Korean workers take on the dragon

By Laurent Carroué, Le Monde diplomatique, February 1997

The UK economic model, with its excellent macro-economic indices and its disintegrating society, is meeting with growing opposition elsewhere in the world. Workers in South Korea staged protests this January and are now demanding greater democracy.

In the space of three decades South Korea has become an economic power. It comes second in the world in shipbuilding, third in consumer electronics, fifth in the motor industry, sixth in iron and steel, and it is the twelfth biggest importer and exporter in the world. Between 1963 and 1995 its gross domestic product (GDP) increased twelvefold in real terms and per capita income sevenfold and in the last 15 years industrial output increased 450%.

This extraordinary growth is due to the chaebols (large multinational conglomerates). Samsung, Hyundai, LG Group, Daewoo, Sangyong, each with two thirds of their shares in the hands of their founding families, were the architects of the development project launched by a military, nationalist and interventionist regime (1). In three long phases (1953-1961 import substitution; 1961-1973 export promotion; 1973-1980 development of heavy industry), South Korea has changed from a developing country into a newly industrialised state, becoming one of Asia’s biggest dragons. Its capital Seoul is one of the world’s most expensive and most polluted cities (2); the tap water is contaminated with heavy metals and rarely drinkable.

The territorial imbalances and those of the urban hierarchy—with Seoul’s top-heavy growth (3)—are considerable. Population densities are high with the rate of urbanisation set to rise from 28% in 1960 to 86% in the year 2000. Unbridled property speculation is enriching the 5% of the population that own two thirds of the private land (4). Disasters are on the increase (with the collapse of bridges; and of the Sampoong department store in Seoul in 1995, which left 500 dead and 900 wounded). Finally, access to credit is hampered by very high interest rates (25%).

A further price paid for the country’s economic success (together with the sacrifice of its environment, housing and transport) has been the exploitation of its workforce (5). In the 1970s there was a horrific immolation of protesting workers. A degree of freedom for trade unions was only achieved in 1987 after particularly violent demonstrations. In 1996 the Korean Small Business Federation which employs most of the foreign workers—known as industrial trainees and thought to number 150,000 (legal and illegal)—published a booklet advising its members not to ill-treat their employees (6).

This was the price for Korea’s admission at the end of 1996 to the rich countries’ club, the Organisation for Economic Cooperation and Development (OECD). But the sacrifice is not over. The chaebols, which control most of the economy (the ten largest account for 23% of national output and 60% of exports) are giants with feet of clay. With massive debts (7), they survive only with the solid support of the government-controlled banking system. The chaebol can prosper only under the protection of an authoritarian state, underpinned by close ties with the political leadership (Samsung owes everything to the first post-war president, Syngman Ree, and the rise of Daewoo would have been impossible without the protection of the former president, General Park Chung Hee). But the collusion between business, government and civil service has ended in widespread corruption, as evidenced by the various trials sullying the names of the country’s leading businessmen and politicians (for instance, General Roh Tae Woo, head of state between 1988 and 1992, amassed a fortune of 430 million pounds).

The chaebols are equally embroiled in the close economic and strategic ties forged during the cold war with the United States and Japan, who respectively hold 18% and 24% of the Korean market and are responsible for 29% and 37% of foreign investment. That dependence also extends to trade: exports, which accounted for only 2% of GDP in 1961, made up 35% in 1995, with a clear specialisation in electronics (38% of exports) and textiles (15%), followed by chemicals (7%) and shipbuilding (5%). But the chaebols, which practice aggressive dumping (selling at a loss) to take hold of foreign markets and crush the competition, are open to all sorts of retaliation, as in February 1996 when Brussels decided to impose a 24.4% tax on microwave ovens imported from Korea.

The chaebols’ final handicap is their dependence on foreign technology due to the low priority given to research and development. Shipyards, for example, pay large fees to Japanese groups (5-10% of the price of the vessel). The same applies in the motor industry. When Hyundai boasted in 1993 that it had designed and built its first car all on its own, 11% of its capital was in fact owned by Mitsubishi. Likewise, Kia was 7.5% owned by the Japanese Mazda, and Daewoo had scarcely broken its link with General Motors.

Since then the chaebols have gone into many joint ventures in order to get hold of foreign technology at the best possible price, while pursuing a systematic policy of technological and industrial monitoring and espionage, directed first against Japan, then the United States and now Europe. Daewoo Motors, for example, has taken on former BMW, Porsche and General Motors engineers, has opened research centres in the United Kingdom and in Munich, and is cooperating with an Italian design centre.

