Whoa: Samsung Is Responsible for 20% (!?) of South Korea's Economy - The Atlantic The Atlantic Whoa: Samsung Is Responsible for 20% (!?) of South Korea's Economy Most Popular Talk about a company town... (Reuters) We often bemoan the influence of big business here in the United States. And sure, a few of our companies are monsters (I'm speaking strictly about size). But while the likes of Walmart -- $444 billion in worldwide sales -- might be the corporate equivalent of a giant Amazonian catfish, at least they're swimming around our $15 trillion economy. In South Korea, it's apparently a different story. Samsung alone is responsible for 20 percent of the country's $1.1 trillion economy . For reference, government spending there also makes up about 20 percent of GDP. Here in the U.S., the federal budget makes up about a quarter.* Now, when most Americans think of Samsung, we picture the electronics company currently locked in a cage match with Apple over smart phone patents. But the Samsung Group, as the mother conglomerate is known, is a sprawling network of some 80 subsidiaries that produced about $237 billion in sales last year .

Samsung Electronics is the crown jewel, and the country's biggest individual company. But the empire also includes manufacturers that crank out armored vehicles, oil tankers, and appliances, as well as an insurance company. It plays such an outsized role in the nation's economic life that, according to Bloomberg Businessweek, South Korea is referred to in some circles as "The Republic of Samsung." Samsung is just the biggest of what South Koreans refer to as Chaebols, giant, family owned conglomerates that essentially control industry. It's closest rival is the Hyundai Motor Group, owner of the namesake car company and Kia Motors (and here you thought they were rivals). Combined, the top 100 Chaebols own assets equal to the central government . The four biggest, including Samsung and Hyundai Motors, own 46 percent of that total. So there you have it: South Korea is one giant company town. Go figure. ____________________________________ *Correction: An earlier version of this article inaccurately described the government spending to GDP ratio's of the United States and South Korea. I had drawn them from the wrong World Bank table.

South Korea’s chaebol problem - The Globe and Mail Video: Calgary struggling to find homes for its aging population In the war’s aftermath, though, and particularly after a military coup in 1961, something remarkable happened. Family-owned, South Korean firms – recognizable companies such as Samsung and Hyundai – struck an unlikely alliance with South Korea’s authoritarian government. Protected from competition, showered with cheap loans and encouraged to sprawl into new, strategic industries without fear of failing, these companies grew into global behemoths and built South Korea into a wealthy, export-oriented powerhouse in less than a generation. But like many in South Korea, Mr. Eom, 66, has lost respect for the so-called chaebol – a term that combines the Korean words chae (wealth) and bol (clan). He works for a small manufacturing firm that sells to the chaebol, and he says the large firms often pay late, arbitrarily refuse shipments and use their huge market dominance to bully smaller firms.

He and others have become increasingly frustrated with the chaebol’s growing power and influence in South Korean society, as well as what many perceive to be the arrogance of the children now taking control of the family-run firms as a widely-respected, older generation passes on control. “Things are not the same,” Mr. Eom says. “The problem with the chaebol is that what they earn, they don’t give back to society – they simply spread out with more tentacles.” The chaebol may deserve much of the credit for South Korea’s rapid economic development, but many now fear the country’s massive conglomerates have become far too powerful. Samsung Group alone now accounts for roughly 20 per cent of South Korea’s gross domestic product. South Korea’s economy has slowed sharply in recent quarters, and is pushing up against the limits of its export-led growth. Economic observers say the chaebol’s dominance is now suffocating the country’s attempt to shift gears and foster a more innovative services-oriented economy powered by small businesses. Powerful South Korean exporters are being hit at the low end by expanding Chinese manufacturers and at the high end by Japanese players who have benefited from a deliberately-weakened yen.

Exporters are creating fewer jobs in South Korea as the chaebol move production offshore. That has left large firms profitable, but the domestic economy hurting: South Korea’s household debt is now rising fast, small and medium-sized businesses are still unproductive and failing to grow larger, and the high-value services sector is lagging well behind other countries. “This has raised concerns about Korea’s traditional catch-up strategy led by exports produced by large chaebol companies,” the Organization for Economic Co-operation and Development said in a report last year. Economic observers suggest the chaebol are now thriving to the detriment of other players in the economy – hoarding profits, increasingly focusing on overseas factories, squeezing domestic suppliers, and preventing the growth of small and medium-sized enterprises (SMEs) that employ nearly 90 per cent of South Korean workers. There are also ongoing concerns about crony capitalism and the massive firms’ close relationship with the government.

