Third-generation problem.

Photographer: Jung Yeon-JE/AFP/Getty Images

Korea Needs to Stay Outraged Over 'Nut-Rage'

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It’s the rare scandal that links air rage, corruption and the fate of the world's 14th biggest economy. The Heather Cho kerfuffle dominating South Korean news media offers all this and perhaps more: a chance to right a political system that's veered off course.

The news media pounced on the delicious tale of Cho's freakout, on a Dec. 5 New York-to-Seoul flight, over the manner in which she was served her macadamia nuts. Cho figured her status as daughter of Korean Air's chairman entitled her to demand that Flight 86 return to the gate to toss off a crew member who didn't pay her sufficient homage. The 40-year-old has since been indicted for obstructing aviation safety (she's also being investigated for colluding with transportation officials).

News commentators are now slamming the sense of privilege felt by families running Korea's corporate giants, or chaebol. Indeed, Cho's tantrum demonstrated, in a nutshell, how nepotism and clubby ties between government and industry hold back the economy.

But why did it take Cho's nut-rage to get reporters on the case? Something similar happened last April with the sinking of the Sewol, in which more than 300 people (most of them school kids) died. The ferry was operated by chaebol Chonghaejin Marine Co., a fact that was harnessed to explore how cronyism and the revolving-door between regulators, bureaucrats and the private sector put lives at risk. This fit a disturbing pattern. When a spectacular incident makes global headlines, journalists feel compelled to investigate Korea's chaebol problem. When the dust settles, they move on. Rather than respond only to periodic public outrage, journalists should keep a steady watch on the issue. 

Two years ago, Park Geun-hye rode a wave of discontent into South Korea's presidential Blue House. Many blame the widening gap between rich and poor on the dominance of the chaebol, with their unseemly penchant for tax-evasion, sibling battles over assets and extreme concentration of national wealth. Just five companies generate roughly two-thirds of South Korea's gross domestic product. This outsized influence stifles small-and-medium-size companies. It kills any chance a startup might have to introduce game-changing products and create new jobs. Park's plan to rein in the chaebol is off to a slow start, and media elites share in the blame.

The chaebol are major advertisers with deep pockets and, like Japan's vast power industry or America's military-industrial complex, they are adept at using their brawn to muzzle criticism. In his explosive 2010 book "Think Samsung," that company's former in-house counsel Kim Yong-chul detailed how family-owned conglomerates allegedly used bribes and intimidation to "lord over" the government and the media. Kim says that when he first approached local news outlets with the story, he found no takers.

The absence of sustained public pressure for corporate change takes the onus off the government. If the media uncovered cronyism without waiting for scandals, Park would be under greater pressure to make good on her campaign pledges. She's been slow to prod the chaebol to unravel cross shareholdings and share outsized profits with workers. That's unfortunate as Korea cascades toward its so-called third-generation problem -- the resentment toward the grandchildren of the founders of Samsung, Hyundai, LG, Hanwha and so on.

The chaebol founders were revered as pioneers who helped power the economy's rise from the ashes of the Korean war. But the third generation now taking the reins view their jobs as a birthright. Heather Cho, for example, is among the children thought to be in the running to replace the 65 year-old Cho Yang Ho, who runs the Hanjin Group of companies that includes Korean Air. Given the economic concentration that rests in a handful of family companies, Koreans have a strong interest in who runs them next.

A juicy dustup like Cho's nut-rage is a timely opportunity to explore how incestuous ties between Seoul and business dent competitiveness. But Korea could be far more vibrant and entrepreneurial if the media did this job day in and day out. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net