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Originally published December 11, 2012 at 6:28 PM | Page modified December 12, 2012 at 7:54 PM

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In South Korea, the Republic of Samsung

Samsung is South Korea’s greatest economic success, and, more recently, is also the subject of major controversy. Economists, owners of small- and medium-size businesses, and some politicians say Samsung no longer merely powers the country, but in fact overpowers it, wielding influence that ne

The Washington Post

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SEOUL — So sprawling is Samsung’s modern-day empire that some South Koreans say it has become possible to live a Samsung-only life: You can use a Samsung credit card to buy a Samsung TV for the living room of your Samsung-made apartment on which you’ll watch the Samsung-owned pro baseball team.

Samsung is South Korea’s greatest economic success, and, more recently, is also the subject of major controversy.

Economists, owners of small- and medium-size businesses, and some politicians say Samsung no longer merely powers the country, but in fact overpowers it, wielding influence that nearly matches that of the government.

Debate over how to curb the size and power of Samsung and other family-run conglomerates has turned into the key issue in South Korea’s Dec. 19 presidential election, with polls showing that about three in four voters say they feel negatively about the country’s few behemoth businesses, and candidates sparring over how far to go to constrain them.

Samsung draws the greatest scrutiny because it is by far the largest chaebol — the Korean term for corporate groups jump-started with government support — and because it is experiencing runaway prosperity as the rest of the economy slows down. The conglomerate contributes roughly a fifth of South Korea’s gross domestic product.

Some Koreans call the country “The Republic of Samsung.”

Famous globally for its electronics, Samsung would be one of the largest conglomerates in almost any country. But within its tiny home country, the size of Virginia, it acts more as a do-everything monolith, building roads and oil rigs, operating hotels and amusement parks, selling insurance, making not only the world’s best-selling smartphone, the Galaxy, but also selling key components to Apple for the iPhone — even as the two battle in a series of lawsuits.

But in its domestic market, Samsung is far ahead of Apple. Only one in 10 South Korean smartphone users has an iPhone.

(Samsung holds about 33  percent of the global smartphone market, while Apple accounts for about 17 percent. In the United States, Apple has 34.3 percent of the smartphone market. )

Critics say Samsung elbows into new industries, knocking out smaller businesses, limiting choices for Korean consumers and sometimes colluding with fellow giants to fix prices while bullying those who investigate. They also see in Samsung the picture of closed-door wealth, a family affair in which chairman Lee Kun-hee is passing power to his son.

“You can even say the Samsung chairman is more powerful than the South Korean president,” said Woo Suk-hoon, host of a popular economics podcast. “Korean people have come to think of Samsung as invincible and above the law.”

That sentiment has intensified in recent years, a period during which Samsung has obstructed price-fixing investigations — drawing only minor fines — and seen its chairman indicted for financial crimes, only to receive a presidential pardon “in the national interest,” as a government spokesman put it.

South Korea ranks poorly among democratized countries in corruption rankings, and the traditionally cozy ties between government and the biggest companies were widely seen as the enabler of the country’s economic rise.

But Lee’s pardon, in late 2009, helped lead to a reversal in thinking. It came at a time when President Lee Myung-bak — a former chaebol man who has kept policies in their favor during his five-year term — was pushing South Korea’s bid for the 2018 Winter Olympics.

The president thought the chairman, a member of the International Olympic Committee, could help. Once his record was cleared, Lee in 2010 took 11 trips across the world working for the bid.

The town of Pyeongchang eventually won the rights to host the games — a $20 billion boon for the economy, according to one research institute’s forecast. Though South Koreans rejoiced over the selection, the choice did little to soften most citizens’ negative opinion about Lee’s pardoning.

South Korea’s leading presidential candidates say the country has been far too lenient in how it treats its richest men. Chaebol executives who commit crimes should be punished harshly, they all say, with no chance for such redemption.

The leading candidates say South Korea should prevent conglomerates, Samsung included, from weaving their various companies together in what’s known here as “cross-shareholding,” a controversial ownership structure in which a family concentrates its shares in a few core companies, then passes investment to other affiliates within the group.

The arrangement allows families to control a broad range of businesses, even those in which they hold few, if any, shares.

Though there is broad agreement about some reforms, the level of concern about chaebol differs across party lines.

The position of conservative candidate Park Geun-hye is that the conglomerates are merely unruly — a notable view in itself, given that Park belongs to Lee Myung-bak’s pro-business ruling party, and that her father — dictator Park Chung-hee — built the chaebol system after taking power in a military coup in 1961. Park said recently that chaebols often steal technology from smaller innovators and force unfair pricing on suppliers.

“In the economic area, we have emphasized the concept of efficiency, and in some sense we haven’t paid enough attention to the concept of fairness,” she said.

But the opinion on the far left is that chaebols, particularly Samsung, hold a dangerous level of influence. That viewpoint caught traction after a former Samsung counsel, in 2007, accused the conglomerate of systematically distributing money from a slush fund to influential figures. In the ensuing investigation, a special investigator found no evidence of bribery but did uncover the financial crimes for which Lee, the chairman, was later pardoned.

“Samsung has the government in its hands,” Lee Jung-hee, a liberal presidential candidate with virtually no chance of winning, said in a nationally televised debate last week. “Samsung manages the legal world, the press, the academics and bureaucracy.”

Samsung, which began in 1938 by exporting vegetables and dried fish, became a budding power after the alliance was forged between its founder, Lee Byung-chull, and the military dictator, Park, who controlled the country’s banks and determined who got loans.

But the conglomerate thrives now in part because it makes good products — an important point for South Koreans, who are deeply competitive and see in Samsung some of the traits they want for themselves: ambition, speed and the ability to adapt and stay on top.

A powerful Samsung is healthy for the country, corporate spokesman Kevin Cho said, because it makes “major contributions to Korea’s exports, tax revenue and employment.” Cho also emphasized that Samsung is a global player, not just a domestic one. In 2011, 84  percent of its electronics revenue was generated outside of Korea.

Samsung is a “survivor” of competition, said Lee Cheol-haeng, of the Federation of Korean Industries, which lobbies for large businesses.

“Many Koreans right now have dual minds about chaebols,” Lee added. “They say, ‘I hate chaebols, but I want my son to work for one.’ ”

Yoonjung Seo contributed to this report.

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