The chaebol influence In South Korea, long-simmering public anger against the chaebol resurfaced late last year after a sensational incident known now as the Korean Air “nut rage” fiasco, in which Cho Hyun-ah, an airline senior executive and daughter of the company’s chairman, flew into a fit over being served macadamia nuts in a bag rather than on a porcelain dish. Ms. Cho then ordered a taxiing Korean Air plane at New York’s JFK airport back to the terminal to eject the offending flight attendant, violating air traffic regulations. The flight attendant alleged that Ms. Cho also screamed obscenities at her, and that she was later pressured to cover up the incident in interviews with government regulators. The flight’s chief steward added that he was forced to kneel before her and ask for forgiveness. Ms. Cho was eventually sentenced to one year in prison in a case that was followed closely in South Korea. The outrage in South Korea was amplified by concern that the large public companies that dominate the country’s economy are being handed to a new generation of chaebol leaders who grew up wealthy and are simply inheriting executive positions.

Korean Air, the country’s flag carrier, is a division of the chaebol Hanjin, a global shipping giant. Cho Yang-ho, Ms. Cho’s father, is Hanjin’s chairman, and two of his other children also work at the airline. In his office at Seoul’s prestigious Yonsei University, Professor Sang-young Rhyu fumbles through the clutter on his desk and grabs a tin of macadamia nuts. He laughs as he shakes a couple out and hands some to a reporter. But he becomes subdued as he recalls the Korean Air scandal. “That was very shameful,” the professor says, noting that it was “exceptional,” but also symbolic of “very routine behaviour” within the chaebol. But he is more concerned with the broader ramifications for South Korea’s economy and society. He says there is no trickle-down benefit from the chaebol’s economic success to SMEs. Bigger firms are also able to restrict the flow of capital to certain industries and companies, since many have financial services units, and often promote business with other arms of their own companies. “They enter anything that will make them money, from dynamite to ice cream, and they kill the medium-sized businesses in those sectors,” Prof.

Rhyu says. He is also concerned that, because these companies are so huge – and because the failure of a firm like Samsung would be so devastating – the government is overly indebted to the chaebol, which sways government policy. The corporate tax rate remains much lower than other countries, even as social security costs soar, he says, suggesting the government is afraid to do anything that might hurt the massive conglomerates that drive the South Korean economy. “If [the chaebol] fail, Korea would have a nightmare,” he says. “They have intangible power over the government. It’s a structural issue. They have to support the conglomerates to maintain popularity.” The issue is also evident in the justice system. Some chaebol leaders caught in corruption have gone to jail, but many others have been pardoned after clear criminality, which has raised concerns about corporate governance in South Korea. Outside directors have little power and firms remain controlled by the founder families – despite extremely small ownership stakes. Samsung chairman Lee Kun-hee was pardoned in 2008 after being found guilty of criminal tax evasion, partly because he was helping the government with a Winter Olympics bid.

Two other Samsung executives had convictions overturned after helping younger members of the Lee family – Lee Yae-yong, who is expected to take over the company, as well as his two sisters – obtain below-market-price convertible bonds. Hyundai chairman Chung Mong-koo – whose six sons also work at Hyundai, and whose brother runs Hyundai Heavy Industries, the world’s largest shipbuilder – was also pardoned after being found guilty of embezzlement and breach of trust. Kim Seung-Youn of the chaebol Hanwha Group was pardoned after being convicted of assaulting workers with a steel pipe at a karaoke bar after they scuffled with his son – and though he was later jailed again for embezzlement, a court suspended his sentence. The former chairman of the enormous SK Group, Chey Tae-won, was convicted of accounting fraud in 2003, was later pardoned in 2008 – and was then jailed again for embezzlement.

Although other countries also have strong links between politicians and business people, in South Korea the relationship between the chaebol and the government is almost symbiotic: Lee Myung-bak, a former South Korean president who did the pardoning, is himself a former Hyundai executive. Mr. Chey, of SK Group, is married to a daughter of a separate former South Korean president, while the current South Korean President, Park Geun-hye, is the daughter of Park Chung-hee, the former military dictator who lavished favours on the chaebol until he was assassinated in 1979. Last year, Hyundai – the second largest chaebol – stunned investors by outbidding Samsung and paying $10-billion (U.S.) for a single plot of land in Seoul’s famed Gangnam District for a new corporate headquarters. It was three times the appraisal value and the priciest land deal in Asia since the financial crisis, and renewed criticism that the family-run chaebol didn’t care about corporate governance or maximizing shareholder value. ‘Power is beyond description’ Korea was largely agricultural before it was annexed in the early 1900s by imperial Japan, which built up factories and imported machinery.

Some chaebol trace their roots to the industrial assets left behind by the Japanese after its defeat in the Second World War, but the true acceleration came after 1961, when a military government led by Park Chung-hee seized power with a determination to transform South Korea into an industrial power. In the late 1960s, Mr. Park’s powerful Economic Planning Board – modelling off Japan’s success with its zaibatsu and keiretsu conglomerates – encouraged expansion in strategic sectors such as shipbuilding, chemicals, automobile manufacturing and consumer electronics, and by the 1970s, conglomerates had spread into construction. Soon, Samsung and Lucky-Gold Star (now LG) had also opened hotels and department stores. By 1984, the top 50 chaebol accounted for 94 per cent of South Korea’s GDP. But the chaebol’s loan-fuelled hyper-growth often veered toward collapse, with the government funding expansion into unrelated business lines that did not create enough profits to pay back the loans. In 1997, the Asian financial crisis roiled the region and the banking sector buckled under these non-performing loans.

