Geographically speaking, South Korea should
be poor. Fractionally larger than the state of Indiana,
South Korea isn’t big—and unlike Indiana, it’s not agriculturally productive.

The nation is rugged and steep to the extent
that only 22% of its land is actually arable.

Worse still, this rocky disposition doesn’t
make up for its agricultural shortcomings through any sort of mineral wealth. South Korea has coal, but not much, as it
ranks 49th globally in proven reserves—far behind even its dirt-poor neighbor to the
north.

And perhaps most problematic is the fact that
the country’s 81st in the world in natural gas reserves, and is tied for dead last in
oil, with none at all.

And all of these are only the domestic challenges.

Zoom out from the rocky peninsula and the
region’s a who’s who of past and present powerhouses. Squeezed through history by empires around
it and limited in natural resources, South Korea should be poor.

But it’s not, it’s rich. By nominal GDP, South Korea has the tenth
largest economy in the world—a fact that has much to do with a single company.

Before there was a Republic of Korea, and
before there was a war to define the economic doctrine of Korea, there was a grocery trading
shop in the southern city of Daegu that dealt in fish and noodles and went by the name of
Samsung.

While the shop’s owner, Lee Byung-chul,
couldn’t have known it in 1938, his business would soon serve as the backbone of one of
the most dramatic economic transformations of the 20th century—what economists would
come to call the Miracle on the Han River.

Now, miracle is a bit of a misnomer—ultimately,
what took South Korean GDP from here to here, a 100-fold growth over forty years, was extraordinary
but also explainable.

It was a function of successful long-term
planning combining forces with savvy opportunists.

It was also, in part, a function of the fact that in 1950, South Korea nearly ceased to exist at all.

By August of that year, South Korean forces had little land left to defend after the communist north had taken all but this corner of the peninsula.

From a southern perspective, it was the bleakest point of the war. But war, and South Korea’s reversal of fortunes in the years that followed, created opportunity.

In the midst of the Korean War’s wreckage, Lee pivoted. In 1953, with leftover Japanese colonial assets selling for cents on the dollar, and much of South Korea’s already meager industrial infrastructure in ruin, Lee launched Cheil Jedang, a sugar refinery, then, in the year following, Cheil Mojik, a wool mill, both under what could now be considered the Samsung group.

For Lee, it was a logical progression, as South Koreans desperately needed everyday products and food while South Korea’s first president Syngman Rhee had begun funneling international aid to allied industrialists in hopes of reducing reliance on imports.

Rhee’s government funded the construction of facilities and the importation of raw sugar for Lee’s new projects and soon, with few to compete with in a war-torn nation and after a few timely expansions, the Samsung group became the nation’s 4th largest borrower.

With cozy political connections and a strong hold over critical industry, the Samsung group took off.

In the years that followed, it acquired Ankuk Fire and Marine Insurance and Chohung Bank while also becoming a major shareholder in four other banks.

Less than a decade after acquiring that first sugar refinery, Samsung was the peninsula's most powerful conglomerate, and Lee’s net worth was estimated to represent 19% of all South Korean wealth.

The company had burst into a massive success. The problem was, while South Korea had distributed Western recovery funds and done away with feudal land practices, South Koreans were
still poor, and the country was still overwhelmingly agricultural and underdeveloped—issues that
came to a head when the military overthrew Rhee’s government in 1961.

South Korea’s economic rise began under
a new leader, Park Chung-hee: with a laser-like focus on expanding industrial exports and
maximizing South Korea’s human capital, GDP per capita growth shot skyward, only dipping
under 9% annually on three occasions from 1963 to 1978.

Driving this growth more than anything were
the conglomerates. While Park had publicly stated plans of crushing
Korean monopolies that rose through shady dealings in the post-war period during his
rise to power, his presidency took a different approach.

Rather than breaking the conglomerates up,
he assigned them the exportation era’s most critical task—getting Korean-made goods
to the wider world.

With the government providing cheap steel,
a plethora of subsidies, lenient loans, and tax breaks to major manufacturers, the likes
of Samsung, LG, Hyundai, and SK Group did just that, expanding vertically and horizontally.

These family-controlled, government-aided,
corporate groups came to be known as chaebols—a term that entered common Korean parlance during
the 60s and 70s as the institutions grew.

In the 70s and 80s, Chaebols dominated, pulling
the South Korean economy up as they pushed their products out to the world.

