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Samsung History and Dominance over South Korea - a short documentary
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00:00Geographically speaking, South Korea should be poor.
00:04Fractionally larger than the state of Indiana, South Korea isn't big, and unlike Indiana,
00:09it's not agriculturally productive.
00:11The nation is rugged and steep to the extent that only 22% of its land is actually arable.
00:17Worse still, this rocky disposition doesn't make up for its agricultural shortcomings
00:22through any sort of mineral wealth.
00:25South Korea has coal, but not much, as it ranks 49th globally in proven reserves—far
00:30behind even its dirt-poor neighbor to the north.
00:33And perhaps most problematic is the fact that the country is 81st in the world in natural
00:37gas reserves and is tied dead last in oil with none at all.
00:43And all of these are only the domestic challenges.
00:46Zoom out from the rocky peninsula, and the region's a who's who of past and present powerhouses.
00:52Raised through history by empires around it and limited natural resources, South Korea
00:56should be poor.
00:58But it's not—it's rich.
01:00By nominal GDP, South Korea has the 10th largest economy in the world—a fact that
01:06has much to do with a single company.
01:11Before there was a Republic of Korea, and before there was a war to define the economic doctrine
01:15of Korea, there was a grocery trading shop in the southern city of Daegu that dealt in
01:19fish and noodles and went by the name of Samsung.
01:22While the shop's owner, Lee Byung Choi, couldn't have known it in 1938, his business
01:27would soon serve as the backbone of one of the most dramatic economic transformations
01:31of the 20th century—what economists would come to call the Miracle on the Han River.
01:37Now, miracle is a bit of a misnomer.
01:41Ultimately, what took South Korean GDP from here to here, and a hundredfold growth over 40 years,
01:47was extraordinary, but also explainable.
01:50It was a function of successful long-term planning combining forces with savvy opportunists.
01:56It was also, in part, a function of the fact that in 1950, South Korea nearly ceased to
02:01exist at all.
02:04By August of that year, South Korean forces had little land left to defend after the Communist
02:08North had taken all but this corner of the peninsula.
02:11From a southern perspective, it was the bleakest point in the war.
02:15But war, and South Korea's reversal of fortunes in the years that followed, created opportunity.
02:21In the midst of the Korean War's wreckage, Lee pivoted.
02:25In 1953, with leftover Japanese colonial assets selling for cents on the dollar, and much of
02:30South Korea's already meager industrial infrastructure in ruin, Lee launched Choi Jidang, a sugar refinery,
02:36then, in the year following, Choi Majik, a wool mill—both under what could now be considered
02:41the Samsung Group.
02:43For Lee, it was a logical progression, as South Koreans desperately needed everyday products
02:47and food, while South Korea's first president, Sigmund Rhee, had begun funneling international
02:51aid to allied industrialists in hopes of reducing reliance on imports.
02:55Rhee's government funded the construction of facilities and the importation of raw sugar
02:59for Lee's new projects, and soon, with few to compete with in a war-torn nation and
03:03after a few timely expansions, the Samsung Group became the nation's fourth largest borrower.
03:09With cozy political connections and a stronghold over critical industry, the Samsung Group
03:14took off.
03:15In the years that followed, it acquired Ancook Fire and Marine Insurance and Choe Hung Bank,
03:19while also becoming a major shareholder in four other banks.
03:23Less than a decade after acquiring that first sugar refinery, Samsung was the peninsula's
03:28most powerful conglomerate, and Lee's net worth was estimated to represent 19% of all
03:33South Korean wealth.
03:35The company had burst into a massive success.
03:38The problem was, while South Korea had distributed Western recovery funds and done away with feudal
03:43land practices, South Koreans were still poor, and the country was still overwhelmingly agricultural
03:48and underdeveloped—issues that came to a head when the military overthrew Rhee's government
03:53in 1961.
03:54South Korea's economic rise began under a new leader, Park Chung-hee.
04:00With a laser-like focus on expanding industrial exports and maximizing South Korea's human
04:04capital, GDP growth shot skyward, only dipping under 9% annually on three occasions from 1963
04:11to 1978.
04:13Driving this growth more than anything were the conglomerates.
04:16While Park had publicly stated plans of crushing Korean monopolies that rose through shady dealings
04:20in the post-war period during his rise to power, his presidency took a different approach.
04:26Other than breaking the conglomerates up, he assigned them the exportation era's most
04:30critical task—getting Korean-made goods to the wider world.
04:35With the government providing cheap steel, a plethora of subsidies, lenient loans, and
04:39tax breaks to major manufacturers, the likes of Samsung, LG, Hyundai, and SK Group did just
04:44that, expanding vertically and horizontally.