But now, at last, the chaebols are going to lose their protected domestic market. Having joined the OECD, from 1997 Korea will have to open its public contracts to foreign firms in accordance with agreements signed with the World Trade Organisation. The lifting of tariff protection threatens between 5% and 12% of local output and between 170,000 and 405,000 jobs (8), and the state will have to step aside. But even now, it is no longer acting as a regulator between chaebols with conflicting interests, as is evidenced by Samsung’s new offensive in the car sector, challenging Hyundai’s supremacy head on.

The logic of war

Hoist on the petard of their own economic warfare, the chaebols are also trapped between the high value-added products of the developed countries and the low-wage-cost mass production of Asia’s emerging nations. This means they are condemned to devour one another or accelerate the globalisation of their production bases.

Each chaebol’s strategic objective is to become a multinational giant in the new world industrial and technological landscape of the 21st century. Samsung wants to rise from 18th to 10th place in the world league table. Daewoo (33rd in the world table) plans to double its foreign sales in five years, conquer 10% of the world market in its main products and triple its number of sites in Europe (to 180 in the year 2000).

Their foreign investment increased 28% between 1995 and 1996, reaching a total stock of some 10.6 billion pounds. Although China (30% of the stock in 1994) and the rest of Asia (18%) have taken priority over the United States (25%), the main target for the past three years has been western and eastern Europe (20%). This, in three main industrial sectors: aeronautics, electronics and the motor industry.

In aeronautics Korea’s priority is to loosen the American grip (construction of military aircraft under licence) and gain technological independence. In 1995, for example, Samsung signed a research agreement with the German DASA and in November 1996 acquired the bankrupt Dutch aircraft manufacturer Fokker NV in return for state aid of 0.2 billion pounds (9). But the other chaebols refused to be involved in the deal, and Hyundai went so far as to break ranks by teaming up with American aircraft manufacturer McDonnell Douglas.

In consumer electronics, the chaebols are branching out. Samsung has taken control of the American computer firm AST and is increasing its technological cooperation with Toshiba, NEC, IBM, ATT and Hewlett Packard. Hyundai has launched the attack in semiconductors, investing 2.4 billion pounds in Scotland, where the LG Group (which bought up American television manufacturer Zenith) is itself investing 1.7 billion pounds. On 1 January 1997 Kohgs bought the German BASF (audio, video, computer disks, 3,700 workforce, and 0.6 billion pound turnover). Daewoo just missed Thomson Multimedia. In all, the biggest chaebols have set up some thirty factories in Europe (United Kingdom, Spain, Italy, France, the Netherlands, Germany, Portugal, Slovenia, Poland, Hungary, Turkey). And they hold 40% of the European market in microwave ovens.

In the motor industry, the offensive is under way. Korean firms increased their sales in western Europe by 39% in 1995. With only 2% of the market, however, the Koreans are still far behind the Japanese (with 10.7%). But Daewoo, for example, is aiming to increase output from 700,000 to 2 million vehicles a year, 50% of them built abroad, in China, India, Romania, Poland, Uzbekistan, Iran, the Philippines, Indonesia, Vietnam, the Czech Republic and the Ukraine.

This frantic internationalisation is following the old recipes that have been so successful for the chaebols in the past: technological piracy, albeit of a civilised kind, buying up high-tech firms in the industrialised countries and exploiting the workforce, this time a foreign one. Having bought a car assembly plant in Uzbekistan in 1993, Daewoo managed to get labour legislation changed so as to allow continuous production with three eight-hour shifts.

To protect its local output, Daewoo also persuaded the authorities to impose a 50% customs duty on imported cars. Another example of chaebol behaviour in a market which it has captured came in September 1996, when Daewoo, which invests 1.2 billion pounds in the Polish motor and electronics industries and real estate and sponsors the Warsaw football club Legia, threatened to pull out if Warsaw agreed to its rival, Hyundai, opening a car assembly plant.

Long working hours

What of the fate of the Korean worker amidst this zeal for conquest? Rather than invest in education, training, research and better profit- sharing, the chaebols are taking the easiest route: mass sackings of over- expensive labour and a return to low wages.

Since 1987, however, the democratisation movement (free trade unions, abolition of censorship, rights of opposition) has broken the yoke under which the chaebols and the state held Korean society in the name of the national interest. The workers have wrested wage increases (of 8.4% a year) after severe labour disputes—even though the minimum wage only applies in large enterprises and affects less than 10% of the workforce. South Korea’s unit wage costs are already 89% of European levels. Indeed, workers in big companies are better paid than in the United Kingdom (see Guillaume Robin’s article). The raising of the standard of living has given rise to new demands for improved social rights (general retirement system, social security, democratisation of education) and a better quality of life.

