Why Samsung’s Recent Conviction Will Not Rid South Korea of Chaebols

Samsung is in search of a new leader after Jay Y. Lee, grandson of Samsung’s founder, was convicted of bribing South Korea’s President to approve a controversial merger between two Samsung affiliates. Many thought that the proposed merger, which had been heavily criticized by independent analysts and investors, would not receive the legally-required approval from then-President Park Geun-hye’s administration. Lee allegedly bribed President and people close to her, to the tune of $38 million, for her support. When this corruption was exposed, President Park resigned and Lee was prosecuted and ultimately convicted.

Some hope that these dramatic developments portend more far-reaching changes in South Korea’s economy—in particular, the destruction of the chaebols (literally “wealth clans”), the multinational conglomerates in which leadership is passed from person to person within a family. Many credit chaebols with the successful post-World War II transformation of South Korea’s agrarian economy into an international economic powerhouse, but others criticize chaebols on a number of grounds, including the claim that they concentrate power and wealth in the hands of a small family minority, pay low dividends to ordinary investors, and facilitate the sort of grand corruption exposed in the Samsung affair.

After President Park resigned in disgrace, she was replaced by President Moon Jae-in, promised to put an end to chaebols altogether. Alas, this is unlikely. Indeed, it’s looking increasingly like Samsung’s recent scandal will not have a lasting effect on chaebols, or even on Samsung’s long-term profitability. Continue reading

Lessons from the “Isolated Capital” Effect for the Fight Against Public Corruption

As numerous commentators have written on this blog and elsewhere, the New York state legislature suffers from a serious corruption problem (see, for example, here and here), with six corruption convictions of government leaders in eleven years, and suspicions that the rot runs much deeper. Would things be any better if New York’s capital were in New York City rather than in Albany? While it’s impossible to say for sure, research suggests—perhaps surprisingly—that the answer might be yes. In an influential paper, Filipe Campante and Qhoc-Anh Do found that, on average, corruption (as measured by federal corruption-related crime convictions per capita) is higher in states where the state capital is more “isolated”—that is, farther from the state’s major population centers. (States with relatively isolated capitals include not just New York (Albany), but also Illinois (Springfield), South Carolina (Columbia), Nevada (Carson City), and Florida (Tallahassee), among others.)

Of course, states are very unlikely to relocate their capitals, but understanding the likely mechanisms that explain Campante and Do’s surprising finding may help us better understand the sorts of policy levers that might help reduce corruption in state government. So why might it be the case that states with more isolated capital cities might have more corruption? Continue reading

Saudi Arabia’s Anticorruption Purge: A Sham to Consolidate Power and Lure Investors

Saudi Arabia’s crown prince, Prince Mohammad bin Salman (MBS, for short), has been cleaning house. In the last month, he has arrested 11 princes, four ministers, and dozens of ex-ministers, all of whom are being held in five star hotels across Riyadh. He has also detained more than 200 others for questioning. Scores of commentators and media personalities have praised MBS’s anticorruption purge (see here and here), while others have condemned it (see here and here), which goes to show just how difficult it is to understand what the recent anticorruption purge means in the context of a country like Saudi Arabia. On the one hand, in Saudi Arabia, any measure to address corruption seems to be cause for optimism. Taken against the backdrop of the many social reforms advanced by MBS, ranging from permitting women to drive, diversifying the economy, and moderating the religious establishment’s brand of Islam, the anticorruption measures appear to be part of a genuine effort to reform Saudi Arabian society. Yet this optimistic assessment naively conflates a progressive social agenda that taps into our hopes for Saudi Arabia’s future (and the Middle East’s writ large) with what Saudi Arabia’s anticorruption purge really is: an attempt to consolidate MBS’s power and reassure foreign investors. Continue reading