Korean Dynasty

Hyundai and Chung Ju Yung

Korean Dynasty Hyundai and Chung Ju Yung

Donald Kirk

First published 1994 by M.E. Sharpe

Published 2015 by Routledge

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© 1994 Donald Kirk. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

Kirk, Donald. 1938-

Korean dynasty: Hyundai and Chung Ju Yung / by Donald Kirk

Includes bibliographical references and index.

Asia 2000 edition ISBN 962-7160-30-X — ISBN 962-7160-31-8 (pbk.)

M.E. Sharpe edition ISBN 1-56324-425-X — ISBN 1-56324-426-8 (pbk.)

1. Chŏng, Chu-yŏng, 1915- 2. Hyŏndae Chadongch’a Chusik Hoesa

 (Korea) 3. Businessmen — Korea (South) — Biography I. Title.

HD9710.K62C485 1994

338.7′6292222 — dc20

94-7559

CIP

ISBN 13: 9781563244261 (pbk)

ISBN 13: 9781563244254 (hbk)

DOI: 10.4324/9781315483214

For Jay and John my wonderful kids

Contents

Preface

Chung and Chaebol A Spiritual Affair

I Mixed Miracle

II The Boss

III Chaebol and Confucianism

IV Catching the Spirit

Business and Policy Sharing Common Cause

V Planning for Success

VI Mother Company

VII On Desert Sands

VIII To the Sea in Ships

IX To the North

Cars that Made Trouble Potholes and Pitfalls

X Age of the Car

XI Honeymoon Cruise

XII Off the Road

XIII Koreans vs. Americans

Chip Shots And Other Short Circuits

XIV Memory Losses

XV Valley Days

XVI Made in Korea

XVII Made in the USA

Revolt in the Workplace The Battles of Ulsan

XVIII Kidnapped

XIX Night Attacks

XX A Vote for Peace

XXI View from Above

XXII Showdown on Company Street

Business and Politics Fighting the System

XXIII Chun vs. Chung

XXIV Sons and Brothers

XXV Facing the Law

XXVI Facing the Nation

Epilogue

appendix

Map of Korea

reference

Acknowledgements

Index

List of Contributors

Preface

Since first coming to Korea in 1972 as Far East correspondent for the Chicago Tribune I have gone from reporting about radicals and riots, the Kwangju revolt of 1980 and other upheavals, to the 1987 and 1992 presidential elections, to the 1986 Asian Games and the 1988 Olympics, to North-South relations, to big business. The order might seem odd, but there was not that much “big” business in Korea in the early seventies. There were no Ponies, Excels or Sonatas on the streets, and the hull of Hyundai’s first ship had hardly taken shape behind the headland that forms the harbor on Mipo Bay and the mouth of the Taehwa River in Ulsan, “Hyundai City,” on the southeastern coast. Korea’s “miracle” was in gestation.

Much later it occurred to me that the story of this miracle, its achievements and its failures, was if anything more significant than the highly visible riots, the much-publicized North-South talks, the overlay of democratization. Within that story lay one special drama — that of a man and the group that he founded. The man, Chung Ju Yung, was in the early 1990s the most controversial figure on the Korean political scene, and his group, Hyundai, the largest of all Korean chaebol or conglomerates. This book is an effort at telling the story of the man and the group in the context of Korea’s rise from third-world to world-class economic power.

The desire for secrecy among Korean businessmen, an authoritarian view that the public does not have a right to know anything beyond the level of self-serving publicity, has added to the challenge of the project. While Hyundai executives and managers treated me courteously, they were reluctant to confide in me, much less share the innermost secrets of the group. There was always a suspicion, sometimes stated, more often unspoken, about my intentions. There was a tendency either to present the group in the best light, reciting its triumphs while brushing over or concealing failures and embarrassments, or else to talk in formal statements. Sources outside the group — notably foreign engineers and managers who had worked for Hyundai entities in Korea and North America — were needed to balance the view of an organization that had risen amid controversy and suffering.

One question I was occasionally asked while doing my research was whether the book was underwritten, subsidized or in any way supported by Hyundai. The answer is no. I conducted the project on my own. Hyundai Chairman Chung Se Yung, as well as Chung Mong Joon, S.Y.’s nephew and sixth son of Chung Ju Yung, suggested that I submit a copy of the manuscript in advance to safeguard against errors, as did Park Il Kwon, group public relations manager. I did not do so, however, for fear that any check of “errors” would devolve into censorship and compromise sources. As my reluctance to submit a manuscript for review might indicate, I bear full, sole responsibility for the judgements reflected here as well as for the facts and quotations that support them.

Seoul, July 1994

Korean Dynasty

Hyundai and Chung Ju Yung

Chung and Chaebol A Spiritual Affair

I Mixed Miracle

DOI: 10.4324/9781315483214-1

The family tableau emerged from the demanding tradition of a Confucian male-dominated society where nothing counted for more than loyalty to the patriarch. At 5:30 a.m. on a Seoul morning, summer 1992, Chung Ju Yung, at 76 South Korea’s richest man and a candidate for president, hosted five of his six living sons, the brother-in-law of a son who had killed himself plus the son of a brother who had died 30 years before. Wearing funereal dark suits and white shirts, squeezed into uncomfortable wicker chairs, they huddled around a small table for a hasty breakfast of tea, fresh fruit and rice. The old man went easy on kimchi, the spicy pickled cabbage that was a national staple — unlike most Koreans, he did not like hot food.

Chung Ju Yung might chat about business or politics. His sons, nephew and in-law, aged between 31 and 54, responded politely. “Normally when you have many brothers, you don’t talk much,” observed Mong Yun, seventh son of eight, including the eldest, who had died in a car crash, and the fourth, the suicide. “We are quiet persons.” Clearly, it was attendance, not conversation, that counted. Downstairs, their dutiful wives sipped tea, wandering in and out of the spacious kitchen, waiting patiently before returning home to breakfast with their children. Suddenly, the men got up, walked silently past the women, now lined in a row outside, nodding their heads before the old man. He stepped briskly out of the spartan two-story cement block house, defended by six security guards in shirts and slacks and an equal number of watchdogs, on the side of a hill with a view of the presidential mansion, the Blue House, rising out of the trees in the middle-distance below.

With his retinue of sons, nephew and in-law, the last an excellent marksman and personal security chief, plus three bodyguards, he set forth on the two-mile walk to the political headquarters that filled one of his office towers on the boulevard leading to the National Museum. The wives were chauffeured in black sedans back to luxury apartments and compounds scattered around the city. The daily ceremony had long since ceased to surprise neighbors on the slope from which Chung Ju Yung could glimpse the headquarters of Hyundai, the organization that he had founded after the Japanese surrender and built into Korea’s largest business group.

It was a ritual that had gone on for 30 years — ever since Chung had opened his first downtown headquarters for the industrial empire that had begun in a sidestreet garage and now sent ships and chips, cars and computers, oil rigs and bridges, around the world. Up at 3 a.m., he pored over papers, made phone calls and received visitors for two hours before breakfast. He had fixed the daily routine while amassing a personal fortune that he officially placed at $4 billion — and others estimated at $6.5 billion.¹ He was not about to change it now that he had “retired” in favor of politics. “It is unthinkable not to go,” answered sixth son Mong Joon, asked to suggest the consequences of non-attendance.

1 United People’s Party, Chung Ju Yung: A New Vision to Revive the Korean Economy, 1992, p. 4. “Along the way, he made a fortune of $4 billion,” said the brochure, reviewed and approved for publication by Chung Ju Yung’s sixth son and political aide, Chung Mong Joon. Fortune (“The Billionaires,” September 7, 1992) put the wealth of Chung and family at $2.3 billion — a figure apparently based only on their shares in Hyundai companies listed on the Korea Stock Exchange.

Not that the sons had always been so punctual. There had been instances — no one wanted to say when — in which one or another of them had not shown up to pay morning homage. The penalty for such insolence was quite harsh. A servant would call the errant son at home, tell him to come to the house that night and be prepared to stay the week, arising at 3 a.m. with his father and, for sure, sitting down on time for breakfast. “You have to have a reason for not being there,” seventh son Mong Yun explained. “Otherwise he will talk to you.” The misty summer morning I went there, fifth son Mong Hun was absent for cause. He was in jail, on trial for siphoning funds from the company his father had given him and diverting them to his father’s political war chest. “He is a victim of political circumstances,” said the loyal Mong Yun. “If my father is not in politics, they would not do this.”

No one had ever been known to rebel, to question — not even when Chung, assuring the future of his holdings along with that of his family, had told his sons, you will become president of this company, you will be chairman of that. “My father decides,” said Mong Joon, chairman of one of Chung Ju Yung’s largest companies until the old man told him to run for the National Assembly and help make him president. It was as much as Mong Joon cared to reveal about the selection process. (“There are sensitivities,” he told me. “Please go over with me anything I say to you about my family,” he pleaded, saying no more to go over.)

Would a son ever ask his father why this company, not that one? “That would be a foolish question,” responded Mong Joon. “Every parent disciplines his children,” he added reluctantly, when asked if the old man was as tough on his sons as everyone said he was. Mong Joon did not acknowledge his wife, Kim Young Myoung, a graduate of Wellesley College near Boston, daughter of a foreign minister and ambassador to Washington, as she hastened to her car murmuring, “I have to get the children off to school.”

Mong Yun, strolling out with third son Mong Kun, confirmed Mong Joon’s words. “Everything,” he said, “is done by my father.” He described the arrangement as a kind of trade — you do this for me, and I do that for you. It was not by pressure alone, however, that Chung Ju Yung held the family together, any more than mere force bound his companies or his political party. “It’s a kind of charisma,” said Mong Yun. There was in his father’s will the faculty of inflicting fear, but his ability to get his way went beyond knowing how to scare his grown children. “My father used to be tough on the kids,” Mong Yun went on, almost repeating himself in his search for an explanation of the special power he radiated, but what really counted was that “he was a charismatic person.”

The chairman’s own sometimes scandalous private life, however, might account for a paradox in his treatment of his sons: unlike many Korean fathers, including his own, he never chose their wives even while dominating their careers. “Chairman Chung did not make his sons marry with famous families,” said loyal long-time aide Lee Byung Kyu. “He is one of the most modem people. His way of thinking is very reasonable. All his sons got married without his introduction.” Mong Joon had met his wife while they were students in America. Her background was the most illustrious of any of the wives. The others were from business families — prosperous but less than elite. The only other family member linked by marriage to a well known figure was Suk Yung, daughter of Chung Se Yung, the younger brother who had succeeded the old man as group chairman. Her father-in-law had once been prime minister.

As long as the patriarch survived, the sons were bound to repress overt sibling rivalry. “I understand some other groups have trouble with each other because of the brothers,” said Mong Yun, shrugging off gossip about a fraternal power struggle. “I don’t think we get jealous.” Were it not for father’s influence, though, the brothers might hardly meet each other. “We don’t have much time,” he said, pressed on whether they might see or call one another later in the day. The ritual of the sons’ breakfast might have been unique among the ruling clans of Korean industry, but the furious drive, the unquestioning subservience to the boss, the blood loyalty were intrinsic in the drama of the rise of modem Korea from a backward, shell-shocked, post-colonial society. So far had Korea climbed from poverty and the rubble of war that visitors asked whether or even when it would catch up with Japan, the nation that had dominated its economy for half a century until the end of World War II.

Rumors of Korea’s rise as “the new Japan” gained currency through the 1980s and into the nineties. If the Japanese could do it, why not their country cousins from across the Sea of Japan? The Americans, never terribly discriminating in their outlook on Asians, figured they all looked about the same anyway. Small in comparison with the basic middle-American stereotype, with straight black hair, quick on statistics, the aggressive Koreans would soon show they were “just like the Japanese” — and invade the American marketplace with everything from cars to computers.

America’s three leading business magazines spread the word. “The Koreans Are Coming,” Business Week announced on a cover ushering in Korean exports in 1985. “Is Korea the Next Japan?” the magazine wanted to know. The question was still relevant two and a half years later. “Korea: Will it Out-Japan?” asked a gaudy Forbes cover several months before the 1988 Seoul Olympics showing a Korean tiger springing out of a box, hovering, paws poised, over a tiny Uncle Sam with a comforting hand on the bald head of a cowering kimono-clad Japanese. Four years after that, in 1992, Fortune had the answer. “Korea’s Tigers Keep Roaring,” headlined a cover proclaiming “South Korea’s quest to be the next Japan seems right on schedule,” showing a grinning Daewoo Chairman Kim Woo Choong clutching a toy tiger.²

2 Business Week, December 23, 1985; Forbes, May 16, 1988, pp. 84–89; Louis Kraar, “Korea’s Tigers Keep Roaring,” Fortune, May 4, 1992, p. 24.

Chung Ju Yung and Byun Joong Suk, shortly after their marriage in 1936. Yonhap

Young Chung Ju Yung delivering rice, from the comic book version of his autobiography Munhwa Ilbo

Chung Se Yung (born 1928) Hyundai

Chung Mong Ku (born 1936)

Chung Mong Kun (born 1942)

Chung Mong Hun (born 1948)

Chung Mong Joon (born 1951)

Chung Mong Yun (born 1955)

Chung Mong II (born 1959)

Chung Mong Kyu (born 1962)

HHI shipyard, Ulsan (note Goliath cranes) Hyundai

Exxon Heritage jacket launch, August 28, 1989 Hyundai

HHI shipyard workers, 1990 Yonhap

Hyundai-Ford truck delivering Pony cars, 1970s Hyundai

HMC assembly line, 1988 Yonhap

Hyundai Electronics semiconductor production. Hyundai

64M DRAM chip Hyundai

The author (second from left) with Hyundai salarymen at Hyundai head office, Seoul

HHI workers, behind barricades, confront riot police, April 30, 1990 Yonhap

Riot police fire tear gas grenades toward HHI workers, April 28, 1990. Police are firing from behind barricade set up by striking workers. On right is section of ship's hull. Yonhap

Striking HHI workers occupying Goliath crane, April 3, 1990 AP

HHI workers, behind barricades, confront riot police, April 3, 1990 Yonhap

Police buses set afire by Molotov cocktail thrown by HMC worker, April 28, 1993 Yonhap

Assembly-line workers at Hyundai Precision in Ulsan at a rally before the plant, 1993 Yonhap

Chung Se Yung sits down with labor leaders during HHI strike in Ulsan, July 10, 1993 Yonhap

Presidential campaign poster, 1992

Chung JuYung at election rally, 1992 Lee Eun Bong

Chung Ju Yung arrives at prosecutor's office to answer questions about election fraud. His forehead was bashed by a TV camera. January 15, 1993 Yonhap

Chung Ju Young meets President Kim Young Sam at Korea University, January 27, 1994 Yonhap

Chung Ju Yung at his Sosan rice farm Hyundai

Not the least of the original reasons for the ballyhoo was the initial success of a seemingly nifty little car — the “Excel.” The manufacturer was not Daewoo Motor, then ending a stormy partnership with General Motors, but another, bigger manufacturer, also largely unknown to most American investors with their fixation on Japanese names. The company was Hyundai Motor, and the U.S. distributor was Hyundai Motor America. So ignorant were Americans about Hyundai when the first Excels arrived on the West Coast that a top Madison Avenue ad agency hit upon a cute rhyme to make them palatable to the great American public — “Hun-day as in Sunday.” The rhyme was inaccurate since Hyundai was pronounced more like, “Hyun-deh,” but for commercial purposes it came close enough.

If Americans might be forgiven for mispronouncing “Hyundai,” the American business media was still to blame for perpetuating two fundamental myths in the reception accorded the Hyundai Excels as they poured onto the North American scene in the late 1980s. It was only a matter of time, according to the first myth, before the Koreans would “catch up” with their look-alike cousins. The most cursory understanding of history taught quite a different lesson. The Japanese had not merely ruled Korea for 35 years before the World War II surrender. For many years before that, they had encroached on the Korean peninsula economically, and centuries before they had humiliated the Koreans in plundering wars in which they had devastated the land, carrying off its treasure while assimilating its culture. Koreans had hardly distinguished themselves militarily since Admiral Yi Soon Shin’s iron-clad “turtle ships” warded off the Japanese in 1592 — to this day Korea’s most heroic moment.

For all their individual toughness and skill in martial arts, Koreans were weighed down by a creaking, antiquated class system that venerated nothing so much as authority and age according to principles adapted from Confucian China, to which their leaders had paid annual tribute. Since the great King Sejong had promulgated hangul, the unique Korean alphabet, in 1446, Korean intellectuals had invented, engineered or created virtually nothing original. There existed a “class of menial artisans and craftsmen who were commonly addressed with the suffix of chaengi to denote the humble nature of their occupations,” wrote Park Chung Hee, the general who sought to reverse the pattern in his nearly 19 years of dictatorial rule in the sixties and seventies. “Such a disdainful attitude towards professional and technical or skilled artisans proved to be a serious stumbling block to the technological modernization of Korea” — a reason rooted deep in culture and history for modem Korea’s dearth of engineers and technicians.³

3 Park Chung Hee, Our Nation’s Path: Ideology of Social Reconstruction, 1962, pp. 48–49.

Korean scholars might still claim the ancestors of the Japanese had migrated from the Korean peninsula, bringing with them much of the culture their descendants later robbed and raped, but the link was archaeological, if not mythological. Educationally, financially and intellectually, modem Korea was about as close to modem Japan as a double-A farm team to a major-league franchise. Some of the players could no doubt make the big-time, but most of them just were not in the same league.

The second media myth in the eighties about Korea was almost the reverse: these aggressive fellows in their belated industrial revolution had taken to spinning out cars and television sets and chips and other products virtually overnight. Since almost nobody abroad had ever heard of Hyundai, Samsung, Daewoo or Lucky-Goldstar, the biggest Korean business groups, the assumption was such hard-driving if remote “Asians” had had guts and brains and money enough to build sophisticated plants out of nothing. In fact, tough young men had been scrambling since World War II to set up their own companies in the vacuum left by the defeated Japanese. They got their big break in the devastation of the Korean War, a cataclysm that overwhelmed a land untouched by Japan’s “Pacific War.”

In the darkest hour, the big benefactors were the Americans, who first liberated the country and then, with the onset of the Korean War, poured in the funds and let the contracts that turned on the dormant Korean machine. The Americans, however, had committed the unforgivable sin of agreeing in epoch-making conferences with their World War II allies in 1945 — first at Yalta in February, then, after President Roosevelt’s death in April, at Potsdam in July — on the division of the country. The deals, ostensibly for a limited trusteeship viewed with overwhelming distrust by Koreans, gave overestimated Soviet troops free reign to advance against the equally overestimated Japanese and take over the peninsula as far south as the 38th parallel on behalf of a Soviet-nurtured Red Army puppet officer, Kim II Sung. No amount of diplomatic explanations and posturing from Washington, in the Korean view, could compensate for that historic wrong.

Nonetheless, the United States had led the fight to save the capitalist southern half of the peninsula from going the way of the communist North after North Korean troops invaded South Korea on June 25,1950. And the Americans, with the backing of a “United Nations Command” that included troops from 15 other nations, had kept on fighting when China sent in more than a million “people’s volunteers” to invade the South yet again after U.S. forces had sent the North Koreans reeling in defeat and marched all the way to the Yalu River frontier with China.

The Americans, themselves sent into humiliating retreat before the Chinese, finally formed a line well north of the southernmost port city of Pusan. In the end, they managed to drive the Chinese back across the 38th parallel before going into prolonged negotiations culminating in the signing of an armed truce in the village of Panmunjom on July 27,1953. Although U.S. forces had failed to reunify the peninsula, they invested billions of dollars for the defense and reconstruction of the South and promoted an industrial revolution. Thus the American era in South Korean history ended both the exploitative colonialism of the Japanese and the stultifying isolation of a nation dubbed “the hermit kingdom” by foreign missionaries when they began arriving in significant numbers in the late 19th century.

One of the more noteworthy changes was the partial — by no means complete — destruction of a rigid class structure that had made industrial creativity and innovation all but impossible. The Confucian precept of respect for authority — drummed into all Koreans right through the Japanese period — remained ingrained. Korean-style Confucianism survived transition from the colonial to the modem era amid religious, economic and political upheaval. As Christianity blossomed, claiming a third of the people of South Korea by the 1990s, an underlying Confucian value system was essential to the rise of today’s vibrant, if troubled, Korean economy.

There was, in the success of the Excel car, both more and less than met the eye of the American consumer. There was more, in that it derived from a process initiated well before World War II in the drive and imagination of a young man from a village in what later became the Democratic People’s Republic of Korea, the communist northern half. There was less in that the Excel, rookie of the year in the small-car class when it first hit the U.S. market in 1986, remained an upstart among pros from Japan, Europe — even the United States. The Excel’s quick glory, for the American public, symbolized and dramatized the Korean success story. It seemed to show that Korea, at least the Republic of Korea, South Korea, had come of age in the new industrial era. No longer could anyone lump Korea with “the Third World.”

Korea had its own pockets of poverty, but a host of statistics showed the steady rise of the land to the level of NIC — Newly Industrialized Country. While Taiwan and Singapore, both ethnically Chinese mercantile island states, were also NICs, Korea by the 1990s had far more industrial depth. As for Thailand, also sometimes described as a NIC, one only had to walk through the clogged, fetid streets and markets of the Thai capital of Bangkok to see the comparison was absurd. Korea might never be competitive overall with Japan but was first among NICs in heavy manufacturing if not foreign trade. (Taiwan’s exports, shooting by those of Korea in 1991, rose by nearly 1% to $81.5 billion in 1992, world’s 12th highest, a notch ahead of 13th-ranking Korea’s $76.6 billion, up 6.5% from 1991. Singapore came in 15th with exports of $63.6 billion, up 7.8%.⁴ For all its success as a free-wheeling financial and light manufacturing center, Hong Kong, dubbed one of “the four little tigers,” along with Korea, Taiwan and Singapore, remained precariously at the mercy of China, to which it would revert in June 1997 after a century and a half of British rule.)

4 The Korea Herald, February 21, 1993.

It was a legacy of Japanese rule, the division of the country and the suffering of war, that Korean leaders habitually talked pessimistically of economic prospects. One rationale for the military coup of May 16,1961, that lofted Park Chung Hee to power was that the regime that he toppled was corrupt. The American-backed Rhee Syngman, forced to resign after student riots in April 1960, had proved incapable of rescuing the economy from post-Korean War chaos. Through his long tenure in the Blue House, Park advocated central planning carried out by stringent bureaucratic controls over banking, foreign and domestic trade and production. If anything, his rule in both style and deed recalled Hitler’s Germany or Tojo’s Japan, minus the military adventurism.

Park’s equally dictatorial but more corruptible successor, General Chun Doo Hwan, buttressed by another general, Roh Tae Woo, reinforced Park’s philosophy — with all its Nazi-style overtones — after Park’s assassination by his intelligence chief on October 26,1979. Whoever the dictator, the leaders of all the industrial groups stood firmly by his side as had those in charge of Nazi Germany’s cartels and the Japanese zaibatsu, sprawling industrial combines theoretically broken up by General Mac Arthur’s occupation forces after World War II. Indeed, the Korean word “chaebol” is written with the same two Chinese characters, meaning “fortune cluster,” as “zaibatsu.” Like “zaibatsu,” “chaebol,” though commonly used, had a somewhat negative nuance. Chung Ju Yung revealed his aversion to a visiting professor, Chalmers Johnson of the University of California, Berkeley, when he asked him not to use the word in a talk to chaebol chieftains sponsored by the Federation of Korean Industries, of which Chung was chairman.

Did the strong central planning of a succession of military leaders hamstring economic progress — or should we credit it with much of the extraordinary success of the economy even at the high cost of democratic freedoms? Still larger questions also loom. The chaebol could not have risen as they had without the total cooperation of government leaders dedicated to making Korea a capitalist success. Tight central economic planning, protection against foreign competition and military suppression of workers and radicals calling for more equitable distribution of wealth — all that provided a hot-house environment in which the chaebol flourished unthreatened and unmolested.

The figures for chaebol power were astonishing. At the beginning of the 1990s the combined turnover of the top ten chaebol, according to a leading foreign securities firm, equaled 77.3% of the gross national product while the top 50 accounted for 97.4%. Chaebol family members “hold over 75% of all chief executive and managing director positions” in chaebol companies, said the report, and family ownership and crossholdings (shares held by companies in other companies) accounted for 46.9% of equity of all 61 chaebol. (The Korean Anti-Trust and Fair Trading Act defined a chaebol as a group with assets of 400 billion won — about $500 million.) Chaebol covered themselves by keeping crossholdings below the 50% level after which they were required to publish consolidated statements.⁵ Even so, by April 1992, according to SaKong II, former finance minister, “46.1% of the total paid-in capital of the top 30 groups was held by a majority shareholder (usually the founder or the second-generation owner), his relatives and chaebol companies.” SaKong put the founder’s share in Hyundai companies at an incredible 65.6% — more than that of any other chaebol, including Samsung, 58.3%; Daewoo, 48.8%; and Lucky-Goldstar, 39.7%.⁶

5 S.G. Warburg Securities, “What is a Chaebol?” 1992.

6 SaKong II, Korea in the World Economy, 1993, p. 186.

Still, as they grew, the chaebol had to survive anti-chaebol pressure that waxed and waned with shifts in political leaders and moods. “The chaebol is one of the most controversial issues in Korea today,” wrote SaKong. “Since the late 1980s, chaebol have been attacked by the government and the public because of their insatiable appetite for wealth and expansion,” said another study. “The chaebol are accused of exploiting workers with low wages, banning labor movements, colluding with politicians for business privilege and indulging in massive real estate speculation.”⁷ In fact, the chaebol, “in defiance of the government’s efforts to diversify the concentration of the nation’s resources,” were getting bigger. The top 30, said the Korea Development Institute, accounted for 45% of the total capital in domestic finance by 1991.⁸ While their earlier success was not due to government support alone, the chaebol now had to operate with greater independence.

7 “Korea’s Leading Chaebol,” Business Korea Yearbook on the Korean Economy and Business, August 1991, p. III–l.

8 The Korea Herald, September 17, 1992.

Increasingly, planners and economists were eager to diminish chaebol strength in the interests of small and medium-size competitors. They claimed the companies were not on a level playing field, said SaKong, while “the chaebol’s rapidly growing asset portfolios are owned by a few individuals and their family members” and “the problem may well get worse if concentrated economic growth wields influence over government policy.” The government’s seventh five-year plan called for each of the chaebol to reduce its crossholdings from the current maximum of 40% to between 20% and 30% by 1996. How much a reduction of holdings would weaken the chaebol, however, was uncertain. “Just selling off shares doesn’t necessarily make them less important,” said Sean Goldrick, a long-time broker in Seoul. “It dilutes the ownership, but they sell off for enormous sums. Unwinding doesn’t force a company to pull back” — especially since a maze of regulations made a hostile takeover virtually impossible.

If the future of the chaebol remained conjectural, however, one thing was sure: when the Excel debuted in the United States, the South Korean economy was booming. The GNP for 1985 was $89.7 billion, and GNP per capita was $2,194 compared with less than $100 in 1953 when the Korean War ended. Seven years later, the GNP for 1992 was $294.8 billion, $169.8 billion with the dollar pegged at 1985 constant prices, and GNP per capita among Korea’s nearly 43.7 million people was $6,761.⁹ For the entire 1980s through 1991, Korean per capita income was the world’s fastest growing — averaging 8.8% a year.¹⁰ Bureaucrats were disheartened by the 1992 GNP increase of “only” 4.7%, the lowest in 12 years, down from 8.4% in 1980 and 9.3% in 1990. By resisting imports while invading Asian markets, however, Korea slashed its trade deficit for 1992 to $4.92 billion, about half of 1991’s $9.66 billion deficit. Korea’s economy, in sum, was much healthier than that of the United States if GNP and trade balances were any guide.¹¹

9 National Statistical Office, Republic of Korea, Major Statistics of Korean Economy, 1992, p. 3; U.S. Embassy, Seoul, “Korea Key Economic Indicators,” June 1992, February 1993. The latter cited as sources “embassy estimates, Bank of Korea, Economic Planning Board and Ministry of Finance.”

10 The Korea Times, January 21,1993, on the World Bank’s 25th annual report on economic, social and environmental aspects of 200 countries.

11 U.S. Embassy, Seoul, “Foreign Economic Trends,” “Korea Key Economic Indicators,” both February 1993.

Always, however, there was a fear of impending disaster. Industries were riven by strikes. Car sales in the United States were slumping. The chaebol, engines of the Korean economic miracle, were blamed for stultifying growth almost as much as they were hailed for leading it. Roh, elected president at the end of 1987 with promises of democratic reform, lost some of his enthusiasm for democracy after the 1988 Olympics, abrogating a promise for a mid-term “vote of confidence” in his rule and putting off long-promised local elections. Korea’s intelligence apparatus, the National Security Planning Agency, still functioned as an entity with all the powers of the American CIA and FBI combined — plus the leverage to deal with “suspects” as it pleased, unfettered by concerns about human rights.

Korea’s pretensions to democracy were exposed as less than credible with the buyout in 1990 of two of the three opposition parties, suddenly included in a new “Democratic Liberal Party.” Initially, the only opposition party leader left was the redoubtable Kim Dae Jung, who had spent a decade in jail and prison hospitals before going into self-imposed exile in the United States near the end of 1982. His return in February 1985, accompanied by a planeload of American human rights advocates and journalists, caught the spirit of pre-Olympic democratic “reform” — a compromise viewed as necessary for international public relations. Not until early 1992 when Chung Ju Yung stepped forward was there another reformist leader of anywhere near equal stature.

Chung cut an unlikely figure — the opposite of a rabble-rousing radical but still a menace to the establishment with which he had once been allied. When he bowed out as “honorary” Hyundai chairman at the end of 1991, the group was soaring to new highs. Sales of its 40 companies accounted for 16% of the GNP — a stupendous $53.2 billion in 1992, up from $51 billion in 1991 and $38 billion in 1990, and on course to $58 billion in 1993. Exports hit $8.67 billion in 1992,12% of Korea’s foreign trade, and were projected to reach $9.8 billion for 1994 after dipping to $8.3 billion in 1993 in the fallout from the founder’s foray into politics.¹² Assets, according to Park Chong Sup, a former Hyundai executive now in the Seoul office of the accounting firm of Ernst and Young, were almost $30 billion with a net worth in 1994 of more than $7 billion after subtracting loans and other debts. (Chung, who hated to reveal profits, ordered his staff in 1988 to stop giving group figures to the “Fortune 500.” Hyundai would otherwise have ranked 11th or 12th in the world for 1993 — between Daimler-Benz and Mobil. Nevertheless, Hyundai took a two-page ad in the “Fortune 500” issue proclaiming that it had gone “over $58 billion in sales” — even though four other chaebol were ranked ahead of Hyundai Motor and Hyundai Heavy Industries, listed separately.)¹³

12 Hyundai group, “Hyundai’s Business Plan in 1993,” January 1993; “Financial Highlights,” 1992. Hyundai also provided the 1994 projection.

13 “Guide to the Global 500,” Fortune International, July 25,1994, p. 49. Fortune ranked Samsung 14th with sales of $51,345 billion, reflecting most but not all of Samsung’s companies. In fact, Samsung group sales for 1993 edged ahead of Hyundai, exceeding $62 billion. HMC ranked 161st with sales of $9,204 billion, computed at 780 won to the dollar rather than the year-end rate of 803. HHI ranked 228th with sales of $6,735 billion. That figure, more than twice HHI’s real sales, included several other Hyundai companies. Like the Hyundai group, Lucky-Goldstar was also not listed. Rather, Goldstar ranked 279th as a separate entity with sales of $5.367 billion, while Lucky, 448th for 1991, was out of the 500 for a second year. Fortune bestowed separate group listings on Daewoo, 33rd with $30,893 billion; Sunkyong, 74th, $15,912 billion; Ssangyong, 82nd, $14,480; Pohang Iron and Steel, 177th, $8,591 billion; Hyosung, 236th, $6,332 billion; Kia Motor, 288th, $5,105 billion; Honam Oil Refinery, 343rd, $4,267 billion; Doosan, 365th, $4,078 billion.

Chung was busier than ever, in retirement, as founder of a new political party, the Tongil Kukmindang. For six months the official English name was “Unification National Party” until Kim Dong Gil, a prestigious, popular professor lured into the party as co-chairman, and Pong Doo Wan, commentator and member of the party’s steering committee, advised he change it to “United People’s Party.” Kim, whose doctoral dissertation at Boston University was entitled “Abraham Lincoln: An Oriental Interpretation,” feared people would identify the original translation with the Rev. Moon Sun Myung’s Unification Church. There was also concern that foreigners might perceive the word “national” as “nationalist” if not anti-foreign and ethnocentric — qualities that often seemed to show up in dealings between Koreans and foreigners.¹⁴ Either way, the party threatened to embarrass Roh in crucial elections — first for the national assembly and then, in December, for the presidency itself.

14 The Korea Times, June 28, 1992.

Chung Ju Yung and Kim Dae Jung, at opposite ends of the political spectrum, shared a common sense of wrong. Chung was furious at the government’s efforts to levy the equivalent in Korean currency of $181 million in taxes and fines from the Hyundai group after he secretly divvied up his holdings among family members. He was more outraged when the authorities arrested fifth son Mong Hun, holding him in prison along with three other executives for nearly four months. Chung had no doubt the government men were persecuting him and his son as they had Kim Dae Jung years before; he was equally sure Roh was unfit for office. There was an element of class struggle in his assault on the government. He was out to tear down an elite that had oppressed him all his life. It was not just that he believed Roh was incompetent. It was also that he had been compelled, through his rise to riches, to bow before a succession of military officers and mandarins, paying obeisance and feigning agreement while really despising them.

“I have no criticism or ill-will about Mr. Roh personally,” Chung told me as Park Chong Sup, as “consultant,” interpreted during a talk in UPP headquarters in mid-1992. “I could not understand some of his policies.” Roh, he said with deadpan understatement, “does not have any deep insight into economic matters.” Inherent in Chung’s position was a paradox. During the era of Park Chung Hee, no one had worked harder to stay on the right side of authority for the sake of company and country. Nor did Chung speak out for Kim Dae Jung, target of Park’s wrath after having severely embarrassed him at the polls in April 1971 by winning 46% of the votes in a fraud-tainted presidential election. Chung loathed dissidents.

Even after declaring his own disdain for Roh more than two decades later, Chung never evinced the slightest sympathy for Kim for the years he had spent in jail, in prison hospitals or under house arrest. He had shown no concern when Kim was arrested, convicted and sentenced to death on trumped-up charges of treason in the bloody revolt against the Seoul government in May 1980 in the southwestern city of Kwangju. Chung had no time or tolerance for bleeding hearts. His concerns were the Korean “miracle” and Hyundai. For Chung, government and business had to ally for the common good. Clearly Roh, pursuing him for taxes, was not a reliable ally.

When pressed for solutions, Chung fell back on oft-repeated points. One pet peeve was Roh’s plan to build a high-speed railroad between Seoul and Pusan. Could it be that Chung, the one-time daredevil construction magnate who reveled in ignoring the advice of professionals, did not have the “vision” that he once had? Who otherwise could doubt the benefit of a way to go between Seoul and Pusan, Korea’s second largest city, at a pace far faster than today’s trains, which take about six hours for the trip? “I understand, by borrowing from overseas funds, they will begin constructing the rails,” he said in the interview with me, ignoring any suggestion that he had lost his touch. He denied comparisons between the railroad and the Seoul-Pusan expressway that he had helped to build more than 20 years ago. “The basic thing is the expressway was done with our own technology” while “this railway is foreign money and foreign technology” — which he himself had never been averse to using to get the job done.

Chung cited his experience in business as his qualification to lead the country. He saw “no basic difference” between chairing a cabinet or a board meeting: “Any organization would be alike. The most important thing is the sincerity of the people running the government.” There was a temptation among journalists to compare him with Ross Perot, but Chung dismissed the thought. “We were previously entrepreneurs,” he said in our conversation in June 1992, “but I have a party and he is an independent” — and, unlike Perot, “I am sure of my success.” When Perot pulled out of the American presidential campaign six weeks later, Chung put down the notion that he might follow Perot’s example. Perot’s decision, he said, “is no surprise to me.” And when Perot stepped back in the race a month before the U.S. election, Chung again impatiently rejected comparisons.

In the end the old man discovered he was no match even for Perot. The American billionaire iconoclast won a respectable 19% of the votes. Chung, dragooning hundreds of “volunteers” from the Hyundai organization, investing untold millions of dollars of his own, his family and Hyundai, campaigned furiously while his propaganda assistants imbued the Korean and international press with a sense of a come-from-behind surge, a “typhoon for Chung.” The result, in the election of December 18, 1992, was a trouncing so decisive as to raise questions about the future not only of the UPP but of the entire Hyundai empire.

Chung, for all his billions, could win no more than 16.1 % of the votes against 42% for Kim Young Sam, the candidate of the ruling Democratic Liberal Party, and 34% for Kim Dae Jung. The worst was yet to come. Prosecutors on January 12,1993, interrogated HHI President Choi Soo II and a managing director about more than $90 million in purloined HHI money while scouring the country for missing aide Lee Byung Kyu, a political novice whom Chung had used as conduit for the cash. Next day the old man was barred at Pusan’s airport from boarding a plane for Japan. Summoned as “mastermind,” mobbed by reporters, bashed and bloodied on the forehead by a TV camera, he arrived at the prosecutor’s office on the morning of the 15th. His secretary, Lee Dong Ho, whipped out a handkerchief, wiping off the blood trickling from his boss’s hairline. The scene on the TV news alternately aroused sympathy and showed how the mighty had fallen.

If bloodied, Chung was still unbowed. Grilled for 12 hours into the night, he was released in time to fly to President Clinton’s inauguration, to which he had no invitation. At the urging of aides, he stopped off at the Japanese hot springs resort of Beppu on his way home but complained he was “tired of resting” and returned to Seoul on February 1 after the indictment of Choi and three others from HHI. Next day, back at UPP headquarters, he said that Choi had channeled the funds to the UPP out of “loyalty.” That much was surely true — that and the same fear of the wrath of the boss that forced all Chung family members and Hyundai executives into dumb, often cowering, obedience and subservience. Chung’s words of defiance might do for an epitaph: “No amount of oppression would change my will. I have not lived in that way.”

Chung promised to repay the $65.2 million the prosecutor said had gone into a secret fund for his campaign but vowed to continue to lead the UPP “as a responsible opposition.” Over the next two days, he and his relatives unloaded 3.2 million shares, enough to repay all the money siphoned into the fund. The prosecutors were not impressed. Chung on February 6 was formally charged with having violated the “law on aggravated punishment for specific economic crimes” in the embezzlement from HHI. Unlike his HHI executives, Chung would not be jailed. The prosecutors, two and a half weeks before Kim Young Sam’s inauguration, feared a backlash of sympathy. An investigator cited his “old age, status as an opposition leader” — and, none could deny, his “contribution to the national economic progress.” He looked at the notice of indictment as if he were studying a stock report, brows furrowed, silent.

On Monday, February 8, Chung revealed his hurt and rage, skipping a lavish luncheon banquet and cheering session marking the first anniversary of the formal founding of the United People’s Party, spending the day at his farm at Sosan on the west coast. (He was not the only absent leader — 13 UPP chapter heads were among more than 200 party members in prison while awaiting trial for “campaign violations.”) Next morning, he helicoptered back to Seoul, stopping at UPP headquarters long enough to resign as party chairman, admit his “many mistakes” before party leaders and offer “a sincere apology to Kim Young Sam and Kim Dae Jung for launching personal attacks against them” when he “should have regarded them as partners and praised them.” With that, he strode out with Mong Joon to fly to Ulsan, “Hyundai City,” comforting home of a dozen of his booming factories, and recuperate at the HHI guesthouse.

Later, M. J. would report that his father, as if making a final confession, “told me he was at ease now.” In the tortured agony of abject surrender, Chung Ju Yung had worried most about the future of a business empire, a dynasty that he had nurtured to live on after him. Chung Se Yung, favorite brother and group chairman, had called him at Beppu and advised him to yield. Big brother had in effect replied, “Mind your own business,” but he feared the game was lost as he faced the trauma of a trial. His first duty was to insure that Hyundai would “return to its normal work, and every plan will go on as Chairman Chung Se Yung has said.” With group exports down 11% in the fourth quarter of 1992 amid drops in some companies’ profits, reported business analyst Laxmi Nakarmi, “damage is clearly being inflicted.”¹⁵ The annual reports for some of the major entities told the story — even though sales were by and large up from ’92, net income, the bottom line, was way down, by more than 50% in some cases.¹⁶ Brothers and sons and aides had to dig in for the struggle. Companies might suffer. Life — meaning Hyundai — would go on.

15 Laxmi Nakarmi, “Showdown: The Battle Over Hyundai’s Future,” Business Week, international edition, February 1, 1993, p. 23.

16 Hyundai group, “Major Companies’ 1992 Financial Statement.”

Chung Mong Joon was in good humor as he spoke to me in his office the day after his own interrogation. “What do you think of this,” he asked with a grin, pointing at his full-length picture on page one of a newspaper. “It’s bigger than the president’s.” He did not think he was about to go to jail. “They said they need my cooperation to conclude the case,” he talked on, refusing to divulge what kind of cooperation he had tendered. Leaders of Korea’s chaebol, M.J. concluded, were “rich but powerless” in the face of the apparatus of the government. Still, he believed the dip into politics had been good for the thousands of Hyundai employees, 50,000 of them card-carrying party members, who had participated: “In our capitalistic society, politics and the economy interact. It was a good education for the Hyundai staff. The human being is a political animal. They have to understand political society so I think they paid a reasonable tuition in terms of experience.”

Some of the Hyundai staffers “seconded” to the party agreed. “I widened my scope,” said Choi Woo Chan, a press official putting his files into boxes and preparing to return to his job as a fund manager with Hyundai Management and Investment Company. “It has been a very interesting four months.” The atmosphere around UPP headquarters, though, was one of sadness. “Today all the people who came from the Hyundai group will go back” — at least 300 of the 400 to 500 party workers in the building. Hyundai workers admitted they as well as the group had lost face through a defeat that many of them had honestly believed could never happen. Party loyalists were even more disillusioned when Chung refused to pay the party’s bills and expelled them from the headquarters into which he had moved early in his campaign. Kim Dong Gil led a band of UPP refugees sitting out in a tent in front of the building, a Hyundai office tower. UPP district chairmen demonstrated outside Chung’s home demanding to see him while he escaped through a secret passage leading to a garage down the hill.

Hyundai brass fought for normality. Chung Se Yung, who had sat with big brother at UPP headquarters as he conceded in the early morning after the election, tried valiantly to show that Hyundai was non-political. Summoning more than 1,000 executives and managers to the auditorium at group headquarters, he pleaded with them to focus on their jobs. “The group will devote itself to promoting economic development and setting the stage for taking a new leap,” said S.Y., ever “willing to reconcile” with Kim Young Sam.¹⁷ Striking a patriotic chord, S.Y. asked Y.S. for mercy. Hyundai “can help the nation join the ranks of advanced nations,” S.Y. implored. “We will never be involved in political storm.”¹⁸ Convening a “rally” of 1,200 Hyundai workers at group headquarters, he vowed that Hyundai would “remove all corruption hindering individual and corporate growth” while the group put out a statement pledging to “join the new government in the campaign against corruption.”¹⁹

17 The Korea Times, December 22, 1992.

18 “Hyundai’s Future: Trial and Failure?” Business Korea, January 1993, p. 22.

19 The Korea Herald, March 18, 1993.

For Hyundai, though, the question was whether the group would survive in its present form — or “break up,” as Chung Ju Yung had often promised, into a looser alliance of mini-chaebol revolving around each of the founder’s sons and heirs. In March 1993, while the old man and his brother paid groveling obeisance to the new president, I asked Mong Joon the meaning of his father’s promise. “Liberation,” replied the son. “There is more autonomy for the companies. A lot is happening here.” The group, at its commercial zenith, was responding, adjusting, realigning for the next stage of the struggle — this time with paramount emphasis on the family’s new generation, not the founder’s broken dream of national deification.

Such resolve to recover from failure, to move on to ultimate victory, in business if not in politics, was familiar to those who had worked for Hyundai or seen its record of failure, success, failure — and overwhelming success. The Hyundai story, what it was, how it got that way, how it operated, who ran it, epitomized that of South Korea, with all its strengths and weaknesses, its drama of violence and conflict, of family rivalry and tragedy, of backstage backstabbing and an upfront drive to succeed. And the little Excel, darling of motor vehicle writers and business journalists when it had first made the American scene, turned out to have been just one slightly tarnished facet of the vision of the old-style group named “modem.”

II The Boss

DOI: 10.4324/9781315483214-2

No one argued with the old man and won. Not his five brothers and sister or eight sons and daughter. Not even his wife of more than half a century or his numerous female friends. Chung Ju Yung celebrated his 75th birthday on November 25,1990, while hosting a delegation of visiting Soviet businessmen and scientists in his role of “honorary chairman” of the entire Hyundai group. Honorary? The chairman had “retired” for the first time in February 1987, explained a patient spokesman, a dark-suited figure in a row of slate-gray desks on the eleventh floor of group headquarters, next to the Secret Garden that had once been the playground of royalty, on one of Seoul’s crowded main streets. Even after stepping down as honorary chairman, he reigned supreme — an authority figure over glad-handing younger brother Se Yung whom he had installed as chairman. Chairman, perhaps, but never founder.