Samsung launched TVs, then semiconductors,
then mobile phones for export; Hyundai sold cars on the international market; and LG opened
a factory in Huntsville, Alabama.

Though South Korean citizens came to argue
over the role of chaebols in politics and society, what wasn’t up for debate was the
remarkably positive impacts they had on everyday standards of life.

Life expectancy doubled from 1950 to 1990,
while infant mortality cratered to less than a tenth of what it was at war’s end.

All the while, chaebols showed no sign of slowing.

Through the turn of the century, South Korea’s GDP continued to grow, and even with the death of Lee Byung-chul in 1987, Samsung continued to expand globally and dominate domestically under the guidance of his son, Lee Kun-hee.

Today, just seven decades on from the company’s prescient pivot, South Korea is Samsung and Samsung is South Korea.

For the average resident, it's a relationship with a corporation as deep as that with the government itself, perhaps best demonstrated through a single eye-popping statistic: year after year, just about 20% of the entire nation’s GDP is made up of Samsung Group revenue.

The only single entity that can rival that is the South Korean government, whose spending typically makes up 20% to 25% of GDP.

This staggering degree of economic concentration makes even the most extreme examples in the rest of the world appear routine.

Japan’s biggest company, Toyota, accounts for about 5% of GDP, while the US’, Walmart, sits at just 2.5%.

An entire fifth of an economy being attributed to a single company—especially a single company controlled by a single family in a major, advanced, diversified economy—is absolutely unparalleled, even at a global scale.

Undoubtedly, this exceptional centrality permeates into everyday life. Young people, and especially their parents, tend to fixate on the singular path towards becoming the so-called “Samsung Man.

” It’s considered the pinnacle of success to have passed all the academic and social hurdles necessary to be deemed worthy to work at the country’s largest company, and therefore this idealistic vision is encapsulated across South Korean society—characters in pursuit of a position at the company even borders on cliché as a plot point in the country’s film and television.

Just as American youth might fixate on moving to LA to make it in Hollywood or living in New York to break into big business, Korean kids prepare their entire childhood to apply for the opportunity to pack into testing centers along with 100,000 others take the bi-annual Samsung Aptitude Test—hoping to score high enough to get recruiters’ attention.

Hundreds of thousands won’t even be allowed to take the test, then all but a few thousand won’t advance past it, leaving legions of disappointed youth who move on to the next layer in the social hierarchy of careers: working for the smaller, lesser Chaebols like Hyundai or LG.

For those that don’t succeed there, they move on to the country’s small and medium sized employers—a fact they will try to hide from extended family and friends, due to its characterization as failure.

This centrality of focus can perhaps be attributed partially to the extent that Samsung has permeated into South Korean life: when you buy a smartphone in South Korea, you buy it from Samsung; when you need life insurance in South Korea, you purchase a policy with Samsung; when take the ferry in South Korea, you step onto a ship built by Samsung; when you go to the theme park in South Korea, you once again pay your money to Samsung.

This convoluted, seemingly scattershot structure of the conglomerate is reflective of the way that Samsung has followed and captured opportunity wherever it exists through history, and has actually been a critical factor in the Lee family’s continued grip on power.

Today, there are 59 major Samsung affiliate companies although, like many aspects of Samsung’s ownership structure, this is a soft, subjective definition, as so much of the way in which control is held across the empire is soft and subjective.

But let’s say there were just two affiliates: one of which wholly owned by the Lee family, one of which wholly owned by outside investors, both worth $50 million respectively.

Now, most major business decisions are settled with a simple majority, meaning to approve a budget for the next year, for example, just 50% worth of shareholders plus one needs to vote affirmatively.

So that’s to say, 49.9% of the Lee family ownership in the first affiliate is effectively worthless from a control perspective, at least for most decisions.

So what they could do is sell that 49.9%, buy 49.9% of the other affiliate, then use a tiny bit of extra cash to get up to 50% plus one ownership of both affiliates.

It’s essentially the same amount of money invested, but two companies under Lee-family control instead of one.

But now using their control of both of these companies, they could instruct each to use annual operating profit to buy up 50% plus one ownership in a third affiliate—rather than paying it back to themselves and the other owners, which would be subject to income tax—and while they wouldn’t directly own the third affiliate, they would control it because they control the first two affiliates, which control the third.

And even then, while 50% plus one ownership is technically needed for control, in practice it’s often overkill as it only becomes relevant in a case of complete dissent by every other shareholder, which is rare, especially when one has generated the degree of cult of personality that the Lee family has.

