Samsung heir's jailing heralds reform drive: analysts

The conviction and jailing of South Korea's top business tycoon heralds a drive to reform the country's giant conglomerates and loosen their grip on the economy, analysts said.

The conviction and jailing of South Korea's top business tycoon heralds a drive to reform the country's giant conglomerates and loosen their grip on the economy, analysts said.

 

 When Lee Jae-Yong, de facto head of the world's biggest smartphone maker Samsung Electronics, was jailed Friday for bribing South Korea's former president and other offences, the Seoul court condemned "corrupt ties" between business leaders and politicians.

It is far from the the first time these links have been made public. South Korea's chaebols, or family-run conglomerates, have long enjoyed close, opaque ties to political authorities.

"There is a well-founded concern that Korean corporations have too much financial influence over the political system through favours and friendships," Robert Kelly, professor of political science at Pusan National University, told AFP.

The chaebols were instrumental in the "Miracle on the Han" -- South Korea's rapid transformation from war-ravaged ruin to Asia's fourth-largest economy -- during which they received privileges in business and protection from foreign competition.

 

Several South Korean 'chaebols' -- including the likes of LG and Hyundai as well as Samsung -- established global reputations while their hundreds of thousands of employees became the backbone of the country's new middle class
(AFP/File) 

Several -- including LG and Hyundai as well as Samsung -- established global reputations while their hundreds of thousands of employees, often effectively hired for life, became the backbone of South Korea's new middle class.

But as GDP growth has slowed, public frustration with the chaebols has mounted. They are accused of choking off innovation, distorting markets, and engaging in corrupt practices to ensure founding families retain control.

Many young South Koreans feel that no matter how hard they work, they will never see their positions improve as their parents' did.

When millions of people took to the streets to demand president Park Geun-Hye's ouster over a burgeoning corruption scandal, their anger was directed almost as much at the companies that paid her secret confidante Choi Soon-Sil, as at her.

After Park's impeachment and dismissal, new president Moon Jae-In won a sweeping election victory campaigning on a platform of reform.

'Unprecedented jailing'

Samsung is by far the biggest of the chaebols, with its revenues equivalent to around a fifth of the country's GDP.

 

Samsung Group heir Lee Jae-yong leaves the Seoul Central District Court in Seoul
(POOL/AFP) 

Lee Jae-Yong's father, who remains Samsung chairman, was previously convicted of bribery, tax and other offences himself, and the scion's grandfather also had brushes with the law, but neither was ever jailed.

Chaebol leaders have regularly enjoyed such privileges in the past, with trials ending in light or suspended sentences and courts citing their contributions to the economy.

But imprisoning the vice chairman of Samsung for five years -- even though the sentence could be reduced on appeal -- shows that now no-one is immune, the thinking goes.

Lee was also found guilty of perjury and other offences.

"The unprecedented jailing of the head of the country's most powerful chaebol will serve as a catalyst for changing the whole society," said Chung Sun-Sup, who runs specialist website chaebul.com.

 

South Korean protesters hold placards reading "Lee Jae-Yong Out" demanding punishment of the Samsung heir
(AFP/File) 

Kim Joon-Woo, of Lawyers for a Democratic Society, said the Seoul Central District Court's decision was nudging South Korea toward a "more transparent capitalist economy".

"We welcome it as a warning signal over the dishonourable ties between politicians and businesses," he said.

Moon plans to loosen the concentration of economic power in the chaebols' hands, curbing unfair trade practices including cross-subsidies between units and implementing tougher regulations.

His ruling Democratic Party is seeking to limit acquisitions by subsidiaries of the top 10 chaebols, and prohibit new cross-shareholdings between them -- a favourite technique of founding families to maintain effective control with only a small ownership stake.

'No debts'

There have been promises of reforms before, from both sides of the political aisle, but they came to little.

Former Justice Party lawmaker Park Won-Wuk blamed a lack of political will and resistance from the chaebols, which warn of negative consequences for investment and employment.

"No politicians have been really free from collusive ties with chaebols," said Park. "But Moon, differently from his predecessors, owes no debts to chaebols, and his top officials in charge of chaebol reform are thoroughly reformist.

"Lee's imprisonment shows they are down to business quite seriously this time."

Corruption remains "the single biggest issue" in South Korea, professor Robert Kelly told AFP.

Corruption watchdog Transparency International, ranked South Korea 52nd out of 176 countries in its perceptions index for last year, well behind neighbours Hong Kong, in 15th place, and Japan in 22nd spot.

"South Korea needs to keep him in jail," he said of Lee. "That should send a signal to other corporate executives that if you get caught, you will really serve jail time."