The mystique of the founder pervaded Korean business, Korean society. His minions zealously cultivated it through official, lavishly bound corporate histories and subsidized biographies as well as his own book of self-praise, Ordeals But No Failures, churned out in 1991 as he was about to plunge into forming a political party and running for president. His detractors perpetuated the cult through scandalous gossip — and fictional accounts of the wild private life of a “money emperor.” Newspapers and magazines, long before he ventured into politics, had turned his appearances into news, whether he was off to Moscow in search of enormous contracts or to the principal Hyundai factory complex in the southeastern port city of Ulsan to oversee settlement of a strike. He granted few interviews — and when he did was not likely to say more than his public relations machine had handed out in press releases and in-house magazines.

Nonetheless, a meeting with the founder, two and a half years before his next “final retirement” at the end of 1991, assumed an aura of high ceremony. Secretaries bowed respectfully as I walked into his office suite on the top floor of Hyundai headquarters. I was kept waiting a dignified ten minutes before I was introduced. Chung spoke no English — but no need to worry about an interpreter. Hovering at his side was Dr. Chung Hoon Mok, president, later chairman, of Hyundai Engineering and Construction, the “Mother Company” that had won the first big contracts and spearheaded the growth of the group.

Dr. Chung — no relation — appeared humble as he devoted his considerable executive brilliance and experience to the task of interpreting. Like all Hyundai’s 173,000 or so employees, Dr. Chung was only a servant of the man who had grown up in the village of Asan, in Tongchon district, on the east coast about 30 miles north of the line that now separates the communist North from the capitalist South. Not that Chung Ju Yung, in his eighth decade, dreamed of going beyond well-known stories, legends of a fabulous life. “My home town is in a rural area,” he began, establishing the humble origins in which he was born in the land much later known as North Korea. “It was very frequent that you had a very lean harvest. Survival itself was very difficult. As a young person I wanted to go to the city — to avoid extreme poverty.”

Chung, the one-time farm boy now garbed in the gray suit, white shirt and dark-tie uniform of his legions, adduced an earthy analogy from his youth to explain his drive for riches and power. “A mandarin scholar went to a toilet,” he said, with just the edge of a distant smile. “It was a hole in the ground. He saw a rat feeding himself on human excrement.” (Interpreter Dr. Chung self-consciously avoided a cruder term.) “Then in the rice storage room the scholar saw another rat feeding on the rice. The scholar thought to himself, ‘All animals can adjust to whatever environment they are in.’ I decided I had to do better.” The reasons were clear: “In those days you left home before dawn. You worked 15 to 16 hours a day. Even if you worked so hard, you had not enough to eat. Nobody in our village of 50 households had enough for a doctor. If there was an epidemic, a whole generation was wiped out.”

For the future founder of Hyundai, every day was a survival struggle as the eldest son of a peasant family:

I wore only a thin layer of cloth even in winter. As I ran with cloth-wrapped books in front in the cold, a cold wind would blow in through the hem. Reaching home, my belly would get red because of the cold and get itchy. That was caused by lice as I wore the same clothes day and night. Then my grandmother would catch lice. When she could not see the lice, she told me to take off everything and get under the quilt. Then she would hang my clothes out in the snow. The cold would kill the lice. In the morning, she would flap the clothes in front of a stove with hot water boiling.²⁰

20 Chung Ju Yung, The Pony Runs, 1987, in Japanese, pp. 182–183.

In the manner of his deeply Confucian society, Chung paid obeisance to his father. He “was a model peasant in our eyes,” the son was to write years later. “There cannot be another harder working peasant like him. There was no day to rest in summer or winter.” For all the hardships, the Chung family owned the land they tilled — a little more than an acre for rice and another three for vegetables. The example the elder Chung set as he slowly expanded his holding was enduring: “I still remember the way my father tilled the field. Plough the land, pick up stones, dig the ditch, bring in the good soil, spread fertilizer…. I remember clearly the satisfied look of my father after opening up a new field.” The stories became family legend. “The field was on a slope,” said sixth son Mong Joon, born years later in the South while the peninsula writhed in war. ‘That’s a very laborious job, with no machine. He just used a hoe — and hard work.”

Chung embellished on his youth as he gazed across the spacious office with its landscapes of Heaven Lake and White Summit Mountain, by North Korea’s border with China. In a low voice that belied the fear he instilled in inferiors, he invited comparisons with 19th-century American entrepreneurs as they scrambled their way to undreamed-of riches: “My father was known in his whole village to be the hardest-working man, and my mother never stopped working, making home-spun fabrics. Their actions told us to be diligent and hard-working. My father was a man of few words. I cannot recall receiving any praise from him when I was small. There were many instances of being reprimanded, but I could see in his actions there was undivided love, and my mother was always kind and supportive to me. I have been formed by that influence.”

It would have been appropriate for the eldest son to have followed in the father’s pattern, but Chung Ju Yung, even as a teenager, was too headstrong to accept his lot without complaint. Try as he might, “the soil was not very fertile and did not produce enough harvest for a big family.” Finally, hunger overpowered the desire to yield dutifully to his father’s orders. “I wanted to go to the city because our economic conditions were so bad we could hardly eat. We would eat oatmeal late in the morning, skip lunch, eat bean porridge at night and go to bed. I decided to go somewhere where I could eat rice to the full.”

At the market town five miles away where he sold wood, he could see well-dressed people who had enriched themselves without digging the soil for a living. He also pored over old copies of the newspaper at the office of the local government — not for insights into diplomacy and politics, news of sports or society, but for a sense of a glamorous world far away. In those tattered pages he read about a construction project in the industrial port city of Chongjin, near the border with the Soviet Union. It was there that the boy whose workers years later were to build skyscrapers and expressways, drydocks and piers, oil platforms and supertankers, cars and trucks, computers and memory chips, saw his vision of the future. With a friend, he secretly saved money for the great escape from hardship and drudgery.

In 1930, when he was 14, Chung graduated from primary school. He had studied Chinese poetry and history and pronounced himself good at all subjects but calligraphy and music. “I felt too awkward to sing,” he explained, though he later boasted a repertoire of 300 songs. He studied on at a Confucian school run by his grandfather, a scholar of Chinese and Korean classics described in political literature more than 60 years later as “an obstinate man of various disciplines.” The tutelage helped shape the boy’s value system — “his solid understanding of the universe and human life based on Oriental philosophy was a result of teachings from his grandfather.”²¹

21 United People’s Party, Chung Ju Yung: A New Vision to Revive the Korean Economy pp. 4–5.

A defeat or setback, as Chung would tell awed subordinates, meant only that a greater effort was needed the next time. Chung soon set his sights directly on Seoul — 120 miles to the southwest across row after row of forbidding mountains. The trip, begun with two new friends, was a failure almost from the start. First, one of the boys was spotted by an elder brother and dragged home. Next, Chung and the other boy gave all their money to a man who promised to find them jobs and then ran away. Bedraggled and hungry, they had to go to the home of one of Chung’s grandfathers and appeal for help. They were treated kindly — but it was a trap. Chung’s father had passed through several days 1 earlier looking for his son and came back again as soon as he heard he was there.

Chung’s yearning for the big time was undiminished. The next time he went to Seoul the easy way, by train, arriving at Chongryangri Station carrying a small amount of money that he had pilfered from a cache hidden away by his father from the sale of two cows. Chung’s plan was to take a six-month technical course that he had read about in the newspaper and then put his skills to work in a job. He wound up first in his class at the institute, before his father caught up with him again. The two quarreled bitterly, the son refusing to return. His father wept, saying his family would fall into disgrace and have to beg for a living if he, the eldest, did not go back. The boy promised not to run away again. His resolve broke a year later during a famine in which he saw people die of hunger.

Now 18, Chung found another friend who wanted to run away for quite a different reason from his — to escape the wife he had been forced to marry. The year was 1934; the world was in the midst of a depression that Korea’s Japanese conquerors blamed for their military expansion. As the Western nations erected protectionist barriers, the Japanese argued, Japanese forces had to march across China and Southeast Asia in search of markets and raw materials, notably oil, forming their own “Co-prosperity Sphere” with their Asian “brothers.” Japanese concern about economic strangulation might have seemed remote to Chung at the time, but the worldwide economic crisis was evident in the increasing poverty he saw and felt around him.

Chung had to “do better,” and the only way to do it was to shake off the ties to his drab village life. “Many people are reticent about leaving home,” said Chung. He confessed to having “committed a number of Confucian crimes against my parents” by defying their orders, by rebelling openly against them and, finally, by running away for the last time. “Your father does not want you to leave because he thinks life in the world will be much different from life on the farm,” said Chung. “Had my father known it would be a better life, he would not have objected, I was confident.” For Chung, the future lay in the big city.

Chung’s upbringing, though, was not forgotten. Like the rest of his countrymen, he reflected a Confucian style that went beyond written words, schooling or self-conscious ritual. As the eldest, he naturally owed a debt to his family, his younger brothers, his children. He would also become the boss — first of his family, then of an extended structure. As the boss of a business group with assets in the billions of dollars, Chung emerged as a fearsome figure, utterly demanding, sure to favor the faithful and condemn the doubters. “He’s the man of a thousand faces,” said a former Hyundai manager. “He can change his mood in a second. He can smile like a peasant farmer, turn cold as ice — and then behave like a grandfather.” In full-dress meetings he could shift from jovial regular guy to gangster-like monster — sometimes even punching or slapping his executives across the face.

Foreign observers of the Korean business scene were wont to claim that Chung represented an extreme. In his heyday with Hyundai he was the most autocratic of the chaebol leaders, they would say, and Hyundai the epitome of the top-down approach. Middle-managers feared to make decisions. If they went beyond their narrowly circumscribed authority, they ran the grave risk of being overruled—if not by Chung personally, then by his favorites and cronies. Buoyed by personal relationships with the boss or those close to him, managing directors, vice presidents, presidents could, on the merest of whims, override months or years of painstaking study and planning.

How extreme, though, was Hyundai in the Korean context? If no other chaebol leader was quite like Chung Ju Yung, all of them demanded obedience and loyalty. Samsung was said to be considerably more modem, more rational, perhaps more “Westernized” than Hyundai, especially since the death of founder Lee Byung Chul in 1987, but that comparison was only relative. Daewoo’s founding leader, Kim Woo Choong, appeared more up-to-date, more “open” than Chung because he liked to give interviews to Western reporters. The appearance in the Daewoo case was especially deceptive. By making himself available to the Western press, Kim kept correspondents from his subordinates while filling scrapbooks of flattering publicity about himself. He shut the door, however, when times were bad and questions likely to focus on his flailing motor vehicle and ship-building plants.

For all the similarities among chaebol leaders, there were distinctions in background and style. Chung had built up his organization with his bare hands. “I have seen him on the assembly line roll up his sleeves,” said Phillip Grub, a professor at George Washington University who got to know him in the early 1970s. “I have seen him digging out there with a shovel.” Chung’s expertise lay in fabricating large, highly visible things — highways, bridges, ships, railway cars, vehicles, pipes, containers, robots. “Lee Byung Chul had a much easier road,” said Grub. Lee had risen in the domestic market before World War II selling textiles and sugar, among the few commodities not closed to Korean businessmen, rather than heavy industrial products.

Daewoo was something else again. “The Daewoo strategy is different from the other chaebolsaid Gong Byong Ho of the Korea Economic Research Institute, noting that most of Daewoo’s holdings were founded by entrepreneurs other than Kim Woo Choong. Kim had bought them out when he thought he might turn them around or make them still more profitable. (If Daewoo plants could not compare in output with those of Hyundai, Daewoo Securities was by far Korea’s biggest securities house while Hyundai Securities in 1994 ranked a distant sixth.)

Chung’s origins explained his predilection for harnessing physical production. He advanced from rougher beginnings than did most of his peers. They too could spin yams of survival and victory against the odds imposed by the Japanese occupation and then by the Korean War, but for sheer mythology who could match the tales of the travail of Chung Ju Yung? “I am a farmer’s son who became a successful industrialist,” he said, looking back in “retirement” while campaigning for president. “I am a self-made man, not in the sense that I accomplished everything by myself, but in the sense that I built a huge business enterprise from scratch only with hard work and innovative thinking.” All his life, Chung liked to say, “I have worked and lived with the common people, farmers and workers.”²²

22 Chung Ju Yung, “My Conviction: Clean Government,” 1992.

Chung harked back to those early days in Inchon and Seoul as he built up a populist image. “My first job was as a stevedore unloading ships in Inchon,” he said, evoking a picture of a brawling life in the port city 30 miles west of Seoul while somehow implying that today’s college-educated applicants were a bit too soft. “Next I was carrying stones on my back for construction at Korea University. Third, I was a rice delivery boy.” For all his later success, “I never considered myself a big capitalist,” he said. Rather, “I am merely a man who became rich from his toils — I live a simple life.”

Chung got the rice job the way he later was to obtain contracts for his companies. He did not know how to ride a bike, but when the owner of the rice shop asked him if he could ride a bike well, Chung’s reply was as firm as it was mendacious: “Yes, very well.” The first day of work, piled high with 175 pounds of rice and beans, he fell so many times the handlebars were bent out of shape and the rice poured into the mud. Inexperience—even inability—could not deter him. His response showed the attitude of the man who would later order his thousands of workers to build ships, trucks and cars, diesel engines, railroad cars, steel towers, containers, computers, robots and a host of other items from nothing.

“I practiced riding the bicycle all night for four nights with a couple of hours sleep each night,” he said. “I could eventually ride like a professional cyclist and rode around Seoul easily loaded with two kama [sacks, each containing 60 kilograms] of rice.” He soon ingratiated himself with his new boss by arriving early and cleaning up the store — and, when not careening through the city with rice sacks, organizing them in neat piles. Chung’s skills, however, went beyond the physical. His boss, disappointed with a son who had stolen money from him, eventually entrusted Chung with the book-keeping — and paid him enough to save the value in Japanese yen of a tidy 18 kama of rice in a year. It was a small fortune for a neophyte. When Chung’s father saw what he had accomplished, “He finally appreciated me and said it was better than farming.”

“Delivering rice is hard work, but it is very stable,” the honorary chairman recalled fondly. “I learned how to take orders for purchases.” He even made a small morality play of his early success. “The son of the proprietor of the rice store was similar to me in age, but he led a very delinquent life, drinking and womanizing, and that store went bankrupt. As a delivery boy, I knew all the customers. I was confident I could set up my own store and deliver the same product. First you need the initial capital, but since I was well known to the customers, people were ready to extend credit for me.”

Chung’s ambitions were insatiable. After three years, when his boss got sick and wanted to close the shop rather than bequeath it to his playboy son, Chung took it over at the age of 21. As a good son and eldest brother, he cared for his family too. His brothers, all five of them, and his sister came to Seoul, working in his shop. He returned home in January, 1936, long enough to marry a girl arranged by a matchmaker — a woman he had never before met. His bride, Byun Joong Suk, eldest daughter of a peasant farmer from a nearby hamlet, set up their first home that winter in a house blessed with neither kitchen nor running water and made kimchi for the workers in the shop.²³ She also made bean curd to sell to regular customers along with the rice — a sign of Chung’s growing prosperity. Soon he was rich enough to invite his parents to Seoul, moving most of his family, about 20 now, into a new house, sharing the wealth.

23 Wang Ok Gyun, “Light in the Shadow,” Business Korea, January 1986, p. 25.

The rest of Chung’s story went in the same Horatio Alger-like vein. The most noteworthy aspect of Chung’s rise was that he broke through the barriers of a rigid class system that had survived colonialism, war and economic growth. Not every chaebol leader had come from a well-to-do family, but virtually all of the others, including Samsung’s Lee and Daewoo’s Kim, counted teachers or successful merchants among their forebears while Chung’s only claim to such hereditary respectability was his scholarly grandfather.

Yet another factor that shaped the outlook of the future boss — very much the boss of his siblings as a child before becoming boss of his own rice shop — was the Japanese. Cast by history between the Chinese and the Japanese, then divided by the United States and the Soviet Union, all Koreans nursed a deep sense of hahn. The word means “bitterness” — but implies much more than that. It expressed the agony of a people who believed they deserved much better while battling to maintain their culture between the giant empires surrounding their peninsula.

The war that had spared Korea still cast its shadow over the land. Japanese aggression on the Chinese mainland turned into full-scale conflict in 1937, the year Chung took over the rice shop. While outspoken Korean dissidents earned places in history books fighting the humiliation of Japanese edicts, millions more saw their survival in working within whatever system prevailed. For Chung there was never a thought of opposing Japanese authority. Rather, he intended to exploit it as long as it was there, just as years later he would exploit the Americans and the Korean regimes supported by the United States. Business, for Chung, was business.

Chung did not talk of the hahn of his countrymen, but his story revealed it. Could his father have gone into big business if he wished? Could he have built his own factory in his village? The Japanese controlled all that, and the Japanese even shut down young Chung’s rice shop at the outset of World War II. “The Japanese colonialists established a ration system which prohibited the rice business,” said Chung, without elaboration, but he soon found another way to make money from his oppressors. “When the rice business was forbidden, I was looking for something else to do that did not require large capital but would yield high returns.”

Fixing cars was just the thing — one of the few businesses that a Korean could run while the Japanese sold the cars and the parts. A garage “had a high value added with a small capital base,” he discovered. “I went back to the rice mill owner and borrowed the money to purchase a repair shop.” So sure was the rice company boss of Chung’s good faith that he demanded no collateral. Chung’s aphorism for this success: “Trust is wealth. When you have trust, there’s always money.” The trust remained when the shop burned down a month after Chung acquired it. His backer loaned him more money than the first time, and his 50 workers built a new one.

Chung shared the nationalist complexes of all Koreans but masked them in his quest for wealth and success. Go-along-to-get-along might have been the motto of the amazingly energetic garage owner. “Whoever fixed a broken car sooner could earn as much money as possible,” he reasoned. “Officials and VIPs, even their wives, made such a big fuss when their cars broke down because their activities were halted. We would repair in five days what others might have taken 20 days to do, and we worked through the night. As long as we fixed promptly, we were paid what we had asked for.” Although he never learned the Roman alphabet, much less a Western language, he said “I can understand English a little because I learned car parts at that time.” Headlight, roomlight, seat, front fender, he observed, “they are all English — though I pronounce them in Japanese ways.” Appropriately, the garage was known as “Ato,” from the Japanese pronunciation of “after” as in “after service.”

Chung’s style with the Japanese typified that of his peers — those, that is, who viewed protest as a waste of time. He acted like an expert in car parts “in order to trick customers,” he proudly recounted. “We would pull apart the car in the garage, polish its old parts very well, put them back again and tell its owner we had put in new parts. I made piles of money that way.” His understated boast: “To be able to insist we changed everything in the catalog, I had to know a lot of parts.” His knowledge even included General Motors and Ford cars — exported through Japan, as required, by Japan Ford and GM Japan from the 1920s until they closed in 1939. Japanese or American, most of the cars were owned by Japanese — many by the colonial government. One thing led to another. “When we went there to get payment, we saw construction people were making much more money. We got the idea we should go into construction. We thought about working on a larger scale.”

Japanese officialdom, though, frowned on Chung’s ambitions. When a Japanese security officer ordered him to close down and threatened to jail him for not having a license, Chung visited his house bearing cookies. “Are you trying to buy me off?” the official shouted. Chung called on him at home every day for a month, asking for understanding. Finally, the official said he would give him a warning — and advised him on fire prevention. “After this incident,” said Chung, propounding yet another aphorism, “I became convinced that ‘truth and sincerity’ will overcome everything.”²⁴

24 Chung Ju Yung, The Pony Runs, 1987, Chapter Six.

It would be a long time before Chung was successful in motor vehicles. For all his politicking, he had to return to his home town after the Japanese merged his garage, Ato Service, with a steel plant for the sake of the war effort. Still, those days had an incalculable impact on Chung and a host of other innovative young Koreans, to whom Japanese rule was a time of gestation before they could burst on their own onto the Korean and world scene. “Learning the names of car parts in those days was a positive factor in giving birth to the Pony and the Stellar,” said Chung, citing two of the first models to roll off his assembly lines.

If the desire to avenge the wrongs committed by the Japanese runs deep in the Korean mentality, so does the urge to learn from them and emulate their success. While Chung and his countrymen burned under Japanese rule, they spoke and read Japanese and studied Japanese methods. Could it be any other way in a society that claimed Japanese culture owed its origins to Korea? Chung might not have given much conscious thought to these issues in the frantic pursuit of money in a war-time, colonial economy, but he acknowledged his Japanese education — or self-education: “There were no books about the ‘Korean way of management.’ Management textbooks in general were scarce, but I did read some Japanese books.”

While learning about commercial life on the job, Chung read biographies and military history — his favorites: Plutarch’s Lives, the memoirs of Winston Churchill and books on Napoleon, Genghis Khan, Abraham Lincoln and George Washington. He also turned to works of Japanese industrialists, including one by a leader of the Japan Federation of Economic Organizations. “He says in business planning one should not draw a plan in headquarters and hand it down. Rather, one should originate the plan from the site, and the head office should finalize it. The ideas generated from the headquarters may be more comprehensive, but the ideas from the site have more relevance, and therefore their chances of failing may be smaller.

“I learned a great deal from those decision-makers, especially how they made decisions in battle. For a businessman there is nothing he cannot accomplish compared with the difficulties these people have encountered. In combat, the commander faces a situation where he has to keep up the morale of his people while they are being killed and the commander himself is under distress, but no businessman has this problem. If he cannot keep up his business, it is only because he is lazy.” That said, he returned abruptly to the issue of Japanese influence on his philosophy and daily business life. As in any negotiation, he was inclined neither to give nor to concede anything. “Few things I learned under the Japanese were applicable,” he said curtly, stony-faced. “Most of it was inapplicable.”

If Chung had felt the stirring of nationalism, the sense was instinctive, subconscious, evinced in the independence of his lifestyle rather than in politicking or statement-making. His plain and simple goal: to rise from the drudgery of his youth and amass wealth. “Protestants tell me to believe in Protestantism, Catholics in Catholicism and Buddhists in Buddhism,” he observed, “but I believe in nothing.” Rather, “I don’t mind trying” the religious group “that tells us we will receive fortune in this world.” Chung’s rationale was unequivocal: “I cannot wait until the next world that might not exist. There is nothing better than earning extra money.”

Chung might have done well to have remembered the words of the Japanese industrialist who suggested reliance on advice from below while cautioning against edicts from above. Or was it that the honorary chairman, even in his seventies, believed that he qualified as the on-site expert whenever he journeyed to the scene of a distant plant or project, put one of his favorites in charge and then awaited the results in Seoul? Certainly one might have thought so as Chung basked in the results of his first foray into electoral politics in March 1992 — National Assembly elections in which members of his infant party won 17% of the vote. “I know a little about business,” Chung, the assemblyman, told reporters as he made clear his confidence in his qualifications to run not only a business but a nation.

But how much did Chung know about politics? When he met with Kim Dae Jung in 1992, the opposition leader with whom he later discovered he shared certain common values and certainly a common foe, he could not restrain the instincts of the boss. Repeatedly Chung interrupted the man who had suffered for much of his political life at the hands of a system that had made Hyundai rich and strong. “Look here,” he broke in as Kim tried to talk. “All Kim could come up with was murmurs of disbelief combined with a distasteful expression,” according to a report in one of Seoul’s ubiquitous economic magazines, the English-language Business Times. Chung loved to regale sycophants — and anyone else who was listening — with stories that told more about his own arrogance and brutality than they did about the opponents whom he mercilessly derided.

A favorite belittled both Kim Dae Jung and Kim Young Sam, who had run against Roh and lost in 1987 before joining forces with Roh three years later. “If one fails from a flight toward the sky in an effort to turn into a dragon,” said Chung with a swat of his own dragon’s tail at Y.S., “he becomes merely a python.” Then he turned toward Kim Dae Jung, a loser in 1971 as well as 1987. “If the python fails in his second attempt, he becomes an eel,” he went on. “In business you have to vie with the world’s top brains, and you even end up in jail by going bankrupt,” but in politics “all you have to worry about is a couple of Kims.”

Chung got earthy as he drew from his raw vernacular, heaping scorn on Kim Young Sam, a smiling compromiser, as “without brains” or “a knack for politics.” Even a “maggot” such as Kim “can reach the ground from the top of the roof,” he said. “When some toady asks the old patriarch how this could be,” reported Business Times, “Chung answered with a wicked smile that the maggot somehow struggles to the edge of the roof and rolls off.” Another of Chung’s fables told still more about the harshness of life in the working world over which he came to rule. At the place where he stayed on his first job in Inchon he had placed the legs of his bed in bowls of water to keep bugs from crawling up. To his dismay he awoke one night with a bite on his chest. A bug, he realized, “had crawled up the wall, over the ceiling and thrown itself at me at just the right spot.”²⁵

25 “Verbal Abuse,” Business Times, August 1, 1992.

The tale came with a couple of interpretations. One was that both his opponents were no more to him than bugs or maggots. Another was that even an insect could get what it wanted if it kept on trying. Either way, Chung looked back to his first job as a stevedore on the docks of Inchon as he fought to build a political power base with the same bare-fisted methods with which he had survived the initiation into big-city life and then made his fortune. Those memories shaped the outlook of an inherently coarse man long accustomed to winning respect by demanding, bullying, trading or dealing for it — while politicking and prostrating himself before those whom he believed he should be ordering around as he did the yes-men below him.

III Chaebol and Confucianism

DOI: 10.4324/9781315483214-3

The names of the biggest Japanese zaibatsu, Mitsubishi, Mitsui, Sumitomo, to cite the best known, were household words among Koreans as much as Japanese — the more so since the Japanese while ruling Korea did not permit Koreans to engage in many forms of business and industry. Despite the near-universal hatred of the Japanese, Koreans also imitated their conquerors, never more so than in business. How else could they hope to avenge the wrongs of colonialism, to prove Korean superiority? The phenomenon of one man amassing an industrial empire was, in the Korean context, less than unique. In the generation after the Korean War, scores of individual entrepreneurs rose to command companies, groups, commercial kingdoms. If the Japanese could have their zaibatsu, so could the Koreans.

The Korean chaebol, however, were not entirely imitative. Nothing about them was more distinctly Korean than the emphasis, in literally every case, on one man at the top. True, historically great men had formed the Japanese zaibatsu, but their wealth and power were diffused over nameless, faceless descendants while equally nameless, faceless organization men conducted the business. This diffusion, begun well before Japan’s era of empire-building, was completed during the post-war occupation under General Douglas MacArthur as part of his effort at destroying the zaibatsu. Tycoons had to diversify, mask, abandon or otherwise unload investments while avoiding prosecution for war crimes. Japanese authorities, setting a precedent eagerly followed by the Koreans much later, had awarded monopolies along with easy credit to business giants in the 1880s but, after the Americans decided Japanese-style capitalism was needed to combat communism, adopted more sophisticated ways.

Fostering domestic competition while adopting a maze of rules and regulations, supported by a complex inbred distribution network, Japan was able to keep out significant foreign rivals in a period of rapid modernization posited on established business alliances. To be sure, new men had arisen in post-war Japan. There were Honda of Honda, Matsushita of Matsushita, Morita of Sony, to cite a few examples, but their companies were never quite zaibatsu in size or scope. Honda made cars, Matsushita electrical and electronic products, Sony television sets, VCRs, radios. They might branch out here and there but remained single-industry phenomena, the most to be expected in a society where the multi-tentacled zaibatsu had long since established predominance and, MacArthur to the contrary, were not about to relinquish basic if somewhat depersonalized bonds in their reincarnations as keiretsu, “related lines.”

Korea was different. There were no precedents, only virgin territory and a thirst among an angry, impoverished, embittered and frightened younger generation to make up for lost time. Thousands, millions of Koreans shared the complex, few of them quite so starkly as Chung Ju Yung. The early miseries endured by Chung typified the lot of the peasants as the Japanese exploited Korea as a market, lured or forced many of its workers to Japan, and expanded their writ over neighboring Manchuria and much of the Chinese mainland. For young men such as Chung, the answer did not necessarily lie in defeating the Japanese. How could they do that, anyway? One of the first decisions of the Japanese after seizing power in 1910 had been to enact the notorious “Company Law” that made it illegal to run a company without Japanese investment and Japanese in management. The law snuffed out the spark of the Korean industrial revolution — an explosion that had to wait another half-century to begin.

One example of Japanese zeal to destroy Korean enterprise: the disbanding in 1915, by fitting coincidence the year of Chung Ju Yung’s birth, of the Seoul Chamber of Commerce, founded in 1884 in a nationalist drive to ward off Japanese competition. For Japan, more than 20 years later running short of food as its soldiers fanned through China, Korea was a breadbasket from which it could import direly needed rice and other goods. Not surprisingly, the Japanese grabbed much of the land on which to grow the crops. Landless peasants, serfs, worked the fields for their new masters while the aristocratic yangban could produce their own crops as long as they did not compete with those of Japan’s politically powerful farmers, including thousands who had colonized Korea.

The Japanese had mercilessly put down an independence movement mounted on March 1, 1919 — a date honored in South Korea as a national holiday — by killing, wounding and jailing thousands of people. The real lie in the program to turn Koreans into Japanese was evident in Japanese policy toward business. There was money to be made in Korea, and Japanese wanted most of it — they controlled 94% of total economic assets while the rest was in the hands of a few Korean businessmen, whose scope was greatly restricted. The Japanese by the 1930s professed to treat Koreans equally, as Japanese worthy of integration among real Japanese, Japanese from Japan. The governor-general in 1931 even promoted a rudimentary machinery industry. The motivation was clear. Japan saw Korea as a rear base for war in China. Japanese forces in Manchuria had to be supplied via the Korean peninsula. Japanese still ran most commerce and industry and hangul, Korean writing, was banned while Koreans had to adopt Japanese names.

Had the Japanese not felt the compulsion to spread their empire across China and Southeast Asia, they probably could have clung to Korea as long as the Soviet Union and the United States, the only other major military contenders in the region, did not interfere. One underlying reason the Japanese had gained power in Korea and then held it so effectively was that Koreans as much as Japanese believed in authority. Rebellious farmers, dispossessed landowners, Western-influenced or Western-educated intellectuals, Christian missionaries and the like might rail and rebel against the Japanese, but Koreans more typically were mesmerized by central authority.

Without this aspect of the Korean psyche, forged in a crucible of hardship, war, oppression and suffering, the phenomenon of the chaebol as engine of industrialization could not have emerged in its present form. At the heart of every Korean’s elementary education was the certainty that Japanese culture came from Korea between 12 and 15 centuries ago with the export of art, architecture, agricultural techniques and calligraphy. As every Korean school-child knew, the tombs around Nara (“country” in Korean), the Japanese capital in the eighth century, were dead ringers for tombs from the same era in Korea. And the statue of Admiral Yi of “turtle ship” glory dominated the broad avenue leading from the National Museum, one-time capitol of Japanese governor-generals, to the vast square in front of City Hall. It was right in front of the 16-story building that Chung had made his political headquarters.

Korea’s 19th-century kings, dynastic inheritors of a legacy of anti-foreign isolationism, fought bitterly against Western influence or modernization. The parallel between the 1890s and the 1590s ended abruptly with Korea’s prostration. The country, under King Kojong, lacked the strength, the modem weaponry, the materiel to remain united and free. There was, this time, no Admiral Yi to turn back Japanese incursions. The Japanese tortured and killed the king’s conniving wife, Queen Min, who had been angling for Russian as well as Chinese support, in her palace in Seoul in 1895. With the defeat of the Russians ten years later, the Japanese were to remain unchallenged in north-eastern Asia until the closing months of World War II.

The more the Japanese dominated them, though, the more the Koreans sought to out-Japanese them. Made to study Japanese in school, those who wanted to do business learned to use the language fluently in the marketplace. Relegated to clerical and menial posts in Japanese companies, Korean office workers cast off their traditional dress and adopted the dark-suit-and-white-shirt uniform of their superiors. Told that Japanese were successful because they worked hard, Koreans resolved to work harder. Above all, Koreans adapted to the Japanese concept of respect for the boss.

Koreans did not debate, much less refuse, orders. They did not risk making suggestions or offering dissenting views. Loyalty, discipline and respect were virtues in which the Japanese schooled their subjects, by force and example. Millions of Koreans looked to them for strong, unifying leadership even while hating them. Veneration of central authority, paradoxical though it might have seemed in the era of Japanese colonialism, helped explain the iron grip that Chung and other chaebol leaders were to hold over their budding empires. True, Japan, before the era of modernization had arrived with the restoration of imperial rule and the journey of the Emperor Meiji from his ancient capital in Kyoto to Edo, now Tokyo, in 1868, was suffused for a millennium by a caste system steeped in Confucian values imported from China. The difference, however, was that Japan had gone through an epoch of industrialization before 1900 — an experience that overlay the underlying Confucian order and discipline with Western styles, if not beliefs. Far more so than in Japan, then, Confucian values were at the heart of Korean family structure, governance and business.

First introduced from the Chinese mainland in about the fourth century, Confucianism was thoroughly infused into Korean life during the reign of King Sejong, from 1418 to 1450. Koreans might not have knuckled under to the Japanese so easily had many of them not been disillusioned by the caste and class system engendered during the Yi dynasty. The longest-ruling leader of the latter-day South, Park Chung Hee, wrote that “Confucian scholars and officials, who formed the core of the ruling class in the Yi society, used stratagems and conspiracy in order to obtain political power under the king.” For Confucian students “the pursuit of knowledge” was a route to “acquisition of position and power in the court.”²⁶

26 Park Chung Hee, Our Nation‘s Path, 1962, pp. 62–77.

Park viewed the suffering under “the tyrannous Yi society” as a reason for “the lack of an enterprising spirit” among Koreans: “Under tyranny, where an individual cannot work on his own, we cannot expect independent creativity.” All “must be done with the cooperation (or connivance) of the authorities” — a premonition of the pattern of his own leadership. Could the Japanese have been worse than the rulers and bureaucrats who had oppressed them for centuries? Confucianism devolved into an ideology that offered a rationale for inequities and dictatorship, much as communism later merged with Confucianism to form the ideological substructure of Kim Il Sung’s rule in the North.

The emperor of Japan, like his counterpart in Korea, was the ultimate father figure — revered, worshiped, unquestioned. The core of the Confucian outlook of Koreans, whether Christian, Buddhist or communist, was a hierarchy in which the elder, the superior, the boss stood at the apex. The sense of this order was reaffirmed at every rung of the ladder. “The top manager here is responsible not for certain things but for total consequences,” as Dr. Chung Hoon Mok saw it from his perspective at the top of Hyundai Engineering and Construction. “In America you can move on to another company.”

Underlying Confucian morality were five relationships that endured even among modernized young Koreans who might try to deny any such beliefs. They were the bonds between parents and children, rulers and subjects, husbands and wives, elder and younger brothers and friends and friends — with a superior/inferior connotation in every case except for relations between friends. The priority given the first of the five explained Chung’s grip not only over his family but over his group — and later his political party. “In the Confucian view, the family has the central role in society,” wrote a retired U.S. official with long experience in Korea, Donald Macdonald. “The senior has responsibility for wise and benevolent direction of behavior, and for the welfare of those in his charge; the junior has the duty of respect and obedience.”²⁷

27 Donald Stone Macdonald, The Koreans: Contemporary Politics and Society, 1990, pp. 69–70.

Within each family, Macdonald added, “feelings of mutual responsibility outweigh responsibilities of neighborliness, which in turn outweigh those of citizenship.” As for the way wealth and responsibility are divided among brothers, sons, in-laws and other members of the extended family, Macdonald observed that “providing jobs for one’s relatives, condemned as nepotism in Western societies, was — and to a limited extent still is — both a virtue and a matter of course in Korea.”²⁸ The antithesis of democracy, Confucian relationships extended to graduates of the same or similar institutions, members of subsidiary companies, even people from other companies with which one did business.

28 Joe Wanne J., Traditional Korea: A Cultural History, 1972, pp. 90–102, p. 300.

Thus foreigners newly arrived in Korea often were shocked to discover the Korean office style might be far more authoritarian than the Japanese. “Japan has consensus management,” said George Long, an American securities analyst with W.I. Carr. “In Korea, consensus is what the boss says it is. The snob principle operates everywhere. People like to pretend they’re egalitarian, but they aren’t.”

The legacy of Confucianism, more acutely felt in Korea than in any other country undergoing the pangs of rapid industrialization, explained much about Korea that upset foreigners. Why did the armed forces, in both communist North Korea and capitalist South Korea, hold central power? Why did strongmen rule both Koreas — Kim Il Sung in the North ever since the Soviets implanted him in 1945, a succession of former generals in the South? Why did these leaders insist on installing their own successors? “Great Leader” Kim Il Sung’s son, “Dear Leader” Kim Jong Il waited to succeed his father in Pyongyang while “retired” General Chun Doo Hwan passed on the mantle to his Korea Military Academy classmate, “retired” General Roh Tae Woo, who backed an ally of political convenience, Kim Young Sam, to succeed him in Seoul. And why was one-man rule over each of the chaebol not only universal but also widely accepted?

Communist or capitalist, Buddhist or Christian, Koreans of the North and South paid homage instinctively to the man at the top. Confucian veneration of the authority figure explained the longevity of politicians, generals, religious and political leaders, titans of business. Powerful rivals might stage coups d’état, but they confronted tight-knit cadres of fanatic aides and allies of their adversaries when they did. Even “minority” figures, opposition politicians such as Kim Dae Jung or leaders of lesser chaebol, commanded their empires top-down, demanding the same unquestioning respect as did mafia chieftains in the United States.

“The Confucian cultural heritage inculcates a value system based on ‘correct’ superior-subordinate relationships of the sort conducive to a smoothly operating hierarchy,” concluded SaKong Il, one-time finance minister, and Leroy Jones, SaKong’s collaborator at the Korea Development Institute.²⁹ The shocks of more or less forced entry of foreign commercial interests, along with Christianity, in the 19th century, followed by Japanese occupation and the Korean War, no doubt created deep schisms in Korean society. Hundreds of thousands of young Koreans, venting pent-up hahn or resentment, might disregard admonitions of their elders and rebel against whoever was in power. The critics and dissidents themselves, however, operated within closed hierarchies in which a single leader exercised unquestioned authority.

29 Leroy P. Jones, and SaKong Il, Government, Business, and Entrepreneurship in Economic Development: The Korean Case, 1980, p. 48.

Chung Ju Yung unabashedly kowtowed before the rising national leader, Park Chung Hee. Seizing power from an enervated, factionalized regime, Park shared Chung’s values. Better for one man to tug disparate elements together than for a dozen loud-talking politicos to blow them apart in a whirlwind of “democratic campaigns” and “open elections.” Chung’s Confucianism went beyond rank and allegiance and infused his attitude toward business. “The Confucian spirit is my management philosophy,” Chung wrote, but he hesitated to use it openly to justify aggrandizement of power and wealth. Rather, he drew upon Confucianism for a moralistic view. “Time is not just money, it is life,” he said, elaborating on the Confucian spirit. “If you lose time, you lose not just money but life, and everything you have done in life will wash away.” Thus, “Our motto is to finish a project with the least cost in the shortest period” — not just a business, but a moral precept.³⁰

30 Chung Ju Yung, The Pony Runs, 1987.

As the years went by, Chung branched out from dependence on contracts with foreigners, Japanese or American. In the process, he turned the Confucian spirit into the basis for renascent Korean nationalism, an integral part of Korea’s industrial revolution. In that vein, he deemed it best “to look at your own feet in order to start anything” — that is, to learn from Korean rather than foreign companies. Chung, far more than any of the other great chaebol leaders, followed this suggestion in organizing his companies, seizing upon foreign ideas where necessary but discarding foreign partners, investors, technicians and advisers when he no longer needed them.

For all his desire to go it alone, however, some of his wise words, cloaked in the guise of Confucianism, sounded much like aphorisms uttered by Western business tycoons in the early phases of the industrial revolution in the United States and Europe. “Be industrious and save,” he advised, citing his success in translating this counsel into projects around the world. While Confucianism formed the framework for his beliefs, Chung never attempted to define the Confucian spirit. He might assume that all Koreans knew it, sensed it, lived it. He did not have to engage in explanations of a feeling so deeply embedded in the subconsciousness of his family, his group, his countrymen, his Koreans.

If a foreigner did not understand what the spirit was all about, in the view of Korean nationalists, then he would never understand. That gulf, perhaps more than anything else, separates Koreans from foreigners. It even distinguishes them from the Japanese, whose brand of Confucianism is suffused with Shinto, a form of ancestor worship that makes a god of the emperor.

The intense loyalty to chaebol leaders of their followers contrasted with suspicion from outsiders, so much so that business groups and their offshoots deliberately set up barriers blocking outsiders from understanding their inner operations. While critics railed against monopolistic control or poor wages and working conditions, those on the inside responded with lofty silence or, if pressed by a strike or legislative scrutiny, a bland defense of policy. The press might report a scandal, an instance of bribery or other wrong-doing on the part of chaebol executives, but those on the inside would shrug and profess no knowledge of whatever the press was reporting. The public might find out the names and circumstances — but not from anyone in the group.

Such loyalty went even further than unquestioned obedience. The company man not only did as told but perceived what his boss wanted and did it even if he had to break the law. Was it necessary to bribe an official to get a contract? Was a little violence needed to suppress some dissident workers? Chung’s underlings did not have to ask for approval. They sensed what had to be done without asking him or the relatives he put in high places to compromise their positions and reputations by explicitly sanctioning wrong-doing. There is no Korean word equivalent to the American buzzword “deniability,” but Chung could count on it if questioned about any of the many contretemps and charges that marked the evolution of his group — or, later, the dubious financing of his political adventures.

From the “Confucian spirit” evolved what Chung’s executives called the “Hyundai spirit” — a set of beliefs in which all the group’s employees were indoctrinated from the time they were hired. The “Hyundai spirit” synthesized the views of the man at the top. “The indomitable driving force, a religious belief in attaining a goal, and a morale of diligence tempered with the frugality of the Hyundai group have materialized as a major part in the heavy industry of Korea,” said a manual given to new recruits. The booklet might substitute “Confucian” for “religious” except that many of the best people were Christian — the number of Catholics and Protestants, approaching a third of the populace in the early 1990s, included a still higher percentage of those with college degrees. The stress on “religious,” though, showed the depth of old-fashioned spiritual fervor behind new ventures.³¹

31 Hyundai group, Orientation Course for New Recruits, 1989.

Chung, by the time Hyundai had begun publishing the manual on an annual basis in the 1980s, had assumed a mythic status even though he remained a daily decision-maker. “The hard work of a creator and the courage of a pioneer,” said the manual, “has helped us open the way for the expansion, sophistication and internationalization of the industrial society of our country.” Might Chung himself be viewed as a god, the “creator” of the Hyundai universe if not of modem Korea? The stories about Chung’s travail and triumph formed a mythology as compelling to Hyundai people — and not a few outsiders — as any ideology. In Hyundai lore and literature, Chung was quoted much as the North Koreans quoted “great leader” Kim Il Sung or the Chinese, two decades earlier, quoted Mao.

There was no “Little Red Book” of Chung’s pithier remarks, but his name was invoked, even after his first ostensible “retirement,” whenever there was need for inspiration, some of it downright divine. The founder “places great emphasis upon the serene state of mind to realize Hyundai’s enterprising spirit through its employees.” The founder “has personally demonstrated how to live with creativity and positive will.” The founder “revealed his life philosophy by saying that health is hope.” The founder’s quotations filled books of speeches, biographies, corporate statements and brochures. (He spilled out the quotes at an even faster clip after his debut in politics, instructing his propagandists to publish leaflet after leaflet offering his views on all that he believed was wrong with the country.) The message was always a story of victory against odds.

“Some men live without thinking,” said Chung. “Other men with positive thinking achieve ten or one hundred times as much as ordinary people.” Chung “scolds such people” who are “about midway while they are playing, working or sleeping,” warned the manual. The fear of a tongue-lashing by the chairman was no joke. “He is a very determined, calculating person who is very intense,” observed Phillip Grub, who got to know the chairman on regular trips from his base at George Washington University. “He expects everyone to be the same workaholic that he is.” No one dared challenge him, doubt his pronouncements or desires or suggest alternatives. Naturally, this approach had a rather chilling effect. Chung might preach the virtues of “creativity” and “innovation,” but those were only words. He was the “creative spirit,” the “innovative enterpriser,” the “entrepreneur.” Everyone else followed orders.

Chung’s priorities remained clear. “He felt a responsibility for himself and his immediate family,” said Grub. He would not hesitate to put his sons in their proper places, cutting one or another off with the remark, “You have some growing up to do,” if they argued with him in their capacities as chairman or president of this or that Hyundai company. “The father demands so much of his children,” Grub learned. “They respect the old man. They’re afraid of him. He expects highest performance and highest everything.” All told, Grub found Chung “a great man”—though he never had to go through the ordeal of actually working for him.