So, the Lee family might only need 30% or 40% direct or indirect control of a given affiliate if another 10% or 20% is owned by trustworthy, allied outside investors.

Through the decades, these and other systems have compounded to create this: a scattered, convoluted web of ownership that can confuse even the savviest financial analysts, but ultimately results in what matters to the Lee family most—complete control of the entire empire.

But these structures are tenuous, especially when someone dies. South Korea has one of the highest inheritance taxes in the world—50%.

That means that 50% of the value of assets goes to the government when they’re passed from one generation to the next.

Therefore if Lee Kun-hee, for example, passed $5 billion in shares to his son, Lee Jae-yong, the heir would have to find some $2.5 billion to pay the government, which he likely could only do by selling $2.5 billion worth of shares—therefore losing the voting power that they bestow.

This hypothetical started to feel far more concrete in May of 2014 due to this: the heart attack of Lee Kun-hee.

The chairman survived, but only barely. As he sat comatose in a hospital bed at the Samsung Medical Center for days, weeks, months, and eventually years, his children were thrown into a power struggle as they used the time to craft a plan that would keep Samsung in family control after paying inheritance taxes upon their father’s inevitable and seemingly impending death.

This was difficult, the numbers were tough, and so it required some creativity—perhaps, too much.

Two of the most critical links in the Lee-family ownership web were Samsung Construction and Trading, or C&T, and Cheil Industries—each of which, as two of the oldest Samsung affiliates, acted primarily as de facto holding companies of sorts.

But Lee family control of C&T—and therefore Electronics, Engineering, Chemicals, and the other affiliates partially owned by C&T—was fading as outside, increasingly hostile investors continued to buy in.

If Lee Kun-hee never awoke from his coma, the 50% inheritance tax would be a death-blow, and the house of cards would crumble.

Therefore, a plan: they’d merge C&T and Cheil. While quantifying their control of each is difficult due to the extent of their soft, informal control, what’s important to know is that Lee control of Cheil was much stronger than that of C&T, so what would make the restructuring productive for them would be if it overvalued Cheil and undervalued C&T so that post-merger, they’d effectively end up with more relative control over the new, combined de facto holding company, and therefore more control over the entire empire without having spent a cent.

So, they proposed exactly that, an objectively bad deal—one C&T share would convert to 0.35 Cheil shares.

C&T shareholders—and specifically its largest, American hedge fund Elliot—started campaigning against the merger, arguing that Cheil was objectively worth about $3.42 billion, but a merger ratio of 0.35 inflated its value to $4.08 billion—effectively gifting hundreds of millions of dollars in value to the Lees straight from the pockets of C&T shareholders.

It was an unbelievably good deal for the family, but they couldn’t do it alone. Unlike most business decisions, which the Lee family could directly control through their de facto simple majority, mergers and acquisitions require supermajority approval of two-thirds of shareholders.

They could get most of the way there themselves, but to push them over the edge, they needed to convince C&T shareholders to vote against their own interests.

But there was one whale: the single-largest outside shareholder, with 11.6% of ownership, was the South Korean National Pension Service, which was run by the Ministry of Health and Welfare, which was run by the South Korean Government, which at the time, was run by President Park Geun-hye.

That’s to say, if they could get to President Park, she might be able to get to the pension service.

Conveniently, they had a back door: long-time Park confidant and daughter of an influential cult leader, Choi Soon-sil.

It was an open secret among South Korea’s power brokers that Choi, despite holding no official position in Park’s government, exerted deep influence over the President’s decision-making, even to the extent of picking out outfits, editing speeches, and making specific policy propositions.

On the surface, Choi worked as the owner of an Italian restaurant in Seoul’s ritzy Gangnam neighborhood, but politicians and business people were often seen walking up to the third floor to her office, where she solicited donations for two nonprofits she had set up—the Mir and K-sports foundations, supposedly dealing with cultural exchanges and sports-related projects, but in practice acting as the top of the funnel in a complex, globe-spanning money-laundering scheme.

Samsung, at the direction of Lee Jae-yong, donated a combined $36 million to Choi’s foundations, and while still little is known about the specific inner-workings, soon after, the State Pension Fund voted in favor of C&T and Cheil’s merger, the measure passed, the two companies combined, and the Lee family shored up control of the Samsung empire into the next generation.

Of course, we now know about this: we know how Park influenced the pension fund, we know how Choi influenced Park, and we know how Lee Jae-yong influenced Choi.

