During his time as a foreign correspondent covering the two Koreas for publications including TIME and The Wall Street Journal out of Seoul, Geoffrey Cain became one of the world’s experts on Samsung, and their role in South Korea’s post-war economic growth and more recent political turbulence in the country. His book, The Republic of Samsung, will be published by Crown in 2019. He spoke to KJ intern Leo Nelki Gopfert over Skype in September 2018.
You’re writing a lot about business and economics. Have you studied that or how have you found yourself in this position?
Originally I was not really a business writer, and I was never a tech writer or an economics writer either. My background is more in anthropology. I studied anthropology as an undergraduate and then I was doing ethnographic research in Cambodia. I was studying this garbage dump that all these local villagers live on, and make their living by picking up trash and selling it. And when I was trying to figure out how these social structures work and how they create a culture around their village, I found that the economic angle was the way that explained a lot of it for me personally.
So I finished that project, this was more than 10 years ago, and I found that as I went around Asia in particular —and I think this was more the case in East Asia than other regions of the world—that the economics was really fundamental to how these countries were being built and how they were making decisions. In Korea I saw these massive companies, and similarly in Japan I saw a lot of reverence towards these keiretsu companies, and how getting a job at them was considered to be one of the greatest things you could do for your family. So I found that in the age we live in, it made sense to focus on the economic side of things.
It’s interesting you think economics has that role more in East Asia, do you have any idea why that would be?
I think it’s just the way these states were founded. They were developmental dictatorships, and the legitimacy of these governments is closely connected to their ability to provide economic growth and material benefit; some sort of material fruit to the people who are supporting these governments. I think that in Asia in particular that style of patronage goes a long way. So if you go to the Middle East and look at the Gulf states for example, a lot their wealth was built on oil, but that’s not a developmental dictatorship because there were not stages of industrialisation in the same way as in East Asia. You don’t see as many world-class universities in the UAE for example… you don’t see a university system based on oil wealth. You tend to see more welfare benefits in places like Qatar where the oil money simply goes straight into a national fund and then is paid out to the people. It leads to a different system and in East Asia, because they were more industrial and the state was involved in industrialisation at the beginning, you see this different structure that emerges where the decisions that have to be made, should be made in the interest of continuing to industrialise and export the nation out of poverty. And even though Korea and Japan, and a lot of these countries, are successful and wealthy now, they still think like that: they still think that the Korean government will have to rely on exports to move into the next stage.
And your book on Samsung, what got you interested in that company in particular?
I chose that topic precisely because I was a Seoul correspondent and there were all these books about North Korea coming out and I thought, ‘how come there’s no book about South Korea?’ South Korea might not be as much of a hot topic as North Korea, it’s not a country that everybody pays attention to, but there’s this company here, Samsung, that essentially built an entire nation. That is, I thought it was fascinating to see how in South Korea they depend on Samsung, and other companies like Hyundai and LG, for their people’s livelihoods, for their economy, and for their society. But then you go overseas and people say ‘who the heck is Samsung? I have a Samsung phone, but I don’t know who created this, I don’t know what their story is, I don’t know where they’re coming from’. Lots of people thought that Samsung was Japanese. So, I thought it would be a good idea to do a deep dive into the workings of the company and spend a few years interviewing as many people as I could.
I’m putting together the story of this company that built a nation, and then went global, and started competing with Apple and with Sony and these other companies. There’s another aspect to it too. A lot of books about technology tend to follow this narrative where you have an innovator figure like Steve Jobs and one day he’s in the garage with his friends with this vision ahead of their time, and they make a really cool computer and they go through this struggle and one guy gets fired and there’s some sort of battle and Steve Jobs comes out at the end a winner and he invents the iPod… there’s always this similar kind of narrative and I thought Samsung would be an interesting story for those same sort of readers because it’s actually very different. It’s a dynasty, essentially modelled on what happened in Japan during and before the war. It’s modelled on this fascistic, militaristic mode of industry and doing business. On top of that it has this family dynasty that is similar to the noble families of old. So I wanted to tell that unusual story of this dynastic corporate empire that essentially runs a country.
How would a Korean dynasty be different to the Western idea of a dynasty?
