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‘Republic of Samsung’ viewed warily at home

South Korean firm's enormous influence becomes election issue

by Chico Harlan

The Washington Post

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So sprawling is Samsung Electronics’ modern-day empire that some South Koreans say it has become possible to live a “Samsung-only” life: You can use a Samsung credit card to buy a Samsung TV on which to watch a Samsung-owned pro baseball team in your Samsung-made apartment.

Samsung Electronics is South Korea’s greatest economic success, and, more recently, also the subject of major controversy. Economists, owners of small and medium-size businesses and even some politicians say the company no longer merely powers the country, but in fact overpowers it, wielding influence that nearly matches that of the government.

Debate over how to curb the size and power of Samsung and other family-run conglomerates has turned into the key issue in South Korea’s Dec. 19 presidential election, with polls showing that about 3 in 4 voters feel negatively about the country’s few mammoth businesses and candidates sparring over how far to go to constrain them.

Samsung draws the greatest scrutiny because it is by far the largest “chaebol” — the Korean term for corporate groups that were jump-started with government support — and because it is experiencing runaway prosperity even as the rest of the economy slows. The conglomerate generates roughly a fifth of South Korea’s gross domestic product.

Some Koreans have even taken to calling the country “The Republic of Samsung.”

Famous worldwide for its electronics, Samsung would be one of the largest conglomerates in almost any nation. But in its tiny home country the company acts more as a do-everything monolith, constructing roads and oil rigs, operating hotels and amusement parks, selling insurance, and making not only the world’s best-selling smartphone — the Galaxy — but also selling key components to Apple Inc. for the iPhone, even as the two do battle in a series of lawsuits.

In its domestic market, however, Samsung is far ahead of Apple. Only 1 in 10 South Korean smartphone users has an iPhone, and Samsung holds about 33 percent of the global smartphone market.

Critics say Samsung elbows into new industries, knocking aside smaller businesses, limiting choices for South Korean consumers and sometimes colluding with fellow giants to fix prices while bullying those who investigate. They also see in Samsung the picture of closed-door wealth, a family affair in which Chairman Lee Kun Hee is handing down power to his son.

“You can even say the Samsung chairman is more powerful than the South Korean president,” said Woo Suk Hoon, host of a popular economics podcast. “(South) Korean people have come to think of Samsung as invincible and above the law.”

That sentiment has intensified in recent years, a period during which the firm has obstructed price-fixing investigations — drawing only minor fines — and seen its chairman indicted for financial crimes, only to receive a presidential pardon because it was “in the national interest,” as a government spokesman put it.

South Korea ranks poorly among democratized countries in global corruption rankings, and the traditionally cozy ties between the government and the country’s biggest companies were widely seen as the enabler of the nation’s economic rise.

But Lee’s pardon, in late 2009, helped spur a reversal in thinking. It came at a time when President Lee Myung Bak, a former chaebol man who has kept policies in their favor during his five-year term, was pushing South Korea’s bid to host the 2018 Winter Olympics.

The president thought Lee, a member of the International Olympic Committee, could help the country’s chances of landing the games. Once his record was cleared, Lee in 2010 took 11 trips across the world working for the bid, and the town of Pyeongchang eventually won the rights to host the games — a $20 billion boon for the economy, according to one research institute’s forecast.

Though South Koreans rejoiced over the town’s selection, announced in July 2011, the IOC’s choice did little to soften most citizens’ negative opinion about Lee’s pardoning.

South Korea’s leading presidential candidates say the country has been far too lenient in how it treats its richest businessmen. Chaebol executives who commit crimes should be punished harshly, they all agree, with no chance of official government redemption being issued again.

The candidates say South Korea should prevent conglomerates, Samsung included, from weaving their various companies together in what’s known locally as “cross-shareholding,” a controversial ownership structure in which a family concentrates its shares in a few core companies, then passes investment to other affiliates within the group. The arrangement allows families to control a broad range of businesses, even those in which they hold few, if any, shares.

Though there is broad agreement about some reforms, the level of concern about the chaebol power differs across party lines.

The position of conservative candidate Park Geun Hye is that the conglomerates are merely unruly — a notable view in itself, given that Park belongs to outgoing President Lee’s probusiness ruling party, and that her father — the late South Korean dictator Park Chung Hee — built the chaebol system after taking power in a military coup in 1961. Park said recently that chaebol often steal technology from smaller innovators and force unfair pricing on suppliers.

But the opinion on the far left is that chaebol, particularly Samsung, hold a dangerous level of influence, a viewpoint that caught traction after a former Samsung counsel in 2007 accused the conglomerate of systematically distributing money from a slush fund to influential figures. In the ensuing investigation, a special investigator found no evidence of bribery but did uncover the financial crimes for which Chairman Lee was later pardoned.

“Samsung has the government in its hands,” Lee Jung Hee, a liberal presidential candidate with virtually no chance of winning the race, said in a nationally televised debate Dec. 4. “Samsung manages the legal world, the press, the academics and bureaucracy.”

Samsung, which was founded in 1938 and began by exporting vegetables and dried Korean fish, became a budding power after an alliance was forged between its founder, Lee Byung Chull, and military dictator Park, who controlled the country’s banks and determined who received loans — and how much.

But the firm is now thriving in part because it makes good products — an important point for South Koreans, who are deeply competitive and see in Samsung some of the traits they want for themselves: ambition, speed, the ability to adapt and remain on top.

Still, a majority of chaebol haven’t survived. Fourteen of South Korea’s 30 largest companies were wiped out in a single year during the Asian financial crisis in 1997. But Samsung has been steadily growing for decades. It operates 79 subsidiaries, more than twice the amount 25 years ago, and its size relative to South Korea’s economy has also swelled: The conglomerate now accounts for 28 percent of the nation’s exports, double its share in 1987.

A powerful Samsung is healthy for the country, company spokesman Kevin Cho said, because it makes “major contributions to (South) Korea’s exports, tax revenue and employment.”

Samsung has prospered on the strength of its electronics unit, which has made a decade-long run of smart bets on tiny batteries, low-cost flat panel TVs and smartphones.

The Samsung Group makes a point of never doing any one thing for too long, and its chairman frequently says his employees should feel a sense of permanent crisis.

The group is currently investing billions in green technology, medical equipment and pharmaceuticals.

Samsung is a “survivor” of competition, according to Lee Cheol Haeng, head of the corporate policy team at the Federation of Korean Industries, which lobbies for large-size businesses.

“Many Koreans right now have dual minds about chaebol,” Lee said. “They say, ‘I hate chaebol, but I want my son to work for one.’ “