A former Hyundai executive in America, Bae Myung Seung, with humor gained by time and distance, recalled with a smile the mood at the meetings chaired by Chung in Seoul. “Nobody really talks except the chairman,” he said. “That’s a place where the chairman lets out his good feelings or frustration.” And woe betide the president or vice president who happened to have displeased the chairman that day. “When he starts picking on one guy, he really picks on him. He asks something like, ‘Do you know how many bags of cement are being shipped to Kuwait?’ and the man says nothing, and Chung says, ‘You are president and you don’t even know that,’ and then he asks some other ridiculous question the man can’t answer.”

Such meetings, for practical purposes, were irrelevant since the decisions were already made on the basis of individual contacts between the chairman and his aides. “Any major or even minor decisions go to the chairman for his authorization, which means nobody wants responsibilities,” said Bae. “A lot of people want to hold power, authority, but nobody wants responsibilities.” The real purpose of Chung’s meetings clearly was to display authority, to instill discipline and loyalty. “Maybe the chairman is trying to give other guys some sort of fear to run their business well,” said Bae, “but I don’t think it’s the right way — there’s no way to bring out problems or discuss things.”

The term “top-down” actually understated the management style at Hyundai. After all the preaching was said and done, people at Hyundai from newest trainee to mid-level manager to senior executive stayed inert until they knew the game plan. The greatest challenge for a Hyundai manager was to figure out if the general manager or managing director a notch or two above him approved of what he was doing. In many cases, the result was that nothing was done at all — until the realization that production deadlines were approaching induced a panic. Then, looking over their shoulders all the while, Hyundai people acted in a desperation bom of the need to survive.

The phenomenon might have been more pronounced at Hyundai than at other major groups, notably Samsung and Daewoo, where relatively enlightened managements made a show of delegating authority. In those organizations, though, authority also flowed from on high. Lee Byung Chul, disappointed by his first two sons, groomed his third son, Lee Kun Hee, to succeed him at Samsung even though that Lee also had suffered his share of misery, including a severe car accident. Kim Woo Choong placed many of his old schoolmates in key posts at Daewoo — and tightened the screws amid setbacks in ship-building and motor vehicles. Lucky-Goldstar, rounding out the “big four” chaebol, stressed inhwa or harmony, but it too was a family concern with family members in line for power. The chairmanship automatically went to Koo Cha Kyung in 1970 on the death of his father, Koo In Hwoi, who had founded Lucky Chemical in 1947 as a cosmetics and toothpaste manufacturer.

Chaebol had much in common. They were all Korean, and all their workers, the ones who thrived in the maelstrom, believed above all else in the virtues of hard work and allegiance to the group. Brown-jacketed Lucky-Goldstar office workers turned out in front of their gleaming twin-tower headquarters on Yoido, the long island of office buildings on the Han River, on guard against radical demonstrators. Blue-jacketed Hyundai workers massed in the lobby of their much less impressive headquarters, a drab block said to reflect Chung’s frugality, to ward off dissident strikers camped out in front. Except for the colors of their company-issued windbreakers, there was little to distinguish these up-and-coming “salarymen,” a term the Japanese had borrowed from English a century earlier and donated to the Koreans.

The degree of central control might vary from chaebol to chaebol, from company to company within each chaebol, from situation to situation, but there were more parallels and similarities than differences. Chung’s rise from peasant origins, his gut view, his rough nerve — these qualities defined him as a personality but did not mean that Hyundai was that different among Korean groups as a place to work. Stories about Chung’s long hours were legend, but other chaebol leaders built up their own cults too. None quite duplicated Chung’s morning routine, beginning with his pre-dawn rising, his calls to executives, his walk to work with his sons. Most of them, however, began their work days at around the same time and toiled well into the night. The example set by Chung at Hyundai went down the line — and continued after his leap into politics. Ambitious managers would arrive at 8 a.m., stay on the job until well after 6 p.m., Monday through Friday, half day on Saturday, and often worked much later.

According to the mythology of chaebol culture, managers did not go home until certain their superiors had left before them. By that logic, nobody left until the chairman himself was seen striding out of the building before a phalanx of discreetly bowing office workers. Life at Hyundai and other companies, however, was not always so rigid or joyless as that stereotype suggests. Mutual trust, a common purpose, camaraderie reinforced by beer-drinking nights on the town — these helped lighten the burden of work and fear that might destroy a project or a company. Chung himself happily cavorted with young recruits at annual gatherings, engaging in Korean-style wrestling matches and lecturing them on the “Hyundai spirit.” Beyond that, he and his subordinates knew when and where to dole out the gifts, the parties, the dinners and lunches that reinforced the sense of “family” at the heart of the managerial structure.

Here too, there was a clear parallel between Korean and Japanese company mores. In both countries group camaraderie as much as Confucian philosophy was a reality of the workplace. The social group dictated one’s place in the system — and the company was often the group. While the idea of lifetime employment was not as developed in Korea as in Japan, it was still vital to corporate order. One did not “jump” easily from company to company. Head-hunters did not steal executives with impunity — though Hyundai bosses, sometimes after incurring Chung’s displeasure, did leave from time to time to form their own enterprises or work as consultants. If Japanese companies seemed more likely than did their Korean counterparts to guarantee jobs for life, they were following a pattern rooted as much in recent history as in centuries-old tradition.

In the era of Japanese militarism, lifetime employment assured war-time production — and wages. Group loyalty in Japan held most workers to their jobs, but the country’s rulers wanted to be sure no one defied order in time of war by defecting to another company, as was happening with a regularity that might not have seemed serious in a Western society but was upsetting to Japanese bureaucrats. The deal worked both ways. The company was committed to lifetime employment for dutiful workers while the workers were equally committed to the group, the company, for life. A generation later, Korean rulers could argue, as had the Japanese in the 1930s and 1940s, that reckless job-jumping could upset national objectives — and seek to inculcate group loyalty, identification, for much the same reason as had the war-time Japanese. The Koreans, waging a do-or-die economic war, followed their own deep-seated beliefs as much as any Japanese example.

Confident in the power of Confucian give-and-take, Hyundai executives scoffed at the legal networks of contracts that seem to dictate employer-employee relations in the West. “There, enterprise or economy is operated based on the hypothesis that labor is literally a product,” ran the Hyundai view. “But, business morals in Oriental society don’t necessarily conform to that of the West.” What better proof than the competitiveness of the Japanese? Long before the birth of chaebol in Korea, Hyundai executives argued, Japanese had formed unwritten bonds, the truest kind, between company and worker.

Foreigners doing business with Hyundai, always trying to figure out why the Koreans with whom they had to deal behaved as they did, sometimes reached different conclusions. Jack Kamont, a long-time consultant at Hyundai Heavy Industries, the ship-building giant to which the founder felt a special emotional attachment, saw Hyundai in a military context. “Everything at Hyundai is run on a fairly military basis,” said Kamont, a one-time West Pointer. “At Hyundai, a director is a director everywhere in terms of social position and rank. If a vice president of another Hyundai company goes to the shipyard, he won’t be ignored. They know where they are, who they are. They dress in uniform” — company jackets worn by everyone from top executives to manual laborers. Kamont often observed HHI military reservists lined up at the company grounds at Ulsan for training exercises. “They’re organized to defend the yard. You probably have enough for a light division.”

Kamont noted that many of the Hyundai jackets were lined with camouflage material: “They have an armory in the yard. The guys who are educated all know what to do if war breaks out.” The sense of discipline heightened the contrast when discipline faltered — or when workers formed their own units to combat the equally disciplined force of police and brass. A five-year resident of the foreigners’ compound, Kamont saw the union battles in Ulsan, “Hyundai City,” as a challenge to the rigidity of a structure heavily influenced by the very Japanese whom Koreans loved to hate. “They considered the Japanese occupation intolerably brutal, but they’ve taken a lot of Japanese customs because the senior people can’t think any other way.”

If Korea appeared fairly modem to an outsider on his first visit, the sheen soon wore off. For those who had expected too much when they came to Ulsan, the disillusionment could be as shattering as it had been for the Americans at Hyundai Motor America. “Korea is a medieval society,” said Kamont. “It’s the most Confucian nation. They can’t get over their respect for authority. They were never a Western colony, and all they knew were the Japanese.”

Nowadays, Hyundai executives countered, Western businessmen study the Japanese system to see why it works so well — and how they can emulate it. Would Western businessmen conduct similar studies of the chaebol? Would the example of Hyundai prove instructive for General Motors or Intel or Bechtel, all Hyundai competitors? The Confucian spirit of Korean business and industry provided an ideological framework for success in Korea — but was it ready for export? Hyundai and its rivals all faced problems that raised questions about future success even in their own land. Where was the “Confucian spirit” when it came to convincing thousands of recalcitrant workers to accept wage scales lower than those in most other industrialized countries? And how was Korean industry to leap from copy catting other people’s handiwork to making its own innovations?

Chung, ever alive to shifting moods, could state, 40 years after he had first hoisted a Hyundai sign over his garage, that Korean enterprises “must grow through self-effort, based on the principles of free market competition.” Chung hedged his bets, however, by observing it would “probably be necessary for domestic enterprises to grow further if they are to achieve success in the outward-looking market strategy that is required.”³² That jibed perfectly with the government’s evolving policies. Free enterprise would still need a friend in power. Chung always had known how to have it both ways. It was all in the spirit of a hierarchy that he had established and led through the most turbulent period of change in the region’s history.

32 Chung Ju Yung, “Enterprises Grow Thru Rational Management & Self-Effort,” Korean Business Review, September 1986, p. 7.

IV Catching the Spirit

DOI: 10.4324/9781315483214-4

The views of Chung Ju Yung, “honorary chairman” before putting on a show of retiring at the end of 1991 to go into presidential politics, and Chung Se Yung, fourth brother and successor, on hard work and dedication to duty sprung from the Korean spirit, the Hyundai spirit, the spirit of a family that reflected that of the country. “The most important lesson is very strong leadership,” said S. Y. over lunch in the Metropolitan Club of the Lotte Hotel in Seoul’s hustling downtown. “That applies to any business in the world.”

S.Y. believed Americans might learn from the Korean example. “Your own leadership should be more aggressive,” he told me during that first meeting in April 1988. “Your government should try to encourage businessmen to do business.” Dedication was the difference. Why not go the Korean way — with low interest rates to give incentive to big business? There was “too much Wall Street” influencing U.S. manufacturers, he believed, curtailing creativity and long-term growth with concern about that day’s stock market. Se Yung, gregarious and good-natured in contrast to the calculating, cold Ju Yung, exuded the philosophy of suffering to which his personal family, the Hyundai family and the Korean family professed to adhere. “Our people are too poor,” he said. “We are disgusted with poverty. We want to live better.”

For all the class, social, economic and regional differences that divided Korea, managers and workers alike seemed to share in the spirit, the pride and the wonder at the success stories they heard and saw around them. Thus it came as no surprise that workers at Hyundai Motor in Ulsan were as likely to talk of the plant’s accomplishments as they were to denounce the owners for not paying them enough. “It’s beyond description,” said Park Chin Keun, a foreman in charge of trim and chassis work on a line rolling out 1500 cars a day. “In the old days, I used to carry by hand some of the heavy things. Now a robot does the same job. I used to use hand tools. Now automation does the job.”

How did Park happen to go to work for Hyundai Motor in the first place? His response was the answer to a Hyundai public relations man’s dream. “My father is a farmer, and I graduated from agricultural high school,” said Park, at 37 a 14-year veteran. “I thought Hyundai Motor was the best. It enjoyed a good reputation among seniors.” Now he could look back on a career that had given him broad responsibilities over a crew of men beneath him. Whatever happened, he could count on the company: “Hyundai takes care of diligent workers. The Hyundai spirit is the backbone of this company.”

Lee Se Hee, section chief on the entire line for a shift that lasted nine and a half hours, gave his view of the labor problems roiling the plant. “All workers throughout Korea want to take part in any strike that will make good conditions for them,” he said. “Everything has improved since the first strike” — not long after Roh Tae Woo’s “declaration of democracy” in June 1987. “Labor and management do their best to settle matters as successfully as possible. The attitude of top management is better and better.” Salaries at the Hyundai Motor Company, he went on, “are as high as anybody’s,” and HMC “is the leading company in the group.” He and his colleagues were “proud to be Hyundai workers,” he said with indubitable sincerity, and he personally wanted “to be the best man in my sector.” Just to keep up the workers’ spirit, “we sing the company song when we have athletic meetings or special events, at least two or three times a month.”

Lee, at 37 the same age as Park, compared the work ethic of Korean laborers with that of Americans. “Generally American workers are apt to stick to the job they started to do,” he said, recalling stories he had heard as well as observations picked up during a 10-day orientation visit to American dealers in 1986. “A Korean worker tries to do more. Korean workers want ways to help. It’s the ‘help-each-other’ spirit. It’s the Korean traditional spirit.” So what about the workers who lead the strikes, who get put in jail, who defy management and demand better conditions? He saw them in the same context.

“Labor problems are part of growing,” Lee replied. “The minority who might be in jail also are people who like to help their neighbors. I think all Korean people are bom that way.” Nor would he criticize the approach of the union — whether too soft, as the radicals claimed, or too tough, as management often charged. “I think our union is a good negotiator,” he said. “Every worker wanted to have a union.” If Chung Se Yung “does not like the union,” Lee added, refusing to say a bad word about the big boss either, “he has never been cruel to workers.”

When the workers weren’t organizing or demonstrating against Hyundai, they might go to remarkable lengths to develop the sort of fellowship that every company executive dreams about. “We sometimes have ‘survival drives’ to test how to survive bad conditions,” said Park. “We climb mountains, go on overnight trips, to test our group spirit.” About 30 or 40 workers at a time joined such expeditions — about twice a quarter for each person. “We never refuse to go,” he said. “We have the team spirit, the feeling we are in the same boat. Sometimes we keep walking for two or three hours, drink some beer and soju, sing the company songs, popular songs, American cowboy songs.” While the men were out tramping the hills, the wives were likely to “go together to the beaches or the temples on Hyundai outings.” If the attitudes of these long-time workers appeared almost too good to be true, they still expressed a national sense of achievement that lay behind the rise of Korean industry since World War II.

A visit to the Hyundai Managerial Development Institute, nestled in low-lying mountains near the city of Suwon, in the village of Mabookri, about 50 miles south of Seoul, revealed an invigorating regimen that helped to make a believer of every “salaryman” from new recruit to top manager. It was a sign of Hyundai’s awareness of the need to build loyalty among union leaders that Hyundai had been putting some of them through a special course at the institute since late 1988. If Hyundai and other Korean companies had been slow to adapt their labor relations to the realities of the industrial age, they still strove consciously to indoctrinate the faithful in the corporate style and spirit. Nothing captured that aim better than the severe classrooms and auditoriums of the institute — all in a wooded setting that might have appeared more appropriate for a vacation retreat than for a highly regimented training and research center.

There, as in Ulsan, there was an early morning run to build up group morale. A two-hour walk up a nearby “mountain,” Mount Pophwa, really a hill 383 meters high, was part of the program for every new recruit on a two-week indoctrination course — first one week at the institute, then another in Ulsan. That was just a special feature to go along with getting up at 6:30 a.m. every day, then gathering to sing the group song, doing some calisthenics and, finally, going to lectures. Hyundai executives as well as university professors were likely to show up at the podium, and Chung Ju Yung himself tried to appear before every class of recruits before “retiring” at the end of 1991.

The founder’s favorite topic? “The Hyundai spirit, how he founded the group, how we do business in foreign countries,” said Doh Young Hoi, president of the institute. “He emphasizes how our new recruit should be a man with the thought that when he carries out his life, he should have ideas.” Chung Se Yung also liked to lecture at the institute — but not in such an abstract vein. “He gives executives and recruits some lessons about the future of the group. The last time he was here, he talked to a class of chief executives about our projects in China and the Soviet Union. He talked about the experiences of the Japanese and the Americans there.”

Blue-collar workers might appear out of place in such surroundings, but the institute had lately come up with a course that might have appeared radical if not heretical when it was founded at Chung’s behest in 1980. In the depths of the prolonged 1988–89 strike, the institute began inviting union leaders from five factories to join groups of managers for a series of Wednesday-through-Saturday sessions. “Each company has their own education for union leaders and officials,” said Doh, but he knew from his background as a senior vice president at Hyundai Heavy Industries that meeting at the site of conflict was intimidating. “We change the atmosphere and place and let them have frank discussion.” The program ranged from lectures on labor laws to seminars on the economy to slide shows depicting some of the highlights of Korean culture — much of it served up by professors who appeared relatively unbiased in their presentations.

Not that the program really was free of bias. “Sometimes union leaders do not understand the present laws and they do illegal things,” said Doh, following the Hyundai line that almost any walkout was illegal. Like all the others in institute programs, the union leaders were up at 6:30 singing songs and doing exercises. The real aim of the course — that of winning key labor leaders over to the side of management — was always clear. “We cannot go forward to modernization without the support of labor.” Some of the lectures might even be tailored to specific individuals in the audience — figures whose views were crucial in current negotiations. As Doh put it, “We discuss the programs with the companies who send workers here.”

The institute had reacted to widespread criticism of the group’s authoritarian outlook toward management as well as labor. While trying to convince labor leaders of the need to stay within the law, the institute also tried to inculcate in managers a belief in “creativity” and even “risk-taking.” The management course, if nothing else, reflected an awareness that Hyundai managers were overly concerned about the price they could pay for thinking or acting independently. The institute wanted managers to feel that Big Brother was not watching them — even though visits of top executives from Seoul, carrying on the standards set by the founder, created quite the opposite impression.

“Creative thinking” topped the agenda for managers in need of a strong dose of organizational spirit beyond the level of raw recruits and union members undergoing spiritual conversion. Institute planners assumed, wisely enough, that any managers recommended for the course already were paragons of Hyundai-style efficiency and loyalty. They could be sure the prototypical manager would work long hours, weekends, days off, at the bidding of a boss who put in equally long hours. They knew he would shudder and leap at the slightest advice, suggestion or wish from above. They might also be certain that the vast majority of managers had long since lost the desire to come up with the brand new ideas needed to gain a competitive edge with other Korean chaebol, much less the feared, hated Japanese.

The Koreans focussed their competitive drive on the Japanese — nowhere more than in the American car market. “We have a competitive mind with the Japanese,” said Chung Se Yung. “We think the Korean people are more clever, wiser than the Japanese. We have better brains. So many Koreans are enthusiastic students”—many of them made the dean’s list when they went to the United States to study. On an abstract level, however, he recognized the abrasive nature of the Koreans as a liability. “They say one Korean can beat two Japanese,” said S.Y., “but three Koreans can beat five Koreans, so that’s very bad.” Thus when it came to business success, “they do very well so we ask ourselves, ‘Why not us?’ That’s very good motivation.”

“Why not us?” Why not indeed? The question disturbed Koreans when they saw the Japanese conquering world markets far ahead of them and widening their trade surplus with Korea at an alarming pace, as it had when Japan ruled Korea for the first half of the century. “Our history has been poverty for 5,000 years,” S.Y. went on, offering an explanation for how and why Korea so suddenly reversed the pattern. “We were on the bottom level. Basically we Korean people are enthusiastic in education. Despite our poverty, our people are well educated.” He pictured newly educated Koreans as awaiting opportunities with the help of a strong central government — the strongest since the height of the last dynasty. “Once our leaders organize jobs like that, they work very hard.”

“Why not us” was also a question that Hyundai managers were urged to answer as they were lectured, methodically, non-creatively, on the need to be creative. The course promoted the virtues of “horizontal, not vertical, thinking.” The message of “management by objectives” was especially important for section chiefs. The final goal: get the job done without relying on instructions and approval from above. The greatest lesson the institute imparted was the need for taking chances without the sense that draconian punishment awaited those who failed. The most advanced students, the directors, went through a special course in risk management in hopes it would “inspire the desire of management to take risks.” Doh suggested “there are many risks” that a director should consider before reaching an independent decision. Such factors as “won appreciation, the amount of trade friction between the United States and Korea” all entered into the process.

The institute curriculum reached an apotheosis at the start of each year when the top executives of all the Hyundai companies — presidents, vice presidents, senior vice presidents, sometimes even chairmen — gathered for four days of lectures. Like the new recruits, the labor leaders, the middle managers and directors, they too were up for company singsong and exercises at 6:30 a.m., off for a group jog and then on to business talks and lectures. The only sign this crowd might rate a little more respect than the others — aside from all those black Hyundai Grandeurs with black-suited drivers parked in front — was the presence of influential government officials among the lecturers.

For Hyundai, the invitations extended to members of the Economic Planning Board, the staff of the president, the finance, trade or foreign ministries to come and lecture were altogether fitting. Throughout its history, Hyundai had relied on close ties with the government for growth and prosperity. Hyundai and Korea essentially were one, in spirit and aims for national success. What could be more appropriate, in keeping up the Hyundai spirit, than to remind those at the top of the ties that bound them — and to provide opportunities for social chit-chat, deal-making and see-you-laters on the side? No one forgot the heritage that was the rationale for this experiment in higher education.

“From ancient times Confucianism has prevailed in Korea,” said Doh, a graduate in economics from Korea University. “That’s why Chairman Chung Ju Yung founded this place. The chairman believes that to make progress in business, education is most important.” Doh did not have to remind a visitor of the Confucian teachings of respect for one’s elders, veneration of authority and obedience. Those were values the founder, more than ever, wanted to infuse among his people despite all the talk about “creativity” and “horizontal thinking.” Hyundai executives charged with solving the labor problem while holding down costs and improving efficiency cited “the Hyundai spirit” as the motivating factor that held the workers together. “We have the frame of mind to work particularly as a group,” said Kang Hak Bong, a vice president of Hyundai Mipo Dockyard, on Mipo Bay around a long curve in the road past Hyundai Heavy Industries in Ulsan. “We are doing work very, very diligently, with all our heart and mind.” He did not deny the authoritarian pattern set by the founder. “Our management from top to middle management all do things first themselves,” he said. “We tell the workers to follow us. We have very strong discipline.” Kang saw managers and workers alike as devoting themselves to a national cause — building Korea along with Hyundai. “We are facing foreign guests every day,” he said. “Our workers are aware of the consequences of unrest, what happens if they cause psychological fear among the foreign guests.” Since “we work every day at the core of worldwide attention,” he explained, “the general mood is to cooperate, to work with management for the common good.”

The spirit as described by Kang at Hyundai Mipo Dockyard, Korea’s largest ship repair facility, represented the Hyundai ideal. It might have been easier to live up to that ideal among Hyundai Mipo’s 2,657 workers than it was to inculcate the same principles among the 21,500 workers at HHI or the 41,000 or so at Hyundai Motor, the two largest Hyundai companies, but managers there also tried to accentuate the positive. They were proud of the Quality Control circles introduced to provide an outlet for workers to discuss their problems and come up with fresh ideas.

“At the beginning of the QC circles, the workers were not so interested,” said Chung Jin Koo, a foreman with the division that manufactures engines for the ships produced by HHI. In nearly a decade since workers began meeting weekly in small QC circles, he said, “they have expressed what they want” and now “everyone can say what he thinks.” On the other side of the sprawling HHI compound, at Hyundai Steel Tower, the world’s largest producer of the giant pylons that hold up electric cables, another foreman, So Jin Myung, said the weekly QC meetings “improve quality and dialogue.” He engaged in “person-to-person dialogue” when he encountered “difficulties in dealing with young persons with a sense of democratization.” Younger workers “are too used to the soft life,” So complained, but they too “also do their best.”

At HHI, beneath one of the giant cranes looming high above the skeletons of tankers and freighters being constructed for foreign firms as picky about costs as they were about quality, another senior foreman talked about the evolution of the QC circles. “The QC system was originally adopted by the government in 1975,” said Kwon Oh Sung, “so it was a bureaucratic system.” From about 1978 to 1986, “the company has pushed the system, but interest decreased because of labor disputes.” In 1988, HHI introduced the slogan, “Let’s Make the Hyundai Shipyard Number One” — a reflection of its drive to move ahead of its big Japanese competitors. “So from 1989 the company and the workers themselves voluntarily introduced a revolutionary system with more sincerity and attention,” said Kwon. “We revised the previous system. We adopted a new system to revitalize the QC movement.”

Such concepts, though, had an abstract air about them when carried out at the behest of management. Kwon tipped off the bosses’ role when he said he advocated “a new system, like a kind of adviser group, composed of foreman-class workers and section chiefs.” Such a group would “be given comprehensive training and education to foster leadership.” The result: “When they are allocated to each section, they will exercise leadership and knowledge more effectively.” Shrouded in this verbiage was a new and intimidating definition of the QC circle as a bunch of insiders dedicated to promoting management views rather than a forum for workers to exchange ideas along with complaints.

Some of the foreign engineers and technicians, many of them with companies doing business with HHI, gave voice to their doubts. In the lobby or the coffee shop of the Diamond Hotel, a Hyundai-owned facility right across from the main gate of HHI, engineers and technicians from around the world whiled away the hours they were not working or drinking in the dozens of bars catering to foreigners on nearby side streets. In that lonely atmosphere, foreigners griped and sometimes got at the heart of hardships confronting Korean workers disillusioned with their own place in the corporate and national dream.

“The ‘quality control’ is very poor,” said David Duet, a drilling superintendent. “Their idea of top quality and our idea is completely different.” Nor did Duet foresee a shift in mental approach that might catapult Hyundai — and Korea — into the forefront of manufacturers even though some Hyundai companies were international leaders in their fields. “They’ll never get better. It’s just the attitude of these people.” He even mocked the vaunted Korean capacity for hard work: “When you see them in life, they’re very aggressive, but at work they’re very passive.”

If a worker got in the habit of “doing it wrong, he’ll just go along the wrong way,” Duet complained in exasperation. “They have no imagination. They will not come up with an innovative idea.” The emphasis on seniority, even at the bottom, destroyed the capacity to get around obstacles. The results could be costly in building ships and off-shore oil rigs: “I’ve seen them take a critical part and cut a hole through it. They won’t figure a way to go around. The structural integrity can’t take it.” Worse, “the guy who did that won’t even be talked to.” No matter how deeply Koreans hated to be told, hated to admit they needed outside help, Duet doubted if they would ever get over their reliance on advice from foreigners to make their products competitive abroad.

The rigid outlook of top management, the rise of the new working class raised troubling questions about the meaning of all the hard work and progress of the past generation of “miracle” growth. “When things become very repetitive, they become very good,” said Paul Gordon, a civil and mechanical engineer with Loomis Overseas Corporation, on a project at HHI. “When it takes imagination, it is usually more difficult for them. It’s the flow-down-the-line situation. The guy above says, ‘Do it.’ There’s no useful rapport or thought.”

Still, the sight of rows of dedicated workers toeing the company line, literally and figuratively, amazed many of the foreigners who came to Ulsan to negotiate sales and purchases, to provide engineering and technical expertise, to watch over production of ships for the companies that ordered them. Nightly, some of the men on long-term contracts gathered in the clubhouse of the “Foreigners’ Compound,” a complex of bungalows, apartment buildings, tennis courts, an elementary school, set behind a high fence right across the street from HHI. Through all their talk ran a litany of praise for the swift progress the Koreans had made, along with comments on the growing pains of modernization and the paradox of workers torn by discontent but disciplined to follow orders.

“A ship owner for the price cannot afford not to come to Korea,” said Don Madeley, a British superintendent on his fifth tour in Korea. He listed the advantages — “modern, cheap labor, well trained, modern technology” — and compared the yard at Ulsan favorably to the one at Gdansk, where he had spent three years. “They can’t build them there,” he said. “It will take you longer.” The Polish yard “is not as good from the electronics view, and you’re forced to take a lot of Polish equipment” — even if he had found that electrician foreman Lech Walesa “knew what he was doing.”

Fernley Osborne, inspecting drawings, extended the comparison to the yards in Britain before most of them closed down. “The Brits take two to three years to build a ship,” said Osborne. “These people will do it in five months — working day and night, 12-hour days, six-day weeks.” A Danish technician, Peter Hansen, believed “Japanese workmanship is much better” — hardly surprising in view of the Japanese record in manufacturing steel ships for more than a century. “As soon as you see it, you know that it’s better,” said Hansen of the typical Japanese product. He cited problems in Hyundai-made ships ranging from electronics to pipes — but had begrudging admiration for the accomplishments of Koreans as long as they are under foreign tutelage. The result “is not the best-looking, but it works.”

Foreigners often compared the current caliber of Hyundai technicians and workers with the level in “the early days” in the 1970s, marveling over how far they had come. Malcolm Hedley, superintending engineering on ships’ engines, discovered “they’re better organized than they were” when he first got to Ulsan in 1976. “They’ve advanced tremendously in the last 15 years. You get as good a ship now as you do in Japan. That wasn’t the case six or seven years ago.” But just how good were they really? Hedley paused. “Adequate,” he replied. “We’ve problems with them. They’re no better, no worse.” Always, the bottom line was the savings. “If you pay for a Ford, you get a Ford.”

Alvin Meyersahm, president of a Seattle company producing stabilizers for the fins of giant vessels, tried to sort out the pros and cons. “The Koreans are competent, they work hard,” he said. “But they’ 11 hide things from you to protect a position. They won’t tell you everything. They won’t be quite that honest with you.” He shook his head over day-to-day problems. “You have to be patient. Where you get into trouble with them is 30 days after transit, and they’ll tell you something is broke.” Why? “They’re curious. Give them a screwdriver, and they’ll turn it. They’ll take things apart they shouldn’t take apart. They want to see. They’ll drop a screw on the floor, and it goes away, and then they’ll use the wrong screw.”

Praise outweighed complaints, however, when he contrasted the dedication of Koreans on the job with that of Americans. “I work with welders. They will work 10 hours a day. The arc time — the time a welder is actually applying heat to metal — is eight hours. The American welder works eight hours, but it’s really seven and a half hours, and their arc time is two hours. I like the Korean attitude. The American welders don’t work.” Unlike many of his colleagues, Meyersahm managed to keep his sense of humor through the ups and downs of negotiating and making good on contracts: “It’s entertaining to do business with them. You’ve got to watch them, but I like Koreans. I like their effort. They’re a little difficult to work with, that’s all.”

On the assembly line at Hyundai Motor, section chief Lee Se Hee recalled the rapid growth of the company in the years in which he had worked there. The toughest of the demonstrators, he claimed, had no idea how far Hyundai has come in the past two decades. “They are among the new ones. They don’t have broad experience.” Still, he predicted, “some day they will be good workers.” Dutifully, he cited the slogan of Chung Se Yung: “Be Diligent, Be Frugal, Be Friendly.” He heard Chung utter those words once when he walked down the line, shaking hands and doling out encouragement. “He told us, ‘You are working hard’“—the highest praise one could offer in the spirit of Hyundai, Korea and possibly Confucius as well.

Business and Policy Sharing Common Cause

V Planning for Success

DOI: 10.4324/9781315483214-5

For more than a generation, the alliance between government and business extended deep into economic policy. The bureaucracy saw to it that Korea’s industrial combines prospered to the detriment of both healthy foreign competition and lesser competitors at home. The police and army would put down striking workers, and the banks would extend financing as directed by the president. Hyundai as a leader among chaebol was a prime beneficiary of this policy. (When Chung fell out with the government in the early 1990s, of course, Samsung hoped to exploit the rift. Koreans likened the Samsung threat to that of the fisherman in the Chinese proverb who found a seagull and clam fighting each other — and killed them both.¹)

1 “Samsung Group: Opportunity Knocks,” Business Korea, August 1992, p. 15.

Park Chung Hee and the military coterie at the center could be certain, through nearly two decades of rule, that Chung and Hyundai would return their favors with devotion and discipline. Chung was eager to cooperate, as he had been with the Americans and the Japanese. All he needed was the confidence that a stable government would guarantee him the money, the market share, the monopolies — and the security — to forge ahead uninhibited by fear of capitalist competitors or communist enemies. So much might have seemed impossible for a government to assure a private concern, but Park left no doubt he had no patience with democratic forms that might cramp economic policies. The “abnormal and untrammeled party activities of the past decade have brought us the greatest misfortune of our national history,” he wrote shortly after the coup of May 16, 1961, which he idealized as a “revolution.”²

2 Park Chung Hee, Our Nation’s Path, 1962, p. 11.

An authoritative figure with the military clout to unify disparate elements, Park had to galvanize Korea’s entrepreneurs with a vision of a renascent Korean society competing internationally as never before in its long, tortured history. He plotted the 1961 coup against civilian rulers who had failed to deal effectively with inflation, labor problems and radical discontent since the demise of Rhee the year before. By July he was chairman of the Supreme Council for National Reconstruction, as the military revolutionary committee called itself. The new order paid only lip service to democracy and human rights, but at last someone was in charge who could oversee a coherent program for revival.

Park, very soon after coming to power, set economic growth as almost an ideology — or at least a rationale for whatever he did: “Economic reconstruction is our total concern and we are enduring all kinds of difficulties, precisely to implement this task At the present time, the Korean people want political stabilization and the establishment of firm political leadership; quiet discussion rather than tumultuous argument. Above all, we need wordless deeds and ambitious construction programs.”³ U.S. officials did not care about Park’s dictatorial approach as long as he held out what they could sell to Congress and the American public as hope for democracy in the long run — and held the line against the communists.

3 Park Chung Hee, The Country, the Revolution and I, 1963, p. 159

The heart of Park’s regime was Chong Wa Dae, the Blue House or presidential mansion, up a slope behind the sprawling walled confines of Kyongbok Palace. Chong Wa Dae, overlooking its own satellite office buildings, indoor tennis court, greenhouse and guardposts, in a complex surrounded by modern cement walls, searchlights and high-tech sensing devices, was built, in part by Hyundai Construction, in the tradition of the palaces from which Korean kings had ruled before the Japanese colonial era. The setting was a reminder of Korea’s legacy of power, loss and suffering. Kyongbok or “Shining Happiness” Palace, constructed by the founder of Korea’s last dynasty near the end of the 14th century, was burned to the ground and looted by Japanese invaders two centuries later. It was there, after the palace was rebuilt in the 19th century, that Japanese assassins eviscerated and burned Queen Min, also killing the royal household minister and two court ladies as they defended her.

Park preferred to dictate from the Blue House rather than the Capitol Building, a stern, sterile domed structure, erected by the Japanese in 1926 in imitation of a neoclassical style they had picked up from Europe in the 19th century. The Capitol, once the seat of the Japanese governor-general, stood in stark, dreary contrast to the gracefully arched and tiered structures of Kyongbok Palace. It was right across the Kyongbok grounds from the Blue House, looking south down the main avenue stretching through central Seoul, through the city hall square to Namdaemun or South Gate, one of the main portals of a city wall built about the same time as the palace. Park, his prime minister and other officials could hold forth in the capitol, presiding over ceremonial meetings, giving interviews and signing papers. The real power center, as everyone knew, was several hundred yards behind, up a tree-shaded street, watched by young men wearing blue jeans and down jackets, packing walkie-talkies and pistols.

Park was trained as a military cadet in Japan, then was a lieutenant in the imperial Japanese army and, like Chung, had never openly questioned Japanese rule. He had not had a day’s experience in civilian politics and regarded democratic forms with contempt. There was no way, he believed, that Korea could advance without military-type discipline, structure and planning. Thus one of his greatest feats, at the outset of his administration, was to order the establishment of the Economic Planning Board, headed by the deputy prime minister of the cabinet, and to launch the nation’s first five-year plan in 1962. The EPB imitated the Economic Planning Agency already formed in Japan to mastermind Japan’s economic recovery.

Very quickly, however, the EPB outgrew the Japanese model, becoming a full-fledged architect of overall policy, a unique institution. It combined the functions of the American administration’s Special Trade Representative and Office of Management of the Budget as well as that of Japan’s EPA, relegated to long-range planning while the mandarins from the ministries of finance and international trade and industry decreed Japanese policy. Issues of budgeting, foreign trade, short, middle and long-term planning and, somewhat later, fair trade and monopolies all fell under EPB’s purview. More important, Park believed in a great deal of what the EPB experts told him — as long as they believed in him. One sign of his faith: he founded in 1971 the Korea Development Institute, a secluded economic think tank that existed on government projects and spawned top-level ministers and advisers and innumerable analytical papers and studies.

While Park was a crusading nationalist ideologue, he was heavily influenced by his observations of his Japanese mentors. He, like Chung, wanted to be like them — only more so. He showed his nationalism by charging that U.S. aid after the Korean War had been “extremely tightfisted towards the productive facilities which we desired and generous with regard to consumer goods which we did not require.”⁴ He and his aides, operating through military tribunals, supported by the vast spy network of the Korean Central Intelligence Agency, resolved to root out corrupt politicians and their businessman benefactors on the way to erecting a new order in which Korea could stand on its own against the world.

4 Ibid., p. 25–26.

At the same time, Chung found an ally in Park as a man who respected what Hyundai could do for the economy and was willing to give him and Hyundai the encouragement and support he needed. The interests of Washington and Seoul were to coincide, for Chung, in a program for construction of cement plants that Park and his advisers saw as essential to fulfilling the country’s first five-year economic plan — and American aid planners agreed would provide a rudimentary industrial base for their ally. The idea was for Korea to reduce its dependency on imported cement — a beginning to his plan of drastically cutting imports in general. The choice of Hyundai Construction to become the third major cement-making company was a turning point for Chung. His company previously had had no fixed manufacturing facility; workers and gear had just moved from site to site. Now, he had his first factory.

The story of Hyundai Cement illustrated how Park and Chung relied on foreign help in pursuit of common goals — only to show their independence as soon as they had a chance. Chung paid for the factory with a $4.25 million loan from the Korean government, which had borrowed the money from the U.S. Agency for International Development. The terms were the kind that AID only granted allies with proper anti-communist credentials. Hyundai did not have to pay interest for two years — and then had ten more years to pay off the loan at 6.75%. With U.S. companies supplying engineering, technology and equipment, befitting AID loan terms, Hyundai Tiger Cement went into production in Tanyang, about 200 miles southeast of Seoul, in mid-1964. The factory justified the investment for country and company when it exported cement to Vietnam as U.S. combat troops arrived in 1965. The real payoff for Hyundai was that its engineers could learn by observing — and were soon ready to build their own cement plants, some for export.⁵

5 Alice H. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, pp. 266–267.

Korea, however, had a very long way to go in 1962, the first year of the first plan. The nation’s gross national product had been rising by a minuscule 3.7% a year since the Korean War — a minimal increase for a people rebuilding from rubble. The figure was all the more disappointing considering that the UN Korea Reconstruction Agency until 1956 and then the United States directly had been pumping in more than $200 million a year in economic aid. The per capita GNP in U.S. dollars was only $87 in 1962, while exports were $55 million against imports of $422 million.⁶ To Park and his advisers, the answer was clear: export or die. Along with the Economic Planning Board, the Export Promotion Council became the main instrument for this policy.

6 National Bureau of Statistics, Economic Planning Board, Korea Statistical Yearbook.

The government offered exporters just about all the help they could want. Direct export subsidies, tax exemptions, cut rates on utilities, tariff rebates on goods imported for re-export and fast movement through customs—these were all routine. Then there were special programs to liberalize bank loans and cut bureaucratic regulations on financing. The government also made it easier for companies to borrow money from foreign banks and other sources overseas — always with government authorization, never independently. Deployment of every weapon in the government arsenal helped raise exports by 1971, the end of the first decade of Park’s rule, to more than $1 billion.⁷

7 SaKong Il, The Evolution of Korean Economy: A Historical Perspective, 1988, pp. 9–10.

All the devices the planners had bestowed on industry in the previous decade were refurbished and redesigned for the sake of a new order. Tariffs went up and up to shield the chaebol and a new national investment fund increased the size of loans while easing the terms. The country also entered the age of the big monopoly. Planners pored over the books and decided which of the baby giants should run what heavy industry on the theory that Korea could not compete internationally if local producers squandered their energies fighting each other with the same products. Sometimes several chaebol got permission to go into a certain field, but the unsuccessful ones faced extinction. The government did not have to threaten to withdraw loans. It simply gave orders: sell out. The Blue House and Economic Planning Board saw no benefits in competition except when government-backed Korean products had to compete with foreign interests in foreign markets.

The chaebol were “conduits and processors of much-needed foreign technologies and raw materials,” observed a report by S.G. Warburg Securities. They were guaranteed “market monopolies or quasi-monopolies and tax concessions” — and encouraged “to expand in the 1960s and early 1970s into new industrial sectors which could be used as cash cows for the groups’ other expansionary activities.” There was, to be sure, a downside — such guarantees “also discouraged efficiency and competitiveness.” Always there was an emphasis “on sales versus profitability, and the propensity to take market share (at home as well as abroad) even at the expense of the bottom line.”⁸

8 S.G. Warburg Securities, “What is a Chaebol?”

Economist Lee Kyu Uck, from his perspective at the Korea Development Institute, offered an explanation: “Strategic industries emphasized by the government required huge capacities in technology, capital, manpower and organization” — hence “business groups [chaebol] were favored over other firms.” Thus it was “natural that the benefits of the tax, finance and trade policies should accrue primarily to the business groups” with growth “further aided by the growth-first policy of the Korean government.”⁹

9 Lee Kyu Uck, “The Concentration of Economic Power in Korea: Causes, Consequences and Policy,’ Industrial Development Policies and Issues, 1986, p. 243.

Some observers saw Park, in retrospect, as one of Korea’s greatest leaders — and forgave him for his lack of concern with the niceties of democracy. “It is fair to say that Park’s economic policy had growth as the primary objective,” said Dr. Chung Hoon Mok, who entered Hyundai Construction as a senior vice president in 1984 after serving as a managing director at the Asia Development Bank, secretary in the Blue House and adviser to the Ministry of Finance. Dr. Chung winced at descriptions of Park as a totalitarian leader. “He was determined to transform the national economy from a simple agrarian base into an industrial economy,” he said. “He wanted to achieve this objective not for the same reasons as Josef Stalin. His primary concern was the elimination of poverty and enhancing self-strength, economic strength.”

If Park sought consensus, however, it was with his economic advisers — not with a democratically elected assembly, much less the public at large. “He wanted to construct a market-based economy, and he wanted to go for an export-oriented economy rather than import substitution,” according to Dr. Chung, a one-time professor at Illinois State University in Normal, educated in business at the University of Pennsylvania’s Wharton School and Seoul National University. “He was a believer in economic planning.” Then too, in keeping with Confucian tradition, the government bureaucracy was assumed to attract the best minds and talents — mandarins who were presumed to know best what was best for the country. “The government at the time had the lion’s share of the top-quality manpower,” said Dr. Chung. “Sure, there were many capable people in the private sector, but the largest number were in government organizations. Park’s idea was to pool manpower.”

In search of the “economic miracle,” Park swept aside obstacles that might compromise his country’s growth. Luckily for Chung Ju Yung, neither he nor his brothers nor Hyundai were judged “corrupt” by the military ideologues charged with cleaning house after the 1961 coup. Hyundai, along with the other chaebol, could count on not only extraordinary loans but also other types of government support. As if Korean companies had not already reaped a fortune from U.S. contracts, for example, the government in the late 1960s ruled that U.S. companies had to partner Korean companies on construction contracts at U.S. bases. Hyundai was the first to benefit, joining Vinnell in August 1968 in a $6 million joint venture to improve the air strips at several U.S. bases — the first of a number of Hyundai-Vinnell enterprises forced by the requirement. Hyundai Construction by the end of the sixties was the largest construction company in Korea — and it had only begun competing on the world stage.¹⁰

10 Earle Whitmore, History of the United States Army Engineer District Far East: 1957–1975, 1976, p. 63.

In the final analysis, Park and his advisers had the weapon of the loan to bring reluctant businessmen into line. During Park’s rule the chaebol piled up precarious debt-equity ratios, typically five or six to one but sometimes 10 and 20 to one or higher. Denial of a “policy loan” could destroy a business — or even an aspiring empire. What, then, was to stop a defiant chaebol leader from setting up or buying his own banking facility, loaning himself the money he needed from its accounts? The most important difference between the Korean chaebol and the Japanese zaibatsu and keiretsu that replaced them — after that of single-family authority in Korea — was government control of the banks. One of the first deeds of Park’s regime was to snap back authority over the private banks responsible for much of the corruption under Rhee, who had denationalized state-owned banks in 1954.

Here again, Park adopted a policy of Japanese colonial rule. If Japan had controlled money in Korea by forbidding Koreans from going into banking, why not he? There were no Korean equivalents of Japan’s Mitsubishi, Sumitomo or Fuji Banks, among others, all owned by descendants of the zaibatsu, essential moving parts of the machinery of their groups. “Chaebol are forbidden by law to own more than 8% of a bank,” observed the S.G. Warburg study. “When the political climate moves against them, therefore, lines of credit can be withheld.” By banning the chaebol from owning banks, the government held the purse strings — and even appointed and dismissed bank managers. Park’s government also set the interest rates that persuaded Koreans to save rather than pour all they had into daily needs — or “wasteful” luxury items.

Reorganized, with a new management structure in place, Hyundai was now more closely identified with the policies of Park than ever before. For that matter, Chung and Park appeared to many observers as brothers in rapport. “Chung and Park had quite a similar outlook,” noted Hyundai Motor executive Lee Soo II. “They liked to talk longer together than anyone else.” Like many Koreans on the upper levels of management, Lee saw Park as a heroic figure — “a real good president to develop Korea, the number one president in the world, maybe the best in Korean history since King Sejong.” While Park decreed that Koreans focus on industrial progress, Chung put the policy into action in his own industries.

