/KOR/south-korea/gdp-gross-domestic-product
https://images.samsung.com/is/content/samsung/assets/global/ir/docs/2020_Business_Report.pdf
https://wid.world/news-article/income-inequality-in-south-korea-1933-2022/
https://www.pbs.org/newshour/world/south-korean-president-to-pardon-samsung-leader-lee-jae-yong