Pitting the Korean Chaebol Against the Japanese Keiretsu

Japan and South Korea have been able to develop one of the largest economies in Asia largely due to the presence of its major corporations, known as keiretsu and chaebol respectively. However, as of recent times, they have faced mounting criticism such as its rigid hierarchical system and power to disrupt small businesses. Here is a comparison of the characteristics of the chaebol and keiretsu, as well as how the attitudes toward them domestically.

The keiretsu (Japanese for series) are a group of interlocking companies with close business relationships, and together they are administered by a bank or trading firm. They were formed after the Second World War when the Allied Occupation outlawed the institutions that allowed the old zaibatsu system to work. The zaibatsu (Japanese for financial clique) were conglomerates that became instrumental in growing the Japanese economy after the Meiji Restoration, and had extensive connections to the government. In the end, the Allied Forces never managed to completely dissolve the zaibatsu, as many were eventually acquired by larger which later evolved to the keiretsu. The process was attractive to the remaining zaibatsu since they were protected form stock market fluctuation and takeover attempts from foreign companies. While remnants of the zaibatsu still exist today, the structure of a keiretsu is significantly different. Aside from being controlled by professionals rather than families, keiretsu are much more decentralised since it now consisted of autonomous firms instead of different sections of a conglomerate.

In popular culture, the Japanese keiretsu are by far the most widely recognised, as many know them large firms with the capability of producing a wide array of goods. In Civilization VI, Japan’s unique infrastructure is the Electronics Factory, which is essentially a simplified inspiration of a keiretsu.

The chaebol (Korean for rich clan) also emerged around the same time in during the 1960s after Park Chung-hee became the South Korean President following a self-led coup. Prioritising economic growth, Park’s new industrial policies accelerated the growth of large businesses. He also encouraged the banking sector to invest in them, where they eventually evolved into the giant conglomerates seen today. Unlike the keiretsu, chaebol actually have more in common with the zaibatsu, since they have always been administered by families. Predictably, the values and ethics of a chaebol depend on the families that run them and may not align with public standards. The chaebol also do not have an exclusive financial institution, as reforms from the South Korean government prevented banks to maintain exclusive relationships with corporations.

Both the Japanese and South Korean people view the keiretsu and chaebol as important players in their domestic economies, as well as sources of national pride. However, they have recently faced criticism for both its outdated structures of leadership and business operations. The keiretsu have been criticised for centralizing all power to the top firms, where they are able to exploit smaller firms in the same network by forcing low prices. In many instances, the profits gained from the largest firms have come at the expense of the smaller ones.

In South Korea, the chaebol have become notorious due to its close connections to the government, and the corrupt practices that have been involved. Recently, former President Park Geun-hye was sentenced to 24 years in prison for her abuse of power plus her involvement with the chaebol. From the same scandal, corporate officials such as Vice President of Samsung was also arrested after he was found to have bribed the government over $30 million. Within the domestic economy, there have also been demands to reign in the power of the chaebol due to their monopolistic behaviour, and their tendency to take opportunities away from emerging companies.

Although both the chaebol and keiretsu have played significant roles in recovering the postwar economy of Japan and South Korea, its unchecked power has led to adverse effects in both the economic and political realms. If their influence of these corporations continue to grow, they will only become clearer examples of crony capitalism.

Above Photo: A rainy day in Tokoy’s Shibuya district, known for its reputation of a commercial hub. (Finan Akbar, Unsplash)

1 Comment

  1. Information helpful for helping me understand how Japan and Korea developed economies rapidly after WW2 and the strategies therefor used to effectuate. . .idea of rapid.

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