The Chaebol Returns To The Presidency 1967 [EN]: Chapter 50

50. The Great Shift in the Industrial Paradigm

A cabinet meeting was in session, with the President presiding.

The President addressed the head of the relevant department.

“First, let’s have the report on the Guro Industrial Complex lawsuit.”

“Currently, the farmers who originally owned the land won the first trial, and we are preparing for the second. However, the legal outlook remains unfavorable. We need a countermeasure.”

In 1961, the Park Chung-hee regime forcibly appropriated 300,000 *pyong* [approximately 245 acres] of land in Guro, which was then primarily rice paddies and fields, to establish the Guro Export Industrial Complex (hereafter, Guro Industrial Complex).

The justification given was that the land was documented as military land.

However, 47 farmers filed a lawsuit, asserting that they had legally received and cultivated the land after the Liberation [referring to the liberation of Korea from Japanese rule in 1945] under the Farmland Reform Act.

The court ruled in favor of the farmers in the initial trial.

During Chairman Wang’s era, when the construction of the Guro Industrial Complex encountered setbacks, the Park regime cracked down harshly, even punishing related officials en masse, finding fault with minor discrepancies in the farmland distribution documents.

Based on these flaws, the farmers’ claims were rejected in the second trial.

However, the Supreme Court reversed this decision, remanding the case back to the appellate court, stating that the farmers’ claims were indeed reasonable.

But the court, under government pressure, delayed the retrial. In the meantime, the farmers were indicted for fraud, sentenced to prison, and ultimately, the land was forcibly appropriated for the Guro Industrial Complex.

This became a prime example of the abuse of state power resulting from export-led policies.

Fully aware of these negative consequences, the President gave different instructions.

“Minister, drop the government’s appeal and negotiate compensation with the farmers.”

“Are you abandoning the forced appropriation?”

“Yes. Negotiate with monetary compensation or alternative land.”

“Understood, Your Excellency!”

“And maintain the current size of the Guro Export Industrial Complex. Also, look for suitable sites in the Namdong and Sihwa areas of Incheon. The Gyeongin Expressway is complete, so let’s leverage Incheon’s location as part of the Seoul metropolitan area and its proximity to the Incheon export port.”

The Prime Minister inquired.

“Your Excellency, why are we trying to acquire Guro with state funds when we are relocating the industrial complex to Incheon?”

“People gravitate towards where there are jobs. Soon, Seoul will face an overpopulation problem. Since Seoul will inevitably expand, let’s develop Guro into a residential complex for the working class.”

“……”

“From now on, we will establish industrial complexes nationwide to create jobs and foster regional hub cities to promote balanced national development.”

“Yes!”

“And absolutely do not use the sand from the Han River banks in Seoul; use washed sea sand instead.”

“It’s a very useful resource for construction materials, Your Excellency!”

“No other country in the world has such a wide sandy beach on a riverbank in the city center. It will become a tourist attraction more valuable than gold.”

“Understood, Your Excellency!”

“And let’s build roads according to this plan I’ve drawn, and develop the city by improving the streams and creating waterways.”

The President presented Seoul’s urban development plan.

It was a blueprint for reorganizing the roads into a grid pattern.

The Prime Minister was no match for the President’s profound insight.

The President then addressed the Minister.

“Busan’s uncontrolled development is too severe. It will rapidly expand into the port’s hinterland. Establish an urban plan that lays out roads in a grid pattern.”

“Yes, Your Excellency!”

“And design and reorganize all provincial capital cities with this grid-pattern road plan.”

Next, the Minister of Trade and Industry reported.

“Small and medium-sized enterprises (SMEs) are borrowing at significantly higher interest rates compared to large corporations. If SMEs in financial distress falter, the *chaebols* [large, family-controlled industrial conglomerates] merge them one by one to increase their affiliates or turn them into their subcontractors.”

One of the government’s export-oriented policies was the ‘General Trading Company System.’

If designated as a general trading company specializing in exports, they could receive loans at low interest rates (7~9%), less than half of the market interest rates (15~19%).

Large corporations and SMEs already had different lending rates, so it could not be a fair game in the market.

As a result, the *chaebols* quickly merged or turned struggling SMEs into subcontractors.

As of 1978, the corporate groups controlled by the top 10 general trading companies included Lucky with 47, Daewoo with 41, Samsung with 38, Hyundai with 33, Ssangyong with 20, Kukje with 24, Sunkyong with 27, Kumho with 10, and Samhwa with 30, totaling 304 companies.

The proportion of subcontracting companies among SMEs increased significantly from 12.6% in 1966 to 30.1% in 1980.

From 1973 to 1978, the average annual GDP growth rate was 9.9%, but during the same period, the growth rate of the top 46 *chaebols* was a whopping 22.8% per year.

In six years, the *chaebols* had grown by an average of 3.5 times.

As a result, the share of the top 46 *chaebols* in GDP increased from 9.8% in 1973 to 17.1% in 1978 in just six years.

Even among the *chaebols*, those at the top grew faster; the average annual growth rate of the top 5 *chaebols* was 30.1%, compared to 12.8% for the bottom 25 *chaebols*.

Of course, the unexpected Middle East boom in the mid-to-late 1970s further contributed to the top 5 *chaebols* growing fivefold in six years.

It was the polarization of the Korean economy and the rise of the *chaebols*.

As the gap between rich and poor widened, survival was determined by the size of the company rather than technological prowess.

Therefore, no matter how insolvent a large corporation’s affiliate was, it continued to prosper, while successful SMEs became prey to large corporations overnight. ‘Too big to fail’ became the mantra for Korean companies, expanding into unrelated businesses without specialized technology or products.

The President, who himself came from a *chaebol* family, was well aware of these side effects and now presented a solution.

