Changing Economic Models of Chaebol Capitalism

In late November, 1997, yet another horde of invaders landed on the Korean soil, this time wearing three-piece suits and carrying briefcases. These "invaders" were a large group of numbers crunchers from the International Monetary Fund and their target was the infusion of up to $55 billion in IMF funds to the ravaged Korean economy. Richard Lacayo, in the December 3, 1997 issue of Time Magazine points out: "Just a few weeks before they arrived, Seoul had been calling the idea of an IMF rescue unthinkable. Now the unthinkable is fully under way, and the fund's inspectors have become supervisors of the world's 11th largest economy" (Lacayo, 1997, 37). The real target of the IMF, despite those headlines, is nothing less than the Korean chaebol. Richard Hornik, in the same issue, points the finger of blame squarely on the top-down management structure that characterizes the Korean chaebol. He finds that "this model bred complacency, cronyism and corruption. Isolated from public opinion, just as they insulated bankers and businessmen from the market forces... the iron triangle of bureaucrats, businessmen and bankers... led inevitably to decisions based on personal relations" (Hornik, 1997, 40).

In the Cold War and into the 1960s, the term "Southeast Asia Domino Theory" was often used in the headlines of media around the world. During that period of time, the alleged enemy was Commun

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fact that the country's nominal GNP grew 10.8 percent over the previous year to equal US $480.4 billion, or 11th highest in the world. 1996 was also a difficult year for the Korean economy. Exports reached just $129.7 billion, while imports climbed to $150.3 billion. As a result, the account deficit widened from $8.9 billion in 1995 to $23.7 billion in 1996. Add to that, the falling Korean Won and rising public utility charges forced the consumer price index up 5 percent over the previous year. Also in 1996, South Korean carmakers suffered declines in sales of up to 20% in their home market in 1997 as the economy slumped. Kahn and Shuman note that "overcapacity now has hit most major industrial sectors; Korea has five big car makers to serve a small domestic market. Inefficient investments led to six leading chaebols seeking court protection from creditors this year, setting off a debt crisis" (Kahn & Shuman, 1997, A1). Could these situations have been predicted ahead of time by management of these chaebols? That question is explored in the next section. Part 3: The Business of Chaebols Traditionally, the top management of the chaebols, although fiercely competitive with each other, shared one common trait: absolute di
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Approximate Word count = 4369
Approximate Pages = 17 (250 words per page)