The appearance of a consumer-mad middle class (10) is creating a large balance of trade deficit at a time when exports are stagnating. At the end of 1996 the government of President Kim Young Sam, a former dissident under the military dictatorship and the country’s first civilian head of state for thirty years, put austerity back on the agenda. He ordered the Koreans to consume less (no end-of-year presents) in order to preserve the major macro-economic balances, and abolished thousands of civil service jobs.

Finally, on the pretext of Korea joining the OECD, the government came to the aid of the chaebols with new and regressive labour laws. These simplify redundancy procedures and call into question job security (one of the few achievements, and that enjoyed by only a limited number of employees). They also increase the already high number of hours worked (the legal working week is fifty-four-and-a-half hours), make it easier to replace strikers by temporary workers, and prohibit the formation of any new trade unions before the year 2000. These measures were voted in very quietly in just seven minutes in a secret dawn session of parliament on 26 December 1996, without the opposition being present. On top of this came a profoundly anti-democratic and repressive law strengthening the powers of the notorious security forces (known as the KCIA) in the face of a potential enemy from within—striking workers and their trade union organisations.

The country responded with a general strike—its first—with hundreds of thousands of strikers at hundreds of different sites. It was launched by the KCTU (Korean Confederation of Trade Unions), a radical, illegal union of 300,000 to 500,000 members. And it was then joined by the FKTU (Federation of Korean Trade Unions, 1.2 million members), the only legal union—previously known for its docility. The strike started in the chaebols’ main sectors of activity (shipbuilding and the motor industry) and at Hyundai in particular, the spearhead of militant trade unionism, before spreading to the tertiary sector and public services. Since then workers have adopted new forms of struggle, with weekly strikes and demonstrations; for example, on 26 January 300,000 people marched through the streets of Seoul. Although the president is looking for a way out of the crisis, he does not seem ready to give way on the chief measures he has adopted. Meanwhile, the unions are continuing to mobilise.

These workers were once held up as an example to the European workforce on account of their flexibility and compliance (more the result of military- style socio-economic relations than a concern to be competitive). Now they are suddenly at the forefront of the revolt against ultra-liberal globalisation.

Notes

(1) Jacques Decornoy, Délicate fin de guerre dans la péninsule de Corée (Tricky armistice on the Korean peninsula), Le Monde diplomatique, November 1994.

(2)World Report on Human Development, 1966, UN-UNDP, New York, 1996.

(3) Jacques Pezeu-Massabuan, Corée, Géographie universelle, vol. 5, Belin-Reclus, Paris, 1994.

(4) The Economic Development of Korea, Economic Surveys series, OECD, Paris.

(5) Laurent Carroué: L’affaire Thomson-Matra-Daewoo (The Thomson-Matra- Daewoo Affair), Le Monde diplomatique, December 1996.

(6) Article in the Bangkok Asia Times quoted by Courrier international, Paris, No. 317, 4 December 1996.

(7) The chaebols’ debt often reaches the exorbitant level of 300% to 500% of the equity capital (Hyundai 500%, Daewoo 352%) compared to a maximum of 100% in France.

(8) Philippe Pons, Le Monde, 28 November 1996.

(9) The Koreans’ initial demand was 2.5 times higher. It was revised downwards when refused by the Netherlands authorities.

(10) Jacques Decornoy: Séoul ou la rage de consommer (Seoul or consumer mania), Le Monde diplomatique, February 1995.

Sidebar: Daewoo, a giant with feet of clay

With a turnover of 35 billion pounds (compared with 5 billion in 1980), Daewoo, the 33rd biggest company in the world and Korea’s 4th largest group, has grown rapidly over 20 years. A manufacturer that for many years worked as a subcontractor for multinational companies in South Korea’s ports and customs- free zones, Daewoo branched out into finance (0.4 billion pounds), the motor industry (3 billion pounds), electronics (3.4 billion), heavy industry and shipbuilding (3.43 billion), trading (10.6 billion), and construction and real estate (2.5 billion). But this empire (a workforce of 196,000 and 400 industrial sites throughout the world) is financially fragile because of its excessive debt: 352% of its equity capital.

Frail and scattered, Daewoo Electronics is a little known, second order group that is heavily in debt. Specialising in the bottom of the range, with no real technological competence, it makes simple and reliable products in very large numbers and at low cost for the middle classes of the developing countries.

With 39 factories in 14 countries (South Korea, Vietnam, China, Mexico, Poland, France, United Kingdom, etc.), it produces 7 million television sets, 4 million video recorders and 12 million tubes a year; it also makes microcomputers, refrigerators, microwave ovens, washing machines, etc.

Ranking fourteenth in the world in consumer electronics with a turnover of 4.2 billion pounds, the group would have risen to second place if it had bought Thomson Multimedia. In the light of its structural difficulties, Daewoo Electronics thought such a takeover would be a lifeline.