Let them eat cake: A half-baked effort to curb the conglomerates

http://www.economist.com/node/21546069

SOME parents give their children cakes. A few give them cake shops. The hot topic in South Korea is the trend for daughters and grand-daughters of chaebol families to open bakeries and other small food outlets. The chaebol are the conglomerates that dominate the Korean economy, so these plutocratic pâtissières have deeper pockets than any of the little bakers they compete against.

Their baking has provoked outrage. Lee Myung-bak, South Korea’s president, calls it a “hobby” business for rich girls that threatens the livelihood of poor shopkeepers. Lee Ju-young, a member of the national assembly, likens it to Park Ji-sung (Manchester United’s Korean midfielder) lording it over amateurs in a backstreet game of football. A restaurateur in Seoul puts it more plaintively: “These families already control everything else in Korea. Why can’t they leave something for the rest of us?”

The chaebol families have decided that this is not a battle worth picking. Scions of the Samsung, LG and Hyundai dynasties are all hanging up their aprons. Artisée, a chain of swanky pastry shops run by Lee Boo-jin, whose dad is the chairman of Samsung, is to close. So is the Hyundai-affiliated Ozen.

Whether this will help small bakers much is open to question. Artisée has only 27 shops; Ozen a mere two. Both are cupcakes in comparison to SPC Group, which operates more than 3,000 Paris Baguette shops in Korea. Buns have always been SPC’s bread and butter—and its boss is not an heiress.

Some say all this pie-throwing distracts attention from the real problems that overmighty chaebol cause. Entrepreneurs complain that if they have a good idea, the chaebol show up with their chequebooks and poach their staff. Small firms that supply chaebol complain that they are ruthlessly squeezed, though few dare say so publicly.

Consumers also suffer. Korea’s Fair Trade Commission (FTC) detected over 3,500 cases of price-fixing in 2010, but only 66 led to fines. The average penalty amounted to just 2.3% of unfairly earned revenue. Samsung and LG were fined in January for fixing the prices of notebook PCs and flat-screen televisions between June 2008 and September 2009. Samsung was ordered to pay a fine of 25.8 billion won ($23m); LG, 18.8 billion won. LG’s fine is to be waived, in return for co-operation with the FTC. This is the third time the two firms have been caught price-fixing in the past two years.

Politicians follow the same old recipes when dealing with the chaebol. They lean on banks to lend cash to small firms. And they lean on the chaebol to stay out of a few minor businesses, such as baking or tofu-making. However you sugarcoat it, this is not serious reform. ◦

Let them eat cake: A half-baked effort to curb the conglomerates