“Minister, are you considering establishing a Small and Medium Business Administration as a measure to foster SMEs?”

“Yes, Your Excellency!”

“From this moment on, our industry will undergo a major restructuring. We will abolish the large corporation, export-led policy.”

“Are you abolishing the export-led policy?”

The President did not need to focus on fostering large corporations to earn foreign currency, thanks to the Vietnam War boom he had created by altering history and the upcoming Middle East boom.

He had to lay the groundwork for the next hundred years.

“Let’s abandon the criteria for classifying companies into large corporations and SMEs based on sales size.”

Large corporations judged by sales size, regardless of profitability, were insolvent with debt ratios of hundreds of percent.

However, this did not mean blindly supporting small SMEs.

“Minister, how many more years will wig factories or rat skin factories survive even if we provide them with low-interest financing?”

“……”

“Labor-intensive industries will not last more than five years. Machines will replace them, and China and Southeast Asia with cheaper labor will take them over. Let’s transform our industrial structure into a technology-intensive one.”

The attendees diligently took notes on the President’s instructions, like students in a cram school.

It was not just because it was an order from a superior, but because the President had a deep understanding of the industry and market trends and offered solutions that were impossible to refute.

“We will not try to keep failing companies alive but rather promote their *淘汰* [elimination/weeding out]. We will transform the industrial structure into a policy that favors innovative companies.”

During Chairman Wang’s era, he had analyzed why American companies such as Microsoft, Google, Apple, and Tesla dominated the global market.

The conclusion was twofold.

First, specialization.

American companies maximized their specialization by focusing on core technologies in one field, such as mobile phones, telecommunications, semiconductors, or petroleum, while Korean large corporations were like department stores, expanding into unrelated businesses.

Without specialized technology, they duplicated the same industries and engaged in cutthroat competition.

Another factor was talent development.

America sends its brightest students to Silicon Valley.

The person who succeeds in producing a product in the fierce competition of creativity becomes a global tycoon.

On the other hand, in Korea, the brightest students become judges, prosecutors, or high-ranking civil servants.

The smart bureaucrats only think about making money or seizing power by using their positions.

Meanwhile, science and engineering students are treated as mere technicians, and creative writers accept poverty as their fate.

This difference is what determines a nation’s competitiveness.

The President’s policy of favoring innovative companies embodied that philosophy.

The audience stirred at the mention of ‘innovative companies.’

“Minister, launch an Innovative Enterprise Administration, not a Small and Medium Business Administration.”

“Ah, the Innovative Enterprise Administration! Yes, Your Excellency!”

“Let’s manage the incoming dollars by establishing a state-run Industrial Bank.”

“The Industrial Bank!”

“Handle everything from export-import guarantees to corporate loans. Withdraw the existing export preferential interest rate policy and set interest rates based solely on whether it is innovative technology or not. Provide low-interest loans based on technology, not land or factory collateral. Focus on supporting innovative companies.”

“Yes, Your Excellency!”

“Minister of Education!”

“Yes, Your Excellency!”

“In the era of innovative companies, the educational goals for talent development will also change.”

“Your Excellency, how….”

“Right now, all the students with excellent grades are becoming judges, prosecutors, or high-ranking administrative officials.”

“That’s right.”

“Civil servants are service workers. They don’t require that much high-level creativity. Tens of thousands of talented young people wasting away in libraries and cram schools, studying for exams in dark caves, is a sign of national decline in a bureaucratic state. It’s time to break away from the Joseon Dynasty’s civil service examination system.”

“……”

“Encourage universities to promote the creation of innovative companies where scientific and technological creativity is maximized. Provide scholarships to students with ideas and start-up founders from the Industrial Bank, and provide non-stop funding for start-up capital and research and development.”

“Yes!”

“The Innovative Enterprise Administration should nurture and serve experts who turn ideas into products and market them. Create examples of how people can change their lives through innovative companies.”

“Understood, Your Excellency!”

“In the future, even if 100 fail and only 1 succeeds, it will feed the nation.”

The President was instructing a model benchmarking Silicon Valley in the 1970s and 1980s in the United States.

This time, the President spoke to the Minister of Trade and Industry.

“Let’s also support the innovative enterprise policy with laws.”

“……”

“Enact a law to prevent unfair practices, and especially strengthen the patent law and copyright law. Not just nominal technology patents, but also drastically revise the copyright law to show examples of companies going bankrupt if they recklessly infringe on them. Innovative companies can only take root when these basic laws are established.”

“I will keep that in mind, Your Excellency!”

“Develop the currently barren Gangnam area and focus on fostering innovative companies. Let’s create an environment where cutting-edge innovative industries can thrive.”

It was an ambition to bring the Gangnam Teheran Road era [a period of rapid economic growth and technological advancement in the Gangnam district of Seoul] forward by decades.

The President’s instructions continued.

“Companies located in industrial complexes created by the state will only pay 1/10 of the corporate tax and land costs, and the construction costs will be repaid in installments over 10 years.”

“You are giving them tremendous privileges.”

“Instead, factories entering the industrial complex must specify compliance with the three labor laws. We must create a culture where people think about making money through technological innovation, not by exploiting workers.”

“Understood.”

“The Innovative Enterprise Administration must also educate the executives of resident companies and new companies about this advanced labor-management culture and recover innovative financing from companies that do not comply.”

“Understood, Your Excellency!”

“Create a department to support ideas, technical guidance, commercialization, and marketing to manage the flow of innovative funds so that they do not become free money.”

“Yes, Your Excellency!”

The government immediately launched the Innovative Enterprise Administration, and the President attended to give it strength.

The state-run Industrial Bank was established to support this, and the patent law was strongly revised and proclaimed.

The President personally broke ground on the construction of the Gangnam Innovative Enterprise Complex.