A family power structure in a Western corporation is typically set up so that the family actually owns the business: the family has controlling shares in a publicly trading company, or sometimes, like in the case of Ford motor company, they’ll have a special share class reserved for members of the Ford family. And these are just different ways that the family manages to keep control. But when you look at a Korean firm—and this is something that I’ve found to be fairly unique to Korea and also to pre-war Japan—the ruling family manages to control these conglomerates only holding maybe 5% or less in the crown jewel of their corporate empire. So if you look at Lee Kun-hee, the chairman of Samsung, he manages to control the company with less than 5% of shares in Samsung Electronics. And if you look at the corporate structure, the full shareholding structure of every Samsung company, it’s done through these cross shareholding structures: so they might own 20% in Samsung SDI and then 30% in some other company and then 5% in Samsung Electronics, and it just goes around in this giant web. It’s impossible for anyone to figure out, I think.
You’re saying that they have a small percentage of the actual shares. So how does that convert to decision-making power?
There are so many different mechanisms that give them decision-making power. We saw evidence of that when there was a shareholding battle between a hedge fund called Elliott Management and the Samsung ruling family. In that case it wasn’t clear that the ruling family would win and so they appealed to nationalism. They pulled up their shareholder list and they went around the country serenading minority shareholders on the merits of the merger. They brought them gifts and put out commercials where they talked about the need for this merger to happen for the country and they had a few other things that were kind-of unusual. When you’re this foreign capitalist hedge fund coming into Korea and you think you’re just putting up a shareholding battle (kind-of a normal thing in the tech-business world) but then you discover an entire country is marching behind the company, I think that’s something that a lot of people are taken aback by. You have all these shareholders who might secretly believe that their losing out on the merger but the ruling family has to stay in power because that’s the most stable way forward for the company and for the country. In the end they did win, though by a very small margin. I’ve talked to a lot of shareholders and they said ‘I didn’t totally like this merger, but in the end I decided it would be safer to go along with that and support the structure that already exists’ because Samsung is in many ways Korea and Korea is Samsung. It’s risky to try to dismantle or oppose it, and a lot of people wonder what exactly that would lead to in the future.
Yeah I was wondering.. with Samsung generating such a huge proportion of South Korea’s exports and a pretty high percentage of its GDP. Does that mean the government can’t allow them to fail?
Yes. So I’ll give you one example. You remember when those Galaxy Note 7s started catching fire? In the West, in the media it was portrayed as “Smartphone Fires”. People wondered, what we will do if there is a recall? How can we protect consumers? It was portrayed as merely a business story. But in South Korea there was a fascinating study that came out by a professor named Sangin Park at Seoul National University. He had these economic models that he had created, and he showed that if the Samsung Galaxy smartphones sales collapsed, if people began seeing the Samsung brand as too risky—and Samsung Electronics stock for this reason—then at least two of the top shareholders in Samsung Electronics, which are also Samsung companies, would probably collapse and go bankrupt. One of them is Samsung Life Insurance. He predicted that if Samsung Life Insurance were to collapse or almost collapse then the entire life insurance industry would be wiped out in South Korea. So for Koreans that whole fiasco with the Note 7 was not just about smartphones blowing up. The problem was that if Samsung fails, then Korea fails. A lot of people were worried about that. The president of Korea at the time had a cabinet meeting and she said this was problem for Korea. And the opposition leader Moon Jae-In, who is now the president, also came out and said that since they rely so much on Samsung, this is Korea’s problem, this is not just Samsung’s problem. This is the kind of thing that, as I said before, you don’t find much in the West. There was the 2008 financial crisis and there were various banks who were cooking up numbers, and there was Enron in America but these corporate scandals are relatively spread between a number of actors. You find that in Korea, the problem is that if one company fails, then Korea fails and that’s the difference I think.
That said I think that Korean society has changed a lot over the past 10-15 years. It used to be more controversial to oppose a publicly in South Korea, but now it’s become more acceptable and that’s why we’re beginning to see a lot more protests against them. And we saw, for example, Jay Y. Lee (the de facto leader, vice chairman and heir of Samsung) was sentenced to 5 years in prison. He was later let off, but the guilty charge was still held on him. That is a very light sentence in Western and European terms but still, just the fact that he got 5 years in prison is much more than they gave these guys in the past. If you were a chaebol boss and you were charged with embezzlement in the 2000s, you might have been sentenced to 2 or 3 years in prison but you would never have to serve it because the judge would suspend it on account of good behaviour and just say ‘this leader is too integral to the health of the national economy so we can’t just put him in jail,’ so things have changed a lot.