04:48These family-controlled, government-aided corporate groups came to be known as chaebols—a term that
04:54entered common Korean parlance during the 60s and 70s as the institutions grew.
04:58In the 70s and 80s, chaebols dominated, pulling the South Korean economy up as they pushed their
05:04products out to the world.
05:06Samsung launched TVs, then semiconductors, then mobile phones for export.
05:10Hyundai sold cars on the international market, and LG opened up a factory in Huntsville, Alabama.
05:16Though South Korean citizens came to argue over the role of chaebols in politics and society,
05:20what wasn't up for debate was the remarkably positive impacts they had on everyday standards
05:25of life.
05:26Life expectancy doubled from 1950 to 1990, while infant mortality cratered to less than a
05:31tenth of what it was at the war's end.
05:34All the while, chaebols showed no sign of slowing.
05:38Through the turn of the century, South Korea's GDP continued to grow, and even with the death
05:42of Lee Bong Choi in 1987, Samsung continued to expand globally and dominate domestically
05:48under the guidance of his son, Lee Kung Hee.
05:51Today, just seven decades on from the company's prescient pivot, South Korea is Samsung, and
05:57Samsung is South Korea.
05:59For the average resident, it's a relationship with a corporation as deep as that with the
06:03government itself, perhaps best demonstrated through a single, eye-popping statistic.
06:09Year after year, just about 20% of the entire nation's GDP is made up of Samsung Group revenue.
06:17The only single entity that can rival that is the South Korean government, whose spending
06:21typically makes up 20 to 25% of GDP.
06:25This staggering degree of economic concentration makes even the most extreme examples in the
06:30rest of the world appear routine.
06:32Japan's biggest company, Toyota, accounts for about 5% of GDP, while the US's, Walmart,
06:37sits at just 2.5%.
06:40An entire fifth of an economy being attributed to a single company, especially a single company
06:44controlled by a single family in a major, advanced, diversified economy, is absolutely unparalleled,
06:51even at a global scale.
06:53Undoubtedly, this exceptional centrality permeates into everyday life.
06:58Young people, and especially their parents, tend to fixate on the singular path towards becoming
07:03the so-called Samsung man.
07:05It's considered the pinnacle of success to have passed all the academic and social hurdles
07:09necessary to be deemed worthy to work at the country's largest company, and therefore,
07:14this idealistic vision is encapsulated across South Korean society.
07:18Characters in pursuit of a position of the company even borders on cliché as a plot point
07:23in the country's film and television.
07:25Just as American youth might fix it on moving to LA to make it into Hollywood, or living in
07:29New York to break into big business, Korean kids prepare their entire childhood to apply
07:34for the opportunity to pack into testing centers along with 100,000 others to take the biannual
07:39Samsung aptitude test, hoping to score high enough to get recruiters' attention.
07:44Hundreds of thousands won't even be allowed to take the test, then all but a few thousand
07:48won't advance past it, leaving legions of disappointed youth who move on to the next
07:52layer in the social hierarchy of careers—working for the smaller, lesser chables like Hyundai
07:58or LG.
07:59For those that don't succeed there, they move on to the country's small and medium-sized
08:03employers—a fact they will try to hide from extended family and friends, due to its
08:07characterization as failure.
08:10This centrality of focus can perhaps be attributed partially to the extent that Samsung has permeated
08:16into South Korean life—when you buy a smartphone in South Korea, you buy it from Samsung.
08:21When you need life insurance in South Korea, you purchase a policy with Samsung.
08:24When you take the ferry in South Korea, you step onto a ship built by Samsung.
08:29When you go to the theme park in South Korea, you once again pay your money to Samsung.
08:34This convoluted, seemingly scattershot structure of the conglomerate is reflective of the way
08:39that Samsung has followed and captured opportunity wherever it exists through history, and has
08:44actually been a critical factor in the Yi family's continued grip on power.
08:48Today, there are 59 major Samsung affiliate companies, although, like many aspects of
08:53Samsung's ownership structure, this is a soft, subjective definition, as so much of
08:58the way in which controls held across the empire is soft and subjective.
09:02But let's say there were just two affiliates—one of which wholly owned by the Yi family, one
09:07of which wholly owned by outside investors—both worth $50 million, respectively.
09:12Now, most major business decisions are settled with a simple majority, meaning to approve a
09:17budget for the next year, for example, just 50% worth of shareholders plus one needs to
09:22vote affirmatively.
09:23So that's to say, 49.9% of the Yi family ownership in the first affiliate is effectively
09:29worthless from a control perspective—at least for most decisions.
