Chaebol: A Dominant Capitalist System

You may not know what chaebol are, but they have an enormous impact on the world you live in. If you are an active member of the American business community then you probably already know that the biggest problem with U.S. business is the disconnect between entrepreneurs and the capital they need to pursue their innovations. There is a wealth of investors with ready capital, and a glut of entrepreneurs who want to innovate, but when these two vital economic entities connect it is more often by chance than by design. Human nature leads us to assume that this is the way business is conducted by all capitalist nations, but this perception of a level international playing field is illusory.

A chaebol is a South Korean business conglomerate. A business conglomerate is a group of businesses which are interconnected. In Japan, large conglomerates are referred to as keiretsu, such as the Fuyo keiretsu which contains two private banks as well as Canon, Hitachi, Nissan, and Yamaha, just to name a few of the companies known well in this country. In South Korea, chaebol make up almost 100% of the economy.

Each chaebol produces billions of dollars in revenue each year and is made up of a multitude of sub-companies with semi-independent goals. The Samsung chaebol, for example, contains at least 13 electronics companies, 3 machinery and heavy industry companies, 5 chemical companies, 6 financial services companies, 3 retail services companies, 3 engineering and construction companies, 7 entertainment companies, and at least 15 various other companies, research institutes, or organizations of other types.

Because of the complete domination of the South Korean economy by the chaebol, innovators in South Korea know exactly what to do in order to pursue their ideas.

American innovators spend years working without support or resources, attempting to jump through a confusing array of hoops for the chance that they will be noticed by someone with the capital to fund their innovation; almost all still fall through the vast cracks in our economy regardless of the quality of their concept.

A South Korean innovator can simply select a chaebol, get a meeting, and pitch their idea to a person who actually has the means to get them started developing their venture. The chaebol economy leaves no room for hordes of con artists to manipulate and confuse innovators by taking advantage of the disconnect between entrepreneurs and investors – no such disconnect exists.

There are drawbacks to the system. For instance, each chaebol is centrally controlled by a family, meaning that if you are not a member of one of the chaebol families then there is a limit to how high in the management structure of a chaebol you can reach. Also, while an innovator can obtain recognition and some profit from a venture they develop through a chaebol, the vast majority of the profit from their first venture will go to the chaebol; however, each success will grant said innovator more power and recognition within the chaebol and earn them a larger share of the profits from future ventures.

None of this is meant to imply that a chaebol system is the ideal capitalist structure, merely that is has eliminated one of the biggest impediments to innovation and economic prosperity, and therefore deserves to be studied, especially by those of us wishing to have a positive effect on our own system. For an examination of the growth of the U.S. economy from 1900 to present, take a look at this post.