In the year 1969, making a profit from big business in Korea was not all that easy. A number of enterprises, bloated on policy loans provided since 1967 under the second five-year plan, had gone bankrupt. Park had Chung — and Hyundai — to thank for justifying his economic program in the face of the critics. He saw possibilities for elevating Korea from third-world to world-class, economically if not politically. If Korean companies could make expressways and produce cement and build dams, why not go into iron and steel, petrochemicals and chemicals, shipbuilding and heavy machinery, cars, trucks, trains, airplanes too? Why not the magic of electronics and high-tech? His economists could produce any number of figures to show that Korea was about to leap to another plateau in sophistication, scope and size — and Park was leading the way.

In the decade after he seized power, the GNP soared from its 1962 level of $87 to $318 per capita — an annual increase averaging about 10%. More and more, Korean business and industry was doing it on its own. Investment rose from 12.8% of GNP to 25.2% and savings from 3.3% to 15.5% — statistics that helped explain why U.S. and other foreign aid fell from half to a fifth of total investment during the decade. Figures for exports of primary and industrial products showed how deeply Korea was committed to expansion — and how well it had used loans and investments. “The share of primary products exported declined from 73% of the total in 1962 to only 14% in 1971,” summarized Finance Minister SaKong Il in 1988, “while that of industrial products increased dramatically from 27% to 86%.”¹¹

11 Sakong Il, Korea in the World Economy, pp. 13–14. Other figures from the Economic Planning Board.

Park and his advisers made economic improvement the centerpiece of all the government’s endeavors. He built up the armed forces too, but they served increasingly as a deterrent to internal dissent rather than a shield against the hundreds of thousands of North Korean troops poised above the Demilitarized Zone. In the process, he abandoned any pretext of democracy or fair competition in business. Park could order a company to do this or that, and the company president dared not question him if he wanted to expand — or just stay in business. Park told tycoons to take over or abandon enterprises. He formed government companies that ran industries, sometimes usurping private concerns that had proved incapable of the task or otherwise fallen from grace. Conversely, he privatized enterprises, enriching favored businessmen and their chaebol.

Park’s dictatorial techniques were prerequisites in his planning for economic success. They were the downside of the strong leadership that instilled discipline and order into the fractured economy. Chung and other chaebol founders throve in this atmosphere. They ran their own companies with the same authoritarian philosophy. Chung was at the forefront of the expansionist drive. He was not concerned with bureaucratic talk about “overheating the economy” and chafed at warnings against getting into fields “beyond his capability.” If he could build a highway in Thailand under the most adverse conditions, he told subordinates, bureaucrats, businessmen, he could do anything, absolutely anything.

The former president of General Motors, “Engine” Charlie Wilson, coined one of the catchphrases of the 1950s when he remarked before a Senate committee considering whether to confirm his appointment as defense secretary, “For years I thought that what was good for our country was good for General Motors, and vice versa.” No one would have placed more confidence in such an aphorism than Park, who believed what was good for Korea was good for Hyundai and the other favored chaebol — and vice versa. The only difference between Park’s philosophy and that of Charlie Wilson was that the Korean leader took a much broader view than did the American corporate executive. Never would Park have singled out an individual motor vehicle manufacturer, or even an industry, as symbolizing the national good. He — in league with his allies at the top of every chaebol — firmly viewed each of the great “fortune clusters” as entities dedicated to national expansion. “The private sector was considered to be an ally, somebody you work together with,” said Dr. Chung. “The private sector was the instrument for accomplishing the objectives of the master plan — something like ‘Korea, Inc.’ What concerned us was that the country did not have its own capital base.” Dr. Chung cited “meager savings and scarce managerial and technical know-how” as two of the leading problems.

The Park regime, having sought to turn Korea into an exporting nation in its first five-year plan in 1962, began in 1970 to focus on heavy industry. Although Hyundai Motor was already assembling cars for Ford, the notion of acquiring the technology and capital needed to penetrate foreign markets with big-ticket items of one’s own still seemed foolhardy. In a period when Korea was viewed as “developing” if not “third world,” Park had an approach that may have been unique among leaders of would-be industrial powers. Rather than emphasize national companies, he believed the owners of the large industrial groups, fired by the profit motive, would drive their people to achievements impossible in government-owned bureaucracies. Park was not, however, a heroic purist in his belief in free enterprise.

Park’s idea was to avoid wasteful competition, guaranteeing near-monopolies for each manufacturer. “If you were to build five steel mills, you would not get any scale of economy,” explained Dr. Chung, reiterating the classic view. “Equity-wise, that might have been more desirable, but necessity made it advisable to have one steel mill. Concentration was dictated by the scale of the economy, without which you could not get into the world market.” Dr. Chung maintained there was healthy rivalry. “Major firms competed with one another to receive the mandate,” he said. “It was a state-directed but not a state-run economy.” Thus the Korean experience differed from the Japanese: “The Japanese had their zaibatsu before they had their Ministry of International Trade and Industry. Their big business groups are at least 100 years old.” In any case, he added, in Japan “running the economy was up to the private sector.”

No one subscribed more wholeheartedly to this outlook than did Chung Ju Yung — provided Hyundai got its fair share. If few people believed in all of Chung’s dreams, one man did. Park Chung Hee — and the chaebol — were ready to take on the world. The real miracle was about to unfold. “The president got along not only with Chung Ju Yung but with virtually all other industrialists who delivered,” said Dr. Chung. As long as Hyundai could count on the stubbornness of its founder, it was certain of a measure of success. For Chung to keep succeeding, though, he needed the alliance between big business and big government — his business and his government.

“Basically our industrial policy has the characteristics of intervention,” said Chang Seung Woo, director-general for economic planning at the Economic Planning Board, citing special assistance, including tariff protection. “Many conglomerates can grow by favorable circumstances made by government strategy.” After nearly two decades in which the government under Park “directed which business could invest in what,” he said, there was “the adverse effect of too much intervention.” The government tightened the screws after the oil shock of 1979 and the assassination of Park on October 26 of that year. “The government’s first job in 1980 was to restructure the already endangered industries. They arbitrarily gave directives to integrate this company with another company so it could only produce this item or that item.”

Such interference could destroy not only creativity but also the aggressiveness that was the hallmark of Korea’s miracle. In motor vehicles in particular “repeated intervention will eventually diminish domestic rivalry and limit investment and upgrading,” wrote Harvard economist Michael Porter. “Targeting [government-ordered concentration on specific fields] has been as often wrong as right.” One result: “a narrow economy with very shallow clusters.” For all its success, “Korea has few positions in components, tools and production machinery” and had trouble “in differentiated industry segments” or “process innovation.” The mandarin’s “tendency for meddling, a continuation of past modes of intervention and intrusion into competition all represent threats to further Korean development.”¹²

12 Michael E. Porter, The Competitive Advantage of Nations, 1990, pp. 470–476.

When their self-interest was at stake, Korean chaebol chieftains could not agree more. As soon as the bureaucrats began restricting their expansion, they suddenly perceived flaws in the old arrangements. Tycoons who welcomed protective tariffs, easy credit, guaranteed monopolies and subsidies talked another game if they believed the government was acting contrary to their interests. “The government tells you it’s your duty and you have to do it even if there’s no profit,” Daewoo founder Kim Woo Choong once remarked. “Maybe, after the year 2000, Korean businessmen will be able to put their companies’ interests ahead of those of society or government.”¹³ The comment ignored the reality of enormous profits for Korean industry, not always for the sake of either Korean society or government, and also revealed the smoldering resentment among business leaders of interference by central planners.

13 Douglas D. Anderson, Cho Dong Sung and Susan Pope, Hyundai Heavy Industries and the Shipbuilding Industry, 1984, p. 17.

Chung Ju Yung’s sixth son, Chung Mong Joon, seen as one of the brighter lights of the coming generation of family leadership, argued the case in a paper that he first presented in 1982 when the old man was still at loggerheads with Chun Doo Hwan’s zealous reformers. “Advocates of an industrial policy assert that the international competitiveness of an industry can be improved when a government takes several specific measures to support the industry,” wrote M.J., the only one of Chung’s sons to attend Seoul National University. M.J., who received a master’s degree from MIT’s Sloan School of Management in 1980 and his doctorate at Johns Hopkins in 1993, decried the designation of “winning” or “losing” industries — an unpleasant aspect of government policy that obviously affects private investment. “What is required for a successful industrial policy,” he concluded, “whether for automobiles, shipbuilding or whatever, is coordination and integration of government programs and policies and careful analysis of world market trends and sources of competitive advantage, rather than the pin-pointing of an industry as a ‘winning’ industry.”

M.J.’s words, reflecting his father’s views, were more than theoretical. Entering Hyundai Heavy Industries as managing director of its budgeting and computer center, he wanted the government to follow Hyundai’s bidding, not the other way around. Park Chung Hee and Chung Ju Yung had formed an ideal partnership that Hyundai nurtured long after Park was gone. “Industrial policy is a process for making an industry more adaptable and dynamic,” M.J. said, “not an industry which is artificially encouraged and developed by the government.”¹⁴

14 Chung Mong Joon, “Status of the Korean Shipbuilding Industry,” 1984, pp. 15–16.

Ten years later, under Roh Tae Woo, the emphasis was a little different. “Most Korean people think too much concentration of wealth is not desirable,” said Chang Seung Woo, citing “many policy packages to change the balance between growth and distribution.” The policy-makers and planners were never sure, though, how far to go. “Breaking the chaebol is too drastic a measure,” Chang said, “so we are decreasing the share of the bank loans to the conglomerates” — the traditional weapon of Korean leaders. Somehow, though, the profits of the chaebol more than doubled under Roh’s rule even as the bureaucrats strove to diffuse them by limiting crossholdings among chaebol entities, forcing them to sell assets and curtailing credit.

While Roh was giving Hyundai a hard time, Mong Joon’s uncle and group chairman, Chung Se Yung, reflected the same views as both his eldest brother and his nephew. Yes, “it is a little difficult to deny the fact that there are some close links between political circles and business communities,” he wrote in 1992. Still, he went on, “as long as the government propagates an economic system” calling for “willful regulation of economic transactions, it is hardly possible to relax the links between business and government.” S.Y., however, put family interests above economic theory. He fought segregation of business ownership and management by predicting that “artificial regulations would cause various kinds of negative side-effects.” He saw no conflict between that forecast and a plea for law-makers “to establish a disciplined society in order to maintain law and social order.” In fact, he called for laws “in which Korean corporations can compete with its competitors” — the nationalist policy of Park Chung Hee.¹⁵

15 Chung Se Yung, “Reflections on Korea’s Business Environment,” Korean Business Review, August 1992, pp. 8–9.

Brother Chung Ju Yung’s political pronunciations were full of such contradictions. “The most effective way to rejuvenate our economy is to make the market mechanism work for us,” he said in a speech in Washington, promising to “change the Korean economy from a system strictly regulated and led by the government to one that is left to the free hands of market play.” He offered no details of how much freedom he would really give as president of his country while carrying out his campaign promise to “dissolve all conglomerates.” More ironic still, he claimed to “represent a political movement which challenges the old ways and thinking of vested interests which became so deep-rooted during the period of authoritarian politics.”¹⁶ Far from introducing anything new, he was merely suggesting reversion to the policies of Park while overlooking his own role as the most authoritarian of tycoons.

16 Chung Ju Yung, “My Conviction: Clean Government,” 1992.

Chung, in his written response to my questions, recognized his debt to Park — without recognizing the pressures that Park had exerted either on political critics or on business competitors. He “helped us a lot to run business with a creative mind and paid much attention to the difficulties of the business,” went Chung’s response, drafted by Mong Joon’s aides in the old man’s name. “Also he managed for the business to have an easy access to the foreign capital.” The next sentence in his draft reply was crossed out in dark blue ink — but still legible. “Compared to President Park,” it read, “his successors were somewhat ignorant in taking care of business activities.” Through the blotched ink, Chung expressed his gratitude to the man with whom, first among business leaders, he had helped to build a new nation.¹⁷

17 Chung Ju Yung, written response to author’s questionnaire, May 26,1992.

VI Mother Company

DOI: 10.4324/9781315483214-6

While Chung Ju Yung and his men pieced cars and trucks together from junk in the Hyundai Motor Works in the late 1940s, he had no idea of going into motor vehicle production then, or a decade later. The subcompacts that Hyundai began exporting to the United States — and the world — in the 1980s were not even the direct descendants of those early jerry-built creations. They were, more accurately, cousins, several times removed. The manufacture of motor vehicles from original designs made largely of locally produced parts was beyond the remotest fantasies of anyone in Korea at that time. Until he went into politics in his old age, Chung did not deal in fantasy.

Korea had escaped unscathed from World War II but had next to nothing anyway: little heavy industry, less capital and virtually no engineering expertise. The Japanese had engineers and technicians who had designed and produced cars, trucks and buses for a generation before what they called “the Pacific War.” They had a whole war industry — laid waste by American bombing, to be sure, but still there if literally in skeleton form. Companies like Toyota and Nissan could think about going back into production as soon as the American occupiers forgot their ideas about restricting their former enemies to light industry and agriculture.

Chung had no illusions about catching up or competing with the Japanese or anyone else. His aim was simple: to exploit what was there, within reach. He quickly saw where the money was now coming from: the Americans. Confident from their victory over Japan, American forces, right after getting to their “half of the Korean peninsula in September 1945, set up a military government, appointed a military governor and started building facilities. Incredibly, the U.S. military commander, General John Reed Hodge, treated Korea as a conquered rather than a liberated country, more or less copying the structure of the American occupation force in Japan. More incredible still, he looked to the Japanese, the defeated colonialists, rather than Koreans for advice even after the Japanese were relieved of their posts.

Chung did not share the outrage of some of his countrymen over the high-handed approach of the U.S. forces, greeted with cheers when they first arrived in Inchon. He sized up the shifts and came to one conclusion: he wanted a piece of the action. He decided to branch out from motor vehicles and bid for contracts, usually through a larger Korean company that served as general contractor. Hyundai was small, but Chung negotiated patiently for whatever he could get. So convinced was he of where he was going that he founded Hyundai Construction in May 1947 and three years later merged the garage with the construction company.

From then on, the word was build, build, build. The garage receded in importance while Chung courted the Americans for construction contracts more than ever. The timing was extraordinary. When North Korean troops stormed across the 38th parallel on June 25,1950, on the way to capturing Seoul on June 28, Chung broke off the project he was then directing, pulled his money from the bank, leaving most of his family in Seoul, and fled to Pusan with next brother In Yung.

Hank MacAlister, then a young U.S. Army lieutenant, encountered In Yung on the pier in Pusan on the day he got off a U.S. Navy vessel with his unit in 1950. He “couldn’t speak English real well, but he was looking for work, and I needed an interpreter.” In Yung, born in 1920, five years younger than Ju Yung, had gone his own way before World War II, enrolling in high school in Japan to study English and Japanese — and staying on until the middle of the war at Aoyama Gakuin, one of Tokyo’s more fashionable private colleges. He had already been working before the war as an interpreter for Americans in rocky dealings with Soviet officials when they were supposed to be cooperating on mutual problems. MacAlister, an army engineer whose only other aid was a machine for encoding and decoding messages, hired him.

“I was kind of running up and down the peninsula,” said MacAlister, and Chung In Yung went with him, at least initially. Assigned to the Commandant Section of the U.S. 8th Army headquarters, the top level of command, MacAlister had the difficult job of looking for new places for the headquarters as the war shifted back and forth. It was a frantic period in which U.S. forces reeled before the North Korean attack, then punched all the way north to the Yalu River border with China — only to fall back again before the Chinese. As the war ravaged the countryside, Koreans fled south by the hundreds of thousands carrying only the packs on their backs, the bags in their hands. Chung Ju Yung’s struggle from poverty had taught him how to respond — and thrive. When introduced to MacAlister by his younger brother, he “had an oxcart and five or six young men.” When they first got to Pusan, according to MacAlister, the brothers “started trying to find work for the U.S. Army and were building tent floors and just about anything they could get.”

Chung In Yung, with an eye to the potentates in the U.S. establishment then awarding the lucrative contracts, got himself reassigned to the 8th Army’s engineers. Ju Yung, in the meantime, courted the transport ministry of his own government — and won the contract for construction of a warehouse covering one and three quarter acres by the Pusan docks. His single company was about to turn into a “group” of two. As goods piled up inside the warehouse, he founded Hyundai Commercial Transportation for shipping salt, food and other commodities around the frightened southeast, the only region not overrun by North Koreans.

Chung needed the American contracts more than anything else. With In Yung on the inside of the contract-awarding American military empire, the two brothers returned to Seoul as soon as U.S. forces recaptured the city on September 28,1950, and discovered the families they had left behind were safe. Then, as the Americans were driving almost to the Yalu before the entry of the Chinese near the end of 1950, Ju Yung returned to the village where he was raised and gathered up his parents and other family members trapped there early in the war. Clearly, he did not share the illusions of the 8th Army and its commander, General Douglas MacArthur, that the war was over with the dispersal of the North Koreans. Conversely, he had no doubt of the long-term benefits of sticking with the Americans for the sake of making money.

Chung set about gaining a monopoly on 8th Army projects beginning with construction of an 8th Army headquarters. He earned profits of 500% to 600% on his work on about 300 U.S. Army posts — and was eager to help build an air base at Pyongyang, captured from the North Koreans in October 1950. Flown there by the 8th Army for a quick look, he was offered a contract but had not moved in his men and supplies before the Chinese recaptured the North Korean capital in the counter-offensive that began that month.¹⁸ There was no job, it seemed, that Hyundai Construction was not at least willing to consider.

18 Chun Bum Sung, Chung Ju Yung: Real Enterprise Story, Secret Story of the Founding of Hyundai, 1984, in Korean.

If Chung lost nothing on the Pyongyang deal, he could swallow his losses when he had to. One immediate example: another project for the U.S. Air Force, this one at Suwon, south of Seoul. Hyundai Construction had stockpiled most of its material for the project before the Chinese army stormed south, forcing Chung again to retreat with the Americans. He completed the job for the agreed price the next year after the Americans had driven the Chinese back over the 38th parallel, buying new materials at double the original cost and taking a huge loss. It was not to be the last time that Chung took a financial beating — an investment, as he saw it, that would help assure future business.

The war was well-timed for Chung’s ambitions, but he also had to have impressed the Americans with a drive not ordinarily found among the horde of Korean contractors. George Krause, who had served in World War II as a marine captain and then set up his own construction company, hired Chung to work on the runway at Suwon. “He wasn’t doing too much construction work at the time,” said Krause. “We were always looking for good subcontractors, and he was one of those who came along. That job took about a year and a half to do. He was always a real pusher. He had enough push to go ahead and carry a job on. I really thought he was going places.” Krause played a small but crucial role in aiding Chung financially, loaning him $5,000 for a GMC dump truck when “about all anybody had in those days was a horse cart.”

Chung again proved he was ready to overcome almost any obstacle when asked to help prepare for President Eisenhower’s visit in December 1952 — the trip in which Ike fulfilled his “I-will-go-to-Korea” campaign pledge. First, Chung got a bonus by rebuilding the boiler system, toilet facilities and interior decorations of the Un Hyun Palace near the Secret Garden where Eisenhower was to stay. The boiler exploded several days before Eisenhower’s arrival and the facilities needed overhauling, but Chung and his men made the deadline. Second, when the Americans told him they wanted the United Nations cemetery in Pusan to be green for Eisenhower’s visit, Chung got his brother-in-law, Kim Yung Ju, who had married his sister while working for him, to cover the earth with 30 truck loads of barley. Since Eisenhower was to be there only a few minutes, it seemed unlikely he would notice the difference between barley and real grass. Besides, how could anyone hope to grow grass in Korea in mid-winter?

From this raw beginning under American tutelage, Chung would go on to much bigger contracts — in his own country and then Southeast Asia, where Hyundai did a booming business with Americans during the Vietnam War. Finally, he would display his usual incredible talent for being at the right place at the right time, with the right prices and expertise, to cash in on the bonanza in building accompanying the Middle East oil boom. No matter how many companies he eventually founded or acquired, Chung would always view construction as his principal mission — the one endeavor that he could see, feel, grasp with ease and confidence. Other executives might shrug off the mundane work of digging into the dirt, carrying cement and hoisting girders, but Chung turned it into a mystique — for himself and his group. “People who become competent through work in the construction sites can accomplish anything they envision in any field,” he strongly believed.¹⁹

19 Hyundai group, Orientation Course for New Recruits, p. 38.

“Chung’s conviction,” his trusted associates explained, “is based on his opinion that the construction industry is a fiercely competitive business and fights the elements with a pioneering spirit.” That philosophy meant that Hyundai Construction — renamed Hyundai Engineering and Construction in 1981 after it had long since showed off its engineering skills in amazingly sophisticated projects — would remain the core of the group. When Hyundai founded new companies, Hyundai Construction executives would be deputized to run them even if they knew little or nothing about the products they were making. When the group formed a headquarters, the top executives came straight from Hyundai Construction. Almost everyone else at “group,” down to clerks and drivers, was on Construction’s payroll—though many of them never really worked for the company.

It was to be a number of years before Chung’s holdings expanded so much that construction seemed of lesser import. Even after it had fallen behind motor vehicles and shipbuilding, the habits and attitudes formed during the era of the rise of Hyundai Construction pervaded every enterprise that Hyundai entered. Construction in Korea was a rough-and-ready, cutthroat, corrupt business — qualities that jibed perfectly with the personality of the Hyundai founder. In the brawling world of Korean construction, the prime contractor relied on close ties to authority for whatever he could get — and passed the wealth down to sub-contractors responsible for getting the job done. At the base of the pyramid was the day worker, protected by no unions, with no minimum wage and no benefits. Hired by subcontractors, day workers migrated from site to site, picking up crafts and skills that workers in the United States and Europe might have acquired through formal training.

Shrewd operators such as Chung, who knew the business from the work site on up, exploited their labor to the hilt, enriching themselves off what was, during the Korean War period, the world’s cheapest work-force in terms of what they could accomplish in a hurry. The war also formed an environment for profiteering among Korean Army officers, who viewed the construction industry, next to the U.S. military supply system, as the likeliest source of wealth. Businessmen, officers and workers divided into factions, members of each faction fighting for turf, zealously loyal to their leader in a gritty struggle for survival, money and authority. One widespread abuse was donation of army recruits for projects. Officers accepted payoffs from subcontractors, who kept what was left from funds the Americans had budgeted for hired labor.²⁰

20 Gregory Henderson, Korea: The Politics of the Vortex, 1968, pp. 348–349.

When it came to wangling contracts, bribery, influence-peddling and collusion were the norm. As Donald Leland, an American who worked for the U.S. Army on contracts and knew the Chung brothers, put it rather philosophically: “There was corruption in our way of defining business. It’s nice to be honest, God will forgive you. Over there, if you get caught, it’s bad. If you don’t, it’s good.” The biggest contractors — men with more clout than Chung at this stage — became pillars of financial support for government and political leaders on the basis of financial contributions. There was no beating the system. Those who gave nothing got nothing.²¹

21 Kim Kyong Dong, “Political Factors in the Formation of the Entrepreneurial Elite in South Korea,” Asian Survey, May 1976, p. 469.

Corruption “extends to bid-rigging and outright fraud,” said Tom Sheldon, an American attorney who worked for a Korean law firm for a time. “Construc-tion is a gangster industry.” Over the years contractors organized together to split U.S. military business. Americans called it “teahousing” — contractors met in teahouses to decide who got to bid for what, at what price. U.S. Army investigators realized the “low bid” was fixed — and discovered the Korean Central Intelligence Agency was masterminding the racket. No matter what, according to Chuck Wilder, an attorney for the U.S. Army command, Korean regulations made competitive bidding virtually impossible.

As construction firms matured after the war, foreign observers were awed by how they could accomplish what they did. Hyundai Construction “has almost no full-time masons, pipefitters, plumbers, cement-finishers, iron workers, plasterers, electricians or welders,” marveled Harry Kamberis, an American labor expert in Korea. “Those job classifications don’t exist.” There were few safety regulations. Workers routinely put in 12-to-15-hour days, adding fatigue to the inexperience that already jeopardized results. The practice of hiring workers by the job or the day encouraged cheating #s well as safety violations. Subcontractors often exaggerated hours and bypassed agreed-on conditions — with errors in wiring, structural strength and other requirements buried in concrete. Workers with no technical training, unaware of elementary safety standards, were happy to ignore what few rules there were in their haste to finish jobs that paid only fixed fees.

The success of these crews in erecting huge facilities was all the more miraculous considering that most of them came from farms without plumbing or electricity. For all the disagreements and flare-ups between Korean contractors and their U.S. Army clients, they still got the job done. Mike King, who served as a marine corporal during the Korean War and made his career in Korea with the U.S. Army engineers, called Korean contractors “probably the most congenial in the world. If they don’t do something right, you tell them to tear it down and do it again.” In contrast to “American contractors who file claims,” Koreans began anew if necessary. “Dollar for dollar,” King concluded, “we probably got the best contractors in the world.”

Chung Ju Yung exemplified the breed. While happy to make a killing on an overpriced contract with the U.S. military, he was consumed by a much greater desire for profit on a national and worldwide scale — and he knew he would need real expertise in order to succeed. Chung’s pursuit of dreams first nurtured on U.S. contracts placed him far above the run of his Korean rivals. Most of them, in those days, were glad to earn relatively modest profits in a society dragged down by poverty, disease and depression unknown in the worst of times under the Japanese. With an annual per capita income of $60 at the end of the Korean War, few Koreans could think of much beyond cleaning up debris, rebuilding from the ruins and stocking up enough food to get through the winter amid wildfire inflation and unemployment.

Chung too suffered his share of frustration in this period. The signing on July 27, 1953, of the armistice in Panmunjom, on the crest of a ridge dividing the two Koreas, signaled a decrease in those lush American contracts. The war was over, and the U.S. building boom had to slow down. Chung also lost heavily on the reconstruction of a bridge near Taegu, a major city north of Pusan. It was the largest contract ever issued by the South Korean government, but no one imagined how much expertise and equipment were needed. With unpaid workers on strike and unpaid creditors banging at his door, Chung had to give up some of his holdings.

Two years later, in 1957, Chung was thriving again, this time with a contract to reconstruct bridges across the Han River destroyed in the war. Chung could not have gotten the contract had he not crashed on to completion of the bridge at Taegu. This time, Chung knew the equipment he had to have and where to get it — from a factory that he had set up with his brother-in-law, Kim Yung Ju, an expert mechanic, just to meet such a need. In a two-year period, his men threw up five spans across the Han, linking the sprawling center of Seoul with what was to become a prosperous southern district, the site of high-rise apartment blocks and modern office buildings, not to mention the 1988 Summer Olympics. President Rhee Syngman publicly praised Hyundai technology, and radio and television networks broadcast nationally the ceremony opening the first bridge. The name of Hyundai, unknown abroad and not all that famous in Korea, now demanded respect.

Hyundai and the Americans embraced each other more warmly than ever. Chung got the contract for building much of the new 8th Army/UN Command headquarters complex and other facilities — structures designed to last for decades as opposed to the flimsy temporary quarters thrown up during the war. His greatest coup with the Americans came when Hyundai was awarded a contract for nearly $2 million to rebuild the Inchon harbor for both U.S. military and commercial shipments. Exactly $1,344,670 of the $1,939,443.39 contract came from U.S. funds while the Korean government put up the rest. After the legal reviews and wrangles were over, Hyundai managed to get U.S. authorities to bypass a rule requiring it to spend most of their portion of the money on U.S.-made machinery and supplies.²²

22 Earle Whitmore, History of the United States Army Engineer District Far East, p. 17.

Hyundai’s experience on the Inchon harbor deal typified the way it was to leap into new fields over the next three decades —with bitter disputes and a total dedication to resolving them. Language and cultural differences threatened the project from the outset. Chung fired an American technician who had been responsible for making sure the results fit the specifications of the U.S. Army engineers. Hyundai may have been partly to blame. An official U.S. Army history cites “lack of proper equipment, contractor inexperience and misleading subsurface findings” for the problems in replacing a pier.²³ Hyundai for its part learned new skills from the Americans — skills that came in handy in some of its biggest projects — and earned a 30% profit as well.

23 Ibid, p. 18.

Chung could flourish during the Rhee Syngman years in the rebuilding of Korea but could hardly dream of enlarging on his role as an already well-to-do, successful local contractor. Donald Macdonald, then in charge of Korean affairs for the State Department, recalled the despair with which he and his colleagues in 1960 had looked on Korea’s prospects. “A group of about 15 Americans were sitting around a table in the White House office building drafting U.S. policy on Korea,” said Macdonald. “The majority position was that Korea was an economic basket case that would always depend on American handouts for its existence.”²⁴

24 “Donald Macdonald: Korea Through Western Eyes,” interview, Business Korea, April 1989, p. 36.

Chung had a quite different vision. Four years after that White House meeting he sent fourth brother Chung Se Yung to Bangkok as manager of a newly opened branch office, entrusting him with much of the legwork. Hyundai now had a presence on the ground outside Korea. Chung had never been more serious about what he was doing. S.Y., who had been in charge of Hyundai’s planning department since completing his studies in the United States, knew what the eldest brother wanted and how to get it. From his vantage point in Bangkok, he could pass on intelligence on the prospects and advise the main office in Seoul on what had to be done. Undaunted by Hyundai’s failure to win contracts earlier, Chung went after a road construction job that S.Y. had discovered in southern Thailand.

The project was to build a 58-mile highway linking the towns of Pattani and Narathiwat. If it was not a mega-deal by international standards, it was exactly what President Park had wanted for Korea and Chung for Hyundai. The response of the central government to the company in time of need cemented a relationship that was to endure for the next quarter century — and possibly beyond. Chung Se Yung recounted a conversation with an American competitor. “His father was head of the largest construction company,” said the fourth brother. “I asked him if I could bid. He said, ‘No.’ I asked him why. He said we needed to buy $2 million in equipment. I said we will tell our government, and it will arrange to have a bank finance the equipment.”

It was as simple as that. No other country in the world, said S.Y., would provide such help. Hyundai’s low bid of $5,220,000 beat out the competition from 29 companies of 16 countries. “President Park Chung Hee and the government made it happen,” S.Y. exulted. “I found out the government was so aggressive to help business like that.” He did not overstate the case. As long as Park was in power, an array of government or government-backed banks could come up with the policy loans that Koreans needed to compete for audacious projects around the world. Long-term credit at low interest was offered to companies and groups ready to carry out the export-or-bust policies of the Park era.

So exciting was Hyundai’s initial triumph in Thailand as evidence of Korea’s future as an international economic power that the government-owned Korea Broadcasting System broadcast the departure of the first Hyundai workers from Seoul’s Kimpo Airport for Bangkok. In an interview with KBS, Chung Ju Yung likened the experience to that of “a frog in a well going out of the well for the first time.” Park, seeing the contract as vindication of his basic economic strictures, observed that Korea was “making great strides in earning foreign currency” — and “construction workers also have to contribute to the nation’s goal.”²⁵

25 Hyundai group, Chung Ju Yung: His Life and Success, 1989

After the euphoria had died down, however, the project devolved into one of those grand fiascoes that Chung, in his inimitable style, would transform into the basis for future success. On the way, he tested the strength of executives who would later lead his most important companies. Whatever his government loaned him, he wanted to buy the cheapest he could get. If creaking Japanese army trucks from the 1940s were not quite up to the task, why not U.S. Army castoffs from the 1950s? And why not pay the Thai workers hired locally far less than the Koreans? Finally, what was to stop them all from working on the project in the rainy season?

In the end, there was no choice but to buy modem vehicles and modem everything-else for a job that required nothing but the best to complete according to specifications. The inexperience of Hyundai workers with the new equipment promptly led to breakdowns. The pavement buckled and washed away in monsoon rains of an intensity never experienced in Korea. Thai workers went on strike, at one point threatening Hyundai managers with pistols and knives until they got equal pay. Then Chung, true to character, tried to get the project done in a hurry by ignoring some of the fine points of the specifications. Such short-cutting was the rule in Korea, but his people told him he could not get away with it so easily abroad and hope to get more contracts.

One man who spoke frankly and clearly to Chung Ju Yung was a young accountant, Lee Myung Bak, who had come to Hyundai with a degree in business from Korea University after having passed the company’s first competitive recruiting exam in 1965. One-time president of his university’s student council, brash and brilliant, Lee had jumped into the world of business from that of student activism — he was imprisoned for five months for having led student demonstrations protesting talks between Korea and Japan on normalizing relations in the early 1960s. The word of Lee, in charge of accounting and materials in the Bangkok office, soon to become a director, then president and later chairman of Hyundai Construction, was good enough for Chung. Hyundai finished the project after great delays and a net loss of $3 million.

Chung’s debut in the international arena, like his beginning in so many other areas, had not been auspicious. He himself called the Thailand project “a complete failure” — a “coming-of-age initiation.” If nothing else, he could brag that Hyundai had learned “international-level technique and management con-trol.”²⁶ Riding on the coat-tails of the free-spending Americans in Vietnam, Chung bounced back as he had done so often in Korea with U.S. contracts. Brother In Yung, with all his old contacts, set up headquarters at Saigon’s venerable Continental Palace Hotel, hangout of journalists and spies, contractors and courtesans until the final defeat of the Saigon regime 10 years later. Hyundai in Vietnam was basically a subcontractor — the type of relationship it had with the U.S. Army in Korea before the Korean War. If that role appeared as a comedown, the Chung brothers were not at all concerned.

26 Chung Ju Yung, The Pony Runs, 1987, pp. 61–64.

Hyundai did much of its work in Vietnam for RMK-BRJ, the big U.S. conglomerate responsible for much of the U.S. military construction work, dredging the Saigon River and other waterways and helping develop Camranh, the most important naval base. In the quest for money from Vietnam, said Donald Leland, who got to know Chung Ju Yung while searching for Koreans to handle U.S. Army projects in Korea, “he took anything that came along.” When the Chungs asked Leland for advice about their dealings in Vietnam, Leland discovered they were “in laundry and dry-cleaning” for U.S. bases — a sideline as lucrative as it was demeaning for an aspiring world contractor.

Chung had made his entry into Vietnam just as President Lyndon Johnson was beginning a policy of escalation that would bring the U.S. troop level there to more than half a million in three years. A war was on again and Chung was at the forefront—this time of a broad Korean push into Vietnam that accounted for more than 10% of Korea’s foreign exchange earnings in 1966, nearly 20% in 1967, and more than 17% in 1968, bringing $660 million into Korea in five years. All told, Korean strength in Vietnam soared to 50,000 Korean soldiers and 23,000 civilians — though few Americans were aware of the scope of their effort.²⁷ The policies of Seoul and Washington meshed well for a businessman who could apply the skills he had learned — all with the aggressive approval of one of the most dynamic leaders in Korean history. To flourish under Park, Chung knew, he had to go abroad, had to expand — or other companies would win the approvals, the contracts, the wealth and the favor.

27 David I. Steinberg, “An Example for Asean,” Korea Business World, May 1992, p. 71.

Brother In Yung was just as helpful in keeping up the American contacts elsewhere, opening up doors in Guam that led Ju Yung to go there and set up a new company, Hyundai America Corporation. The time was ripe. Hyundai had established good relations with Americans in Vietnam, and President Nixon had just declared his “Guam Doctrine” during a stopover on his 1969 trip to Southeast Asia. The essence of the doctrine was not encouraging—it suggested a formula under which South Vietnam would do without the U.S. support on which its leaders counted for survival. Chung got another message: look for American contracts outside Vietnam. He began in Guam with a 400-foot antenna, moving from there into other facilities for the strategic U.S. outpost, and he agreed at the end of the year to build the Hurricane Gulch bridge in Alaska — a dangerous project that he later complained had cost him money.

Chung’s experiences in Southeast Asia contributed to the evolution of a philosophy for construction work. It was “the hardest one of any business,” he liked to say. “Undertaking and completing one project is as difficult as creating one company. Construction site managers have to cope with unfavorable weather conditions, labor matters, equipment, materials and technology problems.”²⁸ Chung, more than any of the people under him, lived up to “the can-do spirit” — a phrase he had borrowed from the Americans and applied to himself and his workers. He could now persuade Park, as Hyundai dredgers worked on the Mekong River in Vietnam during the 1968 Tet offensive, that Hyundai was ready for Korea’s boldest project, construction of a 266-mile expressway from Seoul to Pusan, South Korea’s second largest city and largest port.

28 Hyundai group, Chung Ju Yung: His Life and Success, 1989

Out of hardship in its first ventures overseas, Hyundai was about to earn real dividends at home. No other Korean company had built anything remotely resembling an expressway. There was much controversy about the need for one. Park called on Chung for advice. “I met President Park for the first time to consult with him about construction of the Seoul-Pusan Expressway,” said Chung in his written response to my questions. “At that time, he asked me to devise a budget for the expressway.” Chung put on the appearance of the modest but practical peasant farmer with a yeoman’s desire to do what he could to help. Park, in military style, gave him 20 days to come back with an estimate. Chung responded like a good soldier, promising to deliver beyond expectations. For most of the next three weeks, he surveyed the route on the ground, from the air, in books, maps and photographs.

When Chung reported back to Park, he was able to pour out the kind of statistics any properly cost-conscious leader loved to hear. The bottom line: Hyundai’s estimate was 43% of the pessimistic figure conjured by the naysayers at the Ministry of Construction, 57% of that submitted by the Korean Army’s corps of engineers, 84% of the estimate from the Ministry of Finance. Only the Seoul city government produced a lower estimate, but its figures could be dismissed as ignoring the realities and requirements for road-building outside metropolitan Seoul. Hyundai could boast that the project, by the time it was completed two years later in 1970, had cost what Chung had guessed — plus 50% due to inflation and expansion of the roadway.

The Park-Chung relationship blossomed. The entrepreneur was next to prove his worth to the president with his suggestion for saving millions of dollars on a dam on the Soyang River about 65 miles northeast of Seoul. Again it was Chung against the bureaucrats in the Ministry of Construction and the water resources office, and again Chung drew upon his experience in Thailand to show how to do the job. This time he had to persuade the ministry to throw out a plan drafted by a Japanese company, Nihon Koei, which proposed a conventional concrete gravity structure. Hyundai had the contract to build the dam, but Chung had the problem of obtaining cement and concrete bars — and transporting them to the site — without again losing money on a major project.

Chung’s proposal: a “zone-fill” type dam made with soil and rock, items that existed in profusion right on site. The ministry and Nihon Koei claimed a soil-and-rock dam might burst — and flood parts of Seoul. At the height of the argument, the top Japanese negotiator, a pre-World War II graduate of Tokyo Imperial University, disdainfully asked the self-educated Chung, “What was your major?”²⁹ Then, out of nowhere, the Japanese visited Chung in a hospital where he was suffering from a stomach ailment. The president of the company in his eighties — bowed deeply as he entered Chung’s room, admitted his negotiators were wrong and complimented Chung for his concept. What could have happened to warrant such a volte-face, a confession of malfeasance? The only answer: Park had come to the rescue.

29 Chung Ju Yung, The Pony Runs, 1987, pp. 94–96.

Park conjured a military argument for doing the job the way the Korean, not the Japanese, wanted. Since the dam site was only five or ten minutes’ flying time from North Korea, Park reasoned that North Korean strategists would view it as a prime target in an invasion. What easier way to wipe out Seoul and environs than to flood it? If the dam were made of soil rather than concrete, Park observed, the he flood might be contained since the soil would collapse in place, forming a new barrier. A direct hit on a concrete dam, however, would blow a hole through which the waters would cascade unobstructed. Hyundai completed the project at 30% below the original estimate. Park’s decision to accept the recommendation of his Korean builder expressed his confidence in his people, not the foreigners who had ruled them for so long.

By now Chung had the organization and the resources to face foreign competition in a foreign environment. From the experience in Thailand as well as Korea, Chung’s top team members had acquired a degree of basic expertise — including an appreciation of the need for proper equipment to do the job. Veterans from Thailand trained new recruits for construction of the Seoul-Pusan expressway and served as managers, supervisors and foremen. Chung had Lee Myung Bak in charge of a factory producing machinery for the project. While Hyundai Construction did not build the entire expressway, it set the pace with the largest portion.

“Since then,” wrote Chung in a deadpan response to one of my written questions, “we had exchanged constructive opinions for an economic development of our country and had endeavored together to fulfill this object” Park now viewed the Mother Company as a vehicle for his own far-reaching purposes — big enough for projects needed to carry Korea to industrial modernity while bringing profits back to Seoul. Park and Chung were off and running. Later, Chung could brag about all his people had learned:

The work we put in at Thailand where weather, customs and language are different filled our defects and resulted in successful construction. Our work earned praise not only from the Thai government and the construction business but also from international enterprises. We suffered losses in the material sense in the first step of the overseas construction market, but we have secured the construction market from all Asia to the Middle East.³⁰

30 Hyundai Bulletin, March, 1988.

VII On Desert Sands

DOI: 10.4324/9781315483214-7

A complex web of desires drove the Koreans to the Persian Gulf. Chung Ju Yung, Park Chung Hee and others saw the success of Japanese companies on huge contracts in the region. Perhaps Chung also listened to the advice of such experts as Phillip Grub of George Washington University, who had first visited Korea in 1970. “I came to Korea after meeting with the Shah of Iran,” said Grub. “I developed a close relationship with Chairman Chung. I told him there were opportunities for Korean companies.” Four years later, Grub offered the same advice after visiting Kuwait. “Chairman Chung picked up the ball and led a delegation there.”

Chung’s quest for riches from the Middle East would turn into another tale of adventure, of conquest, of many trials and errors, all with the blessing of the central government. Here was also a tale of fraternal rivalry, brother against brother, as Chung Ju Yung had to ignore the strident opposition of Chung In Yung, whose ability in English had led to the first contacts with the Americans during the Korean War. In Yung, aggressive in pursuit of contracts in Southeast Asia, lost his nerve after Ju Yung named him president of international operations in 1972. He could not believe Hyundai could compete so far afield — and he ordered underlings not to bid on a contract for shipyard repair in Bahrain although Older Brother had asked them to do just that.

“When I started the Middle East project, it was 1975,” said Chon Kap Won. “Chung In Yung told me not to go there.” In Yung was as obstructionist as ever when Older Brother asked him to oversee the drafting of Chon’s estimates on the cost of repairing the shipyard. Chon had to decide whose order to follow — one from Ju Yung in Ulsan ordering him to get on with the estimate, another from In Yung in Jeddah demanding he withdraw from the bidding entirely: “I was in the Plaza Hotel in Bahrain. When Chung In Yung visited the Middle East, his first impression was so bad.” In Yung kept hearing about other Korean companies that had gone into the Middle East beyond their depths, failing to live up to specifications and standards, getting bogged down in the search for expertise and equipment.

Chon Kap Won, with the smiling disingenuousness needed for survival at Hyundai, cited the weather as yet another factor — In Yung had first gone to Bahrain in July when temperatures were over 130 degrees: “He thinks Koreans cannot sustain themselves in such a climate. Fortunately I visited in September and think the weather is okay.” The conflict worsened as In Yung, Chon and other Hyundai executives and managers flew to London to work out details on a final contract in which they were to coordinate with British firms on the drydock and other facilities largely beyond the ken of Hyundai engineers. Ju Yung’s protégés rammed through the deal for Hyundai, pleading the “Hyundai spirit” of conquering all odds. In Yung waited until the contract was signed — then flew back to Korea, resigned and went off to start his own business. Right or wrong, he had an independent vision that made it difficult for him to bow to his big brother’s will.

At the beginning of 1976, Chung Ju Yung fired up his top executives with a New Year’s speech that captured the essence of the spirit of adventure, the nationalism and the profiteering instinct that had motivated him to go to the Middle East. “We have suffered the pain of deciding on stability or adventure,” he said. “We have concluded by challenging a big adventure called the Middle East.” Where could Hyundai find the strength to succeed? It was “the spiritual strength that is existing within man, enterprise group or nation,” he told the awed crowd. “If an enterprise does not have within itself an ability to adapt to change, it is obvious, in a capitalist society, the enterprise will be weeded out.” Hyundai, he said, was in a “self-challenge period where we have to find our way out by ourselves” — and remember “we have a burden of carrying the fate of life and death of our people.”³¹

31 Quoted in Chun Bum Sung, Secret Story of the Founding of Hyundai, 1984

The Bahrain gambit propelled Hyundai onto the Middle East scene as a serious contender, but it was the project for building the harbor at the Saudi port of Jubail in the Persian Gulf that established Hyundai as one of the leading forces for construction in the region. As much as any other, the campaign in February 1976 to capture the Jubail contract demonstrated President Park’s anxiety to turn Korea into a major economic power — and showed the tight bond between government and industry. So momentous was the project, for Hyundai and Korea, that President Park assured Chung Ju Yung of all the support he needed. Said Chon, again the inside man when it came to finessing the deal: “Park ordered Chung to secure that project.”

Chang Seung Woo of the Economic Planning Board explained the desperation that motivated the president. “In 1975–1976 Korea was in deep trouble because of a shortage of foreign exchange,” said Chang, working in the Blue House secretariat at the time. Minister of Finance Nam Due Woo — later chairman of the Economic Planning Board and prime minister — “had to go abroad in search of foreign aid.” Rough-and-ready Chung Ju Yung, in the minds of some of the planners, was a savior out of the blue. “He contributed to solving the situation by leading the Middle East boom,” said Chang, recalling the rapport between Park and his favorite industrialist.