The indebted chaebol, which had sprawled across completely unrelated industries, turned in desperation to the South Korean government, which took a loan from the International Monetary Fund. But it was not enough. Eleven conglomerates went bankrupt, including Kia, and 10 other chaebol in the top 50 teetered. Two years later, the Daewoo group – one of the four largest chaebol – was allowed to go bankrupt under $50-billion (U.S.) of debt, and was sold off. The public anger led to a change in government – the first non-conservatives elected since the Korean War. The crisis scarred South Korea, and the new reform-minded government enacted a serious of corporate governance reforms and stricter regulatory guidelines. But the chaebol continued to grow.

A quick stroll through the financial district of Seoul reveals a skyline made up of chaebol firms – an office for Daewoo’s Shipbuilding and Marine Engineering unit, an office tower for Hanwha (a listed Fortune 500 chaebol that has a solar panel business in Ontario) and a glowing building for the SK Group, which runs the country’s largest mobile provider but has more than 90 affiliates that span chemicals, oil exploration and refining, semiconductors and a baseball team. By 2011, the five largest chaebol made up more than 55 per cent of South Korea’s GDP, while the top 20 accounted for an astonishing 85 per cent. “Their power is beyond description,” says Sunnie Hong, who runs an executive search firm and works for some chaebol firms. “It’s too late to control them. They’re too powerful.” But at the same time, she concedes that all South Korean mothers dream of their children working at chaebol companies. And she would know. “My son is working at Samsung, and I enjoy that,” Ms. Hong says. “Moms are similar worldwide, they just want to see their kids [be] successful.

And success in Korea is Samsung.” The Samsung chaebol On the gleaming main campus of Samsung Electronics in the city of Suwon, just within Seoul’s endless sprawl, yet another new building is rising beneath towering cranes. Paralleling South Korea’s growth, this area used to be farmland before it became a manufacturing zone. “Right over here, there would be trucks going out with 40-foot containers” for export, says David Steel, a Samsung Electronics executive vice-president for communications as he stands among the company’s streamlined skyscrapers. Now the area is changing again. Most of the traffic these days are buses carrying in some of this complex’s 40,000 employees, many of whom work in research and development. Samsung Electronics has around 300,000 employees. And though it is the largest division of the broader Samsung Group, it is still just one part of the chaebol whole. Samsung Heavy Industries makes ships and oil platforms. Samsung Everland operates South Korea’s largest amusement park.

There is also Samsung Life Insurance, group joint ventures with oil giants Total and BP, a hospitality wing that includes the Shilla luxury hotels and duty-free shops, and various financial services wings that do venture capital, investments and credit cards. Samsung Electronics is a conglomerate unto itself, and has benefited enormously from its scale as it purchases various cellphone components from its other divisions while selling those parts to other mobile phone makers. But Mr. Steel – although he admits “there are some synergies between some parts” – plays down Samsung’s size and argues that the chaebol structure confers few advantages in the modern age and that the company now thrives on innovation and advanced research. “At this point, the chaebol label is less relevant than at any other time before,” he says. “Each business has to be globally competitive in its own right.” In January, Samsung reported its first annual earnings decline in three years – with profits dropping nearly 30 per cent – as competition from cheaper Chinese firms grew more intense and Apple released high-end iPhones with larger screens. Rishi Ramachandran, the managing director of market intelligence and Asia advisory firm Group IBI in Seoul, knows the chaebol world intimately.

He used to be a senior account director at Cheil Worldwide, the global ad agency wing of the Samsung Group where Samsung Electronics was the main international client. He describes the account as Cheil’s “lifeline.” Since starting his own company, he’s done work for some chaebol companies, but eventually stopped. He says the large chaebol would appoint an employee whose sole job was to liaise with Mr. Ramachandran’s firm, leading to constant phone calls and irritations. Working with a chaebol was often so onerous and time-consuming that he was unable to take on other clients at the same time, and his staff ended each chaebol project absolutely exhausted. “About five years ago, I decided not to work directly with the chaebol,” he says. Mr. Ramachandran describes the internal chaebol work culture as rigid and risk averse. Although South Korean companies such as Samsung spend huge sums on research and development, Mr. Ramachandran says the chaebol tradition of taking other people’s products and making them more efficiently has bred a culture that discourages bold, new thinking. He remembers working on a campaign with Samsung and being told: “We’re not innovators.

