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What is a Chaebol?

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  • Written By: V. Mala
  • Edited By: Lucy Oppenheimer
  • Last Modified Date: 13 September 2016
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Chaebols are large groups of family controlled companies in South Korea. Literally, the word chaebol, pronounced jay BOL or chay bol, means business association. Chaebols are said to have originated during the late Chosun dynasty before the formal Japanese annexation in 1910. The largest and the oldest chaebol in Korea is the Doosan group founded in 1896.

In the present form, chaebols have political affiliations and most large chaebols are government owned. This form of government-owned chaebol came into being during the rule of Park Chung Hee (1961-1979). Park based his model of the chaebol on the Japanese zaibatsu system, the only difference between chaebols and zaibatsu is the source of capital. Banks funded the zaibatsu whereas a chaebol cannot own a bank.

When the banks of South Korea became nationalized, it was possible for governments to manipulate the success of different chaebols. Government sponsored chaebols were allotted government funds and given special privileges. Large companies were expected to cater to the export market and achieve increased profitability through large scale productions.

During times of inflation, the government favored the chaebols it invested in or that showed good performance. The government also supplied them with projects and foreign loans. As a result, the chaebols dominated Korea's economic scene in the late 1990s. The Korean government controlled these chaebols, allowing some to grow and some to decay.

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Chaebols played a huge role in the technological advances of Korea and also helped in expanding research and development (R&D) activities. It was because of these chaebols that, by the end of the 1970s, Korea had developed some of the largest industrial companies in textile, shipping, plywood, cement and heavy machinery.

Korea's tremendous economic development over the past three decades is attributed to its chaebols. But in reality only government-favored chaebols showed economic success while the others faced the weight of huge debts. As chaebols relied upon political support rather than their own performance, their success rate fluctuated with changes in government. Only three of the ten largest chaebols in 1965 survived for the next ten years; these were Samsung, LG and Ssangyong. Due to their huge debts, the International Monetary FUnd (IMF) has suggested that chaebols undergo total reform. It is not an easy task to sever the ties between business persons of the Chaebol and South Korea’s politicians.

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