The Politics of Chaebol Reform in Korea: Social Cleavage and New Financial Rules

Korea's developmental state had long maintained the principle of “separation between industrial capital and financial capital,” whereby the nation's industrial conglomerates – the chaebol – were restricted from having controlling ownership of financial institutions, especially banks. The financial crisis of 1997-98 renewed calls for regulating the chaebol, especially in terms of reinforcing corporate governance and competition policy. This process was supported and promoted by vibrant non-governmental organisations led by progressive activists who forged an effective alliance with the government and the ruling party whose platform followed a populist course. The reform movement has been resisted with equal fervour by conservative elements, led by the opposition party, chaebol-supported think tanks, and the conservative media. This cleavage is evident in the case of a pending legislation on chaebol ownership of financial institutions, the Financial Industry Structure Law. The controversy over this proposed law demonstrates that the contemporary chaebol reforms are deeply politicised. It also illustrates the path-dependent nature of the government-chaebol relationship.