Chung may not have needed an order from Park to beat out more than a score of competitors for Jubail, but there was no doubt the presidential push enhanced his already extraordinary confidence. “When Chairman Chung tried to estimate the cost, I explained the details,” said Chon Kap Won. “He decides on a bidding price, and I said this was too cheap. I said increase it by $100 million. He said, ‘No, we have to secure it. Otherwise I cannot face Park.’” In his zeal to get the contract, Chung hit upon $890 million — less than half the estimates of some of the other companies. No one at Hyundai really knew how much it would cost to build the open sea tanker terminal required by the Saudis, but Chung had his people take a guess from a few reference books. Nor, of course, did Hyundai know how to design and construct one, but Chung figured, as he had in the past, that he could always find the foreign technology available for hire.

For Chon Kap Won, the actual bidding in Riyadh turned into a nightmare with a miracle ending. He raised the cost to $931 million, apparently reaching a figure above that of his boss on the basis of his own more realistic calculations — and figuring the bid would still be far below that of the competition. Then he waited breathlessly at the door as the Saudis began opening the bids. Finally, Chon slipped inside, saying he was an engineer and “if you have any question, I can answer it.” Almost immediately he got the scare of his life when the Saudi Minister of Communications announced that Brown and Root had bid $903 million: “My face paled. Chung saw me. He said, ‘Our price is lower, nothing to worry about.’” When Chon explained he had raised the price, Chung was “very angry and walked from this comer to that comer.” Thirty minutes later, however, Hyundai was the winner. The Brown and Root bid, it turned out, had covered only the marine side of the project while Hyundai’s bid was for everything.

Hyundai’s adventures in the Gulf were just beginning. Over the next few years, Chung and his troops were to go through a trial by fire as demanding as any they were ever to face, before or after. Some of the problems — inexperience, arrogance toward workers — were the kind that Hyundai almost always encountered in all its enterprises. Others — when to bribe and not to bribe Saudi officials, how to play Iraq against Iran — were unique in Hyundai’s experience. For starters, Chung almost lost the Jubail deal when he balked at a demand by a Saudi prince for a 5% “commission” or “agent’s fee” — easy money that avaricious Saudi royalty habitually extracted from eager foreign contractors. Finally, Chung reluctantly agreed on 2%.

Then came the Israeli boycott problem. The Saudis discovered that Hyundai was assembling Fords in Ulsan. Since Ford also invested in Israel, Saudi officials said they might not be able to work with Hyundai under any circumstances. Chung could not have been happier about the failure of talks with Ford in the early 1970s on a joint-venture production company while explaining that Hyundai was now producing its own cars in its own name — the first Pony had come off the line at Ulsan in December 1975. Chung could say that Hyundai was on the way out of its relationship with Ford, even though the assembly operation sputtered on into the 1980s. Neither Chung nor anyone else at Hyundai was concerned about the rights or wrongs of Arab versus Israeli policy. The point was to get the contract signed and the money in the bank.

Hyundai’s method of getting the job done — besides relying on foreign engineers for much of the engineering and design work — was to approach it as a military operation. Since all Korean men had to put in two or three years in the armed forces, the workers understood military-style discipline. Those who had gone through reserve officers’ training in college and served as junior officers made ideal leaders of small units. Hyundai managers viewed their workers as shock troops, equipped and trained to perform under the most grueling conditions. By the time Hyundai got to work on the open-sea tanker terminal, with expertise provided by Brown and Root even though it had lost the bidding, about 10,000 Koreans were working for Hyundai at Jubail, Bahrain and elsewhere in the Gulf.

Some lines attributed, with an apology to Rudyard Kipling, to a Brown and Root engineer working with Hyundai in Jubail may have long since been forgotten by their anonymous author but are enshrined in Hyundai lore:

When we’re hungry, they smiled,

When we’re tired, they get up,

When we’re sleeping, they hustle,

It’s the epitaph for a Brown and Rooter.

This man lying here is the most foolish one.

He ruined himself working like a Hyundai man

Whom he couldn’t catch up with.

It’s not good for Brown Rooter’s health

To bustle with Hyundai style. ³²

32 Hyundai group, Chung Ju Yung: His Life and Success, 1989, p. 13

Life in the Gulf region was probably more austere for Koreans than for contractors from Western countries. “The workers can’t bring their families,” said Park II Kwon, who joined Hyundai out of Sogang University in 1977 and put in three and a half years of office work in Saudi Arabia. “I volunteered to go overseas to make money” — but he also “thought I was sacrificing myself for the better future of my generation, the development of the national economy.” When the 10-hour day was over, exhausted workers listened to pop music in the company canteen and, if they had any energy left, played games at company recreational facilities. Hyundai occasionally threw parties for workers’ families back home, but such grand gestures did little to relieve the daily grind at the front. In an Islamic society that strictly forbade drinking and womanizing, the workers had no alternative to self-discipline and abstinence.

There was one morale-booster, however, that few Koreans could live without — fresh kimchi, the spicy-hot pickled cabbage that Koreans are raised to love. In the early days kimchi was sent out from Korea, but workers later began importing the vegetables with which to make it. Local entrepreneurs also tried their hand. “Wherever we go, there follows the kimchi producer,” said Park, but the result was not always up to home standards. “Kimchi's taste comes from the fingertips of the Korean mother and wife. The ingredients might be the same, but the taste is different.” For a brief period Korean women were hired to make kimchi, but the Saudis, suspecting they were serving another purpose against strict Islamic rules, banned them. “We are very cautious,” said a Hyundai veteran of Saudi Arabia. As it was, “sometimes the Saudi police came to our camp to search for wines and drinks.”

Park Il Kwon did not get his first leave until he had been overseas for one year — and then got his next after eight months: “Salarymen at that time wanted to work hard and save money for the family and the good of the country. We worked voluntarily very hard, in the spirit of duty for the country and the nation.” He was not certain, however, if younger Koreans shared the same enthusiasm: “I wouldn’t expect the same level of sacrifice of younger people. With the modernization of Korea, if somebody is technically high enough, he doesn’t want to see foreign countries.” Hyundai in 1988 had to revise the rules, giving home leave every six months. “Still people do not want to go abroad,” said a young manager back from two and a half years in Saudi Arabia. “There is much more opportunity inside Korea.”

The hazards of life in the Gulf were compounded by Hyundai’s military-style management. There were limits, as the company discovered when workers at Jubail, then the world’s single largest industrial project, chafed under discipline imposed by young engineer managers imbued with the missionary zeal of the chairman. A former manager described the scene in March 1977 before a clash that jeopardized Hyundai’s entire position in the country. “Between 100 and 200 trucks were carrying material,” he said. “If one driver takes a rest for only one minute, that means a delay for the whole line of trucks.” An engineer, with the arrogance that dominated the management view, “made a very bad point and cut wages because of a small accident” that slowed down the parade of trucks.

The trouble began in the mess hall. “Almost 400 workers were having lunch one day,” said the ex-manager. “One manager blamed a worker for the delay. He hit him on the head with an aluminum hard hat. The worker bled.” Workers seized company equipment, running wild through the apartments of the managers, destroying everything in sight. Thousands of Saudi Army troops surrounded the construction site as the rioting persisted for two or three days, threatening the Saudi Navy base next to the site. Choi Kyu Ha, prime minister under Park, flew to the scene, apologizing to Saudi officials and workers alike. Chung realized he had to agree to double salaries, hold to relatively normal 48-hour working weeks and recall the more tyrannical managers — or face the prospect of complete failure and humiliation.

Despite the embarrassment of the strike, Hyundai plunged ahead as speedily as ever and completed the project in February 1979, three years after the bidding and on schedule. Hyundai could look back on the past year as one of its best to date with nearly $2 billion in gross income from foreign construction contracts, fourth in the world.³³ Saudi Arabia, moreover, was easily the most important foreign client for Hyundai, the leader among nearly 70 Korean companies doing business there at the end of the 1970s. Hyundai at one point had more than 20.0 workers in the country, by far the largest group among upwards of 90.0 Koreans sweltering away there and the largest Hyundai contingent anywhere outside Korea.

33 Chun Bum Sung, Secret Story of the Founding of Hyundai, 1984.

There was, however, a horrific epilogue to the Jubail riot. In the aftermath, the Korean Central Intelligence Agency, the dreaded KCIA, sent a top official, Park Sun Ho, to the site to analyze the problem and smooth over differences between managers and workers. He came with about 100 undercover agents who infiltrated the ranks of the work-force. Then, on the basis of their reports, he “picked up all the guilty workers,” the trouble-makers, according to my informant. “Suddenly and confidentially they were sent back to Korea.” Park Sun Ho by that time was intoxicated with power. “He became too ambitious,” my informant went on. “He was acting like a Hyundai president, so Chung asked Park Chung Hee to have him recalled.”

Park Chung Hee should have kept Park Sun Ho where he was. In the role of secretary to KCIA director Kim Jae Kyu, Park Sun Ho acted as Park Chung Hee’s procurer, lining up the singer and actress who were entertaining Park and Kim Jae Kyu at dinner in one of a number of luxurious KCIA safehouses near the Blue House on the night of October 26,1979. When Kim pulled out a pistol and assassinated the president, Park Sun Ho, standing outside, gunned down one of Park’s guards. He and Kim and three other KCIA operatives were hanged; an army colonel was shot by firing squad. Choi Kyu Ha, the prime minister who had flown to Saudi Arabia, automatically became president — only to be overthrown by General Chun Doo Hwan.

Hyundai in the meantime spared nothing in the pursuit of contracts. Like all the others then invading the Middle East, including the Japanese, Hyundai people had to shower sheiks and their confederates with invitations to “see our company.” Hyundai would pick up the first-class air fare for an “orientation” that might begin with a stopoff in the fleshpots of Bangkok and then on to Seoul. “Film starlets would be in the greeting party at Kimpo airport,” said journalist Bruce Cheesman. “The guy would be taken to a kisaeng party or room salon” — a private room where the liquor flowed freely from a bottle poured by a hostess hired to serve every need of the guest. “He could be sure of a different girl every night. It was wall-to-wall room service, order what you like. Champagne, women, anything.” In Hyundai’s case, the fun got better when the guest arrived in Ulsan away from prying eyes and rival spies.

For all such adventures, Hyundai officials remained strangely inept, awkward, unsure in their dealings with foreigners. Too often they had a way of bumbling on to embarrassment. None whom they encountered were quite as treacherous as the Saudis, who needed coddling in the build-up to every contract. Saudi society, cruelly strict when it came to political and human rights, was thoroughly corrupt at the highest levels. “There are 5,000 people in the royal family in the Saudi government,” said another former Hyundai manager. “By means of allotment of bribes, King Fahd can manage the royal family. Hyundai got many requests unofficially for bribes for giving some favor.” (Like other members of “the Hyundai family,” this ex-manager did not want to be quoted by name on a sensitive topic even though he was no longer on the payroll).

The payoffs were on two levels, one “open,” the other “closed.” In the open cases, said my informant, “we call it a special commission and apply to the tax department in the Saudi government.” It was the “closed” kind that made problems. Foreign companies habitually handed out gifts beyond the commissions that were already little more than bribes. “Bribery is part of the system,” as my informant put it. “That’s the name of the game,” echoed Kim Ju Shin, Hyundai Construction executive vice president in Saudi Arabia from 1975 to 1980. “We call it ‘internal favors.’”

For Hyundai, one of the trickiest questions was to whom and when to dispense such favors without getting caught in a power play. Hyundai managers should have known the dos and don’ts of the Saudi system, but factional rivalries were sometimes too difficult to discern. Hyundai Construction’s clumsiness reached a foolish low in some celebrated bribery cases in the late 1970s — first in an attempt at paying off an official in the bidding for a communications project. The Saudis seized a junior manager, Oh Jin Young, but, unwilling to settle on the little guy, jailed Lee Choon Lim, Hyundai Construction’s international president and resident boss responsible for all projects in the country, for nine months. “We think this way, but the Arabs think that way,” said Kim Ju Shin. “They never tell us what they accuse him of.”

The most serious incident occurred in 1979 when two Hyundai executives were caught red-handed turning over two attache cases containing one million dollars in hundred-dollar bills to a Saudi Army major. That was the sum that Hyundai’s managing director in Riyadh, Park Se Yong, had negotiated with the major to get him to act as Hyundai’s “agent” in wresting as much as $10 billion in contracts for construction of a military base. The circumstances revealed Hyundai’s amateurishness. Park was supposed to have transmitted the bribe through an intermediary — and should have suspected a plot was afoot when told to deliver the money to the major in person.

“There is a very good guideline in the Islamic world from Allah,” a former Hyundai manager told me. “The people who report such a bribe to the government may be released from any guilt, and the bribe is to be his own.” The Saudi Army officer reported the deal to a superior officer, who notified the proper authorities. The major then picked the best of all possible locations for transfer of the loot — “behind the Ministry of Defense, inside the tiger’s mouth,” according to my informant. When Park pulled up in a Hyundai car, the police were ready. Park, an assistant manager and the driver were seized as the assistant manager was lugging the attache cases from the trunk of the Hyundai car to that of the major’s car.

None of the men who were jailed would talk about their experiences. “Believe me,” said Oh Jin Young, otherwise silent, “the matter is very delicate.” Hyundai executives, however, contended they were set up by a jealous rival. “Our competition was a very big German construction company,” said a top-level Hyundai official in Saudi Arabia at the time. To Chung, all those arrested were heroes, martyrs to the cause, sure of reward and, in the cases of Lee and Park, ranked for the rest of their careers among Hyundai’s most trusted, competent leaders.

Lee, an engineering graduate of Seoul National University, joined Hyundai Construction from the faculty of the university in 1957 and was involved in some of Hyundai’s biggest projects before going to Saudi Arabia 20 years later. Right after getting home from his ordeal in 1978 he was named president of Hyundai Heavy Industries. Then, nine years later, he became chairman of the Hyundai Corporation, Korea’s biggest general trading company since its founding in 1976 as the group’s trading arm, and was appointed to the group’s powerful steering committee. Park, a graduate of Yonsei, worked his way up in 12 years with Hyundai Construction to the presidency of both Hyundai Merchant Marine and the Hyundai Corporation — more than a decade later to figure again as a “hero” for Chung in an equally complex case in Seoul.

As for Oh, by 1992 he was in charge of Hyundai’s team in Libya — a key client where Hyundai Engineering and Construction agreed on March 24,1993, to build four thermo-power plants at the coastal town of Sirit 250 miles east of Tripoli for $ 1.6 billion. (The deal was a milestone — it put the total in contracts earned abroad by Korean companies since Hyundai went to Thailand in 1965 over the $100 billion mark, and it represented 50% of all overseas contracts negotiated by Korean firms in 1992.)

Saudi officials were believed to have targeted Hyundai for two reasons. One, they were presumably collaborating with one of Hyundai’s foreign competitors in return for much bigger bribes. Two, they were annoyed by Hyundai’s haggling style and upset by the reluctance to offer still more in bribes. With hypocritical self-righteousness, Saudi authorities decided to make Hyundai “an example.” The driver was soon released, but the assistant manager was held for three months — and Park was sentenced to 30 months in prison. At the same time, Saudi authorities imposed a two-year ban on Hyundai operations within its borders — a terrible penalty for a proven contractor that did 80% of its foreign business in the country. Then, they rounded off the punishment with a whopping $90.9 million fine.

The Saudis went to unusual lengths to embarrass Hyundai while showing off their high moral standards as a warning to other foreigners who might attempt to put anything over on them. “The fine stands to be doubled if Hyundai tries to circumvent the ban by doing any business in any form in the kingdom within the next two years,” an official threatened. Saudi officials or foreign companies also “face the fine if they deal with Hyundai during the ban period,” said the newspaper Al Riyadh.³⁴ Saudi Arabia refused to release Park until Hyundai had paid the fine, really ransom money. Since Hyundai was not about to hand over such an incredible sum, Saudi authorities got it by withholding one tenth of all bills owed Hyundai on its projects until the entire fine was paid in full — after Park had served more than a year of his sentence.

34 Associated Press, Beirut, May 4, 1980; The Wall Street Journal, May 8, 1980; The Asian Wall Street Journal, November 25, 1980.

The Saudis benefited immensely from the affair in terms of both the money they saved from the fine and their chance to impress such keepers of the faith as the bearded mutawa or religious police with an act of moral indignation. At the same time, they made much of their desire not to appear vindictive. The jail where the Hyundai prisoners were held “was reasonably well equipped,” said a Hyundai staffer who saw them there. “They were permitted many facilities. We could visit regularly.” A Saudi official let it be known that the case, while damaging “the good name of Hyundai and South Korea,” had not, “in the long term, damaged Hyundai’s chances of winning business in Saudi Arabia.” Hyundai, he recognized, was “responsible for some excellent work in Saudi Arabia… a positive contribution to the kingdom’s economic development.”³⁵

35 “Competitors Envy the Record,” from Middle East Economic Digest, special report, March, 1981, Korean Construction in the Middle East, Shim Ui Sup, editor, Bob Mun Sa, Seoul, 1984, p. 188.

Saudi sweet talk, though, could never appease Chung, humiliated before his countrymen. He had to beg President Chun to approve special financing after foreign banks temporarily suspended credit. Chung did not talk about the affair in his autobiography but railed privately against Saudi princes, whom he denounced in a conversation with an American ambassador to Korea, Donald Gregg, as “racist thieves.” To Chung, the penalties came as a vicious personal attack, a blow for Korea as well as Hyundai.

The episode was seen as such a disgrace that the Korean Central Intelligence Agency suppressed the news. Checks of Seoul newspaper libraries turn up no references to it. “The KCIA would have someone for every paper,” said Kim Yong Su, a former editor of The Korea Herald. “There are many stories that are not published in Korea.” Hyundai publicity people minimized the damage, blaming the fracas on foreign rivals’ “unfounded accusations,” preventing allusions from creeping into the press as much as they could and claiming a decade later “it’s history” or “we know nothing about it” while handing out histories of all sorts publicizing Hyundai’s glorious successes.³⁶ The code of omerta prevailed. Group Chairman Chung Se Yung, when I asked him about “difficulties” in Saudi Arabia, lapsed into poker-faced silence. When I expressed sympathy over Hyundai’s predicament, he opened up only enough to remark, “We still have business in the region” and “it’s not good to talk about the past.”

36 Business Week, March 3, 1980, p. 37.

The blow from Saudi Arabia was all the more devastating since Hyundai’s 450 workers in Iran had to flee the shipyard project on which most of them were working at Bandar Abbas early in 1979 ahead of rabid mobs driving out “foreign devils” in Ayatollah Khomeini’s Islamic revolution. In the rush to get out, five Hyundai workers were killed and 20 injured when their vehicle overturned in fog. A Korean pilot with Iran Air flew the injured to Bahrain on a 30-seat charter flight; the rest escaped on boats rented at exorbitant rates to carry them to Kuwait, where Korean Air planes picked them up for the flight to Seoul. With the subsequent suspension from Saudi Arabia, Hyundai .was an outcast on both sides of the Gulf. Characteristically, Chung roared on with an alternative that brought in still more wealth.

A pariah in Iran, Chung found a welcome in Iraq as Saddam Hussein went to war with Iran in 1980. With an eye on Iraq’s oil money, Chung made the first move with contracts to build a sewage treatment plant, supermarkets and a $300 million “medical city” before war broke out. Sensing much more around the comer, he kept his men in Baghdad when Iraqi troops crossed the Iranian frontier in September. And when North Korea sold arms to Iran, Iraqi authorities, who had eschewed diplomatic relations with South Korea, turned to Hyundai for more projects that also included modem apartment blocks on historic Haifa Street, a $400 million power plant 60 miles south of the capital and an expressway linking the Jordanian and Syrian borders. In contrast to the Saudis, the Iraqis gave visas to Korean bar hostesses to entertain Korean workers in Baghdad’s glittering nightclubs. “We even had picnics with them in the daytime,” said Kim Sang Nyun, in Baghdad as a young bureaucrat for Hyundai during the Iran-Iraq War.

The name of Hyundai became synonymous with rapid-fire development in an oil-rich nation whose leader liked to compare himself with Nebuchadnezzar, the ancient ruler of Babylon. By 1982, when Saudi Arabia lifted its suspension, Hyundai still focussed far more on Iraq than on any other country in the region. “Maybe one or two Hyundai workers were killed in Basra because of the Iranian shelling,” said Kim Eun Sang, then in Hyundai Construction’s financing department. “We still remain.” The residue of bitterness between Hyundai and Saudi Arabia contributed greatly to Chung’s eagerness to cooperate. He was not only mesmerized by Saddam’s messianic vision, in some ways not unlike his own, but also swept up by the prospects. “The largest country in terms of oil storage is Iraq,” said Kim. “Hyundai is taking the long-range viewpoint.” Kim remembered a meeting with Hyundai Construction president, later chairman, Lee Myung Bak. “We thought because of the drastic cut in oil prices the construction market in Iraq would go for one more decade,” said Kim. While other companies left Iraq during the war with Iran, Hyundai remained. “Of the total market sale of Korean companies in Iraq, Hyundai had 96%,” he said. “Why should Hyundai escape from Baghdad?” The Iraqis were moved. The story went that “when Saddam was looking around the war front near Basra he found some workers still there under shelling and shooting, and they were from Hyundai on a sewage project.” When Iraqis visited Seoul “to negotiate some big project,” said Kim, “they showed heartfelt thanks to Hyundai Construction, they were very positive, cooperative.”

The pungent scent of Iraqi oil wealth was addictive. Chung refused to be dismayed when Baghdad by the mid-1980s fell behind on its bills. “In early 1986 the Iraqi government requested Hyundai to prolong payment,” said Kim, who was then in charge of the construction company’s international financing section. The company responded with a promissory note for $150 million that would mature in two years with payment in four installments. When Iraq could not pay, Hyundai’s four largest companies, Hyundai Motor, Electronics, Heavy Industries and the Hyundai Corporation, formed a financing group that sold the Iraqi note to a bank in Hong Kong. “That was the starting point of the financing difficulties for Hyundai Construction,” according to Kim. Some observers believed the group was on the brink of disaster but not Kim: “We cannot imagine bankruptcy. The Hyundai family is more than a million people.”

Hyundai’s passion for Iraq was undiminished. Chung lusted after Iraqi oil money like a habitual gambler who sees his fortune in the next roll of the dice. Hyundai was about to build a ship repair yard at the vital river port of Umm Qasr near the Persian Gulf when Saddam ordered his forces into Kuwait on August 2,1990. The bill for Hyundai’s work in Iraq was now $800 million. Lee Myung Bak, as the U.S.-led “consortium” prepared to fight back, had one question and one comment for me when I encountered him in Seoul two months before the onset of allied bombing in January 1991 and requested an interview, which he always avoided. “Why are you doing that to Iraq?” he asked me. “You are making a mistake.” Always hopeful of getting his money, Chung kept a team of 30 Hyundai staffers in Baghdad through the war. Although Chung privately told Ambassador Gregg he did not support the invasion of Kuwait, he defended Iraqis as “very honest people” — unlike the Saudis, they never asked for bribes.

Chung remained oblivious to the fact that Hyundai stood to lose far more in Iraq than it had in Saudi Arabia if Iraq failed to pay the bill. By 1992, as their debt approached $1 billion, Iraqi authorities added insult to injury by commandeering more than $6 million worth of Hyundai equipment, including cranes, dump trucks, payloaders, a bulldozer, air compressors — even though Saddam in a decree issued in April had authorized the seizure only of equipment of companies that did not come back. Hyundai had to run a gauntlet of red tape to extract six boats, four barges and three dredgers that it wanted to use on projects elsewhere in the Gulf. When the United States bombed radar sites and missile batteries in southern Iraq in mid-January 1993, Hyundai still had 14 people in Baghdad with enough food and medicine to keep them going for three more months if the war were to spread. (Only three stayed on after the third series of strikes.)

Nothing could diminish Chung’s achievements in the region in the minds of his lieutenants. “What he did was incredible,” said Kim Yung Due, lured over to Hyundai from Aramco at the end of 1975 as an engineer specializing in soil and rock mechanics. Kim, later to advance to high positions with Hyundai Construction, Hyundai Heavy Industries and the Hyundai Corporation, modestly described himself as “a small one who worked hard for Hyundai at the front line.” He got close enough to Chung during his visits to Saudi Arabia to become his technical adviser, accompanying him as he made the rounds. “He directed meetings and checked everything,” said Kim. “He goes to any construction site. He looks at how well material is stacked. His eye just moves.”

Chung’s impending arrival was enough to panic entire staffs. “A few weeks ahead, just like a military camp, they arrange things the way he wants,” said Kim. “If the whole area is not well run, he will pick it up.” Kim recalled one visit in which “everybody went to bed early” to be ready for whatever the chairman might want at dawn when his day was believed to begin: “When we woke up we got the message he had gone out. We dashed around. It was three o’clock. Because of Chairman Chung, the Pakistani and Bangladeshi kitchen helpers were up at two. They start boiling water. He was out there. He asked them, ‘What time do you start preparing rice?’ They said 4 o’clock. He was furious. He asked us, ‘Why do you have to get up an hour early?’” Chung believed it was wasteful to demand extra work of the hard-pressed men just to impress him.

Chung delved into matters of significance as well as trivia. As he gazed about a site, “in particular he was concerned with the location of storage,” said Kim. No matter what, “it doesn’t matter how creatively you do it, he will find a better way.” Always, he slashed expenses. On one visit the chairman discovered piles of expensive ledger books and asked the site manager, “Why do you order such things?” He had the books removed immediately and replaced with cheap ones. Incredulous, Kim asked, “Who would have thought a big shot like him would concern himself with such things?” The answer was that Chung believed he had to be close to the most humdrum aspects of an operation not only to get it done quickly at minimum cost but also to set an example. “In many areas, he could build at half price,” said Kim. “He cuts every comer. Always he looks at alternatives. At Jubail, we need 100,000 tons of steel. We shipped about 22 shipments. The majority did not have insurance. That shows how risk-taking he is.”

Chung could operate so boldly with a sense of security engendered in Park’s reign and maintained through the presidency of Chun Doo Hwan. Big business was the cutting edge of Park’s plan for Korea. “There’s no question businessmen led the global strategy,” said Kim Yung Due. “The businessmen were ahead of the politicians.” It was the “sacrifice, hard work, ingenuity of the business people,” Kim believed, that “made this country economically successful.” He also credited central planners with implementing the policies that gave Chung and others the means to compete. It was up to entrepreneurs, though, to get the contracts — and they tended not to care where or how as long as they had a chance at a profit.

Dr. Chung Hoon Mok, who succeeded Lee Myung Bak as chairman of Hyundai Engineering and Construction when Lee ran for the National Assembly in 1992, summarized the Hyundai outlook in the region: “I can tell you we have no quarrel with any of the countries or governments around there. We would like to go back to Iran, but the war made it impossible for us to conduct normal operations. All our projects in Iran were close to the shoreline or near the Iraq border.” As for Iraq, “If conditions are right, Hyundai will be back there too.” Hyundai simultaneously returned to Iraq’s enemies, bidding for large contracts in Saudi Arabia and reopening a $73 million road-building project in Kuwait. Saudi Arabia “is a very difficult country,” Dr. Chung admitted. “You have to play it by their rules,” but he believed Hyundai’s willingness to go anywhere put the company ahead of the competition, especially Japan. “The Japanese couldn’t put up an operation in the Middle East like we did,” he said. “Not many Japanese want to go there.”

By the 1990s, however, Hyundai Engineering and Construction, one of the world’s dozen largest construction companies, was shifting its emphasis back to where it had begun. More than twice the size of any of its Korean competitors in the industry, Daewoo, Daelim, Dong-Ah and Samsung, the company steadily increased turnover by doing 60% of its business at home and 40% overseas — half the foreign construction jobs of Korean companies. Nowadays, however, 80% of the business was in Southeast Asia. “We only have a hospital project in Saudi Arabia,” said Dr. Chung. “Our only project in Iraq was frozen. We had a project in Bahrain before but not now.” Iran wanted Hyundai to complete the shipyard at Bandar Abbas but balked at Hyundai’s bill — $750 million as opposed to the $196 million Hyundai had contracted with the Shah to do the job before Iranian mobs forced its people to flee.

Undaunted, Hyundai sped on. In 1991 “we had $3 billion in sales, and the year before that it was $ 1.8 billion,” said Dr. Chung in mid-1992. The company, as it expanded, no longer considered some of the less sophisticated types of highways, bridges and buildings on which it had made its first profits. “What we’d like to do is not so much the chasing after the quantity. Before most of our overseas projects were on-shore civil work or buildings. We are clearing out of those low-technology fields. We invest more in moving frontiers into higher-technology construction jobs.” As he talked in group headquarters, sales for 1992 were advancing to $3.4 billion, up 6.1 % from 1991, second in Hyundai after Hyundai Motor. Profits for 1992 were down 25% from ’91 — a result of rising costs overseas and the declining value of Korean currency — but sales were targeted to spill over $4 billion by 1994.³⁷

37 Hyundai group, “Major Companies’ 1992 Financial Statement.”

Dr. Chung saw the company as adapting a new style as it entered sober middle age. Gone was the fiery pizzazz of Chung Ju Yung and his one-time right-hand man, Lee Myung Bak. “When you grow up, when you’re small, you want to showboat,” said Dr. Chung. “When you’re mature, you want to go quietly in a submarine. We like to live more in quiet. We like the substance of the business with less flair” He estimated the company “has grown about three times” since the era of big Middle East deals. “We have more work than at any time before. We have a $6 billion backlog in contracts to fulfill, but we just don’t like to blow our own horn.” He denied having a long-term game plan. “We don’t have a vision,” he replied, impatient with my question. “We don’t have a dream. We cope with realities as they come. We go where the market takes us.”

As examples of where the market was taking Hyundai in 1992, Dr. Chung cited an electric railroad and container terminal in Singapore, a marine terminal for a refinery in Malaysia, a port and access channel in Indonesia and the company’s biggest project in Korea, three units of a nuclear power station. He was hopeful too about landing some major contracts in hyper-competitive Japan, home of Hyundai’s bitterest overseas foes, but refused to try to get in on such bonanzas as the Osaka airport project, a key point of U.S.-Japan trade talks. “We are out of that game,” he said. “The Japanese don’t want us there.” He talked contemptuously of the secondary contract that Bechtel extracted as a result of the talks. “Something to pacify the baby’s mouth,” he said, disparaging his American competitors. By 1994, Engineering and Construction was rampaging through the rest of Asia much as it had in the Middle East, winning the biggest contract of any Korean construction company that year, a $279 million three-project deal in Bangladesh that included a $250 million bridge, and had scored another project on the Gulf — a 2,400 megawatt thermal power plant in Kuwait worth $240 million.

Construction, however, was always a rough business, and the erudite Dr. Chung was as pragmatic as anyone else. After retiring from Hyundai to an advisory post with the World Bank in Washington, D.C., Dr. Chung in August 1994 was at the center of a scandal involving the nation’s largest construction companies. He faced indictment on a charge of having bribed Ahn Byong Hwa, ex-president of the state-run Korea Electric Power Corporation, about $375,000 in return for a contract to build the nuclear power units. Dr. Chung was not alone. Daewoo Chairman Kim Woo Choong and executives of Samsung and three other companies also faced bribery charges. The significance of the case was that it was “the first time that the ‘open secret’ of the massive bribes construction companies have routinely paid government officials for years has come out in the open,” wrote journalist Cheesman.³⁸

38 South China Morning Post, Hong Kong, August 22, 1994. The case was sure to strengthen criticism of the chaebol — though the principals were likely to get off with suspended jail terms.

Everywhere, it seemed, Hyundai had its critics — especially among foreigners who had worked with its hard-charging, youthful engineers and managers in the go-go days in the Middle East. “They didn’t want to spend anything,” said Webb Hayes, former president of Earl and Wright, the Houston firm that was a subcontractor for construction of a liquefied petroleum gas terminal at the Saudi port complex at Yanbu. “They’re very dynamic people. They blow and go. They’re tough negotiators. They play dumb. They use every trick in the book to try to move you down.” At the same time, he found that Hyundai people “weren’t very experienced and got themselves into hot water because they try and cut comers and don’t know what they’re doing.” There were also personal problems. “They screwed you down so hard because communications were difficult. It got to be disastrous.”

One of the more difficult processes for American firms doing business with Hyundai in the Middle East — and elsewhere around the world — was getting paid. “They don’t want to pay you,” said Hayes. “I consider them crooks. You’d bill them. You’d try to get paid. They would say the Ministry of Finance or the national bank wouldn’t release the funds. We would say, ‘You got funds in the U. S., so pay. ’” Hayes hit upon a way to extract the money for the Yanbu terminal in 1982 when Hyundai managers “were screaming for catalogs and manuals” needed for a project for Caltex in Korea for which Earl and Wright was doing the design and Hyundai the construction. “I said, ‘Don’t send them until we get paid.’ We called DHL — the freight firm — and told them to hold that shipment in Seoul and we’d pay storage for it. Hyundai couldn’t get paid by Caltex until we got those things to them.”

Hayes believed that Hyundai, with the help of the police, would have grabbed the boxes of manuals if Hyundai managers had known they were already in Seoul — something Hayes kept a secret until getting his money. “They would have gone and taken the place over. They knew how to get things like that.” As it was, “They paid, and within four hours we had them delivered.” Hayes and his associates “didn’t know what the problem is” with Hyundai. “We didn’t care,” he added, but, like so many others who also did business with Japanese companies, he could not avoid making comparisons. “We did a lot of work with the Japanese. Whatever they agree to, they’ll do it.”

Hayes had a theory about the causes of the misunderstandings that kept coming up between Koreans and Americans on Hyundai projects: “These young guys they have are very vigorous and are given tremendous responsibility, but they have a tremendous inferiority complex and are very defensive.” Perhaps as a result of hard experience, “they thought they were being hoodwinked all the time.” Hayes traced the feelings of Koreans to their historic isolation. “They’re just not comfortable with foreigners. Because they’re inexperienced, they don’t trust what you do. You try to develop a relationship where they do trust you, but they don’t know how to evaluate you.” So deep was the cultural gap that Chung’s achievements in the Middle East were all the more remarkable.

Without such courage, could anyone have advanced so far into such hazardous regions? Others were there too, making fortunes, but Hyundai invested the most, built the most — and earned the most. At home or abroad, Chung liked to demonstrate his nerve, showing his engineers a thing or two, illustrating the daring that had made him a construction genius. Amid travail abroad, one of his more memorable feats of guts and imagination occurred closer to home. His goal was simple: to reclaim 38 square miles of land where he dreamed of planting rice and retiring some day. His engineers, in March 1984, were completing a four-mile dike across Sosan Bay on the rough west coast as the first phase of one of his fondest pet projects.

All went well until dump trucks got to an 886-foot opening where the tide was so strong the dirt and rocks were swept to sea. Chung’s idea: position a 1050-foot, 226,000-ton tanker on its way to the scrapyard in front of the gap, fill it with water to pin its hull to the bottom of the 65-foot deep channel and keep it there as a dam until dump trucks had finished the job. He defied the advice of professors before ordering workmen to go ahead. When it worked, he remarked with delight, “These professors don’t know anything.”³⁹

39 Hyundai group, Sosan Reclamation Project, leaflet, in Korean.

VIII To the Sea in Ships

DOI: 10.4324/9781315483214-8

Chung was getting ready to expand into heavy industry at about the time that he was moving into overseas construction. Well before the Park Chung Hee government set forth its policy on big-time industrialization in 1970, Chung had begun to negotiate with Mitsubishi Heavy Industries, the Japanese ship-building giant, on a joint venture. MHI, however, stipulated terms reminiscent of the era of Japanese rule: “The upper limit of the yard capacity was to be 50,000 tons and sole management rights were to be given to Mitsubishi.” In fact, in the Hyundai view, Mitsubishi’s real purpose “was to keep Korean shipmakers out of the competition in the large shipbuilding market.”⁴⁰ Unable to come to terms with the Japanese, who doubted if the “backward” Koreans could build a really large ship under any circumstances, Chung went to Europe in search of both funds and technology.

40 United People’s Party, An Episode: The Birth of Hyundai Heavy Industries, Co., Ltd., 1992, p. 2.

There was a logic in his quest. If he were going to engage in port construction overseas, why not produce the ships to carry the goods to and from the ports? How Hyundai got the money, and then its first contracts, became the stuff of industry legend — an example of partnership between big government and big business, Korea-style. The key to Chung’s first step in Korea’s first heavy industry was his willingness to make outrageous promises and then make good on them. In that sense Chung set the pace for the nation. Korean companies “rush into industries and are prepared to make huge investments in equipment and plants in advance of any substantial orders,” wrote Michael Porter. Noting that Hyundai and Daewoo had both “built huge yards without the orders to fill them,” he compared them to “the shoot’ em-up cowboys of the American West.”⁴¹ (Typically, Daewoo Chairman Kim Woo Choong in 1978 bought out another entity — in this case a state-owned company almost bankrupted a decade later by overexpansion.)

41 Michael E. Porter, The Competitive Advantage of Nations, p. 471.

If Chung started out from scratch, he did so with a certain assurance from the government. In one of his first steps to modernize the economy, Park in 1962 had singled out Ulsan as “a special industrial area.” Supremely confident, Chung in 1970 bought the land for the shipyard, initially an offshoot of Hyundai Construction, and signed up Appledore and Scott Lithgow of Great Britain for sales, engineering and administrative support on highly favorable terms — $1.7 million for the technology and 0.5% as a commission on sales. The real problem now was how to raise $63 million needed to develop a yard with a target capacity of 500,000 tons. Chung could only drum up $10 million or so from his own coffers while his government, eager for him to succeed in an endeavor that epitomized the Korean industrial revolution, advanced him $10 million. That left $43 million to go — more than the value of all Chung’s and Hyundai’s assets.

The quest for money was made all the more difficult by the question that every European banker asked when he came to call: what was Hyundai’s previous record in ship-building? The answer was: none. Hyundai had never built a rowboat, much less a ship, and no Korean company had produced a vessel larger than 17,000 tons. “I had already been denied loans from French and Swiss banks so the British were my last chance and I was determined to make the most of it,” said Chung, who flew to London in March 1971 in search of $60 million. “I told the British that I was going to build a 50,000-ton dock at Ulsan from which I would manufacture a 30,000-ton ship. I would repay the loan through the sale of this ship. The British replied that no Korean company had ever built a ship so large and that the country did not have the technology to build one. I insisted, however, that we could build it.”⁴²

42 Chung Ju Yung, “Have a Goal!” Hyundai Newsletter, August, 1990.

When Korean Shipbuilding Industry, an association of Korea’s fledgling shipbuilders, told British experts the country was not up to the scale that Chung envisioned, Chung had a ready answer. “Don’t you know that the person who thinks a job is possible is the one who is going to get it done,” he quoted himself as asking his British interlocutors. “If KSI or another Korean shipbuilder had thought that the venture was feasible, they would all be vying to undertake it. But it’s precisely because they don’t think it possible that they aren’t even trying. It’s only obvious that they gave you that kind of evaluation. I do think the project is possible and, because of this, I am going to do everything to make it come true.”

Chung needed Appledore’s recommendation in order to get the loan, but the Appledore chairman, Charles Longbottom, was not confident that Hyundai could find buyers. Chung resolved doubts with a flourish. He pulled out a 500-won note bearing the image of an iron-clad turtle ship — the kind that Admiral Yi had commanded against the Japanese. “Korea built an iron-clad vessel in the 16th century,” he said. “You cannot compare Korea with the U.K., which started to make an iron ship in the 19th century.” Blaming Korea’s late industrialization on “the foreign and industrial policies of the late Chosun dynasty,” he promised that “once we get started, our enormous potential ability will emerge.”⁴³

43 United People’s Party, The Birth of Hyundai Heavy Industries, pp. 4–5.

The plea was enough to persuade Longbottom to write a letter to Barclay’s Bank, which agreed to provide the loan. There was, however, a condition. In order to get a guarantee on the loan from the export credit guarantee department of Korea’s Export-Import Bank, Chung had to prove he had buyers. Longbottom introduced him to a shipbroker, who suggested he call on Greek shipowner George Livanos. Chung visited Livanos bearing a photograph of the proposed site for building the ships and a drawing of one 260,000-ton tanker. Livanos agreed to purchase two 259,000-ton VLCCs — very large crude carriers — for $30,950,000 each. Barclays formed a consortium from Britain, France, Spain, West Germany and Sweden that drummed up $50,570,000 — all before Hyundai had built drydocks in which to construct the vessels.⁴⁴

44 Ibid., p. 7. The story of Hyundai’s entry into shipbuilding is recounted in numerous other sources, among them, Amsden, Asia’s Next Giant: South Korea and Late Industrialization, p. 276; Chun Bum Sung, Secret Story of the Founding of Hyundai; Chung Ju Yung, Ordeals But No Failures; Hyundai group, Chung Ju Yung: His Life and Success.

Hyundai, in other words, got into the big time of shipbuilding without having built a single vessel, without the facilities, the technical ability or the funds to do so. Now it was imperative that Chung live up to his word. Not merely his own and Hyundai’s but Korea’s — and President Park’s — prestige were on the line. The key to obtaining overseas loans was the backing of the Korean government through Korean banks. The policy of keeping the banks under government control worked both ways for Hyundai and other groups. While they could not exploit the wide open field of finance, as they were to do some years later, they could be sure of loans and guarantees provided they impressed the decision-makers under Park. No one could have driven his people harder to overcome design flaws and coordination problems, inevitable with Hyundai’s inexperience, than did Chung in his zeal to match deeds with commitments.

While Hyundai depended on foreign engineers and technicians, Chung loved to do the job his way. By the time the forward section of one of the tankers was completed, the yard had not acquired a Goliath crane needed to put it in place. With the project far behind schedule more than a year after the lavish ceremonial opening of the shipyard in March 1972, Chung ordered the section set on a trailer and rolled down with a bulldozer tugging the other way to keep it from hurtling into disaster. Incredibly, the technique worked. Chung created another legend of his tenacity early one morning in November 1973 when he swerved to avoid some boulders while driving by the site in heavy rain and plunged into water 12 meters deep. Barely getting the car door open against the pressure, he surfaced and, clinging to a stone retaining wall, yelled for help for several minutes before a guard rescued him.⁴⁵

45 Chun Bum Sung, Secret Story of the Founding of Hyundai; Hyundai group, Chung Ju Yung: His Life and Success.

Park and the first lady, Yuk Young Su, led the delegation of guests at the christening of the two ships eight months later in June 1974. The occasion was one of the last public appearances for the first couple — less than two months later Yuk was killed by an assassin’s bullet intended for her husband. On that bright day in Ulsan, they savored the vindication of Park’s confidence, proof of Korea’s budding future. The immediate background to the christening, though, was as crazy as any other aspect of Korea’s industrial revolution. Contrary to harbor rules and objections of foreign technicians, Chung had put the ships afloat before they had engines. Since they had no engines, he claimed they were not ships and launched them with no fear of penalty from local officials. As for the foreigners, Chung as ever was willing to take his chances flouting their advice.⁴⁶

46 Amsden, Asia’s Next Giant: South Korea and Late Industrialization, pp. 276–278.

There was, always, a method in Chung’s madness. In this case he had to clear out the drydocks in order to fulfill other orders that he and his sales people had zealously obtained by promising to deliver at prices 15% below those of any other manufacturer. He figured he could get the engines into the ships while they were afloat and then begin building two more ships for Japanese and two for Hong Kong buyers. The story of Hyundai’s baptism into heavy industry assumes almost mythological proportions when told by Hyundai publicists and officials, but there was a sequel never mentioned in the handouts and briefings. Amid skyrocketing oil prices and a depressed world market after the 1973 Arab-Israeli War, Livanos forfeited the 15% it had put down for the two tankers and refused to buy them. So did the Japanese and Hong Kong purchasers.

Not to worry, though. Chung organized the Hyundai Merchant Marine Company in 1976 with the certainty that the Blue House would again come to his rescue. All the undelivered ships, now in Hyundai hands, would ply the oceans carrying oil to Korea, as required by Korean law stipulating that only Korean ships could deliver crude to the national oil refinery. Thus the government again provided the crucial edge that Hyundai needed for the sake of what was really a learning process. On the basis of this process Hyundai acquired much more of the needed technology — though never enough to do without foreign licensing agreements and foreign engineering. By holding down labor costs and underselling competition, Hyundai Heavy Industries, as an independent company separate from construction, came to lead the world in ship-building. Engineers from Britain and the rest of Europe migrated to Ulsan on contracts after their own companies had gone bankrupt.

HHI nonetheless faced two core problems that undermined efforts to produce the most ships for the lowest prices. First, there were spiraling labor costs and the danger of enervating strikes. Second, there were the vagaries of world shipping markets, always shifting with the winds of oil shocks, recessions and trade wars.

It was in response to a downturn in the market in the seventies that HHI got into producing platforms and “jackets” or frameworks for off-shore oil rigs. “After the first oil shock in 1973, the market for large tankers was already gone,” said sixth son Chung Mong Joon, promoted to the presidency of HHI in 1982 after the death of eldest brother Mong Pil, “so they fabricated oil jackets for the Middle East.” It was a simple transition. “If you are a manager of a shipyard, you naturally want to go into this.”

