South Koreans so far have responded with overwhelming optimism to Donald Trump’s June 12 summit in Singapore with North Korean leader Kim Jong Un. Buoyed by hopes of rapprochement with their northern neighbor, about 66 percent of South Korean respondents view the summit favorably. Moreover, President Moon Jae-in, who had pressed hard for peace in the months leading up to the summit, now enjoys a 76 percent approval rating and his Democratic Party so thoroughly swept last week’s by-elections that two opposition party leaders have since resigned.
As with any restoration of relations, there are likely to be economic benefits. But one potential hazard of economic integration with North Korea, though rarely talked about in the United States, is that through premature sanctions relief and economic partnerships between Seoul and Pyongyang, the summit could vastly empower South Korea’s family-run conglomerates, or chaebol. Chaebol are authoritarian in structure, even militaristic, led by people who wield vast power in South Korean society and all too often indulge in criminal behavior without being punished for their crimes.
Samsung chairman Lee Kun-hee was convicted in 1996 of bribing politicians and in 2008 of tax evasion. Kim Seung-youn, the chairman of the Hanwha conglomerate built around an original explosives company, was convicted in 2007 of beating several people with a steel pipe. All three instances ended with presidential pardons. Kim was later jailed for embezzlement in 2012, but released months later. Lee’s son, Lee Jae-yong, was sentenced in 2017 to five years for bribing the former president, but was also released months later.
These cases are characteristic of chaebol power, and once the door to North Korean development is reopened, these entities will be able to secure deals beyond the reach of the South’s poorly enforced corporate governance laws. Such partnerships will naturally empower the North Korean system with an inflow of chaebol money, while allowing chaebol to thrive in a region with virtually no corporate oversight, in turn enhancing their ability back home to influence public opinion, bribe judges and prosecutors, and generally bend the South Korean legal system to their will.
The summit means sanctions on North Korea “have lost momentum,” says Gi-wook Shin, author of a book on chaebol excesses titled “Superficial Korea,” who adds that chaebol now enjoy “intangible power over government policy” and that despite public outrage over their transgressions, they continue to thrive because for young Koreans today, employment at a chaebol remains “one of the very few tickets to success.”
The upshot of all this is that rather than the North going through economic reforms that could make it start to resemble China—more open than previously, but with central, force-backed control and high levels of corruption—chaebol might instead pull South Korean society in this direction.
This may sound unlikely. But Beijing, Washington, and Seoul have been breeding optimism about the resumption of post-summit economic relations with such fervor as to suggest that we are already rushing ahead, without giving pause to consider how these events may empower chaebol.
Beijing has long opposed sanctions. By legitimizing North Korea, the Singapore summit makes it easier for China to argue its case. In fact, immediately after the summit, Chinese Foreign Ministry spokesman Deng Shuang suggested sanctions relief can now follow. Earlier this week, Benjamin Katzeff Silberstein, co-editor of North Korean Economy Watch, reported that China is already easing up on sanctions. But this is unlikely to soften North Korea’s position, he told The New Republic, nor should we expect the North to adopt a Chinese model anytime soon, as the regime is highly risk-averse and likely sees the existence of protests in China as a major turn-off.
Meanwhile, reports in South Korean media about the U.S.’s own economic designs on North Korea have increased the sense that rapid change may follow. After Trump unexpectedly cancelled the summit in late May, Kim Yong Chol, a concentration camp inspector and top North Korean official, visited Trump and presented him with a giant envelope from Kim Jong Un. Trump announced the same day that the summit was back on. On June 6, the respected South Korean newspaper Dong-A Ilbo reported that according to U.S.-Korean diplomatic sources, the letter contained an offer for Trump to further develop Masikryong Ski Resort and build a casino on North Korea’s east coast. A National Security Council spokesman familiar with the meeting described Dong-A’s report as “100% untrue.” But whether accurate or not, this narrative only grew stronger when, on June 12, after speaking with Kim Jong Un in Singapore, Trump said that North Korea had “great beaches,” adding, “You could have the best hotels in the world right there. Think of it from a real estate perspective.” The New York Times then reported on June 17 that the entire summit had been quarter-backed by a “profit-minded” American financier.
As for South Korea, the Corporate Association of Kaesong
Industrial Complex, which represents the South Korean companies that operated
factories at the Kaesong complex, now says it hopes to reopen the facility
within the year. Kaesong, a special administrative region in North Korea, was
created in 2002 as part of an economic thaw and closed in 2016 in response to
the North’s continued missile tests. Hyundai set up a task force last month to
prepare for economic projects in the North, and last week Samsung and Hyundai
released reports on what they see as a new era of investment in North Korea, as
well as the need to re-open Kaesong. Samsung has even launched a research team
aimed at helping investors pick stocks tied to the country.
In addition, last month a key official in the Moon administration said Moon is already looking into economic partnerships he can begin before sanctions are even lifted. Indeed, during their summit, Moon gave Kim Jong Un a USB outlining his plan for the creation of three economic belts connecting the two countries, something that will again involve and empower chaebol, making corporate reform more difficult than it already is, while strengthening the North before it has shown any sign of change.
Moon shows no indication, thus far, of caution as he continues down this path. If chaebol reform was working in the South, we’d have reason to be optimistic. But instead the South, which is already one of the most capitalist nations in the world (Samsung’s revenue in 2017 was $216 billion or roughly 15 percent of the nation’s entire GDP), stands in danger of becoming a virtual corporatocracy. Opening up a new unregulated zone in which chaebol can conduct business could well upset what little balance remains.
That’s not to say that sanctions relief is an entirely bad idea or that business with the North should be avoided. According to Katharina Zellweger, a visiting scholar at Stanford’s Center for International Security and Cooperation (CISC) who previously spent five years in Pyongyang, sanctions relief could help restart the much needed tuberculosis program in North Korea and secure the provision of basic drugs for provincial hospitals — both projects that Seoul, especially if it works with UN staff already on the ground, is ideally suited to handle. Nor is this to suggest that the Singapore summit was a failure: if minimal and a little amorphous, the goodwill gestures seem real. But without proceeding with caution as the thaw continues, and without emphasizing chaebol reform along with any other changes, corrupt forces in the North and South might just offset the substantial progress that stands to be made.