Chaebol | The Vestiges of a Bygone Era

NOTES: So the video didn’t render properly yesterday because I’m very much learning the process as I go along. The video was just audio before, but I got everything to work now, save for the video quality itself, which will definitely be the next issue I tackle. I hope you all enjoy this.

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I want to dedicate this entry to explaining a couple of things that I didn’t go into in the video.

Chaebol is a term that’s even been registered in the Oxford English dictionary, namely because it’s such a unique business structure that has no parallels in the West.

Interestingly enough, however, the term Zaibatsu is also regiestered in the Oxford English dictionary. When you look at the definitions, you’ll see that they’re more or less the same, except for one major caveat — a chaebol is family owned.

But that’s the thing, that’s a misnomer. In fact, the current definition of Zaibatsu actually better fits another Japanese term — Keiretsu.

As mentioned in the video, the Chinese characters for the word Zaibatsu and Chaebol are one and the same. Also as mentioned in the video, the idea originated in Japan, and didn’t make it over into Korea until the 70’s, when former president Park Chung Hee committed a coup to become dictator.

The concept of the Zaibatsu existed well before the 70’s in Japan. In fact, it existed way before the Republic of Korea was in existence. It’s definitely a topic for another video, but the concept of Zaibatsu was well established during the Meiji period, and was a major backbone for the Japan’s empirical ambitions. Mitsubishi is actually a fantastic case of this, as they were the largest of the Zaibatsu during their heydays, and committed many war crimes on behalf of the Japanese Emperor during their belligerent days.

The Zaibatsu died soon after the fall of the Japanese Empire, but in their place rose the Keiretsu. The main difference was that the ties between families and enterprise were severed, in favor of an American approach to doing things.

The Korean situation is rather interesting, because they benchmarked Japan for their economic growth throughout much of the 20th century, or what remained of it after liberation. Unfortunately, their benchmarks were a couple of decades outdated when they were put in place.

Democracy came for the fledgling nation in 1987, by ways of protests and heavy sacrifices by the public. The then-dictator Chun Doo Hwan gave into public pressure, and signed a new constitution, which included provisions for the direct election of the president, along with a term limit of 5 years — a compromise from the various political factions of the day.

This weakened presidential office ended up losing all the control the office once had over the Chaebol. It’s easy to see why — the citizens were now empowered, making it difficult for someone like Park or Chun to take control like that again (of course, there are events that happened later on that I’ll discuss in another video).

The Chaebol went wild with their new found freedoms, and took on debt like there’s no tomorrow. The domestic financial markets didn’t think twice, either, thinking that the status quo couldn’t possibly change, and that the government had their backs.

Unfortunately, with democratic governments, they tend to have their own agendas. And, with Kim Yeong Sam, the government had one thing on its mind — becoming an advanced economy, at least on paper. That meant attaining a GDP per capita of over 10,000 USD, and joining the OECD. The easiest way of doing both was simple — manipulate the currency. If the KRW was overvalued, then the nominal 10,000 USD mark would be easy to hit, and, on paper, the OECD benchmarks would be met.

This forced the government to drain its foreign currency reserves, which later forced them to default on their foreign debt. And the rest is history.

The Chaebols are an interesting vestige of the past, not only for Korea, who created them out of a need to create powerful corporations to become the foundation for the Korean economy, but also for Japan, as it’s a look back into the past when they, too, had such a practice.

It’s also an interesting case study on owner risk in corporations, especially when the owners hold on to control for over 3 generations.

The Chaebols are a comprehensive business case study, one that has the characteristics of the past, but is looking to adapt for the future.

If you liked the video, please do like and subscribe. It means a lot, and it’d be encouraging to see that people out there really care about the things I put together.


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