09:33So what they could do is sell that 49.9%, buy 49.9% of the other affiliate, then use a tiny
09:40bit of extra cash to get up to 50% plus one ownership of both affiliates.
09:45It's essentially the same amount of money invested, but two companies under Yi family
09:49control instead of one.
09:51But now using their control of both of these companies, they could instruct each to use
09:55annual operating profit to buy up 50% plus one ownership in a third affiliate, rather
10:00than paying it back to themselves and the other owners, which would be subject to income
10:03tax.
10:04And while they wouldn't directly own the third affiliate, they would control it because they
10:08control the first two affiliates, which control the third.
10:12And even then, while 50% plus one ownership is technically needed for control, in practice
10:17it's often overkill as it only becomes relevant in a case of complete descent by every
10:21other shareholder, which is rare, especially when one has generated the degree of cult of
10:26personality that the Yi family has.
10:28So the Yi family might only need 30 or 40% direct or indirect control of a given affiliate,
10:33if another 10 or 20% is owned by trustworthy, allied, outside investors.
10:39Through the decades, these and other systems have compounded to create this—a scattered,
10:44convoluted web of ownership that can confuse even the savviest financial analysts, but ultimately
10:49result in what matters to the Yi family most—complete control of the entire empire.
10:54But these structures are tenuous, especially when someone dies.
11:01South Korea has one of the highest inheritance taxes in the world—50%.
11:06That means that 50% of the value of assets goes to the government when they're passed
11:10from one generation to the next.
11:12Therefore, if Yi Kung-hee, for example, passed $5 billion in shares to his son, Yi Jae-yong,
11:18the heir would have to find some $2.5 billion to pay the government, which he likely could
11:22only do by selling $2.5 billion worth of shares—therefore losing the voting power that they bestow.
11:28This hypothetical started to feel far more concrete in May of 2014 due to this—the heart
11:35attack of Yi Kung-hee.
11:38The chairman survived, but only barely.
11:41As he sat comatose in a hospital bed at the Samsung Medical Center for days, weeks, months,
11:46and eventually years, his children were thrown into a power struggle as they used the time
11:50to craft a plan that would keep Samsung in family control after paying inheritance taxes
11:55upon their father's inevitable and seemingly impending death.
11:59This was difficult—the numbers were tough—and so it required some creativity—perhaps too
12:05much.
12:06Two of the most critical links in the Yi family ownership web were Samsung Construction and
12:11Trading, or CNT, and Choi Industries—each of which, as two of the oldest Samsung affiliates,
12:16acted primarily as de facto holding companies, of sorts.
12:19But Yi family control of CNT—and therefore electronics, engineering, chemicals, and the
12:24other affiliates partially owned by CNT—was fading as outside, increasingly hostile investors
12:29continued to buy in.
12:32If Yi Kung-hee never awoke from his coma, the 50% inheritance tax would be a deathblow, and
12:37the house of cards would crumble.
12:40Therefore, a plan—they'd merge CNT and Choi.
12:45While quantifying their control of each is difficult due to the extent of their soft,
12:49informal control, what's important to note is that Yi control of Choi was much stronger
12:53than that of CNT, so what would make the restructuring productive for them would be if it overvalued
12:58Choi and undervalued CNT so that, post-merger, they'd effectively end up with more relative
13:04control over the new, combined de facto holding company, and therefore more control over the
13:08entire empire without having spent a cent.
13:13So they proposed exactly that—an objectively bad deal.
13:17One CNT share would convert to 0.35 Choi shares.
13:21CNT shareholders, and specifically its largest, American hedge fund Elliott, started campaigning
13:26against the merger, arguing that Choi was objectively worth about $3.42 billion, but a merger ratio
13:31of 0.35 inflated its value to $4.08 billion, effectively gifting hundreds of millions of dollars
13:38in value to the ease straight from the pockets of CNT shareholders.
13:43It was an unbelievably good deal for the family, but they couldn't do it alone.
13:49Unlike most business decisions, which the Yi family could directly control through their
13:52de facto simple majority, mergers and acquisitions require supermajority approval of two-thirds
13:58of shareholders.
13:59They could get most of the way there themselves, but to push it over the edge, they needed to
14:03convince CNT shareholders to vote against their own interests.
14:07But there was one whale.
14:10The single largest outside shareholder, with 11.6% of ownership, was the South Korean National
14:16Pension Service, which was run by the Ministry of Health and Welfare, which was run by the
14:19South Korean government, which at the time was run by President Park Geung-hae.
14:24That's to say, if they could get to President Park, she might be able to get to the pension
14:30service.
14:31Conveniently, they had a backdoor.