Do you think it is that circular shareholding structure that separates Samsung from similarly sized Western companies, rather than its authoritarian leadership?
That’s actually the irony because even though it is a complicated web, it is still authoritarian and top-down. This is what is so fascinating about the chaebol groups in Korea. I got a document that showed every single board vote held late 2016 to 2017, and literally every single outside director votes every single company proposal except for a few who were absent maybe 3 or 4 times. And this was over maybe a year period and this shows how this company works and it’s just so ironic: it’s supposed to be decentralised but the family has retained control in so many complex ways that are in many ways genius, because I don’t think in many countries a founding family could think of all these master schemes to make sure that their authority stays concentrated.
With regards to the importance of honour and shame, I wonder if you could apply this to the bonfires of Lee Kun-hee. I just thought it was an amazing story. Is that typical of SK leadership, using shame in that way?
Yes it is. The 1995 bonfires, all the fax machines that were broken and the cellphones… that is a famous story within Samsung.[2] These charismatic leaders with emperor-like qualities, are more like Chief Visionary Officers and not so much CEOs, because their perceived job from their executives is to stand up and to give grand speeches that go on for hours and hours, to impart their vision to the employees and to hold these spectacles that get people fired up but also shame them a little bit. So with that bonfire story, the story that we hear in public is actually not the full story. When Samsung tells it, it sounds like an inspirational story, y’know ‘we held the bonfires and then everybody was ready to go’ but actually at the time the people who made these faulty products were so shamed and humiliated. I talked to them and they said it was as though their babies had died because the chairman of the company was shaming them by burning them publicly. So I think that speaks to what you said about the culture of shame and humiliation. I think that Korea very much has a culture of shame. When you use these tactics of fear and shame especially, that’s something that Korean leaders often use to get results. I’ve noticed, just from personal anecdotes in Korea, that trying to be inspirational or encouraging doesn’t really work so well.
You think it’s actually the more effective way to work somewhere like that rather than just historically the way that they work?
I think that it is way that politics and business has historically been done in Korea. If you look at the history of Korea, and even its current events the entire Korean peninsula has a kind-of dark story behind it. I think that Koreans have been disappointed by their leaders a lot and they have been disappointed by their businesses too. But the culture there is that you have to tolerate things in the national interest or in the collective interest so that’s why people let these things pass. I should also add that in writing and journalism it’s not so much an evidence-based culture. I think it’s more of a culture of feeling. And you can see this I think when you read journalism in Korean because the language they use is often emotionally charged and will often have lots of conjecture and lots of opinions written into the stories. And I think it’s simply because the field of Korean journalism hasn’t fully developed into something evidence-based, it’s more about catering to the emotions of the people who read it or the emotions of the political party you represent.
I don’t know how widespread this was, but there were rumours about Lee Kun-hee dying and that Samsung was keeping it secret.
I wrote an article about all this stuff a few years ago, it was in the Columbia Journalism Review, but my own personal theory and view is that this rises not just out of the emotional style of journalism, but also because in Korea there are these really strong, so-called ‘official narratives’. There’s this official narrative that comes out and the people who craft it say it can’t be questioned. And the natural reaction to that is to question it. People say “I don’t trust you, I don’t trust the government, I don’t trust the people in power because they’ve been corrupt and shady before so I’m not going to trust them again.” And as a result of that you have this counter activity, all these conspiracy theories and unofficial narratives.
What do you think it reveals, the fact that it is a plausible conspiracy theory in Korea?