Clearly, the secret was spilled, a massive scandal erupted, Park was impeached and jailed, Lee Jae-yong was indicted and jailed, but today, everything’s pretty much back to normal.

Park was pardoned and freed in 2021, then one year later, so too was Lee Jae-yong; and as of October 27th, 2022, following the death of his father in 2020 after years in that hospital bed, Lee Jae-yong was appointed chairman of the Samsung Group.

Social order was returned—the Lee family’s power was maintained.

This is a familiar refrain. In fact, Lee Jae-yong’s legal troubles are practically a mirror image of his father’s from a decade before.

Lee Kun-hee was sentenced to three years in jail in 2008 for, among other things, bribery, but only one year later was pardoned by the President so that he could remain on the International Olympic Committee and shepherd South Korea’s bid for the 2018 games through.

While that was the publicly stated reason, Lee Kun-hee was later revealed to have used bribery to convince the President to pardon him for his bribery charges.

Similar justifications were used in summer 2022 with the pardon of Lee Jae-yong: Samsung, South Korean business groups, and even the US Chamber of Commerce had been lobbying for years for a pardon, and while on parole, Lee still acted as de facto leader of Samsung, even meeting with President Biden in May 2022.

So two months on, President Yoon Suk-yeol justified Lee’s pardon in a straightforward manner—saying that, as the only realistic family heir to the Samsung chairmanship, his leadership was necessary to guide the country’s largest company as both recovered from the COVID-19 pandemic.

This justification isn’t that far-fetched.

While undoubtedly unfair, considering the sheer degree of economic influence Samsung has on South Korea, it might be pragmatic—the ends might genuinely justify the means.

But it does perpetuate the cycle that seemingly cannot be broken: South Korea, and especially South Korean politicians, cannot survive without Samsung.

But to an extent, Samsung can survive without South Korea—it can always restructure, relocate, and refocus away from the nation in the long-term.

This power structure, of enterprise above nation, is inherent to a situation where such a large company exists in such a small country, but it’s hard to believe it’s tenable.

Corporations can’t run countries, and public dissent towards Samsung is growing as younger generations, lacking the sympathy born from viewing the company’s integral role in the nation’s ascent, are increasingly fighting back against the cronyism and corruption.

It’s tough to know which house of cards will crumble first: will it be the convoluted ownership structure that keeps the Lee family in control; or will it be the tenuous power balance between Samsung and South Korea, knocked down by the very people that make up the entirety of both venerable institutions?

For those of you that have demonstrated that you like this type of video by staying till the end, I have some suggestions on what to watch next that I’m sure you’ll like.

First I’d start with Polymatter’s excellent series China, Actually, which demystifies how one of the world’s most consequential countries really works by answering questions like why China won’t abandon its zero-COVID policies and how the nation manages to survive without essentially any major international allies.

Then I’d watch the episode of Real Life Lore’s series Modern Conflicts on the Korean conflict in the 21st century—it provides amazing insight into what’s kept the tenuous peace, and how that could crumble and threaten major multinationals like Samsung.

Both of these series’ and far, far more are exclusive to Nebula which is no surprise considering Polymatter, Real Life Lore, myself, and loads of other creators teamed up, founded Nebula, and designed it from the ground floor to be the best home to the stuff we make.

Over 50,000 Wendover viewers have believed that enough to sign up so far, but to explain to those of you who haven’t, the idea behind Nebula was to remove many of the perverse incentives that compromises video quality on ad-supported platforms like YouTube.

By putting it behind a paywall, we’re incentivized as creators to make the absolute best videos that will keep you all subscribed, rather than incentivized to just make the videos that will make you click and zone out.

We use these subscription fees to pay to run the service, to provide ongoing revenue to Nebula creators, and to fund our big-budget Nebula Originals, which allow creators to pursue their big, ambitious passion projects, which has led to some really good stuff, including all of these made by the Wendover team.

Of course, even while being a good deal for the creators, we also want it to be a good deal for you all, our audience, and it really is thanks to our partnership with CuriosityStream.

You see, they’re an entirely different streaming service with a huge catalog of nonfiction shows and documentaries like David Attenborough’s Light on Earth, about the amazing world of bioluminescent animals.

Samsung’s Dangerous Dominance over South Korea

Wendover Productions is all about explaining how our world works. From travel, to economics, to geography, to marketing and more, every video will leave you with a little better understanding of our world. New videos go out every other Tuesday.