We’re fast followers.” But Mr. Ramachandran is still optimistic. “The reason I work here,” says Mr. Ramachandran, whose firm operates across Asia, is that “Korean teams, when they work well, are amazing.” A lack of smaller firms The struggle for South Korea now is to shift from an economy dominated by enormous conglomerates to one powered by SMEs.To many, the solution seems obvious: Encourage the growth of new creative industries in higher-value technology and services sectors, while boosting productivity at SMEs. “The chaebol system in Korean society, which has its origins in Japan, is a significant obstacle to the growth of otherwise-sound small and medium businesses,” said one technology startup co-founder who wished to remain anonymous. “Chaebol groups should not indiscriminately expand their businesses into other areas and take away the livelihoods of small and medium businesses.” The government has encouraged banks to lend to smaller firms, and bank loans to SMEs did soar after 1997 – surpassing that of loans to chaebol.

But research has shown that the government’s interventions and guaranteeing of loans for small firms, as elsewhere, encourages companies to remain small, may prop up unsuccessful companies, and leaves both banks and small firms unwilling to pursue commercial arrangements. “The starting line is different, the chaebol have a head start,” says Kyung-yong Koh, 32, who works for a small manufacturing company that makes dental equipment. “I think they’re people who just live in a different world. There’s a huge difference between us and them, in terms of finances and assets.” South Korea now has a dismal rate of small firms growing up, what analysts call the “Peter Pan Syndrome.” In the decade from 2002 to 2012, only 696 SMEs out of several million companies actually grew beyond 300 employees, according to Statistics Korea. Jungwook Lim, managing director of Seoul’s Startup Alliance, says direct funding is less important than simplifying rules to start new businesses and grow existing ones, while shielding SMEs. “The government should make an effort to create a level playing field, where small companies can compete fairly against big conglomerates,” Mr. Lim says.

In the end, though, for all the resentment about the power and excesses of South Korea’s chaebol, the lure of a lifelong job is strong. “I think chaebol definitely had an advantage from the government, and a lot of the burden has fallen on ordinary people,” says Yoon Su-gyeong, a 23-year-old sociology student at Korea University. “Chaebol have a debt to give back to society, but all they do is pile up their wealth.” So what does she want to do when she graduates? “It is my dream to work for a large company, and it’s also my family’s dream,” she admits. “It’s a paradox. People will talk smack about the chaebol, but they still want to work for them.” ----------------------------------------------------------------------------- THE BIG FIVE The chaebol are conglomerates that dominate South Korea’s economy. They are responsible for the prosperous East Asian nation’s remarkable development since the 1960s – and South Korea’s current economic success – but there is constant hand-wringing about their enormous power and influence in society. The largest chaebol have dozens of affiliate companies that span various often completely unrelated industries.

Samsung Group Samsung is the largest South Korean chaebol by far, with nearly 500,000 employees, total assets of around $530-billion (U.S.) and total group net sales of about $305-billion in 2013, according to its annual report. It is most well known for its Samsung Electronics unit, which is not only the largest mobile phone maker in the world but churns out fridges, air conditioning units, TVs, laptops, semiconductor and memory chips, and a host of other components it sells to other phone makers. The group also has hotel assets, a heavy industries division that makes ships and oil platforms, a chemicals arm and a global ad agency, as well as insurance and financial services units. Hyundai The Hyundai chaebol, which also owns Kia, builds much more than cars. Hyundai Heavy Industries is the world’s largest shipbuilder – with a shipyard in Ulsan, South Korea, that stretches over four kilometres of coastline – and has expanded into construction for offshore oil and gas projects around the world. Hyundai Rotem, another division, builds everything from advanced train rolling stock to K2 tanks for the South Korean army.

SK SK Group is best known for SK Telecom, but it has around 79,000 employees stretching across 80 affiliate companies that operate in the global energy sector, as well as chemicals, finance, shipping, insurance and construction. LG Originally known as Lucky-Gold Star, LG began as a chemicals and plastics company but expanded into electronics – making TVs and smartphones. In 2014, LG Electronics had global sales of nearly $56-billion (U.S.). Hanwha One of South Korea’s largest chaebol, Hanwha has 52 domestic affiliates and 126 international ones that span manufacturing, construction, energy, chemicals and finance. It is the world’s largest producer of photovoltaics (with operations in Canada) and recently won an $8-billion (U.S.) contract to build an entire city in Bismayah, Iraq. Iain Marlow South Korea country profile - BBC News BBC News Read more about sharing. Close share panel South Korea has developed into one of Asia's most affluent countries since partition in 1948. The Communist North has slipped into totalitarianism and poverty.

The republic was proclaimed in 1948 and received UN-backed support from the US after it was invaded by the North two years later. The Korean War ended in 1953 without a peace agreement, leaving South Korea technically at war for more than fifty years. The following four decades were marked by authoritarian rule, during which government-sponsored schemes encouraged the growth of family-owned industrial conglomerates, including the Hyundai and Samsung groups. They helped transform South Korea into one of the world's major economies and a leading exporter of cars and electronic goods. The US has tens of thousands of soldiers in the country. Read more country profiles - Profiles by BBC Monitoring FACTS Area 99,313 sq km (38,345 sq miles) Major language Korean Life expectancy 77 years (men), 84 years (women) Currency Won President: Park Geun-hye Image copyright Getty Images South Korea elected its first female president, Park Geun-hye, in a close-run contest in December 2012. Her father President Park Chung-hee, ruled the country for 18 years after seizing power in a coup.