I think it reveals the very low level of trust that Koreans have in their institutions, in their companies and in their governments. And the political scientist Francis Fukuyama, in 1996 wrote a book about this called Trust: The Social Virtues and the Creation of Prosperity. It’s about the political culture of trust and how trust affects societies and their politics. He found that South Korea in particular, and also Japan to some extent, were both “low-trust” countries where people simply do not put much faith in each other to just do things right. You look at Korean politics and society more generally, and you look at Samsung, and there are corruption scandals constantly. There’s rivalry going on and people accuse Samsung of having too much power and being this evil corporation that dominated the nation. There are lots of question now over the succession process, who is going to get what shares. So Jay Y. Lee is going to be the next chairman. And I think a lot of people in Korea piece these things together and create an argument from ignorance as it’s called, and they say well Samsung wants to pass shares to the son but they can’t do it yet. And the chairman has been in hospital for a few years in a medically induced coma so therefore he must be dead and they’re trying to cover it up because if he’s dead, his shares won’t necessarily go to the son, half will go to his wife under Korean law. So they’re just piecing stuff together. And speaking more as a journalist, over the years I’ve gotten emails from Koreans who see themselves as these Deep Throat characters who are going to spill scandals on the government. I’ll read them and they purport to have evidence that will bring down some politician but then all it is is their own theorizing and piecing together of disparate facts to create some false truth. There’s no actual evidence that proves what they’re claiming.
I just thought the idea of Lee Kun-hee ruling beyond the grave sounded so much like Kim Il Sung, the eternal leader of North Korea. And obviously he’s not dead so that’s not the case but the fact that its plausible, do you think that relates?
Yes, it’s completely the same. We often assume in the West that North and South Korea are aeons separate, that they are so different, and they have nothing in common. But we often forget that it was really only two generations ago, in 1948, that it was formally separated into two countries. They’ve only been divided for a relatively short amount of time and before that it was one peninsula reshaped entirely under Meiji Japanese rule. Korean society before Japanese colonialism was a different place. It was an extreme form of Confucianism for many years under a single dynasty in which the scholarly class typically had one of the highest rankings in this society and then the soldiers and the military had a relatively lower ranking. But if you look at Korea after the Japanese came, Korean society became decidedly militaristic and erected this belief in a pure master race. And then you have the elevated military, and the elevation later on of the chaebol groups that were modelled on the zaibatsu which became the two centrepieces of South Korean society. We also saw a lot of this in North Korea too, so North and South Korea have a lot of similarities in terms of the hierarchical, militaristic beliefs. A lot of these really do come from Japan leading up to WW2 and both North and South Korea were on the receiving end of them.
Do you think Samsung need to change their militaristic leadership now that they are on a worldwide stage?
Yes and the chaebol groups are aware of this problem, they’ve known about it for decades and even the current Samsung chairman, Lee Kun-hee gave this big speech in 1993 called the Frankfurt Declaration. It was a 3-day-long speech he gave to Samsung executives at the Kempinski Hotel in Frankfurt, Germany, 5 years into his reign as chairman, solidifying his authority over the group. He saw Frankfurt as a symbol of German reconstruction and German industry. This was after the Cold War ended and he really wanted his people to look to Germany and especially to Europe as one of the major models of what Samsung could accomplish and he was successful in a lot of ways. Samsung did really well under his leadership, they really did innovate quite a bit despite the reputation they get as being copycats, especially with Apple. His big takeaway was that the world is changing, free trade is becoming the norm, we have neoliberalism taking over and if Samsung and Korea do not elevate themselves to the level of Sony and IBM and Apple, then they’re just going to destroy us because the entire world is going to be free reign for the next generation. He said that Samsung had been sheltered for the past 30 years in the protectionist market of Korea and that they’d become number 1 in Korea was just not good enough. I find that his leadership of this company is ironic in so many ways, because he was this Emperor in the Korean sense but then he was telling his people that they need to reform and globalise. He was implementing reform in this top-down militaristic fashion, which is just such a clash.
But it seemed to work right?
Yeah it worked and that’s the irony of it. He really did get his people to globalise to a great extent. Samsung is one of the great global companies today, everybody knows Samsung. You go to the local shop and you’ll see Samsung TVs, phones, washing machines… they sell everything.
[1] Chaebol; huge family-owned business conglomerate in South Korea. The main four are Samsung, LG, Hyundai and SK.
[2] In 1995, Lee Kun-Hee sent prototype wireless phones as New Year’s gifts to his friends. When his friends reported the gifts faulty, the Samsung chairman ordered a bonfire to be built in front of the factory. Thousands of cellphones and fax machines were ritualistically burned as the employees were made to watch.
[3] Powerful Japanese business conglomerates which existed in the late 19th and early-20th centuries.
Geoffrey’s forthcoming book, Samsung Rising: How a South Korean Giant Set Out to Beat Apple and Conquer Tech is now available to pre-order.
