Samsung’s Dangerous Dominance over South Korea

This video by Wendover Productions discusses Samsung's dominance over South Korea's economy and how it became one of the most powerful conglomerates in the country through strategic planning and government support.

The video discusses Samsung's dominance over South Korea's economy and how it has become "too big to fail."

Despite the country's limited natural resources and rugged terrain, South Korea has become the 10th largest economy in the world, largely due to Samsung's success.

The company started as a small grocery trading shop in 1938 and grew to become the nation's most powerful conglomerate, with a stronghold over critical industries and cozy political connections.

Samsung's success was aided by the government's focus on expanding industrial exports and maximizing human capital, as well as providing subsidies and tax breaks to major manufacturers. However, the video also highlights the potential dangers of Samsung's dominance and the need for greater competition in the market.

• South Korea's economy is largely due to the success of Samsung.
• Samsung began as a small grocery trading shop and pivoted to industrial production after the Korean War.
• Samsung became the most powerful conglomerate in South Korea with government support.
• Samsung's dominance has led to concerns about its influence over the South Korean government and economy.
• Samsung played a major role in pulling up South Korea's economy through exports.
• 20% of South Korea's GDP is made up of Samsung group revenue.
• Samsung has permeated into many aspects of South Korean life.
• Samsung's ownership structure is a convoluted web of ownership that can confuse even the savviest financial analysts.
• The Lee family has created a scattered ownership structure that results in complete control of the entire empire.

Samsung’s Dangerous Dominance over South Korea. - YouTube

Introduction

• South Korea is a small, rugged country with limited natural resources.
• Despite this, it has the 10th largest economy in the world.
• This is largely due to the success of one company: Samsung.

The Rise of Samsung

• Samsung began as a small grocery trading shop in 1938.
• After the Korean War, it pivoted to industrial production.
• With government support, Samsung became the most powerful conglomerate in South Korea.
• It acquired other companies and became a major shareholder in several banks.
• By the 1960s, Samsung was estimated to represent 19% of all South Korean wealth.

The Miracle on the Han River

• South Korea's economic rise began under President Park Chung-hee.
• Park focused on expanding industrial exports and maximizing human capital.
• He assigned conglomerates like Samsung the task of getting Korean-made goods to the wider world.
• The government provided subsidies, loans, and tax breaks to major manufacturers.
• Family-controlled corporate groups, known as chaebols, dominated the economy in the 70s and 80s.

Samsung’s Dangerous Dominance over South Korea. - YouTube

The Problem with Samsung's Dominance

• Samsung's dominance has led to concerns about its influence over the South Korean government and economy.
• It has been accused of corruption and unfair business practices.
• Its size and power make it "too big to fail," which could have disastrous consequences for the South Korean economy if it were to collapse.
• There are calls for greater regulation and oversight of Samsung and other chaebols.
• However, any attempts to rein in Samsung's power are likely to face significant opposition.

Samsung's Impact on South Korea's Economy

• Samsung played a major role in pulling up South Korea's economy through exports.
• Other companies like Hyundai and LG also contributed to the country's economic growth.
• South Korea's GDP continued to grow through the turn of the century.
• Life expectancy doubled from 1950 to 1990 while infant mortality decreased significantly.
• Chables showed no sign of slowing down and Samsung continued to expand globally.

Samsung's Dominance in South Korea's Economy

• 20% of South Korea's GDP is made up of Samsung group revenue.
• This economic concentration is unparalleled even at a global scale.
• Samsung's centrality permeates into everyday life in South Korea.
• Young people aspire to become a "Samsung man" and work for the company.
• South Korean society places a high value on working for Samsung.

Samsung's Impact on South Korean Society

• Young people prepare their entire childhood to apply for the opportunity to work at Samsung.
• Only a few thousand out of hundreds of thousands who take the Samsung aptitude test will advance past it.
• Those who don't succeed move on to work for smaller companies, which is seen as a failure.
• Samsung has permeated into many aspects of South Korean life, including smartphones, life insurance, and theme parks.
• The conglomerate's structure is reflective of the way Samsung has followed and captured opportunity wherever it exists.

Samsung's Ownership Structure

• There are 59 major Samsung affiliate companies.
• The Lee family has a continued grip on power through their ownership structure.
• Most major business decisions are settled with a simple majority.
• The Lee family could sell their ownership in one affiliate and use the money to gain control of both affiliates.
• They could then instruct both affiliates to buy up ownership in a third affiliate.

