President Park on the ropes

Though for historical reasons they have little affection for the Japanese, the Koreans’ chaebol system has drawn much from the Japanese keiretsu structures. Essentially in both countries, there have been shareholder cross-holdings and investments by banks. In the post-1945 years of economic recovery from wartime devastation in Germany and Japan, the close relationships between companies and their banks underpinned the remarkable achievements of these two countries. The chaebol system in Korea was, however, subtly different. It was very much focused around powerful families who were often bitter rivals. There were many cases where feuding chaebols absolutely refused to work together even on projects where it made eminent financial good sense to do so. Moreover, the Korean banking system never developed to the same international extent as in Japan. One of the obvious advantages of closely-linked businesses is the access to important, even privileged, information. The modern corporate world has regulators who demand level playing fields and transparency. It is perfectly reasonable to assume that the startling economic recoveries in Germany, Japan and South Korea would have faced regulatory challenges decades ago had today’s rules been in place then. The corporate world is nothing if not adaptable. But it could be argued that Korean chaebols have been less quick to move with the times. And the links between politics and big business are stronger in South Korea than in Japan and certainly than in Germany. It is accusations of influence peddling by a close aide to President Park Geun-hye that threatens to bring about her political demise, fully 15 months before her single term of office comes to an end. It is being alleged that the president’s close confident Choi Soon-sil has influenced government decisions when companies paid money into two foundations that she ran. Two other aides have been accused of fraud and abuse of power. President Park has refused to resign but went on TV to apologize for the scandal. Unfortunately, the beleaguered Korean leader is facing an uphill struggle to save her political life. She has the lowest popularity rating of any of her predecessors. Perhaps more tellingly, she is the daughter of a former president, Park Chung-hee. Precisely because of these establishment credentials, in a similar way as Hillary Clinton in the United States, she has come to represent the political elite whose promises and assurances have worn ever thinner. South Korea has been a remarkable success but the wealth that has been created has not been spread evenly. For all the protests of greater transparency and economic liberalization, many ordinary Koreans see themselves as isolated from the close political elite who exercise the real power. It is their frustration that has driven this crisis. The political eclipse of President Park, maybe even her early ouster, will be a tragedy. Her country’s first female president, she arrived in office with real plans to advance relations with the ever-unpredictable North Korean regime. But not only has Pyongyang’s paranoid saber-rattling made any hope of rapprochement impossible, this financial scandal has besmirched her administration to a remarkable degree. Park is being forced to let parliament effectively select her government, which will mean a reduction in her presidential powers. If her enemies have their way, she herself will now come under close scrutiny over the influence peddling and might yet face criminal charges - a sad end to a presidency that began with such hope.