Until the 1960s, South Korea was an agrarian-based economy plagued by poor geography and limited arable land. It looked unable to formulate a competitive economic system that could become integrated into the ever-growing liberalized world order. However, since the 1960s, rapid industrialization and the creation of a highly export-oriented economy have propelled its economic growth. Along with Hong Kong, Taiwan, and Singapore, South Korea became known as one of the four “Asian Tigers,” a term used to define the rapid economic growth of these East Asian states. 

Since the 1960s, the South Korean economy has grown at an almost unprecedented rate. In fact, between 1960 and 1999, the South Korean GDP per capita grew almost ninefold, the third-highest growth rate experienced by any country during said time frame. 

This growth can be primarily attributed to the export-oriented practices of South Korean presidents Syngman Rhee and Park Chung Hee. After the Korean War (1950-53), the Korean economy was almost entirely dependent on the US and international aid, which Syngman Rhee chose to distribute to large export-oriented corporations in industries critical to national growth, such as steel and construction. Once President Park came to power in 1963, he too took a preferential stance toward these large companies, envisioning them as a means to achieve Korean economic growth. Replicating recent laissez-faire, export-oriented techniques that proved successful in Hong Kong during the 1950s, Park provided preferential loans to these large corporations, while protecting nascent domestic industries.

Since Park’s time in office, these large export-oriented corporations, known as “chaebol,” have propelled the Korean economy forward. Chaebol are Korean business conglomerates that are owned by a single-family dynasty over generations and have far-reaching international operations and broad market penetration. Each chaebol tends to be an industry leader in its own respective critical industries. For example, the largest chaebol, Samsung, SK, Hyundai, and LG specialize in electronics, telecommunications, and electronics, respectively. 

The chaebol are by far the largest drivers in the Korean economy; the four aforementioned conglomerates combined yield 40.8% of  the country’s nominal GDP, while the top ten largest corporations comprise 80% of total industrial output. The dominance of these industrial giants has not only benefited their CEOs and investors, but the increase in capital generated from chaebol has helped create favorable economic conditions for the everyday South Korean. During the 1950s, some estimates put the South Korean poverty rate at over 40%, while as of 2020, it had been reduced to 15.6%. Moreover, the average real income in South Korea has risen from $120/ year to $27,000 a year. 

Over time, the chaebol and the South Korean government have become progressively intertwined, with each complementing the other. The government issues bail-outs, loans, and takes up favorable lending practices with chaebol, as they understand their vitality to the Korean economy. Moreover, some of the top chaebol heads have accompanied President Yoon Suk Yeol on official state visits, including a trip to the White House in 2023. While it is evident that the chaebol are an integral pillar of the South Korean system of government, many of the recent issues with this symbiotic relationship have become evident. 

One such example takes place prior to the 1997 Asian Financial Crisis. Financial institutions, such as the government-owned Bank of Korea, provided chaebol with favorable lending conditions, so that they could succeed in penetrating new sectors and international markets. However, due to the crisis, fifteen of the thirty largest chaebol went bankrupt, leading to an economic collapse in South Korea. By the end of 1997, the South Korean won depreciated in value from ₩900 to the USD to ₩1,695. While the economic shock felt in the country can not be completely attributed to chaebol economic dominance, it certainly is a primary factor. These lending practices that favor chaebol are harmful for numerous reasons, one of which is the fact that they neglect to stimulate economic growth among small-to-medium-sized enterprises (SMEs). 

While chaebol contribute greatly to the economy, and their success leads to further economic growth for their employees, in reality, SMEs are the backbone of the Korean job market. As of today, SMEs employ roughly 80% of the South Korean workforce. However, the fact that capital flows are held within chaebol hands creates a hostile market environment for these SMEs and their employees to operate within. According to Per Steinus, founder of Reddal – a global services firm – “Chaebols with their dominating market position absorb the best talent and monopolize technological resources. This power dynamic hinders innovation and limits the opportunities available to SMEs and startups”.

Within Korean society, chaebol hold much prestige, causing many children to be pushed from a young age to study intensely, to one day get accepted into one of these lucrative groups. “Cram courses” have become a popular method to study for the roughly bi-annual Samsung entrance exam. In recent cycles, there has been an average of 100,000 eager university graduates taking the exam; however, of these, only about 5,000 to 7,000 pass. 

Those who are not accepted into a chaebol out of university face a rather disadvantageous job market with high youth unemployment rates. Moreover, those who are fortunate to find positions in SMEs face immense economic disparities with their chaebol-employed counterparts. According to the Council on Foreign Relations, the average pay of workers in SMEs is only 63% that of those in chaebol. This generates further societal tension, as the chaebol employees are beginning to control all the wealth. 

Moreover, the chaebol and the families who own them have gained a status in Korean society on par with celebrities. This, combined with the government’s recognition of their vitality to the Korean economy, has created conditions for them to be insulated from harsh criticism and a devolution of economic and political clout. This has led to an isolation and seeming proletariat-bourgeoisie divide within South Korea, fueled by scandals and chaebol abuses of power. These societal cleavages have further yielded a growing disdain for these corporations among the lower classes.

While many chaebol heads have been prosecuted for their violations of the law, their punishments are often minute or negated by presidential pardons. For instance, Lee Jae-yong, the CEO of Samsung, was sentenced to two-and-a-half years in prison after being convicted of bribery and other criminal charges. However, he was swiftly granted parole by President Yoon in 2022, allowing him to return to running the company without any repercussions. This precedent is incredibly harmful to the democratic process of South Korea; while these chaebol heads have considerable influence on the levers of the Korean economy, they should not be afforded these specialized abatements. 

Until recently, many non-South Koreans, outside of economists and political experts, didn’t truly understand the dominance wielded by the chaebol. However, in 2014, Cho Hyun-Ah, vice president of Korean Air, “flew into a rage” when macadamia nuts given to her on a flight departing New York were served to her in a bag instead of a plate. Footage of the incident went viral around the world, and Cho fell under heavy criticism for her outburst. Her entitlement pulled back the curtain of chaebol-dominance for the rest of the world to see, bringing the conglomerates’ dominant economic status into question. Tried in a Korean court, she was found guilty of violating multiple aviation laws, resulting in her serving five months in prison. Although a short sentence, this is a step in the right direction for Korean legal precedent. Concessions and favoritism should not be provided to these large corporations, or they will undercut society and the democratic systems in place.

The chaebol system was highly beneficial for South Korea in terms of macroeconomic processes throughout the latter half of the twentieth century. The system significantly promoted economic growth within Korea, allowing it to transition from a rural-agrarian-based economy to an industrial, export-oriented powerhouse. However, the deep interlinkage of the chaebol and government has proven harmful for South Korea, worsening economic crises, and leading to economic stagnation in a fair and free-market system. The chaebol also undermines the growth of SMEs and leads to fewer creative projects emerging from the country. Reform measures, such as legal reforms, should be implemented within South Korea to counteract the mal effects of this system.