In 1974, at the age of 22, Ms Park became South Korea's first lady when her mother was shot dead by a North Korean assassin's bullet intended for her husband. In December 2016, parliament voted to impeach Ms Park, stripping away her executive powers, over a corruption and influence-peddling scandal. Though powerless, she retains the title of president until South Korea's Constitutional Court rules on whether to uphold the motion. Prime Minister Hwang Kyo-ahn has been appointed as acting president. Acting president: Hwang Kyo-ahn Image copyright AFP Prime Minister Hwang Kyo-ahn was appointed interim president in December 2016 after parliament voted to impeach President Park Geun-hye. On assuming the post of acting president, Mr Hwang apologised and said he felt a "deep responsibility" over the political scandal that brought down Ms Park. He urged ruling and opposition parties to cooperate in order to bring back political stability. A Park loyalist, he served as justice minister in her administration before becoming prime minister in June 2015. He is expected to focus on maintaining a stable national security posture, particularly amid prolonged tension with North Korea.

MEDIA Image copyright EPA South Korea is at the leading edge of the digital revolution. It is a trailblazer for high-speed and wireless internet. Around 45 million South Koreans - out of a population of almost 49 million - were online by 2014 (InternetWorldStats). South Korean TV soaps are popular across the region, including in China. They are part of the "Korean Wave" - the export of South Korean popular culture across Asia. Some key dates in South Korea's history: Image copyright Getty Images Image caption The Korean War between 1950 and 1953 killed at least 2.5 million people 1945 - After Second World War, Japanese occupation ends with Soviet troops occupying area north of the 38th parallel, and US troops in the south. 1948 - Republic of Korea proclaimed. 1950 - South declares independence, sparking North Korean invasion. 1953 - Armistice ends Korean War, which has cost two million lives. 1950s - South sustained by crucial US military, economic and political support. 1960s - Major programme of industrial development. 1988 - First free parliamentary elections.

2002 - Battle between South Korean and North Korean naval vessels along their disputed sea border is only one flare-up in the ongoing tension between the two states. What do you do when you reach the top? | The Economist South Korea’s economy What do you do when you reach the top? To outsiders, South Korea’s heroic economic ascent is a template for success. But now it has almost caught up with the developed world it must change its approach Nov 12th 2011 Tweet IT IS a crisp autumn morning in Seoul, and a hopeful fisherman sits dreaming by the Cheonggyecheon stream as the world bustles happily by. Glass skyscrapers rise behind him housing the capital's new financial district. The shopfronts at their base are among the swankiest in Asia. Office workers, families and schoolchildren amble past. Busking fills the air. The water tumbles past plum trees and willows. Twenty years ago, this background would itself have seemed a dream for anyone foolish enough to be trying to fish the Cheonggyecheon. Its waters, dirty and hidden, were trapped beneath a roaring highway; its surroundings were a slum of sweatshops, metal bashing and poverty.

The reclamation of the Cheonggyecheon, one of the great urban-regeneration projects of the world, has about it the air of a dream achieved. So, to a large extent, has the Korea through which the stream flows. In 1960, in the aftermath of a devastating war, the exhausted south was one of the poorest countries in the world, with an income per head on a par with the poorest parts of Africa. By the end of 2011 it will be richer than the European Union average, with a gross domestic product per person of $31,750, calculated on a basis of purchasing-power parity (PPP), compared with $31,550 for the EU. South Korea is the only country that has so far managed to go from being the recipient of a lot of development aid to being rich within a working life. For most poor countries, South Korea is a model of growth, a better exemplar than China, which is too vast to copy, and better, too, than Taiwan, Singapore or Hong Kong.

All three are richer than Korea but all are, in different ways, exceptions: Singapore and Hong Kong are city states, while Taiwan's disputed sovereignty makes it sui generis. South Korea has not merely grown fast. It has combined growth with democracy. Though its spurt began under a military dictator, Park Chung-hee, for the past 25 years the country has had a vibrant parliamentary system. Korea scores the same as Japan in the democracy tally kept by Freedom House, a think-tank in Washington, DC. No other Asian country does as well. At the same time Korea has combined growth with equity. Between 1980 and 1997, its Gini coefficient, a measure of income inequality, fell from 0.33 to an exceptionally low 0.28, before rising back up during the 1997-98 Asian crisis. In 2010, the level was 0.31, a bit worse than Scandinavian countries, a bit better than Canada. A model that worked Now Korea can add resilience to its roster of achievements. It was walloped during the global financial crisis, but recovered faster than any other rich country.

