An estimation of the productive efficiency of chaebols of Korea and their reform

Abstract

The chaebols in Korea contained some problems. One is that they have represented a disturbing concentration of market power. There is no evidence of the big firms colluding; for the most part they compete fiercely. But, taken together, the four biggest chaebols, Hyundai, Samsung, Daewoo and LG, employ only 3 per cent of the workforce while accounting for almost a third of the total sales of all South Korean companies. These four groups alone handle nearly 60 per cent of total exports. The concentration of ownership is tighter still, the families that founded the top 30 chaebols still own perhaps 60 per cent of their combined equity. The formation of chaebol and its developing process will be reviewed and some points of their systematic problems will be summarized in this paper. Adjustment cost and equity on the reform of chaebol also will be discussed. It is natural to argue that the productive efficiency engaged in super size enterprise group should be one of the objectives which inflict large costs on the economy. It can be suggested that more reform would be efficient in choosing a new system. Professional management seems to be one of the practically efficient outcomes. As a efficient policy, it will withstand future policy challenges better than the status quo. In terms of economic efficiency and equity as well, professional management systems which clean out illegal behaviour consistently may represent an optimal mix as long as they are under the present system.