Samsung's Complex Ownership Structure

• Samsung's ownership structure is a convoluted web of ownership that can confuse even the savviest financial analysts.
• The Lee family has created a scattered ownership structure that results in complete control of the entire empire.
• South Korea has one of the highest inheritance taxes in the world, which means that 50% of the value of assets goes to the government when they're passed from one generation to the next.
• Therefore, if the chairman passed five billion dollars in shares to his son, the heir would have to find some two and a half billion dollars to pay the government.
• This was difficult, and so it required some creativity.

The Power Struggle Within the Lee Family

• When the chairman suffered a heart attack, his children were thrown into a power struggle as they used the time to craft a plan that would keep Samsung in family control after paying inheritance taxes upon their father's inevitable and seemingly impending death.
• The numbers were tough, and so it required some creativity.
• Two of the most critical links in the e-family ownership web were Samsung construction and trading or CNT and Choi Industries.
• Therefore, a plan was proposed to merge CNT and Choi while overvaluing Choi and undervaluing CNT.
• This would effectively end up with more relative control over the new combined de facto holding company and therefore more control over the entire empire without having spent as much.

The Controversial Merger

• One CNT share would convert to 0.35 Choice shares.
• CMT shareholders and specifically its largest American hedge fund Elliot started campaigning against the merger.
• They argued that Choi was objectively worth about 3.42 billion, but a merger ratio of 0.35 inflated its value to 4.08 billion.
• Effectively gifting hundreds of millions of dollars in value to the Lee family straight from the pockets of CNT shareholders.
• It was an unbelievably good deal for the family, but they couldn't do it alone.

The Role of the South Korean Government

• The single largest outside shareholder with 11.6 percent of ownership was the South Korean national pension service, which was run by the Ministry of Health and Welfare, which was run by the South Korean government.
• If they could get to President Park, she might be able to get to the pension service.
• Conveniently, they had a back door long-time Park confidante and daughter of an influential cult leader Choi Soon-sil.
• It was an Open Secret among South Korea's power brokers that Choi exerted deep influence over the president's decision-making.
• Choi worked as the owner of an Italian restaurant in Seoul's ritzy Gangnam neighborhood.

Samsung's Political Influence

• Former South Korean President Park Geun-hye and her confidante Choi Soon-sil were involved in a money laundering scheme through two non-profits, the Mir and K Sports foundations, which acted as a top funnel for the scheme.
• Samsung donated a combined $36 million to the foundations at the direction of EJ Young.
• Little is known about the specific inner workings of the scheme, but soon after the state pension fund voted in favor of CNT and Choice merger, the measure passed and the E-family gained control of the Samsung empire.
• Park was impeached and jailed, EJ Young was indicted and jailed, but both were later pardoned and freed.
• EJ Young was appointed chairman of the Samsung group following the death of his father in 2020.

The Power Structure of Enterprise Above Nation

• Corporations cannot run countries, and public dissent towards Samsung is growing in younger generations.
• There is a tenuous power balance between Samsung and South Korea, and it is tough to know which house of cards will crumble first.
• The convoluted ownership structure that keeps the E-family in control or the tenuous power balance between Samsung and South Korea could be knocked down by the very people that make up the entirety of both venerable institutions.
• It is hard to believe that the power structure of enterprise above nation is tenable.
• Younger generations are increasingly fighting back against the cronyism and corruption.

The Justification for EJ Young's Pardon

• President Young So-gyoi justified EJ Young's pardon in a straightforward manner, saying that as the only realistic family heir to the Samsung chairmanship, his leadership was necessary to guide the country's largest company as both recovered from the COVID-19 pandemic.
• While undoubtedly unfair, considering the sheer degree of economic influence Samsung has on South Korea, it might be pragmatic.
• The ends might genuinely justify the means, but it does perpetuate the cycle that seemingly cannot be broken.
• South Korea and especially South Korean politicians cannot survive without Samsung, but to an extent, Samsung can survive without South Korea.
• It can always restructure, relocate, and refocus away from the nation in the long term.

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Samsung's Dangerous Dominance over South Korea

• Samsung is one of the most powerful conglomerates in South Korea, with a significant impact on the country's economy.
• The company's success is due to strategic planning, government support, and a focus on innovation and quality.
• Samsung's dominance has led to concerns about its influence on the government and the economy, as well as its ability to avoid accountability for its actions.
• The company has been involved in several scandals, including bribery and corruption, which have raised questions about its ethics and governance.
• Despite these issues, Samsung remains a major player in the global technology industry, with a strong brand and a loyal customer base.
• The company's future success will depend on its ability to adapt to changing market conditions and maintain its reputation for innovation and quality.

Watch the video on YouTube:
Samsung’s Dangerous Dominance over South Korea. - YouTube