Between June 2008 and February 2009, Korea lost 1.2m jobs. South Korea's relatively open financial system made it vulnerable to the volatility in world markets, a vulnerability that continues. This September, foreigners withdrew over 1.3 trillion won ($1.1 billion) from the stock market and the currency slumped 10%. Yet in 2010, GDP grew by 6%. This year's expansion is likely to be 4%. The unemployment rate is now a covetable 3%. Some of the recovery is the result of Korea's happy dependence on China: it exports more capital goods to China relative to the size of its economy than anyone else, even Germany. But this is only part of the explanation (which is just as well given China's slowdown). The government also initiated a public-works scheme that is mopping up over 2% of the labour force. It introduced an old-age pension and began, then expanded, an earned-income tax credit. All this from President Lee Myung-bak, who was once chief executive officer of Hyundai Construction and is widely assumed to be excessively friendly to big business.

Korea's relentless convergence towards America's standard of living (see chart 1) has barely missed a beat. China's dollar GDP per person would have to grow at 7.5-8% a year for 20 years to reach the heights Korea has already scaled. If the Korean economy goes on growing at 4.5% a year and America's at 2.5%, Korea would overtake America (in PPP terms) only a few years later. To keep growing that impressively, though, Korea will need some new tactics. And it will need to develop them from scratch. When a country or a company is playing catch-up it can look at what others are doing and do it better. This Korea has done well. Hyundai has outcompeted Toyota in the market for reliable, efficient, cheap cars. Korea's shipyards have beaten everyone through economies of scale. All change But this way of doing things works only when others have blazed a trail before you. As you join the ranks of the richest, you run out of beaten track to follow. Your economy comes to depend more on innovation and on learning from your own mistakes than on improving on the successes of others.

The South Korean model of 1960-2010 remains an example for developing countries; but Korea itself now needs something new. The Korean model had four distinctive features: a Stakhanovite workforce; powerful conglomerates; relatively weak smaller firms; and high social cohesion. All these are either coming under strain, or in need of reassessment, or both. South Koreans lay great store by education and hard work. They put in 2,200 hours of work a year, half as much again as the Dutch or Germans. Their reaction to the 2008 slump was to work harder still. During the 2009-10 recovery, reckons Richard Freeman of Harvard University, Korea had the second-largest increase in hours worked in manufacturing, after Taiwan. And the quality of labour has been even more important than the quantity. Along with Finland and Singapore, Korean schools regularly top international comparisons of educational standards, such as those run by the Organisation for Economic Co-operation and Development (OECD), a rich-country club. Korea spends a larger share of GDP on tertiary education than any rich country other than America. Given relatively low wages, this superbly educated workforce is hard to beat.

But with Korea already top of the league tables, it is harder to generate further jumps in income from big increases in hours and skills. Indeed, the immediate problem is merely to maintain its excellence. According to Yeong Kwan Song of the Korean Development Institute (KDI), a think-tank, companies are starting to worry that graduates are emerging from university with the wrong skills. On some estimates, half of recent graduates are failing to find full-time jobs and are going into further study or part-time employment. So while general education remains good, some industrial skills may be declining. One way to boost the skilled labour force might be to have rather more people working rather fewer hours. The extra people would be women, often highly educated ones. Quite a lot of Korean women stay at home—the participation rate for women aged 25-54 is only 62%, the fourth-lowest in the OECD—even though they are usually better educated than men. In almost all rich countries, the best-educated women are more likely to work than their less-educated sisters. Not in South Korea. Shorter hours might encourage some of these skilled women into the workforce. So might a change in attitudes to schooling.

The job of supervising a child's education falls to women, which is one of the reasons why relatively few women have jobs. This does not mean that they have a lot of children instead. Korea has a fertility rate of 1.2, one of the lowest in the OECD. This is in part because those good educations make having children a pricey proposition. An unusually large part of the spending that makes Korean education so good is private, not public. The government spends just under 5% of GDP on education, slightly below the rich-country average. Families add an extra 2.8% of GDP on top of that, easily the highest rate in the OECD. At universities, family spending is three times that of the state. And families spend an estimated 8% of their household budgets on after-hours programmes for each child, an investment which explains the effort mothers put into making sure it pays off. If you have three children, their after-school activities alone could swallow up a quarter of the household budget. The power of conglomerates. Much of South Korea's miracle has been the work of big conglomerates, or chaebol.

Barry Eichengreen of the University of California, Berkeley, argues that they are “among the most technologically and commercially progressive agents in the Korean economy”. Samsung Electronics, for instance, one of 83 constituent parts of the Samsung empire, sells more smartphones than Apple. Korea's shipyards have just started work on a new class of container ships called the triple E-class which are easily the largest container ships ever built (Maersk, the ships' buyer, says the three Es refer to economy of scale, energy efficiency and environmental cleanliness; simpler just to see them betokening EEEnormity). Korea's large companies employ slightly less than a quarter of the workforce and produce more than half the country's output. Chaebol-alikes exist round the world, from Carlos Slim's Group Carso in Mexico to Lee Ka-shing's holdings in Hong Kong. The surviving chaebol have proved resilient. During the 1997-98 crisis, some chaebol's debt-to-equity ratios soared to over 500%; half of them went bust and conglomerates were widely seen as a drag on the economy.

