The conviction and jailing of South Korea’s top business tycoon heralds a drive to reform the country’s giant conglomerates and loosen their grip on the economy, analysts said.
When Jay Y. Lee, de facto head of the world’s biggest smartphone maker Samsung Electronics Co, was jailed on Friday for bribing the former South Korean president and other offenses, the Seoul court condemned “corrupt ties” between business leaders and politicians.
South Korea’s chaebols, or family-run conglomerates, have long enjoyed close, opaque ties to political authorities. They were instrumental in the “Miracle on the Han” — South Korea’s rapid transformation from war-ravaged ruin to Asia’s fourth-largest economy — during which they received privileges in business and protection from foreign competition.
Several — including LG Corp and Hyundai Motor Group as well as Samsung Group — established global reputations while their hundreds of thousands of employees, often effectively hired for life, became the backbone of South Korea’s new middle class.
However, as GDP growth has slowed, public frustration with the chaebols has mounted. They are accused of choking off innovation, distorting markets and engaging in corrupt practices to ensure founding families retain control. Many young South Koreans feel that no matter how hard they work, they will never see their positions improve as their parents’ did.
Samsung is by far the biggest of the chaebols, with its revenues equivalent to about a fifth of the country’s GDP.
Lee’s father, who remains Samsung chairman, was previously convicted of bribery, tax and other offenses himself, and the scion’s grandfather also had brushes with the law, but neither was ever jailed.
However, imprisoning the vice chairman of Samsung for five years — even though the sentence could be reduced on appeal — shows that now no one is immune, the thinking goes.
Lee was also found guilty of perjury and other offenses.
“The unprecedented jailing of the head of the country’s most powerful chaebol will serve as a catalyst for changing the whole society,” said Chung Sun-sup, who runs specialist Web site chaebul.com.
The Seoul Central District Court’s decision was nudging South Korea toward a “more transparent capitalist economy,” Kim Joon-woo of Lawyers for a Democratic Society said.
South Koran President Moon Jae-in plans to loosen the concentration of economic power in the chaebols’ hands, curbing unfair trade practices, including cross-subsidies between units, and implementing tougher regulations.
There have been promises of reforms before, from both sides of the political aisle, but they came to little.
Former Justice Party lawmaker Park Won-wuk blamed a lack of political will and resistance from the chaebols, which warn of negative consequences for investment and employment.
“No politicians have been really free from collusive ties with chaebols,” Park said. “But Moon, differently from his predecessors, owes no debts to chaebols, and his top officials in charge of chaebol reform are thoroughly reformist.”
“Lee’s imprisonment shows they are down to business quite seriously this time,” Park added.
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