SCHOOL OF INDUSTRIAL RELATIONS AND ORGANISATIONAL BEHAVIOUR WORKING PAPER SERIES ISSN 1325-8028
HISTORICAL DEVELOPMENTS OF KOREAN CAPITALISM The Hyundai Business Group, 1940s-1990s1
Seung-Ho Kwon Abstract The chaebol, family-controlled conglomerates, which now dominate the South Korean economy constitute a unique type of business enterprise in the development worldwide of capitalist economies. With the support of a developmentalist state, the chaebol played a central role in rapid industrialisation of the South Korean economy, which in turn facilitated the transformation of what were originally small, family capitalist enterprises in the late 1940s, to large scale industrial enterprises in the 1990s. The chaebol employed aggressive diversification and expansionary strategies to achieve monopoly capitalism through dominant market advantages derived from economies of scale and scope. While the chaebol was initially managed by members of the founder’s family, as it expanded, increased reliance on a cadre of professional managers was necessary. However, despite the inevitable devolution of managerial control from founder to second generation and the rise of a powerful managerial cadre, the essential nature of this unique form of proprietary capitalism has so far been retained, along with its economic pre-eminence. The genesis and evolution of the chaebol is examined through an in-depth case study of a leading Korean industrial conglomerate, the Hyundai Business Group, from its origins in the 1940s to the early 1990s.
INTRODUCTION The historical development of large scale capitalist business entities is a frequently canvassed topic of research across the economics, business history and organisational structure disciplines. Most of these studies have focussed on large scale capitalist enterprises in advanced countries such as the United States, England, Europe and Japan.2 In contrast, scant attention has been paid to these enterprises in the newly emergent capitalist economies of the 1
I am indebted to Lawson Smith, Diane Fieldes and Ian Hampson for numerous helpful comments and suggestions in relation to an earlier version of this paper. Expressions of opinion, other than those referenced in the conventional way are my own. 2 See For examples, Chandler, 1962, 1990; Lazonick, 1991; Prais, 1976; Fligstein, 1990; Schmitz, 1993.
East Asian regions, especially those in South Korea (hereafter Korea). This is surprising, given the dominant role of family-controlled conglomerates, the chaebol, in the course of Korea’s rapid industrialisation.3 This paper addresses the evident gap in the literature through a detailed, in-depth case study of a leading industrial conglomerate, Hyundai Business Group, in Korea from its origins in the 1940s to the 1990s.
One of the prevalent themes in the study of large scale industrial enterprises is the evolutionary nature of capitalism, including the logic of economic transformation. Based on his strategy and structure framework, Chandler charts the transformation of American capitalism from that of single entrepreneur-owned and controlled enterprise4 to stock exchange listed companies governed by professional managers, who initiated the development of large scale and multi-divisional industrial capitalism in the early twentieth century, in response to market forces (Chandler, 1962, 1977).
Some studies have provoked controversy by asserting that variations in the timing, degree and forms of growth as between European and American firms, gave rise to somewhat disparate enterprise and country-specific paths of capitalist transformation. (Schmitz, 1993: 28-48). However, many studies have thrown up somewhat similar patterns of capital transformation, for example, those of large scale industrial enterprises in Europe.5
Lazonick (1991) identifies a different pattern in...