For much the same reason Hyundai got into repairing ships next door to HHI at Hyundai Mipo Dockyard, independent from HHI since 1976. Hyundai had to enter a technological agreement with Kawasaki Heavy Industries of Japan in 1980, however, before Mipo could engage in state-of-the-art work. A sign of Mipo’s need for Kawasaki was that Chung Ju Yung had to give the Japanese firm 5% of the equity — a deal that he would not have countenanced were there any other way to acquire the know-how lacking in Korea. Only with Japanese expertise could Mipo now offer everything from a week-long “shave and haircut,” routine cleaning and repainting, to months of redesigning and refitting from one type of vessel to another.

Chung Mong Joon did not talk much about government backing of the loans Hyundai needed to make Korea into a major commercial sea power. President Park, he said, was “giving most importantly political and moral encouragement” — a policy maintained by Chun Doo Hwan, the general who rose to power after Park’s assassination in 1979. M.J., in the paper that he wrote on the shipbuilding industry in Korea after his appointment as president of HHI, cited government intervention in other shipbuilding countries to show that Korea’s industry was not the only beneficiary of such support. The United States gave subsidies, he noted, while Japan, among others, offered tax breaks. Such observations more than counterbalanced the lone begrudging reference in his paper to official Korean support of the industry.

M.J. avoided financial figures while observing that a shipbuilding industry development act plus export promotion credits conspired with the unprecedented boom in international shipping to bring Korea a market share second only to Japan. In other words, government encouragement translated into money — the backing Korean companies needed to buy the equipment and expertise for competing internationally. The Blue House also helped combat cyclical volatility in the industry through a national shipbuilding plan under which the government by 1983, the year M.J. became HHI chairman, purchased nearly 26% of ships made in Korea. M.J. justified such aid by noting that 60% to 90% of ships made in Japan in the late 1940s and 1950s had fallen under Japan’s shipbuilding plan of 1947.⁴⁷

47 Chung Mong Joon, “Status of the Korean Shipbuilding Industry,” pp. 7–12.

British journalist Simon Winchester, visiting Ulsan in 1985, described the scene at the world’s largest shipyard. “I came to realize in an instant just why the River Tyne, so very far away and to these people so very unknown, was in the throes of dying,” he wrote. “For here, on a huge plain below a heather-covered bluff jutting into the Sea of Japan, was the headquarters of the shipbuilding division of a new Korean ‘miracle’ company called Hyundai.” The yards on the Tyne, home in England’s northeast for British ship-building, were almost empty while HHI was now capable of working on 46 vessels, 3.65 million tons, at once:

And superquickly too. From the moment the immense plates of steel were cut in the foundry shops until the moment the dry-dock sluices were opened and the sea waters were allowed to float a new behemoth away, it took the Korean workers only nine months. With a further nine months spent in the fitting-out yard, this meant that any new Hyundai vessel took just a year and a half to make. A ship order placed at Hyundai took half the time it would in a European yard — and at a price a good 10% lower than the nearest-priced competition (which happened to be, rubbing in the prosperity of the New Pacific, just across the sea in Japan).⁴⁸

48 Simon Winchester, Korea: A Walk Through the Land of Miracles, 1988, p. 6.

With the same philosophy and frustrations as in ship-building and other industries, HHI smothered the Japanese off-shore too. “When we started we were doing total engineering,” said Tom Gallatin, a Houston engineering executive who had worked for Japanese companies as well as HHI. “The second job we integrated some of their people on our design team. On the third we integrated a few more. After that third job, they wanted to do it in Seoul.” In their eagerness to go it alone, however, managers often quarreled with the foreigners in their midst. “At one meeting a Korean told us everybody we had on the job was incompetent, ‘You make mistakes, and we have to redline them and send them back.’ A lot of times they use terminology that seems strong. The Japanese are entirely different. They are more professional. The Japanese are more polished, whereas the Koreans bulldoze into you head-on.”

No matter how much HHI poured into these projects, however, the company could hardly muster the skills to build them independently. Hyundai’s reliance on foreign experts was underlined by the skepticism of clients. “The big hurdle was the Oil and Natural Gas Commission of India,” said Gallatin. “The ONGC required them to have a foreign contractor until we went into a joint venture. If HHI were left to their own devices, they would do it completely on their own.” The ONGC refused, however, to contract with Hyundai for building off-shore oil rigs without assurances of involvement with a foreign firm — for purposes of cross-checking if nothing else. “The ONGC does not want to give complete control to Hyundai. It wants to maintain some outside person.” Nevertheless, the marriage between ONGC and HHI was a perfect one: “HHI’s objective is to meet the specs as cheaply as possible. ONGC wants the very best — but for as low as possible.”

ONGC and HHI collaborated on nine projects from the early 1980s to the 1990s, culminating in three contracts in 1992 for $1 billion among more than $2.2 billion in contracts awarded HHI that year for off-shore facilities. Gallatin gave Hyundai “a lot of credit” for having “gone through a curve where they were completely dependent and now pretty much on their own” — the only Korean industry capable, according to one analysis, of performing “turnkey offshore projects with its own technology and fleet of specialized off-shore vessels.”⁴⁹ Hyundai workers “are good craftsmen, good on detail and design,” Gallatin agreed. “Some of their top people are good. It’s the numbers — they don’t have people with the well-rounded experience. Where they have real problems is in project management. They have tunnel vision.”

49 “Hyundai Heavy Industries and ONGC: Strengthening Ties With New Projects,” Business Korea, February 1993, p. 55.

The Hyundai approach to wheeling and dealing made matters worse in Gallatin’s view: “The Indians take the price down, down, down, and the Koreans go out with things ill-defined. They get several prices, and they start picking them apart. You’re never done. You get an arrangement, you come back the next day, and they want to lower the price. When Hyundai starts talking about money, they are one of the hardest groups in the world to drive a bargain with. Their whole purpose in life is to bargain. They are late on bills. Their whole mode of operating is to squeeze as much as they can out of every piece of the project. You’re going to have to keep on top of them to get your money. You’re going to have to beat on them. For a lot of people, it’s very difficult to deal with. I’ve been in a few shouting matches. It was interesting.” Ruefully he told of the time “we padlocked our files and wouldn’t let anyone come in to work until they paid some of their bills on the ONGC.”

Webb Hayes, the former Earl and Wright president, believed the problem lay in the depth of managerial and engineering skill: “On the platform used as the dock structure, we found top management was vigorous and technically competent, but middle management was lacking.” A typical middle manager might be a university graduate who was “maybe not dynamic enough for the top level or didn’t have the competence” — but stayed where he was even though he might not be good enough. Nor could Hayes get over the ignorance of safety standards: “Here was a radioactive source to do a welding inspection. The source was exposed. On the back side of a brick wall was a secretarial pool all sitting there quietly getting radiated. It’s the kind of thing that does go on.” The net result was inconsistency: “When you’re building a steel structure, there has to be a flow. Their practices were sort of naive.”

The tugs-of-war over money, safety and quality all reflected the philosophy of the founder. Kim Yung Due, in charge of the off-shore division of HHI after his years with Hyundai Construction, cited Chung’s order to scale down the depth of concrete on which to construct portions of ships from six to three feet in order “to build at half price.” After acquiring Inchon Iron and Steel, Chung rejected the advice of Kim and other engineers on the length of quay walls where ships could load and unload the company’s products and had them slashed by 20%. “I told him that was too much risk from an engineering viewpoint,” said Kim. “His comment: ‘For you, it’s an engineering decision; for me as a businessman, it’s a key factor in whether I can have an iron and steel mill or not.”

If the Koreans seemed loose to Americans in terms of quality and safety, however, the Americans in the Korean mindset were too relaxed when it came to thoroughness and follow-through. “I brought 150 engineers to Houston to train them with American engineers,” said Kim. “Always there are these cultural differences, the Koreans are almost like the military. Most of the Korean workers I worked with are the brightest young people I would ever meet. We have to make our engineers and people able to design and manage.” While “American manufacturers were the best in coming up with technology and parts for rigs, American products were becoming a headache in quality, control, delivery and after-service.”

The Koreans, like the Americans, indulged in comparisons with the Japanese. Kim Yung Duc did so as he contrasted attitudes of managers in America and Japan toward “after-service” — one of the most important elements in final completion of a project. Once the Americans think they have finished a job for HHI, said Kim, “they are very reluctant to come all the way [for after-service] because it’s expensive” while the Japanese “just hop on a plane and come over.” Kim noticed a marked decline in American quality throughout the 1980s: “There are problems with valves, testing equipment, control. In general, quality control and service is somehow deteriorating. I don’t know why — maybe it’s a change in ethics.”

The clash of cultures erupted during the project for fabricating two jackets for off-shore rigs for Exxon. Pent-up feelings simmered after a ceremony complete with speeches, music, ribbon-cutting and bottle-breaking on August 28, 1989, to mark the launching of the jackets, among the largest in the world. The giant structures, Exxon Harmony, 375 meters long, 45,000 tons, and the slightly smaller Exxon Heritage were so unwieldy they had gone through the several-hour launching process the day before, but the symbolism of American-Korean cooperation was impressive. As the jackets waited to be tugged across the Pacific to moorings off Santa Barbara, Korean managers and senior foremen, decked out in white and orange helmets, stood in military formation beneath the hot sun through the American and Korean national anthems.

The Exxon deputy project manager, T.H. “Pete” Meadows Jr., commended the completion of the structures, “the largest Exxon has activated worldwide,” as “a major achievement in engineering for which all participants have reason to be excited and proud.” With only 28 injuries in 2.5 million man-hours, he said, “we have persevered through cultural differences, disagreements and settlements” to produce “two successful state-of-the-art super rollups” from 8,000 parts, including 36,000 tons of steel. The Koreans took a less rosy view. Exxon had deliberately procrastinated on the project amid debate in Santa Barbara on the impact of off-shore drilling on the environment, said Project Manager Moon Dong Soo, with HHI for almost all its history. The records showed 4500 letters and faxes, many of them haggling over small details. “The whole four years was a battle,” he said. “There was no cooperation.”

Moon estimated HHI had lost on the $ 130 million paid by Exxon but “broke even” after Exxon paid $30,000 a day in storage fees incurred while waiting for Santa Barbara’s permission. “They needed to slow down the project,” said Jack Kamont, the American assistant to top HHI executives. “Our side viewed it as a problem of permits. They just didn’t have the money and caused a lot of problems for us. They set up to subvert the contract.” In the end, Exxon turned over construction of the platform for the rig to an American contractor while fighting about costs incurred by rising wages — the result of strikes. From the HHI vantage, part of the problem was personal. “I don’t see how they could be so arrogant as to assume they would never need our goodwill,” said Kamont. “They really believe they’re a cut above normal human beings. They could have done a few things cheaper and got everybody off their backs.”

Exxon had a somewhat different story. “These guys are drastically behind the original schedule because of the labor disruption,” said a top executive, shy about attaching his name to a negative comment. Then too, the need to purchase some of the parts from Japan raised problems about violations of the “voluntary restraint agreement” placed upon Japanese imports. Executives on both sides talked about the fights over Exxon’s rigid insistence on exact conformance with design specifications. HHI claimed that Exxon had forced its engineers to quit while demanding costly revisions to meet the specs while Exxon repeated charges familiar to other Hyundai clients. “We had many confrontations with Hyundai over their trying to minimize differences on specifications,” said the anonymous Exxon executive.

Money was often the bottom line. “Most of our confrontations were dollars-centered,” the same executive added. “They tried to cut corners.” He distinguished between “what the job-getters” — HHI executives — “say they can do and what the job-doers” — HHI engineers and workers — “can do.” The final result, then, was actually a victory against odds. “We fought the toughest job Hyundai has ever done,” said the executive. Somehow difficulties “were always worked out as Exxon people grew to understand the Korean method and to work with the Korean people. The Koreans grew a lot on this job.” Would Exxon contract with HHI again? “Definitely yes. It’s a question of cost and technical capacity” — no matter what, no other company could do better for less.

That type of reaction was typical. In the face of all frustrations, foreign contractors, as often as not, built up a grudging respect for the company. Its competitive spirit, its stubborn way of bulling through a project, counted for more than its inexperience and ineptitude in the eyes of David Gregg, a Briton who had learned his trade on the River Tyne and now was supervising construction of an oil-rig jacket: “I have a great admiration for their work habits. From the managerial view, they work hard even though they still have a lot to learn about managerial techniques.” He saw the Korean complex about Japan as key to the will to succeed: “Their structure is based on the Japanese system. The basic thing is Korea wants to outstrip Japan. They were invaded by Japan. There’s a lot of hatred. It’s jealousy — they still rely on Japan, business-wise.”

Such intensity explained the rise of HHI at a time when commercial shipbuilding on the Tyne and almost everywhere else in the West had declined almost to extinction. “It’s a very military-oriented society,” said Gregg. “In the morning you can go there, and you will have a line of people. They’ll all be standing at attention to get a work assignment.” Once a week, “the director of the whole division, with a loudspeaker, tries to psyche them all up.” The director would growl and shout: “We expect the best …. We are Koreans…. Show the world we are Koreans.” Not that Gregg was unaware of flaws: “They’ll cut corners if they’re allowed to. They’re no different from any contractor in the world.” After all, he told an American visiting the club at the Foreigners’ Compound, “You guys taught these guys the business.” The Koreans taught themselves, however, the discipline of six and seven-day weeks, mandatory overtime and subservience to authority.

At the basement bar of the Diamond Hotel, across the street from the HHI yard, British engineer Tony Robinson talked in mid-1992 about the work he had seen Hyundai performing on an off-shore oil rig. “They put in the low bid of $60 million,” said Robinson, with an Australian company. “The lowest bid we got from an Australian builder was for $120 million.” He still could not fathom how HHI workers managed to get the job done: “You couldn’t believe what they do. They break all the rules. Their equipment is old. They make their own tools. Nobody else would use them.” Still, no one could argue with the results. “They deliver what we ask for, on time. I don’t understand it, but whatever they do, it works.” No wonder HHI in 1992 reported a record profit for 1991 of $271.94 million, four times that of Korea’s second largest shipbuilder, Daewoo, eight times third-ranking Samsung — and enough to make it the country’s highest tax payer with a corporate tax bill of $61.2 million at the 1991 rate of 760 won to one dollar.

The HHI shipyard, covering 1.4 million square meters of the 8.6 million square meter compound, was littered with ships in production — portions of hulls and superstructures lay beside drydocks where workers were putting together still more vessels beneath Goliath cranes, 82 meters tall and 140 meters across, lifting giant plates. Other ships, nearly finished, were moored in the harbor. The yard in 1992 spawned 26 vessels, 1.8 million tons, 40% of Korea’s output. Profits rocketed to $360 million for 1992, at the then rate of 780 won to the dollar, while sales set a record $3.1 billion, 25% above 1991, on the way to $3.4 billion for 1993. Exports too hit a high, $2.47 billion, 10.3% above 1991, 70% in shipbuilding. HHI was so successful that its showing for the year far more than compensated for decreases in the net income of other major Hyundai entities — Motor and Motor Service, Engineering and Construction and Inchon Iron and Steel, among others.⁵⁰

50 Hyundai group, “Major Companies’ 1992 Financial Statement.”

The company’s overall record since those first launches nearly 20 years earlier was still more impressive. HHI from 1974 through the end of 1992 had built 532 vessels weighing 33.8 million tons. Orders received in 1991 came to 2 million tons, 13% of the worldwide total that year, and orders in 1992 were for 1.8 million tons, 10% of the worldwide total. HHI executives worried as recession cut into global trade, fearing the decline in orders in 1992 would show up in sales and profits two or three years hence. Chung Mong Joon saw bursts of activity as part of the cycle. “The world shipbuilding industry was coming out of a long recession,” he said. “The slump has lasted for ten years. It is not because of government policy that HHI has hit new highs. It is simply economic realities. Now it is going down again” — though how far, for how long, was unclear.

With more than 50% of existing vessels “old enough to be replaced within this decade,” said Han Dae Yun, director of ship sales, “the drop is seen as a short recession appearing in the course of an anticipated long-term boom.” One of HHI’s seven drydocks, capable of holding the hulls of vessels ranging from small freighters to super-tankers, was now idle as a result of the lowest number of orders in six years. Idleness, however, was partly a luxury of progress. One drydock, number three, had a capacity of a million tons — room to spare for two large tankers. Ships, moreover, were built much more quickly than when HHI was just getting its feet wet. Workers performed “faster and more efficiently on automated processes using advanced facilities under more rationalized management and computer-aided design manufacturing.”⁵¹ In a sluggish market, HHI foresaw orders for more and more specialized ships — and ran two institutes, Hyundai Maritime Research and Hyundai Industrial Research, to keep up with trends and perfect new techniques.

51 “Being the Largest Is Not Our Only Pride,” Korea Business World, June 1992, p. 19.

Japan’s Mitsubishi Heavy Industries and Ishikawajima-Harima Heavy Industries were probably more sophisticated, but HHI still was capable of fulfilling orders for just about anything from the well-publicized supertankers to a 300-seat catamaran car ferry — and always for lower prices than the Japanese.⁵² With foreign technology, the company now struggled with the complexities of LPG and LNP, liquefied petroleum gas and liquefied natural gas. Since building its first LPG carrier in 1986, it had produced 13 by 1992 and got a little help from a sister company, Hyundai Merchant Marine, in building its first LNG carrier. The first of two ordered by Merchant Marine — capable of hauling 1 million tons — was launched February 2, 1993.⁵³ The company in 1993 was pouring $367.2 million into facilities and R&D, nearly 40% over the 1992 investment of $264.6 million, for specialized ships, offshore structures, welding technology and on-shore plants and bridges.⁵⁴

52 Yeom Yoon Jeong, Reuters, Seoul, April 1, 1993.

53 “Hyundai Heavy Industries: Moving Up the Technology Ladder,” Business Korea, January 1983, p. 63.

54 Hyundai group, “Hyundai’s Business Plan in 1993,” January 1993.

Another factor, however, was sapping HHI of resources in terms of both leadership and finances. M.J.’s mind in 1992 was not so much on HHI’s welfare as on exploiting the company’s unprecedented sales and profits for his father’s political campaign. Although he had given up the HHI chairmanship and now was an “adviser,” he displayed his power when he invited me for lunch with about 20 HHI executives in May 1992 in a restaurant in Ulsan. He hosted them every two or three weeks, he told me, so they “don’t forget I’m still in charge.” He smiled when he said it, but there was no doubt he was serious. Opposite me was HHI President Choi Soo II. Beside me was Ahn Choong Seung, executive vice president of the off-shore division. They smiled respectfully as the owner’s son chatted with the condescension of a prince. I conjured this memory when Choi and Ahn and several of their subordinates in December 1992 were implicated in campaign skullduggery in December 1992.

At this stage in its history, however, the shenanigans of a few senior executives might not really matter in terms of the company’s future. Would losing a president make that much difference for an organization the size of HHI? Who cared if some top managers were in jail? The loss of Ahn, who had earned his doctorate in industrial technology from MIT after graduating from Pusan’s Maritime University, would surely be felt — but not for long. As Ahn fled into self-imposed exile in America after the election, a Hyundai official told me, “Orders from buyers and process of projects are difficult because he is not here.” Ahn kept busy consulting for HHI in the United States, however, while a senior vice president quickly replaced him in Ulsan as the HHI bureaucracy thundered ponderously on.

Nor did the transfer of enormous sums from the coffers of HHI to those of the presidential campaign matter much either. HHI was rolling in such huge profits that sums as large as those funneled into a secret fund set up for the campaign would have slipped unnoticed anyway into Chung family accounts. The company for which Chung had desperately sought loans little more than two decades ago now was Korea’s most prosperous enterprise. The old man assumed HHI could finance his restless desire for anything he wanted. In fact, nobody would have fussed over a “secret fund” had he not used it to challenge the establishment, his one-time collaborator. For all the election-time brouhaha, HHI had the resources to fulfill its goals, to set new records. Like strikes and riots, this storm would blow over. Executives might go to jail, run for cover or just fade away, but the company would endure.

IX To the North

DOI: 10.4324/9781315483214-9

There was no frontier too risky for Chung to want to cross, with or without the backing of his government. By the time Hyundai was thoroughly ensconced in the Middle East, helping to convert Iraq into a modern state and changing the appearance of strategic portions of the shoreline of both the Persian Gulf and the Red Sea, Chung was looking above the demilitarized zone toward the area of his native village in what had become North Korea — and, beyond that, across the Siberian wasteland to Moscow. Although Chung’s relations with President Roh Tae Woo were hardly as familiar as they were with Roll’s predecessors, he still was close enough to the center to be the first businessman to obtain his governments’s permission to go to North Korea. He was an emissary of Seoul’s new policy of “Nordpolitik” — opening economic relations with communist countries to the north.

Chung believed such an opening was long overdue. As leader of the ’88 Olympic Promotion Committee, he had been instrumental in defeating a bid by Nagoya and bringing the 1988 Summer Olympics to Seoul. Like many of his countrymen, he was disappointed when the North refused to participate after failing to come to terms with the South on forming a joint team or holding some events in the North Korean capital of Pyongyang. As a result of all these efforts, he had dealings with representatives of the then Soviet Union and other East Bloc countries. Just as he viewed the Americans during the Korean War as a source of contracts and ultimate wealth, he saw the untapped reserves of Siberia as ripe for exploitation.

Chung also believed he could play a pioneering role in reconciling South and North Korea, which relied until one or two years before the collapse of the Soviet Union in 1991 on Soviet trade, aid and arms. To Chung, ideological considerations, loyalty to one bloc or another, religion and human rights were all negligible factors. All that really counted was getting the business — for himself, for Hyundai, for Korea. In that spirit Chung, three months after the 1988 Olympics, accepted the invitation of Ho Dam, chairman of North Korea’s Committee for the Peaceful Reunification of the Fatherland and a member of the politburo of Rodong Dang, the Workers’ Party, to come to the North and talk about trade and investment — sorely needed by a nation nearly $10 billion in debt.

Chung made the journey to North Korea on a route dictated by the history of North-South hostilities, flying from Seoul to Tokyo, to Beijing and finally to Pyongyang — four hours from Seoul by road if North and South could ever open the Demilitarized Zone to border crossings. The Korean media, North as well as South, treated the trip as a matter of historical significance. The visit “has been widely covered here,” said a Tass report from Pyongyang carried by Yonhap, the quasi-official South Korean news agency. “Pyongyang newspapers and radio carried the news of Chung’s arrival [on January 24]. Rodong Shinmun, an organ of the north [sic] Korea Workers’ Party, carried stories on Chung with his picture” — and “also reported that at the airport Chung met members of his family and relatives from whom he had been separated for decades.” Yonhap viewed the authorship of the report as significant in itself—it was the first ever done by Tass in response to a request by a South Korean news agency.⁵⁵

55 Yonhap, January 31, 1989. (Tass did not capitalize “north” as a symbol of the supremacy of the party over all Korea, not just the North.)

For ten days Chung chatted with officials, saw the sights and, of course, visited the ancestral birthplace that he had last seen as American forces rolled back the North Koreans early in the Korean War. The personification of South Korean capitalism got a meticulously orchestrated hero’s welcome from the residents of a country viewed as one of the hardest-line communist states even before the collapse of communism in eastern Europe and the Soviet Union. “Citizens” who otherwise had no reason to know Chung’s name, much less that of Hyundai, were rounded up to cheer him as he sped by in a Mercedes Benz limousine in Pyongyang. About 300 people greeted him as he arrived in Tongchon district, and 60 “relatives,” many of whom he had never heard of, traipsed after him as he wandered around Asan, the village in which he had spent the first 16 years of his life.

The homecoming was more than sentimental — 17 trucks followed Chung’s limousine bearing gifts for a local greeting committee led by an elder cousin and classmates from his elementary school. The whole crowd feasted on rice cakes and red wine — delicacies normally not available to North Koreans in an era of chronic shortages. Chung handed out presents to each of his relatives and local schoolchildren, and they in turn offered him a cornucopia of indigenous delicacies, including wild honey and wild ginseng, the medicinal root said to have aphrodisiac qualities. Chung, sometimes ferried about in helicopters to avoid the rough roads that North Korean authorities could not afford to pave, surveyed the region north and south of Tongchon, investigating possibilities for both tourism and industry. His North Korean hosts, as much as his managers in the South, seemed to venerate him. “We believe only you, Mr. Chung,” remarked a guide in between helicopter rides.⁵⁶

56 The Korea Times, February 3, 1989.

The journey ended on almost a touching note with Chung agreeing on joint development of Mount Keumkang, Diamond Mountain, with an international tourist potential greater than that of South Korea’s Mount Sorak, further down the same rugged range of mountains. The deal would turn the area of Diamond Mountain, soaring above the east coast south of Tongchon, “into a world-renowned tourist spot” while agreements on industrial ventures “strengthen cooperation between North and South and promote the peaceful reunification of the country,” according to North Korea’s official Korea Central News Agency. Chung was delighted by the response, to judge from an interview he gave in Pyongyang, predicting that South Korea would approve the Keumkang project as “a matter related to peace and reunification” and promising to return with a 20-man survey team in the spring.⁵⁷

57 The Korea Herald, February 2, 1989.

The reports, to be sure, were the official North Korean version since no South Korean journalists were in the entourage — the South would not have permitted them to go even if the North had invited them. The tone endured, though, when Chung got back to Seoul. “Tycoon Chung,” said the influential Hankook Ilbo, “has brought an ever-fresh hope to those desiring a thaw to South-North relations and free travel to and from the North.” He had done “what government authorities in Seoul and Pyongyang have failed to realize due mainly to their own political strategies.” Once “the basic development programs” for Diamond Mountain were out of the way, the paper reported, “tourists in the South could take sightseeing trips to the mountains by bus or by ship.”⁵⁸ Diamond Mountain would draw southerners as well as northerners in a touristic reunification of the peninsula.

58 The Korea Times, February 3, 1989. (Hankook Ilbo owns The Korea Times, which translates and publishes some of its reports.)

Tourism was to have been only the beginning of Chung’s stake in the North. Hankook Ilbo was just as excited about the agreement on joint ventures, hailing it as “a big step toward opening doors for wide cooperative ties in economic and industrial fields for the first time in over four decades since the Korean peninsula’s division.” Chung envisioned, long-term, the same type of mighty industrial empire that he had implanted in the South. There would be a ship repair facility — an area in which Hyundai had established world-class finesse after starting from nothing. There would also be a plant to build rolling stock — a field in which another Hyundai company, Precision and Industry, had distinguished itself. Chung cemented the agreement with donations of more than ritual import — trucks, bulldozers and other construction equipment, plus a couple of cars, worth millions.

Such gifts were symbols — investments for good-will and future profits — of the bonanza that Chung dreamed would some day befall Hyundai for having gotten into the North, first with the most, as he had done so many times elsewhere. Yet, from the moment Chung got back, there were signs that nothing would happen. For one thing, he returned several days earlier than expected, having stayed in the North for 10 rather than 16 days as scheduled. For another, he never got to meet the “great leader,” Kim Il Sung, on whom he had said he would pay a “courtesy call” when he left Seoul. Did Pyongyang tire of Chung’s presence — or grow alarmed by a capitalist of such proportions penetrating its system? Slowly, through diplomatic channels, word filtered out: Chung had balked at suggestions that Hyundai relinquish its stake in timber projects in Siberia and the Russian maritime provinces that North Korea had wanted to exploit “jointly” — with Hyundai expertise and capital.

Was Chung just too autocratic for a hierarchy that perceived he was unwilling to sacrifice anything substantive for a higher cause? Or was his characteristic style too blunt, too patronizing with gifts implying North Korea was “backward?" The disappointing ending to his trip might also have reflected the exigencies of North-South politics — the North was, as usual, outraged by the annual “Team Spirit” war games in which tens of thousands of American and South Korean troops maneuvered around the countryside in a show of solidarity. No one knew exactly why, but Pyongyang soon purged Chung’s host Ho Dam, a long-time foreign minister, and others. Finally, more than a year later, in May 1990, came news of Ho Dam’s retirement for reasons of health. (He died on May 11, 1991.)

While reluctantly giving Chung the requisite permission to go to the North, South Korean authorities adamantly opposed trips there by political and religious critics. The Rev. Moon Ik Hwan, an aging Presbyterian pastor, was imprisoned on getting back to the South from a trip to the North in the spring of 1989 in which he and Kim Il Sung had issued a “joint statement” calling for a “confederation” of North and South. The Rev. Moon Kyu Hyun, a Catholic priest, and student Lim Soo Kyong were next, getting jailed on returning via Panmunjom from a “World Youth Festival” in Pyongyang in July.⁵⁹ In the end, no one could blame Chung for the frustration of his overture. Just by going to the North, Chung had served as an apostle of the dream of reunification.

59 Donald Stone Macdonald, The Koreans: Contemporary Politics and Society, 1990, pp. 284–285; Dan C. Sanford, South Korea and the Socialist Countries: The Politics of Trade, 1990, pp. 53, 98.

The two Koreas, quarreling perpetually as their emissaries negotiated for agreement on trade, family visits and a host of other issues, scuttled all the deals that Chung had more or less concluded. Each time the two sides showed signs of moving toward understanding, they pulled apart at a critical point. When South and North signed an historic agreement on peace and reconciliation in December 1991, they were on the way to achieving the dream. The aura of good-will broke down, however, on the question of whether the North was developing nuclear weapons. North Korea’s acquiescence to visits by inspectors from the International Atomic Energy Agency in Vienna did not meet the demands of South Korea for inspection by its own experts. Neither South Korean nor American officials believed the North had confined its facilities to Yongbyon, 60 miles north of Pyongyang, where satellite photos had revealed the North was on its way to producing an atomic bomb.

A visit to Yongbyon by the IAEA director-general, Hans Blix, in May 1992 was not comforting. He reported that the North did indeed have a reprocessing facility — which his North Korean hosts claimed was only a laboratory. While the North might not have produced enough weapons-grade plutonium for a nuclear bomb, he observed that the laboratory served no peaceful purpose and there was no “good solid reason that they would need the plutonium.” IAEA inspectors found North Korean scientists using “ancient technology” — but said they had to look elsewhere in case the North were hiding other facilities, as suspected by South Korea and the United States. The North Korean attitude hardened over the year. North Korean officials in January 1993 refused to permit IAEA inspectors, on their sixth trip to the country, to look at two suspicious sites to determine how much plutonium the nearby Yongbyon reactor was actually producing.⁶⁰ Pyongyang, charging the IAEA with spying for the United States, announced in March its withdrawal from the Nuclear Non-Proliferation Treaty — a threat later withdrawn amid grave doubts it would ever open to full-scale inspections.

60 Asahi Shimbun, Tokyo; Korean Central News Agency, Pyongyang; both February 10, 1993.

North Korean nuclear potential dominated all talk of North-South trade and other issues. South Korea refused to approve investment by South Korean entrepreneurs in the North as long as the North refused its demand for unrestricted inspections. Pyongyang insisted the limited IAEA inspections had fulfilled its obligation — and asked to see U.S. bases in the South in the face of repeated assurances that the United States had withdrawn all its nuclear weapons. South Korea’s unification minister, dangling the carrot of trade and investment, expressed the need to remove any doubt about whether the North’s nuclear activities served a military purpose: “Unless this suspicion is thoroughly cleared through the bilateral inspection between South and North Korea, in addition to the international inspections by the IAEA, economic cooperation can hardly be substantiated between the two parts of Korea.”⁶¹

61 Choi Ho Joong, quoted in The Korea Herald, June 16, 1992.

Still, Chung Ju Yung’s pioneering venture was by no means dead. More likely, the North was playing a bargaining game dictated by economic hardship. The North could not do without ties to the capitalist world after its two former closest friends, China and the Soviet Union, began refusing “soft-currency” payment for their products in 1991. As a result, North Korean foreign trade fell by 24% in 1991, down by more than $1 billion from the figure of $4.64 billion recorded in 1990, according to South Korean estimates, with imports exceeding exports by about $1 billion. The Soviet decision was especially rough: it left the North without the cheap oil on which it had depended for its entire history.

Trade with the Soviet Union in 1991 before its final collapse near the end of the year totaled $1.42 billion, down from $2.35 billion the year before. More alarming, crude oil imports came to 42,000 tons in 1991, less than 10% of the 1990 total of 440,000 tons.⁶²

62 Ibid.

Ironically for Chung, however, the North’s desperation took a contrary turn. In yet another bid for South Korean investment, North Korea invited one of Chung’s most bitter rivals, Daewoo Chairman Kim Woo Choong, for a two-week visit in January 1992. Like Chung, Kim returned amid excited talk of deals in the offing. “Trade with North Korea is much different from that with the Soviet Union, East Europe and China,” said Kim on getting back. “It should be based on mutual understanding and cooperation.” There were differences between his visit and that of Chung. For one thing, Kim got to see Kim Il Sung, who gave his personal blessing to all that he was doing there. For another, he did not come home early.

There was also a difference between the kinds of deals Kim and Chung had arranged. Kim and the North agreed on a joint venture complex in the port city of Nampo, west-coast gateway to the Pyongyang region. The complex was to include nine companies producing such light industrial products as clothing, shoes, toys and cotton yarn.⁶³ That type of industry, both sides believed, would be more practical, more beneficial to the economy of the North than the grandiose heavy-industry projects that excited Chung. The Daewoo chairman also discussed possibilities for cooperation with North Korea in third countries, using Daewoo engineering and technology and North Korean labor. And there was even a report that North Korea later sent a message to Daewoo through Daewoo’s Hong Kong office inquiring about the terms for mass purchase of Daewoo cars, including the LeMans, a product of Daewoo’s stalled joint venture with General Motors.⁶⁴

63 The Korea Herald, May 29, 1992.

64 AP-Dow Jones, June 24, 1992.

North Korea appeared all the more serious about its need for industry when it invited more than 120 foreign specialists — plus a score of foreign journalists — for an extraordinary visit to a newly established free trade zone along the 10-mile-long Tumen River frontier with Russia at the end of April 1992. The trip, coordinated in Japan by a group called the Economic Research Institute for the Japan Sea Rim, wound up with a two-day conference in Pyongyang on the prospects for a much broader zone of economic cooperation including northeast China and the Russian far east. Among the participants: 18 South Koreans, including Kim Woo Choong’s elder brother, Kim Due Choong, along with a horde of Japanese, eight of whom had grown up in northeastern Korea during the colonial era, plus a handful of Americans, Chinese and Russians. South Korean authorities granted permission for experts from universities and government-financed institutes to go while denying it to South Korean journalists.

Kim Due Choong, an economics professor at Sogang University who had also been intimately involved with Daewoo, gazed with an expert’s eye on the sprawling harbor and industrial complex of Chongjin, newly designated as a free port, on the Sea of Japan just south of the free trade zone. “All this was started in the 1930s by the Japanese,” he told me. “Every time they say, ‘This is our plant,’ it was built by the Russians.” The North Koreans had chosen May 1, Labor Day, for the visit to this showcase. The port director, briefing us on one of the piers, across from an iron and steel complex built by the Japanese and expanded with Soviet technology, offered the holiday as a convenient excuse for why nothing moved.

The suspicion lingered, however, that the North Koreans did not want visitors to know how little got done even on regular work days. “There is not much activity going on,” surmised Kim Due Choong. “You see the docks are very clean. If you have that kind of big steel complex, you should have stacks of steel. Also the rails look rusty.” Kim was ebullient, though, about the prospects for investment. “There is plenty of work for everybody,” he said. What about the impasse in North-South talks? “Business is business,” he replied. “The nuclear issue is a temporary one. Anybody can come.”

What happened, then, to Hyundai’s opening to the North? “When Chung Ju Yung came at that time, they were not ready to open the economy,” said Kim. North Korea’s deputy prime minister for trade, Kim Dal Hyon, said he hoped South Koreans would be the first to invest in the new zone: “Because of the quick destruction of the socialist market, we are facing certain difficulties. We are directing efforts toward the capitalist market.” He assured his visitors of two things — “we do not have any evils like alcohol, drugs and so on” and “our population will work” with no fear of strikes such as those in the South.

Kim Dal Hyon, variously reported as a nephew or husband of a niece of the “Great Leader” Kim Il Sung and cousin of Kim’s son and heir, “Dear Leader” Kim Jong Il, spent a week in the South four months later in July talking over deals, hoping to get South Korean approval for the Daewoo investment. He visited 13 factories, squeezing in a two-hour glimpse of Hyundai Heavy Industries in Ulsan in between stop-offs at five Daewoo plants, on a junket initiated by Kim Woo Choong. South Korean officials said the trip had nothing to do with the nuclear debate—but called it part of “the carrot-and-stick policy” to get the North to open up to inspections. Chung, having lost his foothold in the North, viewed the visit as useless. “Economic cooperation between South and North Korea is meaningless before nuclear inspection issues and family reunion programs are settled,” he told local reporters.

Whether euphoria over possible rapprochement would last was not clear. Daewoo’s rival chaebol, including Hyundai, accused Kim Woo Choong in May of having struck a secret deal with Pyongyang to act as the North’s sole agent in the South. North Koreans did not trade with any other chaebol even though they desperately needed the business. Ships from other groups were turned back when they arrived at Nampo to pick up zinc, cement and other key exports. Such antics raised the question of whether North Korea was worth the effort. The Bank of Korea put the North’s GNP for 1991 at less than one tenth that of the South — $22.9 billion, down 5.2% from 1990, as opposed to the South’s $280.8 billion, up 8.4%. Its foreign trade in 1991 was a tiny $2.7 billion, down from $4.6 billion in 1990 after China and Russia demanded hard currency, compared with South Korean foreign trade of $153 billion.⁶⁵

65 The Korea Herald, August 14, 1992.

Dr. Chung Hoon Mok at Hyundai Construction was not optimistic about the chances for a deal for building anything in North Korea any time soon. “A port is not like a museum,” he said. “You have to earn money.” He doubted if North Korea could pay for the work, much less cooperate with China and Russia on regional development, but his company was ready and able whenever the North got serious about it. “Anybody pays for it,” he said with some determination. “We will build it. We will be second to none.” As for speculation on the Tumen River development, he replied testily, “Politicians can talk about these grandiose projects in China, North Korea, the former Soviet Union, but there is no consensus among them.” Serious talk of investment died down — though South Korea’s Economic Planning Board predicted Koreans with money to risk might invest in the free trade zone by 1995 regardless of nuclear stalemate.⁶⁶

66 Ibid.

Chung Ju Yung, never deterred by rejection, was neither surprised nor dismayed by Kim Woo Choong’s apparent success in the North. “I am not concerned with Daewoo’s advances,” he told me when I saw him in June 1992 in his presidential campaign headquarters. “There is no progress between North and South.” As long as Kim Il Sung and Kim Jong Il were in power, he said, “the best policy at this time is to do nothing.” Chung could not contain his wrath, however, when Kim Woo Choong got back from Moscow a few days later promulgating a plan for a “consortium” to build a gas pipeline from Siberia through North to South Korea. Stung by Kim’s patronizing remark that Hyundai was “welcome” to join Daewoo and others in the group, Chung said “Mr. Kim has no capability” and “nobody believes he could do something big.” He called Kim “a wily businessman who takes advantage of political and social confusion” in Russia, North Korea, South Korea too — as if he, Chung, would never have been so exploitative.

Chung’s dislike of Kim Woo Choong was buried deep in inter-chaebol rivalry, but the pipeline deal was particularly galling since Chung had promoted the same idea during his own trips to Moscow. Chung if anything was more intrigued by the possibilities in Russia and eastern Europe than by those in North Korea before his bid for national leadership. He had long seen a vast new world out there — one that Hyundai, underselling Japanese and other foreign competitors, could invade full force whenever the Russians were ready to pay their bills. His role as an emissary of Nordpolitik in Moscow complemented — and predated — his sortie to the North. Several weeks before his mission to Pyongyang he became the first South Korean chaebol chieftain to visit Moscow, going there to talk over Siberian development.

A year later, Chung flew to Moscow again, this time to open a permanent office. Hyundai representatives were seen on almost every flight on the newly inaugurated service provided by Aeroflot and Korean Air between Moscow and Seoul, six years after a Soviet fighter had shot down KAL Flight 007 as it flew off-course over Sakhalin Island, killing all 269 people on board. In April 1990 I found Chung seated beside Lee Myung Bak, Hyundai Engineering and Construction chairman, in the first row of the first class section. He hoped to reach agreement “very soon” on building a petrochemical plant across the Urals in western Siberia. “We are very happy with our relations with the Soviet Union,” he added, talking through aide Lee Byung Kyu, as we stood in the aisle of the Korean Air plane. “We look forward to expanding our activities. We have some ideas.”

Some of Chung’s subordinates were reluctant to venture into a world of snow and ice, but Chung viewed that obstacle as no more difficult than the glaring heat and sands of the Middle East. Hyundai put the cost of a petrochemical complex at about $5 billion — with Hyundai getting two thirds of the payment in dollars, the rest in rubles. When Chung got back from Moscow ten days later, on April 17,1990, he said Hyundai and the Soviet Union had agreed on a $600 million deal on the polypropylene plant and would also put up $30 million of the $600 million needed for a joint venture with a European company to operate the entire complex. Construction, he said confidently, would begin in July.

There was every possibility of expanding the Hyundai-Soviet ties to just about any field in which Hyundai had a company. Moscow asked Hyundai, for instance, for estimates on the cost of three oil tankers and six bulk carriers and requested a feasibility study on the Siberian-Korean pipeline — a move laden with implications for North-South cooperation. The Korean press even carried a report, later denied by Hyundai, that Hyundai and Ford were talking over a joint venture for assembling cars in the Soviet Union. There was intriguing speculation that Hyundai wanted to hire North Korean labor. Chung reportedly talked about the advantages of North Korean and Chinese workers — less costly, less rebellious than his unionized, politicized work-force back home.

South Korea and the Soviet Union were on the way to opening up full diplomatic ties beginning with trade and cultural exchanges and more than a billion dollars worth of loans. Thus Chung’s adventures in Moscow not only paralleled but also reinforced a broader effort by the South to diversify overseas investments and markets — and also, not incidentally, to get away from the deadening anti-communist mode of the Korean War era. “We needed each other economically,” he told Sam Jameson of the Los Angeles Times in October 1990. “If there is an economic need, politics will follow.” Jameson, Times bureau chief in Tokyo, described Chung as “self-appointed ‘ambassador’ of South Korea’s business world to the Soviet Union” — one “who did more than any other executive to persuade Moscow to establish ties with Seoul.”⁶⁷

67 Los Angeles Times, October 15, 1990.

Chung came across as an advocate of trilateral cooperation involving China as well as the Soviet Union and North Korea. On his first trip to China, in September 1990, he said the Chinese urged him to get into the bidding for an offshore oil and gas project. At the same time, he discussed projects in the Tumen River area, seeing possibilities regardless of regional cooperation or rivalries — or both — among powers on either side of the river. “Before, Chinese officials were reluctant to meet [South] Korean officials and businessmen,” he told Jameson, “but this time we had no trouble meeting Chinese officials in charge of economic affairs.” Hyundai, when Seoul “normalized” relations with China in August 1992 while breaking with the Nationalist Chinese regime in Taiwan, drew up a $100 million investment plan that included a steel mill, motor vehicle assembly plant and copper and zinc mines. With offices in Beijing, Shanghai, Guangzhou and Dalian, Hyundai wanted to open three more in other cities.⁶⁸

68 Yonhap, August 22, 1992; The Korea Herald, August 23,1992.

Always Chung was the pioneer, working with a power structure that applauded, endorsed and financed his efforts. History was not altogether on his side, however, in his drive to get into the Soviet Union. While the Kremlin was much more open, in the glasnost era of Mikhail Gorbachev, it had no hard currency with which to make good on contracts and promises. The break-up of the Soviet Union meant that Hyundai had to postpone its projects — though Chung was glad to have staked out Hyundai’s claim. On the alert for change, Hyundai formed a new company, Hyundai Resources Development, responsible for Russian deals, while the Hyundai Corporation maintained offices in Moscow and Vladivostok. Vladimir Orlov, recruited in Vladivostok, caught the spirit quickly: “Men in Hyundai don’t have enough time to sleep. The words ‘no’ and ‘impossible’ are simply not in the vocabulary” — a philosophy that “helped Hyundai become the best Korean company in Russia.”⁶⁹

69 Vladimir Orlov, “Hyundai Staff Around the World,” Hyundai Newsletter, July 1992, p. 12.

Hyundai had to put off the dream of an oil and gas complex in the western Siberian oilfields but still envisioned projects around the central Siberian city of Yakutsk and talked of mining for copper and building a railroad in the region. For all Chung’s disdain, Hyundai engineers cooperated with colleagues from Daewoo and Samsung on a study conducted by the government-run Korea Gas Corporation and the Korea Petroleum Development Corporation on the Yakutsk natural gas field, all coordinated by Korea’s Ministry of Energy and Resources. One key to surmounting the Russian cash-flow problem was for chaebol and government to work together — as Korean industries had so often prospered in the past.

As it was, Hyundai encountered serious trouble on one of the few projects supposedly up and running — a joint venture for timber called the Svetlaya Company, formed in November 1991. The system was theoretically simple: Russian and Chinese laborers cut down spruce trees, loading the logs on barges at Svetlaya, about 450 kilometers, three hours by helicopter, southeast of Khabarovsk. The logs went to Japan and Korea, where they were cut into lumber. (The Korean market was safe — Hyundai Wood used it for tacky office furniture called Livart, 38% of it sold to Hyundai companies.) Hyundai had hoped to process timber in Svetlaya but was waiting for the Russians to pay $60 million for their share.