14:34Longtime Park confidant and daughter of an influential cult leader, Choi Soon-si.
14:39It was an open secret among South Korea's power brokers that Choi, despite holding no
14:44official position in Park's government, exerted deep influence over the president's
14:48decision-making—even to the extent of picking out outfits, editing speeches, and making specific
14:53policy propositions.
14:55On the surface, Choi worked as the owner of an Italian restaurant in Seoul's Ritzy Gangnam
14:59neighborhood, but politicians and businesspeople were often seen walking up to the third floor,
15:03to her office, where she solicited donations for two non-profits she had set up—the Mir
15:08and K-Sports Foundations, supposedly dealing with cultural exchanges and sports-related projects,
15:13but in practice acting as the top of the funnel in a complex, globe-spanning, money laundering
15:18scheme.
15:19Samsung, at the direction of Lee Jae-yong, donated a combined $36 million to Choi's foundations,
15:26and while still little is known about the specific inner workings, soon after, the state pension
15:30fund voted in favor of CNT and Choi's merger, the measure passed, the two companies combined,
15:35and the Lee family shored up control of the Samsung empire into the next generation.
15:40Of course, we now know about this.
15:44We know how Park influenced the pension fund, we know how Choi influenced Park, and we know
15:48how Lee Jae-yong influenced Choi.
15:51Clearly, the secret was built—a massive scandal erupted, Park was impeached and jailed, Lee Jae-yong
15:56was indicted and jailed, but today, everything's pretty much back to normal.
16:02Park was pardoned and freed in 2021, then one year later, so too was Lee Jae-yong, and as
16:07of October 27th, 2022, following the death of his father in 2020, after years in that
16:13hospital bed, Lee Jae-yong was appointed chairman of the Samsung Group.
16:18Social order was returned.
16:20The Lee family power was maintained.
16:24This is a familiar refrain.
16:26In fact, Lee Jae-yong's legal troubles are practically a mirror image of his father's
16:31from a decade before.
16:33Lee Kyung-hee was sentenced to three years in jail in 2008 for, among other things, a
16:37bribery, but only one year later was pardoned by the president so that he could remain on
16:41the International Olympic Committee and shepherd South Korea's bid for the 2018 Games through.
16:46While that was the publicly stated reason, Lee Kyung-hee was later revealed to have used
16:50bribery to convince the president to pardon him for his bribery charges.
16:54Similar justifications were used in summer 2022 with the pardon of Lee Jae-yong.
16:59Samsung, South Korean business groups, and even the US Chamber of Commerce had been lobbying
17:03for years for a pardon, and while on parole, Lee still acted as de facto leader of Samsung,
17:09even meeting with President Biden in May 2022.
17:12So two months on, President Jung-sook-ye justified Lee's pardon in a straightforward manner, saying
17:17that, as the only realistic family heir to the Samsung chairmanship, his leadership was
17:21necessary to guide the country's largest company as both recovered from the COVID-19 pandemic.
17:27This justification isn't that far-fetched.
17:30While undoubtedly unfair, considering the sheer degree of economic influence Samsung has on
17:35South Korea, it might be pragmatic.
17:39The ends might genuinely justify the means.
17:41But it does perpetuate the cycle that seemingly cannot be broken.
17:46South Korea, and especially South Korean politicians, cannot survive without Samsung.
17:51But to an extent, Samsung can survive without South Korea—it can always restructure, relocate,
17:58and refocus away from the nation, in the long term.
18:01This power structure of enterprise above nation is inherent to a situation where such a large
18:06company exists in such a small country, but it's hard to believe it's tenable.
18:12Corporations can't run countries, and public dissent toward Samsung is growing in younger
18:16generations, lacking the sympathy borne from viewing the company's integral role in the
18:20nation's assent, are increasingly fighting back against their cronyism and corruption.
18:25It's tough to know which house of cards will crumble first.
18:28Will it be the convoluted ownership structure that keeps the Yi family in control, or will
18:33it be the tenuous power balance between Samsung and South Korea, knocked down by the very people
18:38that make up the entirety of both venerable institutions?
18:42For those of you that have demonstrated that you like this type of video by staying till
18:47the end, I have some suggestions on what to watch next that I'm sure you'll like.
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19:00like why China won't abandon its zero-COVID policies, and how the nation manages to survive
19:05without, essentially, any major international allies.
19:07Then I'd watch the episode of Real Life Lore series Modern Conflicts on the Korean conflict
19:12in the 21st century.
19:13It provides amazing insight into what's kept the tenuous peace, and how that could crumble
19:17and threaten major multinationals like Samsung.
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