Big Business Groups in South Korea: Causation, Growth, and Policies

Abstract

This chapter shows that the magnitude of both problems is a function of the relative power of the big business groups (BBGs). BBG behavior is constrained by both the invisible hand of the market and the visible hand of government. Korea's high growth rate can be explained from many perspectives: export orientation, Confucian culture, correct price setting, intelligent government intervention, technological change, and so forth. The Korean financial system developed considerably during the 1980s, thus reducing sharply the market imperfections the BBGs had traditionally exploited. A major characteristic of Korean BBGs is their conglomerate structure; they are active in a wide range of industries, well beyond anything that can be explained by the traditional arguments for vertical integration. The chapter suggests that the rapid growth of BBGs relative to the Korean economy was halted somewhere between 1981 and 1984; thereafter, they grew at the same rate as the economy, or slightly more slowly.