Problems multiplied. The mayor of Svetlaya complained that Hyundai had not made good on pledges to build a school and a clinic, and Russian authorities imposed export taxes after the Soviet Union’s demise in 1991. Then, the Russian weekly Continent surmised, Hyundai had colluded with authorities to strip forests of soft pine protected by law. The regional government in 1992 authorized Hyundai each year for 30 years to cut 437,000 cubic yards of some of the best native timber, enough to fill seven barges. The deal, a compromise, satisfied no one. Hyundai still was not getting all the wood that it needed, and Uighur tribesmen were incensed about the threat posed to both the pine trees and the sacred Amur tiger — a beast that feasted on the game that roamed the forest in search of cedar nuts.

The tigers, dwindling to a few hundred in number, began invading farmland in search of livestock. Plant species and other animals, including leopards and cranes, were also endangered. Greenpeace and other environmental groups espoused their cause. The California-based Pacific Environment and Resources Center formed the Siberian Forests Protection Project to spread the word for saving Siberia’s 2.3 million square miles of forest, “twice as large as the Brazilian Amazon and probably equally important in deterring global warming.”⁷⁰ Tribesmen, said a member of the Russian reform movement, were “ready to die guarding their trees.” One day in September 1992 half a dozen armed Uighur and Cossacks stood in the way of Hyundai trucks on a mountain road. Russia’s Supreme Court suspended logging in the area pending a final judgement on its legality.

70 Lisa Tracey, “Saving the Taiga: The Pacific Energy and Resources Center,” The Special Expeditions Traveler, Winter 1992–93, New York, p. 7.

Unable to count on access to the virgin forests it craved, Hyundai had to settle for low-quality spruce from elsewhere to fulfill its voracious needs. A journalist in Svetlaya in early 1993 reported “most of Hyundai’s state-of-the-art foreign cutting equipment sits idle behind barbed wire at the company’s main logging camp” — near “a cavernous metal chipping plant set up to process wood.”⁷¹ Hyundai, getting only 20% of the timber for which it had budgeted, portrayed itself as an innocent abroad. Kim Jong Gon, in Hyundai’s Moscow office, argued that Hyundai’s Russian partner, not Hyundai, “should solve these local problems.” As to Hyundai’s failure to upgrade facilities in Svetlaya, Kim said “we pay money for each tree” — and had never promised a thing more.⁷²

71 Hal Bemton, “Tim-Ber! Hyundai’s Debacle in a Russian Forest,” Business Week, international edition, February 1, 1993, p. 25.

72 “We Pay For Each Tree,” Newsweek International, July 26, 1993, p. 14.

Nothing, however, fazed Hyundai so much as Russia’s inability to pay Hyundai. Moscow’s economic difficulties delayed plans for a business complex in Vladivostok, exploration for coal mines in the far east and oil development in the southern region of Kalmyk. Koreans from Hyundai and other chaebol were common sights on the streets of large cities, but Russian companies had no funds for free-enterprise partners. With Moscow demanding hard-currency payments for exports to communist states that once paid in their own funny money, the Kremlin’s woes inspired gossip about a novel idea: Hyundai was willing to build an expressway between Vladivostok and Khabarovsk for nothing while collecting the tolls for the first seven years. Hyundai executives swore they had never heard of the proposal, but it did sound like the founder’s sort of thing.

Chung had made a start, one likely to pay off for Hyundai if the disparate elements of the Commonwealth of Independent States recovered from hard times. “We have plans, but the Russian situation prevents us from making progress,” said Lee Byung Kyu. “We are waiting” — just as Hyundai awaited rapprochement between the Koreas. As if to prove the point, Hyundai agreed in 1992 to put up $88.2 million for a partnership with Vladivostok authorities to build a $ 126 million hotel in the city — whenever the Russians came up with their share. If Hyundai could thrive in the heat of the Persian Gulf, it could also exploit the frozen expanse of Siberia and bring modern industry to North Korea and China too.

Several months after losing the presidential election, Chung still talked about his dreams. He still envisioned a natural gas pipeline from Yakutsk to South Korea — via, of course, the North. If only the IAEA and Pyongyang would agree on open inspections, he told reporters in Tokyo, he saw no reason for the North to object to a project that would serve its purposes too.⁷³ It was all in the vision of the man who had made his first millions on contracts for a military establishment at war with all of them only 40 years before.

73 The Korea Economic Weekly, March 15, 1993.

Cars that Made Trouble Potholes and Pitfalls

X Age of the Car

DOI: 10.4324/9781315483214-10

Chung Ju Yung got right back into business as usual as the Japanese withdrew from the Korean peninsula after World War II. In 1946, while it was possible to move from North to South, he moved back to Seoul — and set up a garage named “Hyundai Jadongcha Gongupsa,” Hyundai Motor Service. It was the first time Chung had ever used the name “Hyundai,” “modern,” for a commercial enterprise. To Chung, the peasant’s son, the word seemed sophisticated, progressive. “I think I thought of the name because I owned a car garage.” A car, he pointed out with irrefutable logic, “is a convenience of ‘modern’ civilization, isn’t it?” At first, he specialized in refitting surplus U.S. military vehicles, cast off by the forces that had arrived in September 1945 to occupy the land up to the 38th parallel. A year later, he added Japanese cars too — and soon had 30 people working for him, already half the strength of his old garage, Ato Service.

Chung could be self-deprecating when viewing his career from the vantage of billionaire success. The garage “was modern only in name,” he liked to joke. “All we did was fix old Japanese cars or transform them into charcoal-run or carbon-run cars as there was not enough gas.” Indeed, he would add, “You might say the work itself was ‘ancient.’” Years later, when Ford was looking for an Asian manufacturer to assemble some of its cars on the cheap, three Korean entrepreneurs vied for the privilege. “The other two company presidents did not know anything about cars,” said Chung. “However, there was nothing I did not know about a car. That was why my company got the contract.”¹

1 Chung Ju Yung, Age of Success, 1989, in Korean; Chun Bum Sung, Secret Story of the Founding of Hyundai, 1984.

Chung had to sell Hyundai Motor Service in the sharp economic downturn after the Korean War. Indoctrinated in the mythology of motor vehicles from the pre-World War II days of “after service,” however, he believed Hyundai would someday make its own cars. There was an irony in the timing of his thoughts on returning to motor vehicles — 1965, before Chung persuaded Park Chung Hee that Hyundai could build the Seoul-Pusan Expressway. It would become Chung’s mission, it sometimes seemed, to guarantee that his expressway, and numerous other highways and byways in Korea, were jammed with more than enough vehicles to justify their existence.

Not that Chung was the first to come up with the idea of Korea’s very own car. Adecade earlier, in 1955, a four-cylinder “Cheval,” modeled from the jeeps that had flooded the land during the Korean War, coughed onto the streets. The assembly of the first one was a source of such national pride that Rhee Syngman awarded the company that built it a presidential prize in an exhibit marking the 10th anniversary of Korea’s liberation from Japan. Pieced together from imported parts with cylinder heads made in Korea, mounted on frames banged together from steel drums, a few hundred Chevals had sputtered off the floor before the company gave up the ghost in 1962. That was the year Saenara Automobile Company set up Korea’s first assembly line with Nissan in Japan providing the know-how. Saenara made only 3,000 cars, however, before shutting down the next year; it didn’t have funds to import semi-knockdown or SKD sets for local assembly. In 1965 Korean shops made 141 vehicles, 106 cars and 35 trucks, the decade’s low.²

2 Kim Chuk Kyo and Lee Chul Hee, “The Growth of the Automobile Industry,” Park Chong Kee, editor, Macroeconomic and Industrial Development in Korea, 1980, pp. 280–281. Tom Lowry, The South Korean Motor Vehicle Industry: A Rerun of Japan? 1987, p. 8.

Chung’s plunge into motor vehicles on a large scale ushered in a new era in Hyundai as well as Korean history. With the failure of Saenara, he had his chance. As he had in the case of construction, he dove right in without concern for the dangers and risks and against a great deal of sage advice. Now the question was how to succeed after others had failed when he had only rudimentary experience. His boldness shocked businessmen who had gone with some hesitation into parts manufacturing — a support industry that had also grown uneasily since the Korean War. It seemed all the less likely that Chung should do well since he had never manufactured so much as a bolt or a bearing.

The search for a foreign collaborator — a vehicle maker for whom Hyundai would assemble cars under the foreign name for local sale — found sympathy and support where it counted, in the Blue House. Park Chung Hee had in 1962 promulgated a five-year plan for motor vehicles followed by a more specific Automobile Industry Protection Law under which the government would promote construction of plants for building vehicles. Park’s economists had already lifted the tariffs on the import of key components and offered tax breaks for assemblers. While local manufacturers could bring in parts at reasonable prices, they faced deadly competition from foreign versions of the finished products. The government restricted car imports — a move that foretold the complete protection afforded by tariffs and quotas in later years.

With such assurance, Chung did not wait until he had sealed a deal with a foreign company. Already at least two other Korean companies were planning to compete. All of them were in need of foreign partners. One of them, Shinjin, took over Saenara and its residue of experience, producing Coronas on license from Toyota in 1965. Another, Kia, from a beginning as a bicycle-maker, was graduating to motorcycles and three-wheeled trucks on license from Toei, also Japanese, and began making cars for Honda in 1967. The same year, Chung set up a separate motor car office in Hyundai Construction and, with bank credit encouraged and authorized by the government, bought 81.54 acres on the Taehwa River in Ulsan, selected by central planners for his future industrial complex. The river, running into Ulsan Bay, formed a natural harbor where Hyundai could build a jetty for 20,000-ton freighters while highways and railroads linked Ulsan to Seoul and nearby Pusan.

As important for Chung as support from the Blue House was the assistance he knew he could get from his younger brothers. In Yung, the next oldest, urged him to get back into motor vehicles and spearheaded the first negotiations with foreign manufacturers. Then, after Chung had registered Hyundai Motor Company on December 29, 1967, as the first major Hyundai entity separate from Hyundai Construction, he called on fourth brother Se Yung to run it full-time while I.Y. focused on construction. Ju Yung was never much for instituting the principles of Western business school management, but he saw the “group” as getting too big even for him. I.Y. was appointed president of Hyundai Construction while S.Y. got the same title at HMC.

Chung’s choice of Se Yung was a decision that set the course for both Hyundai Motor and the Hyundai group. Trustworthy, able, aggressive but not domineering, S.Y. was in many ways the perfect kid brother. He had distinguished himself with his loyalty and diligence and was flattered that the eldest should select him. From its inception as an independent organization, Hyundai Motor would be S.Y.’s special responsibility even though Ju Yung would be in on the key decisions. By bequeathing Hyundai Motor Company to S.Y., Ju Yung demonstrated the special place S.Y. had in his confidence as well as his affections.

With S.Y. in charge of HMC, Ford’s quest for a Korean partner—a company with the appropriate qualities of eagerness, ability and cheap labor — culminated in the signing on February 23,1968, of “a standard overseas-assembler franchise agreement.” Ford would supply the equipment and technology for a plant initially capable of assembling in one year 3,000 vehicles, trucks as well as cars, from CKD or complete knockdown sets shipped over by Ford. Hyundai had bared its teeth during the talks when Chung refused to consider “management participation” by Ford, but Ford went along with an eye on the future. A second agreement called for using Korean material and parts where possible and committed Ford to aiding the fledgling parts industry with technical assistance as well. Ford people would begin by showing Hyundai how to put together Cortinas, the Ford of Britain, a family car adjudged right for life in Korea.

It was a beginning, modest perhaps, but enough for the plant in Ulsan to raise production to more than 5,000 vehicles a year. The deal showed promise — for Ford, for Hyundai, for Korea. The question was whether they could advance from CKD sets into their own brand-new models of collaborative engineering, real Korean Fords, maybe Ford-Hyundais. The answer came in the form of a classic clash of wills that showed American big business how Chung Ju Yung operated, what he wanted for himself, what his government wanted for him and Korea. Ford had little idea of the nature of the Korean chaebol. Its bosses saw their company in the role of a titan of American manufacturing patronizing an infant Asian upstart. Thus Ford underestimated Chung and the government that backed him. Otherwise its top executives would have been aware that Chung wanted much more — and that Hyundai and the Blue House would see those two initial agreements as only stopgaps until they had their way on nobody’s terms but their own.

For the first couple of years, Hyundai was happy to glean what it could from Big Brother’s example. Almost immediately, production expanded from Cortinas to diesel trucks and buses. Ford of Europe shipped in almost 80% of the parts, including engines and transmissions, while Korean suppliers produced the rest. Ford production people looked over the shoulders of Korean engineers and technicians. “They taught us everything — how to read a drawing, what is a manufacturing standard, how to do quality control,” said Lee Soo II, who joined Hyundai in 1969 after graduating from Seoul National University in engineering. “They checked all the components after they shipped to us. They checked the quality of cars after being assembled. We learned a lot of things from Ford.”

Koreans had a lot to learn. The country was sorely lacking in men with technical backgrounds. It was one thing for a self-made man to run a company but another to design and produce a machine without having studied engineering. The deeper the country got into basic industry, forerunner of the high-tech that was to come, the more the Economic Planning Board clamored for more trained men. (Women were something else. They were expected to serve as secretaries and clerks and rarely given professional or skilled work, much less a shot at management — another token of the deeply traditional culture that existed beneath the veneer of modernism.) It would not be possible for Korea to turn out its own cars, licensed copies or KD sets, without veteran engineers, technicians and foremen in the central plants and ancillary supply companies.

Koreans picked up their knowledge any way they could — at engineering schools or on the job. “They are a very dedicated, hard-working lot,” said William Hartigan, who served as president of Ford Motor Products, part of Ford’s Asia/Pacific operation. “Everybody who dealt with the Koreans was struck by their hard work. Building assembly plants was no trouble for them. They learned very quickly.” Hartigan, commuting to Seoul from Melbourne, described their “Confucian ethic” simply: “They get the job done without screwing off.” He credited the Chungs, Ju Yung and Se Yung, with having set the pace. “There’s no secret, no miracle,” S.Y. agreed. “We make good planning. We work hard.”

That ethic went right down the line. “At the beginning in my calendar there was no Sunday,” said Lee Soo II. “I had four days for my honeymoon.” Lee, who rose to become managing director for planning, recalled his manager offering a special dispensation one night just before quitting time at 11:45 p.m. “Ok, you can finish at 5 or 6 p.m. one week,” said the manager. Actually, young engineers and technicians were not unhappy about the midnight curfew imposed by President Park in times of crisis. It meant nobody could keep them on the job after that time. The work ethic and the special feeling of being a Korean and a Hyundai person extended to the plant floor. “We’re proud to be Hyundai workers,” said Lee Se Hee, on the Cortina line when he joined Hyundai out of high school. “There isn’t any company that can compare to this one” — though he also belonged to the company union and supported “any strike that would make good conditions.”

The Korean penchant for hard work and study turned quickly — more quickly than Ford ever imagined — into a yearning to go it alone. By 1966 Korea was luring foreign investment through the Foreign Capital Promotion Act. The impression was the country needed all the dollars it could pull in — the dollar was about the rock-hardest currency then — and would do nothing to jeopardize the inflow. The Koreans had no sooner gained confidence in their prowess at assembly work than they decided to move on and up. “By early 1970,” said Lee Soo II, “Chung Se Yung’s dream was, ‘We want our own car, not to be supplied by another source.’”

It was a desire that economist Michael Porter recognized throughout Korean industry — “a unique feature of many Korean companies is their early effort to develop their own product models and to market abroad under their own brand names” in contrast to companies from Hong Kong and Taiwan. That and “an awesome willingness to take risk” — illustrated by no one more than Chung Ju Yung — were evident even then in HMC’s first faltering steps toward independent motor vehicle production, as they were just a couple of years later in shipbuilding and, in the next decade, in fields as diverse as electronics and petrochemicals.³

3 Michael E. Porter, The Competitive Advantage of Nations, p. 471.

Chung, ever a practical man, was concerned with the here and now. Ford and Hyundai had to figure out how they were going to advance together to the next stage of Korea’s automotive evolution. Hyundai suggested setting up another company, one to produce engines for the cars it was assembling. At the outset the idea was a 50/50 deal in which the Korean manufacturing plant would produce a car under the Ford name. “It could have been a distinctive car,” said Hartigan, but the project never got beyond the conceptual phase. What happened? The duo of Park Chung Hee and Chung Ju Yung raised the ante, and Ford woke up to the kind of game they were really playing.

Or, as Hartigan diplomatically put it, “Park Chung Hee’s policies made the idea of going through with the venture less attractive than we initially thought,” and Hyundai proved “very interested in pursuing government policy.” Several factors came into play. For one thing, the government stiffened the requirements for domestic content. From 1966 to 1972, the ratio of local to foreign parts in cars put together in Korea rose from 21% to more than 60% — a tremendous boost that economic planners saw as vital to indigenous motor vehicle production.⁴ For another, assembly line output of Fords began to slow down amid worldwide recession.

4 Kim Chuk Kyo and Lee Chul Hee, “The Growth of the Automobile Industry,” pp. 281–282.

Most importantly, Park was “not too keen” about the 50/50 arrangement, said Hartigan. Then Hyundai, in Hyundai style, insisted not only on managing the company but also on holding more than half the capital, and Ford was not enthused: “We weren’t interested in putting our interests in an effort that would have left us with no substantial investment.” Ford did not like to set up shop anywhere around the world “as a minority shareholder.” After two years of haggling, Ford had its way on that point — the two sides in November 1970 contracted for a joint venture to be divided equally, and the government gave the requisite approval. The troubles, however, were only beginning. If Park were anxious to prevent foreign control of an enterprise, Ford’s behavior was haughty to the point of arrogance.

HMC and Ford were soon bickering over management strategy, reflecting the desire of each to run the venture. Ultimately, however, Hartigan came away with respect for the Chungs and Korea. “I’ve been negotiating for Ford all over the world,” he said, “and found them by and large thorough negotiators wanting to discuss everything.” He described the talks as having been conducted “with propriety and honesty” and praised Ju Yung as a man “who didn’t put up with fools gladly and wanted to get to the point.” As for Se Yung, he was “a little more polite, a civil guy [who was] also very aggressive.” He compared the brothers favorably to the Japanese with whom he had negotiated for years. “Unlike the Japanese,” said Hartigan, “they are not obscure.”

No matter how much they talked, or how well they got along personally, there was no getting around the basic reality. “Chung Ju Yung and Chung Se Yung by and large adopted the view, ‘this thing is for the nation,’” said Hartigan. Chung Ju Yung especially came across as “a great patriot” — another of Chung’s guises that provided the justification for pulling away from almost any commitment. The risk of a deal coming apart for nationalist reasons was higher in Korea than in most other countries, Hartigan contended, in view of the way the government used the chaebol system to promote overall aims.

There was the real danger. What was to prevent Park from sacrificing Hyundai to some policy goal? Hyundai and the Blue House, Ford reasoned, might set off a disaster in motor vehicles against successful investments in other industries in the group while a one-product company like Ford would have nowhere else to turn, at least in Korea. For that matter, an edict from the Blue House could ruin an industry or a company — or Hyundai could allow motor vehicles to stagnate while plunging into yet another field favored by the planners. Suddenly, what had appeared as a promising place to invest, a source of cheap labor, studious managers and eager-to-please owners, seemed complicated, stubborn, mysterious. Ford would not be able to have its way with these people so easily.

Did Ford suffer from a crisis of courage? In fact, Ford never put up its share of the capital after signing the deal. Ford executives questioned whether Hyundai could acquire its own capital share and complained the local market was too small. How, they asked, could Koreans sell cars without American-style financing deals, money down and monthly payments? The Chungs offered reassurances, explaining how Korean car-makers sold their cars through their own company, how eager Koreans were to have Fords, how the market would look up, but they spoke in vain. The relationship broke down on two points. First, HMC suggested selling cars through Ford dealers worldwide — a great way to achieve Park’s export goals and allay Ford’s fears about poor sales in Korea. Ford refused, maintaining the Ford network was for Fords.

Second, Ford came up with proposals seen in Korea as blasphemous: Why not build only diesels in Korea while importing gasoline engines from plants in other countries? The factory would then become an adjunct to an imperial Ford’s global aims — diesels from Korea mounted on truck chassis from who-knew-where and automobile engines imported from somewhere else and put on Hyundai Fords. The government in January 1973 withdrew its approval for any deal at all. In March 1973, after a final effort by Hyundai to reach agreement, Ford was muttering about an even more improbable notion — changing the 50/50 partnership to 60/40 for Ford. Hyundai continued assembling KD sets for Ford until 1986, but in fitful talks occasionally revived over the next decade the two could never come to terms on a joint venture.

Ford executives could still congratulate themselves — for the moment — for having avoided an investment that appeared still less safe after OPEC, led by its Arab members, raised oil prices drastically during the Arab-Israeli War of October 1973. Who was really to blame for the failure was uncertain. Were the brothers Chung not as frank as they had seemed to Hartigan? Might they have never wanted the deal with Ford in the first place? Or did Ford negotiators, hobbled by the home office, the politics of the final years of Henry Ford IPs rule, lack the guts, if not the authority, to retreat from established positions? All that was certain was the failure of the Ford-Hyundai joint venture deal was an occasion of long-range significance for Hyundai — perhaps for Ford too.

It would be years before Ford began to have second thoughts about its inflexibility and get back into Korea on less favorable terms with a lesser company, up-and-coming Kia. As for Hyundai, from then on it could act with the type of independence in which Chung Ju Yung reveled. Some years later, in 1987, as HMC approached its 20th birthday, he summarized a lesson reinforced by the affair with Ford. A joint venture would “severely impede creativity and independence and the future prospect of local enterprise,” he counseled. A company if it hoped to export anything “should not allow foreign capital participation to a significant proportion.”⁵ With or without Ford, however, Chung had his heart set on building his own car. “Chairman Chung decided we should go it alone,” as Chon Sung Won, who joined Hyundai Motor in 1969 after 15 years in the navy and rose to president, later told me. “We visited many countries all over the world and finally concluded on small passenger cars. [Hyundai was moving from] the assembly stage, the KD sets, to the manufacturing stage.”

5 History of Hyundai Motor, Hyundai Motor Company, 1987, in Korean, p. 165.

Hyundai was still dependent on foreigners — for technology, parts, expertise, advice. In fact, Chung was so concerned about the impasse with Ford that he had long since begun shopping for another partner, one from whom he could buy the technology for his own car. In the process, he later revealed, he “refused a contract with General Motors because they wanted us to make a world car.” Chung was not about to fall into the same pit with GM that he was trying to avoid with Ford. Similarly, he shied away from Volkswagen and Alfa Romeo. “We should design our own car,” he said, or get someone to do it for Hyundai, not for GM or another company.⁶ He had to intensify his search, however, when GM in 1972 entered a 50/50 venture with Shinjin. The two formed “GM Korea” after Toyota had pulled out of Shinjin as a political precondition set by China for doing business. It was the first equity deal between a Korean and a foreign car manufacturer — the start of a bumpy relationship between GM and Shinjin and, from 1978, GM and Daewoo, which took over Shinjin in a government-backed rescue effort.

6 Chung Ju Yung, The Pony Runs, 1987, p. 142.

Then, in a commentary on the recent commercial and economic development of the region, the Chung brothers turned to Japan where they found what they wanted in return for much less than Ford had demanded. The solution lay in a technological licensing agreement signed in 1973, after the Ford debacle, with the also-ran Japanese manufacturer Mitsubishi Motor, in need of overseas partners as it battled behind mighty Toyota, Nissan, Honda and Mazda. For the Chung brothers, it was a dream come true. Hyundai could avoid the burden of partnership while buying the engine, transmission, accelerator and rear-axle designs it needed for its very own car, and it could profit still more by fabricating these products for Mitsubishi cars as well. Now the foreigners would be working for Hyundai. For Chung Ju Yung, the biggest saving was his integrity. He would enter a deal with anyone for profit, but he would rather not share if he could help it.

There would be some grumbling over the timing — suggestions that Chung had forced Ford to pull out of a joint venture because he was about to sign with Mitsubishi. Whatever, Chung’s plunge into the second stage of motor vehicle manufacturing, like that of so much else he had done, was politically uncanny. Chung’s friend in the Blue House was now riding higher than ever. Park Chung Hee, furious over the strong showing of Kim Dae Jung in the 1971 presidential election, in 1972 promulgated his Yushin — “revitalizing reform” — constitution under which he swept away any civil liberties and democratic forms he had overlooked earlier in his presidency. He already could rule by martial law, but the infamous Yushin constitution enabled him to issue emergency decrees and set up an electoral college that duly elected him to a new six-year term at the end of the year.

The onset of unbridled dictatorship had its economic counterpart in the form of an offensive designed to push, pull or otherwise drag Korea into the industrial age under a “long-term development plan.” Hyundai’s commitment to its own car — and expansion of its plant — paralleled promulgation of a program for heavy industry stressing import substitution of a range of items the Koreans were accustomed to getting from abroad. Motor vehicles, whether in finished form or KD sets, were just one category. Petrochemicals, iron and steel, ship-building — Korea under the plan had to produce these items for itself and for export.

Park Chung Hee by now ran everything by decree — and by plan. Motor vehicles could not be an exception. As soon as they could, the planners got around to Korea’s four or five motor vehicle companies. Several months after Hyundai had locked arms with Mitsubishi, in 1973, Park issued a “directive to develop the automobile industry,” and his government followed up with a “long-term automobile promotion plan” calling on manufacturers to build “citizen’s cars” made almost entirely of Korean parts. It was an audacious proposal — and a stunning retort to the collapse of the Ford-Hyundai joint-venture talks. Economic experts, many with degrees from American universities, had their doubts, but the Chung brothers raced to produce their first car, the one to set the pace for the millions in HMC’s future.

The plan designated specific sites for producing these citizens’ cars — runabouts with engines no bigger than 1.5 liters. Hyundai would be a prime manufacturer, naturally, but Kia and Shinjin would get their shares too. Having already obtained the Mitsubishi technology, Chung Se Yung journeyed overseas again for still more expertise and manpower. In Turin he persuaded Giorgetto Giugiaro of Ital Design, stylist of vehicles ranging from Alfa Romeos to Fiats to Volkswagens and dozens of others, to come up with the basic appearance. Then one of his emissaries was off to England, conferring with George Turnbull, a former British Ley land vice president who had resigned over a plan to model the BL structure after that of Ford. “In October 1973 a Korean knocked on my door, Lee Su Chun, S.C. Lee,” said Turnbull. “He was a key man whose task was to negotiate a loan, start to do some procurement. He told me all about what I thought was a wild-eyed idea, the Korean Hyundai.”

Turnbull was sold on the possibilities after spending a week in Korea during which he met both Chung Ju Yung and Chung Se Yung. He gave full credit to S.Y. for his contributions to the car company but reserved his greatest praise for the founder, whom he met at the shipyard. “He was a man of vision,” said Turnbull, tossing out superlatives one after another during a return visit to Seoul in 1989. “He’s got boundless energy. That man is so bright, it’s unbelievable. He’s practical to the point where it hurts. He must have taught himself finance, and he’s a great motivator. He put the fear of God in people.”

The chairman’s role in hiring him, Turnbull firmly believed, gave him the “bit of leverage” needed in the early years to pull the operation together. No sooner had he signed a contract in the London Hilton in February 1974 than he began “to get the show on the road” — and “ended up with six chief engineers,” including a body designer, a chassis designer for cars, a chassis designer for light commercial vehicles, a test engineer and two production engineers. “They all had three-year contracts. That was how the thing started, the gearing for this company.”

From London, Turnbull and his six newly hired engineers went to Turin to inspect the designs turned out by Giugiaro and his staff. “They had virtually made up their minds,” he said. The first model would be “a competitor with small to medium-size Japanese cars — not much sophistication because they really didn’t know much about cars.” It was then that Turnbull went to work in earnest on the mission that would consume him for the next three years until he finally saw his piece of Hyundai history completed and returned home to London in 1977. “First, we built an engineering center and got the drawings marked up in Japanese and English and got working drawings and then sent them to the toolmaker to make the tools from which they make the parts.”

Turnbull smiled wryly as he recalled the gusto with which Hyundai, inspired by the Chung brothers, swung into action. “They were putting in equipment before they had completed the factory,” he said. “I had to go back to basics. We debunked a lot of theories — that you need three months to do this when you need one. They say you need four years to put a car in production. We did it in two, and we had to build the factory on a swamp” — wetland by the Taehwa River in Ulsan where Hyundai had its assembly plant. “People spend a million pounds on a track. We did it for 20 pounds.” To be sure, “it was a very rough road,” but it sufficed for “a dust, water and braking test.” The test drivers were on the road “day and night,” he said, “but it wasn’t high speed.”

Turnbull’s most crucial contribution may have been his campaign against an inferior engine that Mitsubishi wanted to foist on the unsuspecting Koreans. “The engine would have been underpowered to begin with,” he said. “Mitsubishi didn’t want them to have what they would have on their own cars.” He got the Korean chief engineer, Shin Hyun Dong, H.D. Shin, “Heavy Duty Shin” to the British engineers, “to go to Japan and tell the Japanese the engine would not be satisfactory for a number of reasons.” Turnbull’s underlying concern: “If we had a bastard engine which nobody else was making, the onus would be on us, but if we got the engine they were using in Japan, we would have a backup.” Since spare parts would be critical, Shin had to win assurances that Mitsubishi would have the spare parts before Hyundai accepted an improved engine for the Pony and later the Stellar, mainstays of Hyundai dealers’ showrooms for a decade.

While Turnbull was overseeing the rise of the new factory, Chung had to get the money to pay for it. The ingredients for fund-raising were the same as always — Chung’s irrepressible energy and President Park’s full support. The government authorized Hyundai to borrow $72 million from banks in Japan, England and France and got its own banks to come up with the rest of the $100 million needed to build a plant capable of producing 56,000 cars a year. Turnbull helped persuade Barclay’s £20 million, about $50 million. “They had some difficulty getting terms of the loan,” he said. “We got it at 6% when the government wanted it at 7.5%. The chairman did hard work for the loan.” Backed by the Export-Import Bank’s export credit guarantee department, the loan, according to an official account, was “the first project loan that a Korean company had received from a foreign bank.” Redeemable in seven years with three years’ grace, the loan was all the more remarkable considering that HMC’s paid-in capital then was $5 million.⁷

7 United People’s Party, The Birth of Hyundai Heavy Industries, 1992, pp. 7–8.

Turnbull now had to make sure the money was spent in the country whence it came — a condition set by both Britain and Japan. “Somehow we got everything sourced from the payment point of view”—meaning Hyundai spent the loans on parts and equipment in the countries whose banks put up the money. “Hyundai was lucky. They caught the capital goods market. The initial cost was less than $200 million.” He credited the Koreans with being “very clever in using the loan money to help finance the work [until they were able] to buy their own equipment.” For all the dreams of company and the country, Turnbull realized “they got virtually no capital.”

The British engineers were just as awed by the driving nerve of the chairman when it came to building the factory in the swamp. “Everybody wanted to move it,” said Turnbull. “The chairman said, ‘No, you will build it here.’ They had to drain it. They had to pile it up to 30 meters. The Koreans cast reinforced concrete piles. All the piles were produced in winter when it was freezing. They had to put them in plastic envelopes so they wouldn’t freeze.” Chung believed he could do anything since he had already “built that shipyard and built the first ship.” Chung stuck to the site for two reasons: “He certainly wanted the port” from which to ship the cars, “and he wanted his main industrial strength in Ulsan” — probably because President Park told him to concentrate his factories there while giving other “special industrial areas” to other favored chaebol leaders.

Sometimes Turnbull had to set the chairman straight: “He always said, ‘This motor car thing isn’t so difficult. If we can build a ship, we can build a car.’ I told him, ‘You can fix a ship, but when you press the button and the cars come off wrong, you have to start all over again.’” The philosophy of the chairman made for frustrations in dealing with Korean engineers and technicians — a headache then as it would be years later. “My engineers had to deal with Koreans who were terribly bright,” said Turnbull, implying they were not all as bright as they believed. “Sometimes they got going in the wrong direction.”

The Koreans just did not see why they had to spend so much time testing. “It didn’t occur to the Korean mind how much you had to do,” Turnbull discovered. “In a lot of cases my engineers would come wringing their hands.” Turnbull insisted “they loved it” — though “they had a bloody hard time.” One of the neophyte Korean engineers, Lee Chung Goo, fresh out of Seoul National University, recalled “we had many kinds of problems” — though luckily the engine was not one of them. “The customers liked the engine very much,” said Lee, but almost everything else that could go wrong did, at one time or another: “The door handle was broken the first time. The seat covers were not durable. The plastic parts broke with the sunshine. The colors changed.”

As the plant neared reality, Hyundai came up with a catchy name for the car it was planning. “Hyundai female workers,” as an official history put it, suggested “Pony” — a word known in Korea from all the American Westerns to which Koreans had been exposed since the Korean War. The name was right for a country where average people, not just big business operators, were getting a hankering, more than 20 years after the Korean War, for hopping in and running to the market, the office, the movies. It also recalled the Mustang — Lee Iacocca’s galloping success at Ford that first came off the lines in 1964.

The car was a typical Chung/Park endeavor. Nobody did any market testing. There was no sampling of control groups, no scientific research into consumer tastes. Nobody conducted a poll that might reveal the car would do well in one age group, not so well in another. The two, tycoon and dictator, simply went ahead and decided to build the thing. The Pony — called the Pony I after the Pony II came into being a few years later — began rolling off the line in December 1975, a manageable 1.2-liter, rear-wheel-driven subcompact with guaranteed funding and a guaranteed market.

The methodology said as much about Chung as it did about Park. The motivation, as in all the other Hyundai projects, was not only to prove self-sufficiency at home but also to compete internationally.

“It was a very unsophisticated operation,” said Turnbull, understandably aghast when he heard the Pony was projected for sale abroad. “Chung told me he had promised the president he would produce 5000 vehicles for export. I said, ‘You can’t do this.’ He said, ‘You’re right, but we have to do it.’” Chung spotted a way into the field that big-time rivals had spurned. “He decided on a program to send a small number to a large number of markets.” An assortment of nations was targeted — Nigeria, Saudi Arabia, Taiwan, Peru and Ecuador led the list. Hyundai soon learned that selling overseas could be tough. “We had not a lot of trouble in the domestic market,” Turnbull wryly observed. If Koreans in those days accepted whatever they could get, foreign buyers might not be so amendable.

Another manufacturer might have flinched as some of the hazards sunk in. “Most of the specialized problems occurred overseas,” said Turnbull. “We had paint fading and a lot of mechanical problems, like brakes and steering. For the vinyl roof, we used adhesive for the market here. It was not tested under tropical conditions. In Nigeria, someone pulled the roof off like peeling a banana.” Then, as later, export pressure forced upgrades that would never have happened if HMC were manufacturing only for protected domestic consumption. Tremendous work went into improving the quality. “You can’t start from nothing and go into an export market, but we cleaned up this market in two years.”

Turnbull saw his mission as accomplished by the time his contract was up in 1977: “I thoroughly enjoyed my three years here. I had done what I came to do. They were off and running. I had done the maximum I could. They were capable of doing their own thing after that.” Korea was far from ready to compete with the big boys on their own turf, but the Age of the Car was here at last. Look, said Chung Ju Yung in Japanese, Pony Ga Hashiru — “The Pony Runs,” the name of a book written in his name, to hold up to Japanese who thought Koreans could never build their own car.

XI Honeymoon Cruise

DOI: 10.4324/9781315483214-11

The judgement of Chung Ju Yung, Chung Se Yung and their growing work-force was almost immediately was borne out by the numbers. The embarrassingly low production figures of the early 1970s, less than 3,000 cars assembled each year for the first three years of the decade, soon turned around. Hyundai, assembling only Cortinas, had surpassed GM Korea by 1974 and pulled far ahead with the introduction of the Ponies two years later. The numbers for 1976 were tiny — Hyundai’s output was 14,826 against 6,991 for Kia and 3,788 for Daewoo — but Hyundai never faltered. By 1978, the Pony had hit stride. HMC that year built 57,054 cars, 65% of the national output, setting the pattern for the future.⁸

8 Tom Lowry, The South Korean Motor Vehicle Industry: A Rerun of Japan? pp. 11–12.

HMC by now was ready for another leap forward — this time with the encouragement of a 1977 directive from Park’s government proclaiming motor vehicles as an “export target industry.” Again Mitsubishi was there, willing to provide still more expertise, perhaps capital too, possibly a direct investment. Chung Se Yung in October 1981 was ready to tell the world — millions of Koreans and those very few who were interested outside Korea — of a momentous step in the company’s history. Hyundai would build a new car, the Excel, with an engine in the front and a front-wheel drive. The car would cost at least a billion dollars to get into production, but again the technology, the design, would be Mitsubishi. And so, indeed, would a considerable proportion of the money.

There was still some grumbling in government about whether Hyundai and its competitors should be in the motor vehicle business at all. Kim Jae Ik, senior secretary for economic affairs to President Chun and one of the bureaucracy’s most perspicacious thinkers and planners, had grave doubts about motor vehicle manufacturing. He “believed the automobile industry was not viable in Korea because of limited domestic demand and lack of a road network,” according to Chang Seung Woo, on Kim’s staff at the Blue House at the time. “Chung persisted in developing the industry despite the opposition of Kim Jae Ik.” The Chun government in 1981, after a failed attempt at forcing a merger between HMC and Daewoo, promulgated a rationalization order that limited passenger car production to Hyundai and Saehan, the former GM Korea, now owned by Daewoo and GM, while restricting Kia to trucks. “At the beginning of the 1980s, heavy industries, notably the auto industry, were on the brink of bankruptcy,” explained Chang.

Kim’s hostility toward innovation in motor vehicles ended only when he was killed along with 17 other Koreans in October 1983 by the bomb set by North Korean agents in an attempt to assassinate Chun on his visit to the Burmese capital of Rangoon. From around then the industry in Korea took off — with Kia again producing cars after a two-year hiatus. Hyundai and Mitsubishi had already gone a crucial step beyond licensing when Mitsubishi in March 1982 purchased 10% of HMC as part of the deal whereby Mitsubishi supplied the technology Hyundai needed to expand into new, tougher markets. The Mitsubishi investment a decade later was 12.6% split between Mitsubishi Motor and the Mitsubishi Corporation, trading company for Japan’s largest keiretsu. Hyundai renewed its assembly agreement with Ford in 1985 but built only a few hundred more Granadas before the arrangement died in 1986. HMC would focus on the wide open American market — and not be part of an American giant’s dream of a world car.

The marriage between HMC and Mitsubishi was a passionate one that showed how a Japanese company, despite Korean antipathy, could succeed where others had failed. The relationship was formed not on the middle level but at the top — between Mitsubishi Chairman Tomio Kubo and the Chung brothers. “They agreed they were all oriental and we could deal on a heart-to-heart basis,” said Yukio Yoshida, a senior Mitsubishi executive, talking to me in Tokyo. He smiled at the Western emphasis on elaborate contracts. “They come up with very thick agreements, but we as orientals have only one sheet of paper. S.Y. Chung was so moved by Dr. Kubo that he chose Mitsubishi based on the philosophy of Dr. Kubo. He said, ‘You and I are not competitors, let’s do business on the basis of trust.’” The Excel was built to the specifications for the Mitsubishi Mirage — the same as the Dodge Colt made by Mitsubishi for Chrysler.

When Mitsubishi’s managing director for production engineering, Banyu Arai, came over to help Korean technicians around 1980, the HMC factory manager followed him everywhere, watching and noting all that he said. Over drinks at a kisaeng club, a Korean equivalent of a Japanese geisha house, only wilder, the Korean blurted out, “If you tell me to drink this sake, I will drink it even if it’s poison.” Arai told the Koreans a car should have a sense of evenness with no wasted space and nothing forced about running it. When he wondered aloud if the Koreans could go beyond fascination with appearances, the factory manager assured him, “We understand, and if we understand, we will do it.” Arai’s conclusion was prophetic: “Hyundai Motor’s ability to put everything into practice is amazing.”⁹

9 Takao Eiji, The Day Korean Cars Kick Out Japanese Cars, 1988, in Japanese, pp. 105–106.

Not that the Japanese trusted these Koreans completely. “The Excel is an entry-level car,” said Yoshida. “The Dodge Colt and Mirage engines are more advanced.” Mitsubishi came up with a clever way to assure HMC they were together. The two agreed HMC would make about 30,000 Excels a year with “Precis” nameplates for Mitsubishi to sell as — Mitsubishis! “So we give them better technology and know-how so we can too sell a better product,” said Yoshida, but he had no illusions. “There are 2,000 R&D engineers in HMC. Their technology experience leaves much to be desired. They have master’s or Ph.D.s but not in automotive engineering. They have a long way to go to be able to engage in R&D.” Still, he saw potential: “Those engineers are intelligent, eager to catch up with Americans, Japanese, Europeans.” And he hazarded a prediction: “Perhaps sooner than expected, they could reach the current R&D level of Americans.”

Such was the drive, the lust to inundate the country with Korean cars that dominated Hyundai Motor as it fought Korea’s industrial revolution. Later, disillusionment would set in. Prices would rise, workers would get out of hand, Hyundai companies, Hyundai Motor, would have to close down for varying periods. At the dawn of the Age of the Car, however, just showing the world — and yourself — you could make them and sell them was miracle enough. The final test for a world-class car manufacturer was just around the bend. HMC was now poised to crack North America in competition as well as collaboration with the Japanese. The Chung brothers, by the mid-1980s, were convinced they could do it, by dint of Korean hard work, an infusion of Mitsubishi money and know-how and some American expertise and salesmanship.

It wasn’t difficult to round up veterans of the foreign car business in the United States. A number of them had been working for years for the Japanese and were getting tired of the routine. One, Max Jamiesson, hired as executive vice president of Hyundai Motor America, “had a falling out with Toyota,” said a colleague. “Others were frustrated with the management style at Toyota” — all right for a while but overly regimented if you were thinking about making it a career. It was hard to imagine any team of sales and marketing executives more upbeat, more dedicated to their product than the group hired personally by Chung Se Yung to spearhead Hyundai’s invasion of America. “They saw a chance to get in a new company,” said an American on the original HMA team. “They saw a chance to start a company on their own.”

The Chung brothers and their American cohorts believed they could find a unique niche in car-hungry America. “In 1985, the Japanese left a void in the low-priced market,” said Ed Gormley, a Ford veteran hired as eastern sales manager. “You had the Escort, the Colt, the Omni, the Horizon, the Mazda 323, the Toyota Corolla and Tercel, the Nissan Sentra. They cost $5,900. The Hyundai was at $4,995 plus $250 for transportation. The only other car at that range was the Yugo at $3,995. Hyundai with air-conditioning and automatic transmission was under $7,000. Everyone looked at this as the next Toyota.” Thousands of Americans, it turned out, were hankering for just such a vehicle if the credit were easy — and it was, at least for the honeymoon.

“Cars that Make Sense” was the sensible slogan bandied about by HMA to help sell the Excel to a whole class of people who had never bought a brand new car before and would otherwise have shopped around for another secondhand deal. Here was a handy little runabout that would get you from here to there at the minimum purchase price. “Excel was the number one imported compact for two years in a row and the number four position among all importers,” said a proud Greg Warner, talking three years after signing on as group vice president for sales and marketing with the initial Hyundai Motor America start-up team in 1985. At the outset, when the Americans first came on board at Hyundai Motor America headquarters south of Los Angeles in Garden Grove, the Koreans showed a healthy propensity to heed the advice of people who had been filling in Japanese car-makers on the nuances of doing business in America for years.

Jamiesson, who had toiled for 15 years at Toyota, the last five as a vice president and divisional sales manager at the Toyota headquarters in nearby Torrance, fondly recalled one Hyundai executive sometimes known as “Automatic Transmission” — at least among the Americans. “When we told him we needed automatic transmissions, he said, ‘No problem, one tenth of our cars have automatic transmissions.’ We said we needed 40%.” When Jamiesson asked the same executive about air-conditioning, the answer was the same: “No problem, one tenth of our cars have it.” This time the response from Jamiesson was: “Eighty percent of American cars need air-conditioning.”

Advice from Jamiesson, Warner and their cohorts went much further than such obvious statistics. “We have one solid ground, and that’s the price,” said Jamiesson in a conversation in his office in Garden Grove near the end of 1988 at a time when Hyundai executives could still gaze on the future with unabashed public optimism. “If you have price and quality, you’re a complete winner. We think we have a little of both, and the quality we do have is the best for the price.” Sure, “we fall short of the Japanese in a lot of areas,” he went on, almost expansively. “Fit and finish, reliability and performance — in these areas is where we’re falling short.” But he seemed confident. “We’re pretty damn close,” he said. After all, he advised, “look at where they came from when they began 20 years ago.”

Everyone — the Americans, that is — seemed to like the first top boss of HMA, Park Sung Hak, who had run the Hyundai Motor operation in Canada for the first couple of years before moving to California to get HMA started in the States. Not only was he personally pleasant, he also respected the Americans for what they could do and let them do it. They trusted him, moreover, when he lured them into the HMA fold with promises of lifetime employment. Wasn’t that how the Japanese ran their shows right up the freeway between Garden Grove and Los Angeles? Here was a nice guy who wanted to do everything right, treat everyone right, then sit back and let good things happen.