Now, those that came through the time of trial have returned to profitability and respectable debt ratios—but their success still has a downside. After the founding fathers The chaebol system has proved prone to fraud, dodgy accounting and illegal political contributions. Many of the companies depend to an unhealthy degree on a founder or his family. About half the managers of Samsung's firms used to work in the chairman's secretariat—and thus directly for the founder or his son—and owe their promotion to the associated patronage. As with any family business, the moment of greatest danger is when the leadership passes to the next generation. Samsung passed this test in 1987 when the founder handed over to his son, Lee Kun-hee. Now Mr Lee's son, Jay Y. Lee, has been appointed chief operating officer of Samsung Electronics and a new transition looms. If Mr Lee the third has business acumen, fine. If not, the whole country could suffer. Find out how much of an Apple iPhone is actually a Samsung with our "teardown" infographic Moreover, there are signs that the chaebol may be stifling innovation and entrepreneurship. They have proved expert at applying and improving existing technology, even the high technology of touch-screen smartphones.

But except in some internet businesses and computer gaming, South Korea has few start-ups or cutting-edge technology firms. It lacks nationwide venture-capital businesses, says Hasung Jang, the dean of Korea University's Business School, because each chaebol has one of its own. The firms snap up the best and brightest and turn them into company men. Mr Jang compares the conglomerates to light-hogging trees in a forest: their canopy may be impressive, but it is hard for anything to grow underneath. Koreans perceive fewer opportunities for entrepreneurship than any of their peers in rich countries except Japan, according to an annual survey by the Global Entrepreneurship Monitor, set up by the London Business School and Babson College, Massachusetts. As South Korea moves towards the technological frontier, such attitudes will have to change. Innovation is not going to come if everyone shelters from risk in the chaebol. Weak small firms. There is a huge productivity gap between Korea's export-oriented chaebol and small and medium-sized firms (SMEs) which dominate services. Value added per worker in small firms is less than half that in large ones.

SMEs' operating profits were 4.5% of sales in 2007, compared with about 7% for large firms. Small firms spend about half as much on research and development as large ones per unit of sales and borrow far more relative to assets. Over time, their performance seems to be getting worse. Korea, in short, has first-world manufacturing exporters and third-world services. Coddled, not coping There are several reasons for the mismatch. Small firms are crowded out of markets for people and skills by the chaebol. And because chaebol pay scales often rise according to years in service, they squeeze wage bills by firing older workers, with the service sector working as a recycling system for surplus labour. Small firms have also been coddled by the government. Korea maintains various entry barriers to shelter mom-and-pop stores from competition. Government support to SMEs rose from under 6 trillion won in 2008 to 10 trillion in 2009. Public credit guarantees rose from 33 trillion won in the Asian crisis to almost 60 trillion won in 2009. Last year, the government “requested” banks to roll over their loans to small firms.

Randall Jones of the OECD argues that all this help has made SMEs less, not more, efficient, and damaged competitiveness. The richest economies are switching into services that in Korea are dominated by small firms which cannot compete. Social cohesion. Korea's equal distribution of income is changing. Judging by the relationship between the richest and poorest tenth, Korea is becoming more unequal than it used to be. Worse, the growing number of poor people is disproportionately elderly. In other rich countries, people between 66 and 75 are no more likely to be poor than the population as a whole. In Korea, they are three times as likely to be poor. This is all the more worrying because the low birth rate means the country is ageing more rapidly than any other rich country. In 2009, people over 65 were outnumbered ten to one by the working-age population. By 2050, there will be seven over-65s for every ten working-age adults. Disproportionate old-age poverty would have a huge impact on the social backing for policies designed to foster growth.

Not to be left behind Korea's equitable income distribution used to provide a sense that society as a whole was benefiting from breakneck catch-up. But discontent is rising both about inequality and about the role of the chaebol, producing growing disenchantment with both main political parties. The recent election for mayor of Seoul produced an upset win for a left-wing anti-establishment maverick. It is proving hard to resist the trend towards inequality because of another basic feature of Korea's economic model: total tax revenues are just 26% of GDP. Taxes are especially low on labour, a choice designed to boost work and foreign investment. But as a result, social spending is low (11%); public spending on family benefits is exceptionally low (less than a quarter of the rich-country average); and the tax-benefit system is the worst in the OECD at reducing inequality and poverty. Korea's tax-benefit system reduces poverty by only 18% (compared with what it would have been without the benefits). Sweden's tax-benefit system cuts its poverty rate by 80%. Korea, argues Mr Jones, needs to increase taxes and social spending in order to reduce poverty and inequality.

