A chaebol (; ) is a type of large industrial South Korean conglomerate run and controlled by an individual or family. A chaebol often consists of multiple diversified affiliates, controlled by a person or group. Several dozen large South Korean family-controlled corporate groups fall under this definition. The term first appeared in English text in 1972.
Chaebol have also played a significant role in South Korean politics. In 1988, a member of a chaebol family, Chung Mong-joon, president of Hyundai Heavy Industries, successfully ran for the National Assembly of South Korea. Other business leaders were also chosen to be members of the National Assembly through proportional representation. Hyundai has made efforts in the thawing of North Korean relations, despite some controversy. Many South Korean family-run chaebol have been criticized "for low dividend payouts and other governance practices that favor controlling shareholders at the expense of ordinary investors."
Etymology "Chaebol" is most likely derived from the McCune–Reischauer romanization of the Korean word , without the breve above the o.
The word originates from the Sino-Japanese term zaibatsu (), where means 'wealth' and means 'clan'. The Japanese zaibatsu dominated their economy from 1868 until they were dissolved under the American Occupation of Japan in 1945. The rise and proliferation of the Korean chaebol resembles the Japanese zaibatsu at their peak.
The word has been loaned into English since at least 1972.
History Formation and boom
South Korea's economy was small and predominantly agricultural well into the mid-20th century. However, policies of President Park Chung Hee spurred rapid industrialisation by promoting large businesses, following his seizure of power in 1961. The First Five Year Economic Plan by the government set industrial policy towards new investment, and chaebols were to be guaranteed loans from the banking sector. The chaebol played a key role in developing new industries, markets, and export production, helping make South Korea one of the Four Asian Tigers.
Some businesses that acquired former Japanese assets in South Korea later grew into chaebol. These and other businesses were closely tied to the Syngman Rhee government, allegedly trading favors for payments.
The Japanese colonial government sometimes sought to co-opt local businessmen and wealthy individuals often linked to land ownership, and a significant minority of industries were jointly owned by Japanese and Korean businesses. A few Korean chaebols, such as Kyungbang, came into existence during this era.
The military government aimed to eradicate the corruption that plagued Rhee's when they took over in 1961. Some arrests and corruption charges followed, but many of the accused only paid fines. Corporations and government would increasingly cooperate on the government's modernization plans. Although it led to economic growth, government reliance on chaebol accelerated the concentration of market power.
Park prioritized exports over imports and established performance quotas. The chaebol grew through foreign loans, special favors, and access to foreign technology. The government channeled funds to companies it selected for projects and guaranteed repayment to foreign creditors.
Chaebols expanded alongside South Korea's exports. Production diversified from wigs and textiles in the 1950s and 1960s to heavy, defense, and chemical industries by the 1970s and 1980s. Electronics and high-technology industries were growing by the 1990s. The financial growth of chaebol reduced the need for government assistance.
1990–present
By the 1990s, South Korea was one of the largest newly industrialised countries and boasted a standard of living comparable to industrialized countries.
President Kim Young-sam began to challenge the chaebol, but it was not until the 1997 Asian financial crisis that the weaknesses of the system were widely understood. Initially, the crisis was caused by a speculative attack on the Thai baht, which lead to a sharp drop in its value and immediate cash flow concerns needed to pay foreign debts; widespread foreign investment and financial deregulation across East Asia allowed foreign investors to attack the values of the national currencies of other countries in the region, including South Korea, which spread the financial crisis to the affected countries and caused a downward spiral in the value of the South Korean won. As a result, chaebols, which at this point were overleveraged in short-term debts and already suffering from falling export prices, started going bankrupt: of the 30 largest chaebols, 11 collapsed during the financial crisis.
The remaining chaebols also became far more specialized in their focus. For example, with a population ranked 26th in the world, before the crisis, the country had seven major automobile manufacturers. Afterward, only two major manufacturers remained intact, though two additional ones continued, in a smaller capacity, under General Motors and Renault. Chaebol debts were not only to state industrial banks but also to independent banks and their financial services subsidiaries. The scale of the loan defaults meant that banks could neither foreclose nor write off bad loans without themselves collapsing, so the failure to service these debts quickly caused a systemic banking crisis, and South Korea turned to the IMF for assistance. The most spectacular example came in mid-1999, with the collapse of the Daewoo Group, which had some US$80 billion in unpaid debt. At the time, it was the largest corporate bankruptcy in history. Investigations also exposed widespread corruption in the chaebols, particularly fraudulent accounting, and bribery.
South Korea recovered quickly from the crisis, and most of the blame for economic problems was shifted to the IMF, which had forced the government to adopt 30% interest rate in exchange for a US$55 billion bailout. The remaining chaebols have grown substantially since the crisis, but they have maintained far lower debt levels.
In 2019, the revenue of the largest chaebol, Samsung, was worth about of the South Korean GDP with the company holding billions of dollars in cash. In 2023, the revenue of the top four chaebols (Samsung, SK, Hyundai, and LG) was of the South Korean GDP, and the top thirty chaebol were of GDP.
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