What Makes Korea’s Wealthiest Above the Law? The “Octopus Effect” Of Chaebols

The “Octopus Effect” goes way back to South Korea’s post-war era.

Lee Jae Yong (known professionally in the West as Jay Y. Lee), the vice chairman of Samsung Electronics, was recently granted a presidential pardon, cutting his two years and six months prison sentence after being found guilty of paying $8 million in bribes to South Korean President Park Geun Hye and her aide to ensure support for the merger of Samsung C&T and Cheil Industries, which shareholders opposed because it would level up his control of his family’s empire.

In a joint statement, the South Korean government said, “In a bid to overcome the economic crisis by vitalizing the economy, Samsung Electronics Vice Chairman Lee Jae Yong, whose suspended prison term was ended recently, will be reinstated.

Lee Jae Yong | EPA-EFE/JeonHeon Kyun/Pool

On December 5, 2014, Heather Cho (also known as Cho Hyun Ah), then Vice President of Korean Air and daughter of Korean Air chairman and CEO Cho Yang Ho, was enraged when macadamia nuts were served to her in a bag instead of on a plate. She physically assaulted flight attendant Kim Do Hee and made cabin crew chief Park Chang Jin kneel before her for forgiveness as she repeatedly hit his knuckles with her digital tablet. She also made Korean Air Flight 086 turn back to the airport gate despite already preparing to take off from the John F Kennedy International Airport in New York.

Cho was sentenced to one year in prison for obstructing aviation safety on February 12, 2015, but the Seoul High Court found her not guilty of the charge in May 2015. Her sentence was reduced to ten months and two years of suspension. After five months in jail, she was released.

Heather Cho | AP

These are just two examples of how chaebol heirs get off lightly from offenses they have committed, regardless of how grave the violations are. Chaebols are reportedly untouchable and above the law.

In Korea, large conglomerates dominate the economy, accounting for 80 percent of the gross domestic product (GDP). The biggest conglomerates are Samsung, LG, Hyundai, Lotte, and SK, which are so omnipresent they have become known as “octopus” firms, says Professor Yon Kyung Lee, a political sociologist at the University of Toronto. Like an octopus, the far-reaching tentacles of these conglomerates have extended to the topmost levels of politics.

Many leaders in Seoul have equated the success of the chaebols with South Korea’s postwar prosperity. Chaebols were heavily supported after the Korean War, enjoying cheaper electricity, tax incentives, a “Buy-Korea” policy, and even help to suppress union movements. Unfortunately, this support led to business monopolies, oppressed the labor movement, and paved the way for a long history of bribery and corruption.

Former Samsung Chairman Lee Kun Hee was also convicted for tax evasion in July 2009 but pardoned by the South Korean government in December of the same year. | Reuters

To this day, chaebols remain powerful and receive political support because they are relied on for the country’s economic growth.

This is also why Lee Jae Yong was granted pardon. In prison, he was not allowed to function as Vice-Chairman of Samsung. Now that he has been pardoned, he can make major strategic decisions, ranging from governance reforms to chipmaking deals.

How can South Korea counteract the octopus effect? Professor of Economics at the Seoul National University Park Sang In recommends changing the wheels in motion.

Ultimately, these scandals and moral issues of chaebol children reflect the concentration of economic power in their hands. They rule over the country’s legal system and even its politics. For a change, transparent corporate governance and checks and balances are needed, like banning executives who’ve done wrong from returning to executive posts as many other capitalist countries have done.

—Park Sang In


Source: Antics of Chaebol heirs spark outrage again, Lee Jae-yong: Why South Korea just pardoned the Samsung 'prince' and The Chaebol of South Korea: The Conglomerates that Dominate the Korean Economy In Analysis, Asia Pacific, Deep Dive, Economics & Fina