One reason it is reluctant to do this is because it is afraid of the impact on jobs. Its changing demography also suggests caution in expanding the social safety net too fast or far, as it will be used ever more over the decades to come. And then there is the ever-present imponderable: the possible need, at some point, to finance the horrendous costs of reunification with destitute North Korea when that state collapses. That would make the vast expense of unification in Germany pale into insignificance. At some point in the future Korea may need all the room for future fiscal expansion it can get. A bridge to the future The problems of the South Korean model should not be allowed to obscure either its achievements or its continuing strengths. True, over the past 40 years annual GDP growth has declined from about 10% to 4-5% (see chart 2). Business investment has halved from over 30% of GDP in the mid-1990s to 17% in 2010—but that is still 50% over the OECD average. Further declines in growth seem likely. That is not surprising.

As Kwanho Shin of Korea University and Dwight Perkins of Harvard show, every country's growth starts to ebb as its income reaches about $10,000 a year. South Korea has kept going longer than most. If it can increase public spending a little to reduce inequality and poverty, boost its labour supply by encouraging more women to work and avoid compromising its educational standards and penchant for hard work, then it should be well placed to pull ahead of Europeans and catch up with America, too. South Korea has long been a model for outsiders. President Kennedy's chief economic adviser, Walt Rostow, wanted to use it as a testing ground for his theories about stages of economic growth. But Koreans do not see themselves as a blank slate, or as a new world power. They stress a long legacy of openness and innovation. Before the wars of the 20th century Korea was a bridge between the more closed worlds of China and Japan. It developed movable metal type two centuries before Gutenberg; its last imperial dynasty benefited from checks and balances more extensive than in its Chinese prototypes. The more Korea brings these qualities of domestic innovation to the fore, the better its chances of blazing a new trail for itself.

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 South Korean economy expanded a seasonally adjusted 0.7 percent on quarter in the three months to September 2016, easing slightly from a 0.8 percent growth in the previous period, but beating market expectations of 0.6 percent expansion.

Private spending and investment rose at a slower pace, while government spending advanced further, preliminary figures showed. On the expenditure side, private consumption expanded by 0.5 percent (+1 percent in Q2) as expenditures on both non-durable goods and services increased. Government consumption grew by 1.4 percent (+0.1 percent in Q2), with an increase in health insurance benefits. Fixed investment expanded by 2.1 percent (from +2.7 percent in Q2): Construction investment was up by 3.9 percent (+3.1 percent in Q2), with investment in both residential and non-residential building construction increased; while facilities investment contracted by 0.1 percent (+2.8 percent in Q2), mainly due to a decline of investment in transport equipment. Exports expanded by 0.8 percent (+1.1 percent in Q2), with increases in exports of semiconductors and chemical products. Imports also rose by 2.4 percent (+2.1 percent in Q2), owing to expansions in imports of machinery and equipment and overseas consumption by residents.

On the production side, manufacturing decreased by 1 percent (+1.2 percent in Q2), mainly with respect to the production of transport equipment and electronic and electrical equipment in a wake of Samsung’s Galaxy Note 7 recalls and a strike at Hyundai plants. Electricity, gas and water supply rose by 6.9 percent (+0.3 percent in Q2), as the volume of electric power sold increased due to a heat wave. Construction grew by 4.4 percent (+1 percent in Q2), led by an expansion of building construction. Services expanded by 1 percent (+0.6 percent in Q2), as health and social work, and real estate and leasing increased. Compared with the same period of 2015, the economy expanded by 2.7 percent, slowing from a 3.3 percent growth in the previous period but better than market expectations of a 2.6 percent expansion.

The Bank of Korea | Joana Ferreira | joana.ferreira@tradingeconomics.com 10/25/2016 12:15:00 PM South Korea GDP Growth Revised Up to 0.8% QoQ The South Korean economy advanced 0.8 percent on quarter in the three months to June of 2016, higher than a 0.5 increase in the previous period and better than a 0.7 percent growth in the preliminary estimate. It is the highest growth rate in three quarters as private spending, investment and exports rose more than initially estimated, final figures showed. Published on 2016-09-02 South Korea GDP Growth Up to 0.7% in Q2 The South Korean economy expanded a seasonally adjusted 0.7 percent on quarter in the three months to June of 2016, accelerating slightly from a 0.5 percent growth in the previous period and in line with market expectations. A recovery in private spending and exports and rising investment led the expansion, preliminary figures showed.

Published on 2016-07-26 South Korea Economy Expands 0.5% QoQ in Q1 The South Korean economy advanced 0.5 percent quarter-on-quarter in the March quarter of 2016, faster than an earlier projection of a 0.4 percent expansion in an earlier estimate, preliminary estimates showed. It is the weakest growth since the third quarter of 2015 as private consumption, facilities investment and exports contracted. Published on 2016-06-02 South Korean GDP Slows to 0.4% QoQ in Q1 The South Korean economy advanced 0.4 percent quarter-on-quarter in the March quarter of 2016, slowing from a 0.7 percent growth in the previous period, preliminary estimates showed. It is the weakest growth since the third quarter of 2015 as private consumption, facilities investment and exports contracted. Published on 2016-04-26

Question: What company is responsible for 20% of South Korea's GDP?
Answer: Samsung