Most of all, Park got along with Jamiesson. “Park had the decision-making power on everything that happened in the United States,” said Jamiesson, who raided his former employer for the nucleus of his team. “The way he worked with the Americans, he couldn’t understand what we were doing but said, ‘No problem, I trust you.’” As long as Park was around, Jamiesson reminisced in another conversation in 1990, “We had full power to make decisions.” Park did not start out full of confidence, Jamiesson added, “but because he had to get something done, he let me do it.” Without him, he figured, “we couldn’t have done anything.”

In the early days the Americans could even tell Hyundai what models to ship to the North American market. Hyundai Motor executives figured at first they could send over the likes of the Stellar and the Pony — the former a slightly ponderous rear-wheeled-drive vehicle, the latter in wide use on Korean streets as a mini-sized taxicab. Hyundai had sold both the Stellar and Pony with some success in Canada for the two years that Park was in charge there before deciding to attack the U.S. market, and Hyundai executives counted on building on that experience. Forget it, the Americans told them. “These cars were all yesterday’s newspaper,” said Jamiesson. “We decided to wait for the Excel because it was a more modern concept. When they had the front-wheel-drive Excel, we said the timing’s perfect. One of the decisions that was good was to wait those few extra months.”

If it seemed like a dream, it almost was. Jamiesson — with the full backing of the Koreans — ruled that Hyundai dealers sold Hyundais and nothing else in the same facility. In other words, you could not reserve a corner of your showroom for that nice little Excel and go on selling your Chevrolets or Toyotas or Volvos 20 feet away. For that matter, you could not set up your Excel showroom next to the room displaying cars from competitive or even not-especially-competitive manufacturers. If that policy seemed a little hifalutin, Jamiesson had no problem putting it into action. Amazingly, in those days, the worst problem was going through all the applications for dealerships and picking out the lucky winners — those with the experience, the capital, the desire to display the Excels most conspicuously and sell them most effectively.

“We were looking at bringing the car in with the dealer organization and the parts,” said Jamiesson. “We wanted to have dealers enough for whatever production they could give. Our initial approach was a few dealers with large facilities.” Jamiesson was more convinced than ever that the Excel was an idea whose time had come when he rented adjoining rooms at a convention of the National Automobile Dealers Association in the Hyatt Regency in San Francisco in February 1985 and began interviewing applicants. “People were elbow-to-elbow walking through,” he said. “The hotel complained the stream of people was blocking the door. The line went clear down to the elevator.”

With 4,000 applications to consider, Jamiesson signed agreements with 75 dealers in 17 states picked for their proximity to the ports of entry for the first wave of imports: Los Angeles; Portland, Oregon; and Jacksonville, Florida. By 1988 there were more than 300 dealers purveying Excels — Excels only — in showrooms noted for their visibility as well as quality, and the number was supposed to soar past 400 in another few months.

Those figures were small in comparison to the thousands of dealers selling the products of the American Big Three as well as the Big Three of Japan, Toyota, Nissan and Honda, but they represented class. “The people you deal with in this business, the ones you like, are the ones with gasoline in their blood,” said Jamiesson. Richard Caille, hired as director of dealer development and sales planning, agreed with his former top boss. “We had the who’s who of the automotive business selling cars for Hyundai,” he said. “We looked at sales history, the customer satisfaction index, and we checked with the guys’ reputation in the industry.”

The record soon proved the new HMA Americans knew what they were doing. Hyundai got off to a predictably late start in shipping the first Excels, but Chung Se Yung put the assembly line in Ulsan on double time and had new cars in showrooms by February 20, 1986. By the end of the year, sales were rocketing past the initial projection of 100,000 to 168,000, and they kept right on going — to 264,000 for all of 1987.

“We sold more cars in their first months in business than they’ve ever done since,” said Willie Hopkins, then one of the creative aces with Backer, Spiel-vogel and Bates, the Madison Avenue firm handling national advertising for HMA. “It was fun, it was extraordinary. Japanese manufacturers were hard up against the voluntary restraint quotas. Honda dealers were getting $2,000 to $2,500 over sticker price. We were in the middle of Reaganomics. There was a lot more money around than good deals.” Cars as varied as the Yugo and Honda’s Acura both began opening agencies in that period, and Infiniti and Lexus, top-of-the-line creations from Japan, were on the near horizon.

Hopkins got positively euphoric as he warmed up his memories of the good times pushing the Excel. “You couldn’t get more cars,” he said. “Your ability to turn inventory determined what your allocation would be. People were making a lot of money. It cost $3 million to $5 million for land and facility. We were asking for stand-alone franchises and put it on a freeway. It took anyone else 15 years to do that. The guys who could do that tended to be the most successful, profitable.” If a dealer did not succeed, “the headset was, ‘Throw them out and get someone else.’”

Hopkins picked up some insights in drafting the pitch that got the Hyundai account. Researchers found a Hertz franchise in St. Louis that was renting out some of the Hyundais being sold in Canada, got a list of all the customers and also obtained the names of some of the Canadian buyers. “We got a real positive response,” said Hopkins. “We concluded Korea did not have an image problem. Korea’s problem was it had no image.” Then researchers discovered potential buyers were disgusted by the delays in obtaining low-priced Japanese cars at the base price. “Honda built maybe one base-price Civic a month. Our research showed 60% to 70% of the people who had not bought a Civic or a Toyota Tercel had not done so because of the delay and the pricing. To get a base price would take six or seven months.”

Such revelations as those led to heated debate inside Backer, Spielvogel on a slogan. “We looked at eight different strategies,” said Hopkins. Bill Backer mulled over “The Nicest Little Car You’ll Ever Meet” and “The Car that Could” before Charlie Breen, another creative light with the agency, hit upon “Cars that Make Sense.” The slogan seemed especially appropriate when HMA came up with a five-year guarantee. “We were trying to sell value. The whole idea was to tell people in the middle of Reaganomics and the wretched excesses of the eighties that it’s OK to spend less on a car.”

Hyundai team leaders were thoroughly indoctrinated on the will of the company to succeed in America beginning with their first trips to Korea in 1985. “When we joined the company and went over there, they knew they were going to increase car production,” Jamiesson recalled. “We said, ‘Where are you going to put them?' They said, ‘over there, on two acres.’ We said, ‘For ours, the Excel alone, you need 11 acres.’ They came up with about 20 acres all around Ulsan. The honorary chairman came down and said, ‘We’ll build into the ocean and extend 50 acres of land.’ Also at the same time, they built a four-boat dock for those great big car carriers. We pushed them so hard on fit and finish that they thought it was better to put all their best men on the line” for export to America.

It was Hyundai at its kill-the-enemy best. It was Chung Ju Yung handing out the orders, putting up the money, guaranteeing the product regardless of cost. It was the kind of approach he was used to following whenever he wanted a job done — send in the best you have, back them with unlimited funds borrowed from both government and private banks and deliver the product. You could hardly blame the Americans if they felt they had the greatest jobs in the world. Hyundai executives seemed to jump at the snap of their fingers. The vice president in charge of the Ulsan facility, Chang Nak Yong — “New York Chang” to the Americans — walked up and down the lines, impetuously talking to workers, sometimes stepping in himself to show his boys how to do the job. Above all, he translated the Americans’ suggestions into action. Said Jamiesson, “He’s a helluva man. He likes what we do.”

Chung Se Yung was glad, in that honeymoon period, to give the Americans some freedom. Affable, ready with a hearty laugh, S.Y. remained the energetic but non-threatening subordinate of the imperious Ju Yung. With his American educational background, S.Y. knew how to get along with these Americans on a personal level and also how to how to deal with them in business. The mood, in the early days, was infectious. “We had a great time with the Koreans,” said Gormley. “I never enjoyed myself more. We started something from scratch. And we had parties. It was crazy.”

All that was before big brother started calling the shots in his own inimitable style a couple of years later when the market turned sour. “I had very strong backing from my elder brother,” said Chung Se Yung, seemingly open, talking in English in his own office suite in Hyundai headquarters in August 1989 while the roof caved in across the Pacific. Since the founding of Hyundai Motor in 1967, he went on, with a self-deprecating smile, “I was the one” — the one, that is, to turn Hyundai from an assembler of knockabout Ford Cortinas and Granadas into a manufacturer of its own brand-name cars, trucks and buses. If Hyundai Motor were the younger brother’s baby, though, there was no doubt who was the Godfather. “How much I take initiative and how much he intervenes?” said S.Y., pondering the question. “The principle is, ‘the company is going very well, the founder troubles less.’” Indeed, he added, “If the company is doing very well, his touch is negligible.”

S.Y. said his countrymen, like Americans, “are very much individualists,” but still he believed “the key to our success is good planning and good leadership” — qualities that would enable them to catch up with the Japanese in a decade. As for the Americans, he observed “structural problems” in American industry: “When people become rich, they work less.” His genial smile did not quite mask the disdain behind some of the misunderstandings that would afflict Korean-American relations at HMC when the going got tough.

The honeymoon for Hyundai Motor America ended — although no one seemed to have known it at the time — in April 1987. That was when Baik Hyo Whi was dispatched to Garden Grove to replace Park Sung Hak. “Why did Mr. Park get fired?” asked one of the Americans who worked for him. He did not know for sure, but” ‘they’ said one of the reasons was he let the Americans run the company.” There were also stories that Park had run up gambling debts — and that a casino representative had actually gone to Korea with his markers demanding payment and severely embarrassing Hyundai.

In the eyes of the American team at HMA, the symbol of all that was wrong with Hyundai and the Korean approach to management and sales was not Park but the feisty, tough-talking and determined Baik, named president and chief executive officer at HMA in April 1987. As far as the foreigners could tell, Baik’s sole qualification was that he had won the liking of Chung Ju Yung during his previous 19 years with Hyundai Construction. Although Hyundai Motor and some other Hyundai companies came to have larger profits and sales than HEC, no one at Hyundai, most of all Chung, forgot that Hyundai owed its success to HEC. Chung firmly believed that any executive who could oversee construction of a building or a bridge or a highway could manage anything.

Another omen was the assembly plant that Hyundai even then was building at Bromont, a town of 5,000 otherwise known for skiing, horseback-riding and golf, in Canada’s Quebec Province 50 miles east of Montreal. It was a bold venture — and not only because the plant, at a cost of about $300 million, was the largest factory ever made by a Korean company outside the Korean peninsula. On the basis of its initial success in the Canadian market, Hyundai gambled that assembling cars in Bromont would enable it to get into the North American market on a far larger scale than was possible by shipping them from Ulsan. The plant, geared to all the safety and style requirements of the United States and Canada, could concentrate entirely on cars that were really better than the ones made in Korea. Eventually Hyundai hoped Bromont would be the sole assembler of its new line, the mid-size Sonata, bearer of HMC’s hopes for competing full-scale with the rest of the world.

Hyundai, as usual, had bargained hard before settling on the site in November 1985. Sinclair Stevens, the industry minister, had “authorized the forgiveness of a commitment made by Hyundai” to export a set amount of products from Canada while obtaining “generous federal government assistance to Hyundai” to build the plant in Bromont, according to testimony heard by a federal commission. The payoff: “consideration for certain companies” in Stevens’ own group “having outstanding loans with the Hanil Bank Canada” — a subsidiary of Seoul’s Hanil Bank in which Hyundai held 8.3% of the shares.¹⁰ The government, however, did not bring action against Stevens, much less Hyundai, despite a finding of “real conflict of interest.” So eager were Canadians to complete the deal that HMC did not have to promise to buy parts in Canada — and picked up the 420-acre plot for one dollar.¹¹

10 Commission of Inquiry into the Facts of Allegations of Conflict of Interest Concerning the Honorable Sinclair M. Stevens, “The Allegations Relating to Hyundai,” Minister of Supply and Services, Ottawa, 1987, pp. 303–326.

11 Montreal Gazette, November 6, 1986; December 4, 1987.

The mood at the plant a month after the first cars rolled off the lines in December 1988 was positive. “We had difficulties,” said Lee Seung Bok, executive vice president of Hyundai Auto Canada, in charge of the facility. “We solved them and forget them.” Lee believed he was resolving cultural and linguistic problems too: “Three years after my arrival here, I found out human beings are the same.” The plant was producing five Sonatas an hour, said Gilles Poitras, the production manager, hired from a truck manufacturer, but soon it would be up to 20. “It’s pretty good for people who have an average of six weeks training,” said Poitras, who had visited Ulsan three times. “I like the way they work. It’s not the North American conventional way.” He believed “team spirit is important” and “we’re asking our people to be innovative.” Here, he added, “Everyone is responsible for the quality of work.”

Poitras advised the plant’s 120 Koreans, soon to be reduced to about 40 after the start-up crew had left, on local customs and attitudes. “People in this province have a Latin temperament,” he said. “They either work for you 200% or against you 200%. People here are easier to control than Americans. Americans are a little tougher.” Kenneth Singer, director of information systems, was also trying to overcome cultural gaps. For starters, he had succeeded in getting Korean managers to ease up personally. “They tried to give orders to Canadians. I told them, ‘Don’t give orders,' and I never had the problem again.” Lee had been doing his homework. “We don’t say ‘worker.’ We say, ‘technician.’ They are paid biweekly the same as management. We tell everybody they can be an engineer. You only need education. We ask all management to be at the work site.”

As many other foreigners had discovered in dealing with Koreans, said Singer, “the biggest problem now is communications.” One idiosyncrasy that frustrated him: “They don’t know how to share information.” On his first visit to Korea, he said. “I expected them to tell us” about the model then in the planning stage since Bromont would be assembling it. “The guy says, ‘What do you want to know for?' We have to ask them every question.” Another quality that amazed Singer: “Once you get out of the management level, there is no real planning.” When he urged planning ahead for computerization, “A guy in charge of the whole computer department says, ‘What for — it’s a waste of time.’”

Problems such as these, however, were to be expected. No one doubted the plant’s 1,200 workers were capable of producing 100,000 Sonatas a year — the double-shift goal — by 1991. North America, no question, needed the Sonata — Canadians were tired of the Stellars and Ponies that had scored so well for two or three years, and dealers wanted more than the Excel. Hyundai car sales in Canada had been dropping alarmingly, from 70,072 in 1985 to 51,648 in 1987, while Excel sales were still on the rise south of the border. The honeymoon was nearing an end, though, for reasons that had little to do with the gleaming yellow-walled plant that I saw in the middle of snow-covered fields one day in January 1989.

Come 1992, a shockingly low 14,220 cars rolled off the Bromont line. “It’s not a happy time,” said a Hyundai Motor manager in Seoul. He traced the unhappiness to the delay in getting the Sonatas to the showrooms. Said another manager, “When the customers went to the dealer showrooms, the car wasn’t there. When the car arrived, we couldn’t back it up with advertising.” Everyone admitted that Hyundai had been spoiled by lack of competition at home. “The general impression of the Sonata in Korea is a very nice performing car,” said one manager. “America is very competitive.” With 90% of Sonatas sold in the United States coming from Bromont, “They are not producing the cars they are meant to produce.”

The fault lay in both Canada and Korea, the source of 60% of the parts including the engines. The plant should have been able to acquire more of the parts from Canadian companies. Managers also had trouble finding and keeping enough workers for an operation that did not pay well and offered little long-range security. In some ways, however, assembly in Bromont was better than in Ulsan. Singer liked to say the information system in Ulsan was “20 years behind” and believed he had better software. And “the paint shop here is the best in the world.” On the office floor the open concept with partitions, not walls, between departments and offices appealed to him even though he had once opposed it.

Still, HMA by 1993 was losing well over $100 million a year. The dream of production in the idyllic setting of Bromont was fading fast when the plant suspended operations in the fall and, in March 1994, laid off 840 workers. In Hyundai style, HMC was not about to surrender, only considering a change in strategy. At first HMC promised to retool to produce Elantras but then abandoned the plan while complaining that Canadian companies could not produce 60% of the parts as required by Canadian law. Swearing “we will reopen,” HMC considered options ranging from the new Accent subcompact to minivans.¹² Lured by cheap labor and parts, HMC was also looking at sites to set up an alternative assembly facility in Mexico at a cost of $300 million, just what it had cost to build in Canada.¹³ HMC stoutly claimed the Bromont line would someday be humming along again, achieving the dream of an annual output of 100,000 vehicles, but the Bromont experiment had clearly been a failure in terms of the company’s original grandiose objectives.

12 Richard Johnson, Automotive News, May 30, 1994

13 The Korea Economic Weekly, March 8, 1993.

XII Off the Road

DOI: 10.4324/9781315483214-12

The Americans at HMA realized over the years that their Korean counterparts did not love cars. Sometimes they wondered why. “Passion for cars doesn’t seem to exist in the Korean culture,” a senior HMA manager told me over lunch in 1992. He recalled a visit to Chung Se Yung’s house in Seoul with a group of American car journalists junketing at Hyundai Motor expense. “They asked him what car he liked best, and he said a Cadillac,” said the manager. “They told him stories of Japanese car owners”—how some had fleets of exotic foreign models they adored. S.Y. had only his chauffeur-driven Hyundai Grandeurs. He was never known to drive. “Mr. Chung is no car guy,” said an American colleague.

Koreans’ lack of passion for cars was an aspect of a society that had grown up without them — and had little instinct, collectively or individually, for how to build them, perfect them, much less love and pamper them. Greg Warner joked about the Hyundai executives with whom he had cast his fate. “There was a saying from the tech department,” said Warner. “How do you blind a Korean? Put a windshield in front of his face. These fellahs, they drove the rear end of an ox in the field.”

If Baik and his management crew were not personally driving oxen in their youth, most of the men on the assembly lines in Ulsan came from farming families to whom owning cars and trucks a generation or two ago was about as remote a possibility as flying airplanes. As for engineers and designers, mechanics and tinkerers, as well as car nuts and enthusiasts and sometime geniuses, they too were newcomers on the Korean scene. The nation’s mush-rooming engineering schools could not in a quarter century have produced enough experts to begin to catch up with Japan and the West.

The Koreans’ inexperience, their lack of passion for cars, was a legacy of colonialism. Under Japanese mie, few Koreans drove. In the first 10 or 15 years after the Korean War, cars remained a luxury for the rich. Only in the past 10 years had Koreans got the notion that almost anyone could have a car. Even so, many Korean men and women had gone through college without having been behind a steering wheel. With a million and a half vehicles choking the streets of Seoul, population more than 10 million, the Korean capital had one of the highest traffic fatality rates in the world. Hot-headed Koreans were often seen yelling, snarling, shaking their fists — and occasionally leaping out of their vehicles and coming to blows with other drivers.

The Americans could appreciate the cultural differences but were put off by the Koreans’ reluctance to follow advice. “Hyundai management is an oxymoron,” said Warner. “The Koreans are like teenagers. They think they know it all. They have too much nationalism, Koreanness and ego wrapped up. These people just don’t want to listen.” The Koreans were expected to behave like the Japanese for whom most of HMA’s Americans had worked. “Some of the Japanese I worked with listen well,” said Warner, who had come from Toyota along with HMA’s top American executive, Max Jamiesson. “At Toyota there was an openness to learn about cars and the problems, to learn how the marketplace worked. I was astounded that Baik, who had no experience, did not have his eyes opened. He knows where the steering wheel is, that’s the extent of his knowledge of cars and/or the industry.”

Part of the problem, as the Americans knew in theory but could never quite accept in daily interplay, was that of “face.” Warner might have done well to have read a book, written around the time I first met him, by British journalist Simon Winchester, who trudged up the Korean peninsula to the truce village of Panmunjom. On the way Winchester picked up an insight that got to the core of the problems about to crash down on HMA: “If you see a Korean on a golf course, do not approach him, no matter how dreadful his play might be, and advise him on how he might improve matters; he would be deeply offended, and you would be deeply wrong. ‘To lose face is bad,’ Confucius is supposed to have said. ‘To make someone lose face is unforgivable.’” The Koreans could not forgive these Americans for telling them, showing them, their mistakes.¹⁴

14 Simon Winchester, Korea: A Walk Through the Land of Miracles, p. 94.

The ultimate face, like the final authority, was that of Chung Ju Yung. Warner could say that “one of the worst mistakes was to send a man who knew nothing about cars,” but Baik was the eyes and ears of an autocracy that viewed all foreigners with suspicion — and trusted only those who followed orders and reported what the autocrats wanted to hear. Baik was both a prisoner and guardian of the order he was sworn to uphold. He too was afraid to speak up — to go beyond a careful game plan formulated by the Chung brothers. He could not report failure or shortcomings. “The Korean management system doesn’t allow bad news to flow uphill,” Warner learned. “Those who carry bad news are considered disloyal.” Baik wanted to command — not in the subtle, matter-of-fact style of the Japanese but in the mandarin manner of Chung Ju Yung.

Hyundai Motor America was already in decline when the automotive press was invited to Palm Springs, California, in January 1989 at what, to all appearances, seemed like a propitious moment. The press was treated to two days of briefings, wining and dining, all at Hyundai expense, ostensibly to celebrate the debut of yet another Hyundai car, the spiffy mid-size Sonata. Here, Hyundai ardently professed to its non-questioning audience, was a worthy entry in the middle-market sweepstakes to compete with the flaming-hot Ford Taurus and Toyota Camry, among others.

Actually, the purpose of the shindig was to buck up support for a business that was suffering badly. The Sonata was supposed to have been launched in time for the Summer Olympic Games in Seoul four months earlier, in September 1988. The world was to have learned all about Hyundai’s newest marvel in a burst of TV advertising interspersed between the spectacle of athletes blazing to glory on prime time everywhere. The assembly line in Ulsan managed to turn out a few Sonatas in time to ferry officials and guests around town, but no one noticed them in the Olympian traffic jams. The embarrassing fact was that Hyundai had nothing beyond some demo models to export to the highly select group of American dealers who now feared they would lose money peddling only cheapie Excels. HMA had decided to wait until dealers had a few Sonatas safely in the showrooms by early 1989 before calling in the press.

“Hyundai looked at the Excel as the starting point,” Warner gamely told the assembled media representatives at one of the Palm Springs briefings. “Sonata is the second step. With the launch of the Sonata, Hyundai Motor America is a new company. We still have a lot of growing to do, but Excel and Sonata are just the beginning. The first Excels imported into this country were very good cars,” he assured everyone. “We’ve taken a very good car and made it tighter and smoother.” Quality had “improved about 25%,” he said, citing an item in the trade press the previous July saying the Excel typically retained 87% of its original value.

“For Hyundai, the Sonata is that second foundation block,” said Warner. “We feel this spacious, powerful car will set a new standard for the mid-size market, just as Excel did for the compact. It has more passenger space than any car currently imported from Japan. It has the largest, most powerful engine in its class. The closest competitor is a Mazda.” Warner impressed a visitor as a salesman who believed what he said — though he might pitch a different line the next day. The Sonata clearly had a problem since the car was so far behind schedule. The scope of the problem became visible as the bottom fell out of the American car market. Excel sales plummeted against half a dozen competitors, and the 1989 Sonata sold so badly that its best hope might lie in its value as a collector’s item some day.

“The Palm Springs meeting was all bullshit,” said Richard Caille. “Any time you bring in the press after the product is in dealers’ hands, there’s something wrong.” So many things were wrong with Hyundai Motor — and Hyundai Motor America — that they almost defied cataloging. Besides the slump in car sales in the United States, the rise in the value of the won against the dollar forced up prices of all Korean imports while labor problems at Hyundai Motor in Ulsan and its suppliers added to costs and delays. Beyond all that, the most abrasive factor was a method of management that poisoned relations from the Chung level on down.

Caille recalled some of his encounters. “He would scream and rant and rave, and I would say, ‘President Baik, we need to handle this in a professional manner, and the tone of voice you are using is not appropriate for this meeting.’” Caille likened the experience to “taking your child to the toy store and telling him, ‘I can’t give you the toys you want.’” One conclusion seemed inescapable: “Part of being autocratic is raising your voice and not listening to people around you.” There were other irritations. The Americans were pushing Excels, and Baik had his driver tool him around in a Grandeur, the Hyundai prestige car inside Korea, a bomb in the eyes of the Americans. They would say, “President Baik, why don’t you drive this car” — that of a competitor — and he would refuse. They would go on a golfing date, and Baik would golf with the Koreans and leave the Americans on their own. Baik would take the podium at a talk for dealers and leave before the questions.

Baik’s approach was the essence of Hyundai and Korea, the Korean way, North or South, capitalist or communist but quintessential Korean. “When Park was there, everything flowed,” said Caille. “Then when Baik came in everything changed.” There had been an order from “from the other side of the pond” in Seoul. How else, he asked, could one account for the change in attitude from a people “who had been good to work for,” with whom “we’d play tennis together”? Chung Se Yung did not relieve the impression when he met American editors at dinners arranged by the HMA public relations chief. “We got the feeling he was isolated, protected,” said an American with HMA. “He doesn’t have a chance to be friendly.” The American remembered a function in Seoul at which S.Y. chatted briefly with foreign journalists — until Baik broke in saying, “OK, that’s enough,” after which S.Y. was seen standing alone “with no one talking to him at all.”

The same kind of chill wind that terrified Hyundai managers in Seoul and Ulsan into dumb acquiescence to authority began blowing through the headquarters complex in Garden Grove. “If anybody does something wrong and Baik senses something wrong, Baik wants his reprimand right away,” said Caille. “With any company, a top guy has a lot of power. You can use it to motivate or to punish. Punishing people went out 25 years ago. You have to stimulate to direct. Baik likes to punish.” Luckily, Baik’s attitude was not universal among his Korean underlings. “The younger guys are good people,” said Caille. “They’ll have beers with you and talk with you” — but in keeping with all their instincts and tutelage “they’re afraid to speak up.”

Stories of Korean fear of their superiors became legendary among Americans. There was the time an American walked in on a Korean manager at the eastern regional office in Cranbury, New Jersey, and saw him madly going through his filing cabinet. Chairman Chung Se Yung was arriving the next day, the manager explained, and “if he finds anything wrong, I will be fired.” Driving out of New York’s La Guardia Airport with S.Y., the Korean remembered leaving the boss’s briefcase on the curb. “They wouldn’t stop the car,” said the bemused American. Recovering the suitcase after some frantic calls, the same Korean cited a basic rule: “You never admit making a mistake.”

The more Hyundai suffered, the wilder the stories got. There was the time the president decided, while Sonata sales were going disastrously in 1989, to have stickers glued in the rear windows of all Sonatas saying, “I ♥ My Sonata.” Warner managed a smile as he reviewed what was to become a metaphor on American-Korean managerial differences. “We said you’re asking for trouble with the consumers, and it’s illegal to put big stickers in rear windows,” said Warner. “I was wasting my effort with this Korean bullshit,” he went on, but he realized the seriousness of it when one of Baik’s men strode in and asked, “Greg, why did you fail to comply with President Baik’s order?”

Warner’s response: “The problem with the president’s order is his order is illegal.” Solemnly, Warner promised that all the Sonatas of all HMA employees if not buyers would display the stickers — on the bumpers, not the rear windows. Next, he asked the merchandising manager to put out a memo explaining the rationale to all HMA managers, the ones entitled to Sonatas. Then, deciding to go beyond the managers’ Sonatas, Warner told the admin chief: “Put those stickers on every car in the lot” — Sonatas, Excels, whatever. Warner’s secretary warned him, “Some of the people don’t like the idea that those stickers should be on all the cars,” but Warner was adamant. “Pass the word,” he told her. “It’s important for spirit.”

A week later Baik’s man again walked into Warner’s office and told him bluntly, “We have two disloyal directors, I want you to fire them.” The directors’ offense: “They’d been observed removing their I-Love-My-Sonata stickers from their cars.” Warner was shocked. He put off a decision, saying “I’ll investigate,” and then called a joint meeting of HMA executives, Korean and American. “The Americans were astounded the Koreans wanted to fire these two,” he said. He had to explain to the Koreans that the American employees had not “felt a strong obligation to follow President Baik’s suggestion but that the stickers had been put on the cars so he wouldn’t get mad.”

The episode might have gone down as a positive experience — a lesson in cross-cultural conflict, a study in tough Korean group-think versus tough American individualism. Warner in this instance rescued the Americans from dismissal, but the incident presaged far more serious problems. HMA managers saw real trouble by April and May 1988, a year after Baik had come on board. “That’s when the Americans were telling the Koreans there were problems in product quality,” said Caille. “It really affected the future outlook.” Warner began seeing “a consistent deterioration in quality” even though he and other HMA executives, in trips to Ulsan, were sanguine about improvements. One reason for optimism was that Hyundai had increased the power of the Excel — a terror in the first year or so for the difficulties in accelerating fast in passing or maintaining speed on grades.

Building somewhat bigger engines, though, was not enough. The issue of quality went back to old-fashioned nationalism and nepotism. Beginning in 1987, said Warner, the Koreans had decided “they had to build up the domestic supplier base [and try] to cut off the Japanese and Americans.” That decision reflected the outlook of Chung as well as the system that he served as the leader of a group that needed government approval for everything from product lines to loans to market shares and quotas.

Korea, protecting its own domestic market from all but token competition in manufactured goods, wanted to show wherever possible that it could manufacture truly Korean products — ones with as little foreign content as possible. “If they have strong supplier companies, they have a better shot at becoming an economic force of the future,” said Warner. “But the switches to Korean suppliers were done with no phasing-in and inadequate testing. Inadequate testing is a Hyundai watchword.”

And there was also the Chung family. Second brother In Yung had his own chaebol, the Halla group, including an entity in Inchon named Mando, run by I.Y.’s younger son, Chung Mong Hwon. Mando prospered largely off its sale to HMC of electrical motors, switching devices, steering units, brakes, alternators and air-conditioning units. Thus the German manufacturer of a switch in the alternator of the Excel was dropped in favor of a troublesome Mando product. “The Korean engineers were afraid to scrutinize Mando,” said Warner. “When Mando has problems, they are not easily remedied because of the family relationship.”

Similarly, said Warner, the Excel had to suffer the paint produced by Korea Chemical, Korea’s leading paint-maker, a component of the mini-chaebol of sixth and last brother Chung Sang Yung. “Hyundai paint is about the worst in the industry,” Warner charged. “The paint wouldn’t stick. It would fade. We couldn’t get shiny surfaces, and we couldn’t get the color we needed.” Sang Yung also ran Keumkang, Korea’s top manufacturer of building materials including safety glass sold to HMC. Yet another relationship based on nepotism — the one with Korea Flange, the company of Chung’s brother-in-law, Kim Yung Ju, which sold all the transmitters and brake disks it could make to HMC. Concluded Warner: “The people responsible for controlling quality don’t have enough power.”

What was nepotism in the eyes of a foreigner, however, might be smart business in the view of the owners of a chaebol — not only Hyundai but other groups as well. “The diverse business scope is an advantage for them since the subsidiaries can help one another,” said a Business Korea analysis. “Hyundai Motor cars, for example, are equipped with Hyundai Electronics car stereos, financed by Hyundai’s financial subsidiaries, insured by Hyundai Marine and Fire Insurance Co. and shipped by Hyundai Merchant Marine Co.” The analysis found “the diversified business nature enables them to enjoy a ‘synergie’ effect” but conceded a risk: “One drawback of the diverse nature is that most chaebol often do not specialize there is no General Motors-type group which solely dedicates itself to car manufacturing. As a result, the chaebol often do not have economies of scale.”¹⁵

15 Business Korea Yearbook on the Korean Economy and Business, p. III-2.

Hyundai did not appear likely to change its philosophy. The founder’s second son, Chung Mong Ku, as oblivious to criticism as his father, spearheaded a drive in 1994 for a steel mill to produce plates for Hyundai Motor and other Hyundai companies. Government bureaucrats warned of a worldwide glut while industry rivals swore they could meet any demand. Hyundai, proposing to build on reclaimed land near Pusan, conveniently close to Ulsan, said the government-invested Pohang Iron and Steel was not producing nearly enough to fill its needs for another 10 million tons a year. A Hyundai steel mill, long a dream of Chung Ju Yung, would represent a high point in the vertical integration so often criticized by foreigners.

Observations of American engineers on jobs at HMC corroborated the view from California. “It takes them six months what it takes six weeks to do in the States,” said Charles Ayres, a technician from Cincinnati Milacron, overseeing installation of a numerically-controlled machine for producing camshafts for V6 engines. Ayres was upset for a couple of other reasons. It was mid-winter, and “they have no heat in the plant,” he said, echoing a complaint often heard among workers at other Hyundai factories as well. Not only that, he added, but now HMC managers were demanding his company “send new parts for a transformer they screwed up.” The problem, said Ayres, is “communications, cooperation, a little bit of everything,” but he and other technicians wondered about underlying causes. ‘The way they make bosses, it’s not the guy who knows the most, it’s the guy who’s been there the longest.”

Lee Chung Goo, now executive managing director in charge of Hyundai Motor’s fast-growing corps of young engineers, did not deny difficulties. “Our quality level is not consistent in every kind of part.” He realized quality is “based on our industrial level” — that Korean industry still had not grown up enough in a single generation to put out the car that he and the customers, the foreign ones for whom Hyundai really had to compete, always hoped to see. He also believed that Hyundai, at about the time the Excels were peaking in America, was let down by the changing attitudes of Korean workers. “Our people had a hungry spirit,” he said. “Every Korean worked hard. Their workmanship was sincere.” Now, he sensed, “in one or two years, the spirit was destroyed, the workers are not so hungry, the workmanship is not so good.”

The problem went beyond Hyundai Motor, right down the chain. “Some of the suppliers show major improvement,” he said, “but again it is not consistent.” He believed Hyundai Motor had conquered the paint problem by importing facilities from Duo in Germany, and he insisted “the quality of Mando is very much improved” — better than Warner had said but perhaps still not good enough. He conceded that some of the companies among the hundreds that contributed to the production of a car had not set sufficiently high standards. “Even though they have enough workers,” he said, “they have the same problems.” Sometimes the company seemed like Alice and the Red Queen, always running but never catching up. While it fixed last year’s problems, other companies forged ahead with fresh innovations if not entirely new technology.

HMA executives, once so sure they could iron out the wrinkles in quality, began to appreciate the difficulties at a sensitive time. Having dominated the compact-car league for the first year or two, the Excel now confronted competitors put out by big-time manufacturers eager to pry open a share of the subcompact market on equal or better terms. If the Yugo had been a laugh, what about the Honda Civic or the Toyota Tercel or Corolla or the Nissan Sentra or the Subaru Justy or the VW Fox or the Daihatsu Parade or the Ford Escort — or the Ford Festiva designed by Mazda, produced by rival Kia? Excel sales for 1988 were static at 263,000 — ahead of foreign competitors’ total sales of 250,000 but short of the goal of 300,000 and plunging to 188,000 for 1989.

Those numbers contrasted with the goals outlined by Hyundai in 1986. U.S. car sales, said a memo on “5 YEAR TARGETS” marked “confidential” for executive eyes only, would zoom to 400,000 for 1988 on the way to such impossible numbers as 510,000 for 1989 and 600,000 for 1990 while the number of Hyundai dealers rose from 161 in 1986 to 450 by 1990 and that of HMA employees leapt from 273 to 1,024 in the same period. “Upstart Hyundai began as if it was going to set the establishment on its rear bumper when it appeared in the U.S. in 1986 with the Excel,” noted Chicago Tribune automotive writer Jim Mateja six years later in 1992. “By the time consumers realized Excel was assembled with super glue, Hyundai had rung up sales of 168,882 the first year, an industry record, and 263,610 units for 1987” — and in 1991, “though Hyundai now offers four models, sales totaled 120,000 units.”¹⁶

16 Jim Mateja, “Cartalk,” Chicago Tribune, January 19, 1992.

Consumer Reports summarized the anti-Hyundai sentiment, reporting the Excel and Sonata ranked near the bottom of customer satisfaction in 1989 and 1990 while HMC trade-ins of any vintage were “used cars to avoid.” Ford Festivas, in contrast, were recommended. Ford had gained a measure of revenge against HMC by discarding its 50/50 policy and buying 10% of Kia’s stock while Japan’s Mazda Motor Company, 25% Ford-owned, bought 8%. Economist Alice Amsden believed “Kia’s better rating suggests that consumer dissatisfaction with HMC’s products was due to two possible causes: HMC’s inferior designs or its inability to manage its labor relations effectively (or both).”¹⁷ Relations between Baik and the Americans were clearly symptomatic of these larger problems.

17 Alice H. Amsden, “The South Korean Economy: Is Business-Led Growth Working?” 1992, p. 92.

Here was where Baik and the Americans had their severest difference: as sales slipped and the competition got tougher, the Americans had some critical words of advice beyond what they had been saying all along about quality. One was to add more rebates — or at least keep those that had pulled in the low-income crowds in the first place. Another was to keep up the advertising campaign. If you cut such expenses drastically, they believed sales would fall fast. A third was to agree to “dualing” — that is, to revise dealers’ contracts so they could run a couple of agencies side-by-side or even peddle other makes on the same lot or, so help us, in the same showroom.

“There wasn’t a lot of margin for dealers to work with,” said Julian Morgan, the former western regional manager. “Typically these buyers want a deal. Their mentality was, ‘Get me a deal.’ Then dealers started adding pin stripes, molding, floor mats, that would add $2,000 to the price. Some of the buyers would be attracted to it. That would enable the dealer to add a discount. He could profit up-front or from financing, but what took place many times, since you had a younger, less educated buyer, you had cars delivered that turned out to be more than they could afford.” Hyundais went up in price and lost their claim as about the cheapest thing on four wheels with an engine.

By November 1988, with HMA’s American managers calling for more and more cuts, the Koreans said they wanted to “think about a price increase.” Morgan was astonished. “Here we were coming out with a $10,000 car where we had no perception by that time that all the other competitive makes had been introduced.”

The battle lines were drawn. “As sales began to get more difficult and we came back with recommendations for production cuts, the antagonism began to set in,” said Morgan. With profits falling precipitously, the Koreans wanted to economize in every way possible while “we began to talk about spending more money to keep the wheels turning.” Morgan’s logic reflected a knowledge of the American market that escaped the Koreans, who had never had to compete for a market share in their own country as long as the government decreed which manufacturer could produce how many of what products. Said Morgan: “Unless you continued to provide support for dealers and keep them motivated, you cannot keep the dealer. You have to provide them with programs to help them with traffic — advertising programs to support their ads. The Korean nature was to be as conservative as possible.”

Jamiesson, Warner and others would howl out the need for rebates fast, now, as an investment that could pay off in immediate sales and visibility even if it meant that Hyundai would suffer a temporary loss, but Baik had his guidelines and orders from Seoul.“We’d say we have to do this thing today,” said Jamiesson. “If we needed a $500 rebate to be competitive, by the time he would agree, then we would need a $1,200 rebate. You almost sit there.” As the losses mounted and the competition grew, the Koreans became convinced they were smarter than these Americans with all their windy advice on “spending a buck to make a buck.” The Americans returned the unspoken insults. “It’s the difference between dealing with people with master’s degrees and high school graduates,” said Jamiesson of his debates with Baik and his cohorts. “There are intelligent Koreans, but just because they have 140 IQs doesn’t mean they can understand the market.”

Friction between the Americans and Koreans had set in well before the market began to soften in mid-1988. Personal differences might have been the topic of little more than internal gossip had the Korean side not decided the Americans were to blame and tried to get rid of as many of them as it could. One factor, in the view of Willie Hopkins, the advertising impresario, was that the Americans were more than a trifle arrogant after having been telling the Koreans, in patronizing style, how to succeed at their own business. “There were a lot of cultural differences,” said Hopkins. “We’re racists, and we have a helluva time, whether it’s at Toyota or Honda. You have these parallel structures where we people are Americans, but the Japanese and Koreans are the ones who write the checks, and we don’t understand how things work over there.”

To the Americans at HMA, the big lesson was not that Japanese and Koreans were different from Americans but that Koreans behaved very differently from the Japanese for whom most of them had worked for years. “We had no previous experience with Koreans,” said Morgan, who had moved over from Toyota to take over the post of western regional manager at HMA. “We assumed it would be like the Japanese, but there was a difference in the management process.” The Japanese “are more consensus-driven,” he observed, whereas “the Koreans make decisions quickly” and showed “a tendency to assume they were learning faster than they were.”

No one epitomized that tendency more than Baik, who had come with an agenda straight from the top. In view of his background as a troubleshooter in the Middle East for Hyundai Engineering and Construction, the chances were that Chung Ju Yung had ordered him to go there to clean up what Chung saw as a mess created by the popular Park Sung Hak—and get the Americans under control. Since Hyundai car sales were booming in 1987 when he arrived in Garden Grove, the Americans at HMA believed one of his first duties was to solve some bookkeeping problems inside the Korean management structure. There was nasty talk of irregularities in pricing of cars sold in Canada.

Managers like Park were the exception. Managers like Baik were the rule. He had to show who was in charge. “You wind up with a bunch of Americans who are by nature cowboys, guys who say they’ve been doing it for years and ‘I’m going to do it my way,’” said Hopkins. “The Koreans were frank about the fact that Korea was in a period of dramatic change, and they were the shock troops coming to the United States and setting up a Korean company. The Americans kept on trying to dial the Koreans out. They didn’t want to work with them…. You wound up with Americans wanting to do things their way, to make the decisions, and the Koreans needing more lead time.” Baik had little to say — publicly — about HMA’s problems. Consenting to an interview in his Garden Grove office in late 1988, he was uneasy about the signs of deterioration that were already visible but remained guardedly optimistic. He even tried to show an understanding of life in America. “I’m accustomed to staying abroad,” he said, as if his experience in the Middle East could be applied to the United States. “There are different customs, different languages.” Baik compared the work ethic of Koreans with the laid-back style of the Americans: “Our Korean people are working very hard. In our staff’s case, we are used to working from eight to six or seven in the evening, sometimes until nine or ten.” Baik’s smile betrayed the strain of one who was leader of a group of 20 Koreans surrounded by 580 inscrutable Americans.

Patiently, Baik contrasted Korean and American management styles. “Koreans practice decision-making made on the top level,” he explained. “The American way is somewhat different. Here things are brought in from the lower level with a lot of discussion.” Baik wanted to demonstrate that he was playing the game the American way: “My policy is to let our staff fully discuss the company’s business. They bring their opinions to me. It’s now working very well.” But it wasn’t really. “Most of the subcompact market is very tough these days,” he admitted. “Other manufacturers give low-rate financing. We cannot do that. Our dealers manage a franchise on an exclusive basis. We just support them. There is a cash incentive they can use for generating traffic.”

Baik perceived the difficulties in terms of rising costs and competition, a tightening market, but had little perception of the need for change. Instead, he talked airily of growing. “We are going to expand our staff,” he said, foreseeing an investment in HMA of $450 million in the next three or four years. At the same time, he pledged to “buy American” while turning away from Japan: “We are looking for American components. These days yen prices are very expensive. We would like to divert resources from Japan to the United States.” While Hyundai wanted to “stand up by ourselves, it takes a lot of time.”

Baik’s philosophy was that of the company man, the Hyundai man, and he could only approach the American problem in the spirit of a business school graduate who knew the books but not the business. “Chairman Chung Ju Yung likes to take a challenge,” he said when I saw him in Garden Grove near the end of 1988, getting back to what he understood. “His decisions are right.” Baik could even show the old-school tie — like Chung Se Yung, he was a product of Korea University, spawning ground of thousands of executives. “As soon as I graduated, I joined Hyundai,” he said. “I grew up with Hyundai.” He was proud of Hyundai’s record on the American market: “So far we have done a successful job in this country while the competition is getting tougher and tougher.”

At the heart of all Baik and his colleagues did was “a Hyundai spirit — very aggressive” and, he implied, incomprehensible to Americans. Still, in the transition between much-publicized success and disillusionment, Baik dared extend his theories to day-to-day dealings with the Americans around him: “I leave our American operations to our American staff. Whenever something happens, we discuss in executive committee. We make a decision. Though there is some disagreement in management, the American way and the Korean way, I try to follow the American way.” Those words were forgotten, however, when the going got rough. Hyundai did not believe in such an approach — or any approach other than that of Chung Ju Yung. There was only one way: the Hyundai way.

Jamiesson and Warner could advise and recommend, pressure and push, cajole and compromise forever, but there was never a doubt as to who held the power. One day, in July 1989, Baik called Jamiesson into his office and gave him the word: “We can’t have two bosses, and one of us has to go.” There was no question the order came from Seoul — though no one ever confirmed it. “I believe the chairman [Chung Se Yung] put him up to that,” said Jamiesson.

XIII Koreans vs. Americans

DOI: 10.4324/9781315483214-13

Korean concern about “face” may have been a blessing for Max Jamiesson, who “retired” with a cushy deal under which he soon opened a Hyundai agency near his wife’s Toyota dealership in Salinas. Thus he could say that Hyundai had treated him fairly well in giving him the chance to do his own thing, sell cars, while enjoying the good life in Carmel Valley. Greg Warner, the logical successor, did not escape so cleanly. After serving just four months as chief operating officer, he and Baik had their final falling-out over dealerships and advertising.

“I left because I wasn’t getting the resources to save the dealer body,” said Warner. His departure, like that of Jamiesson, was forced — with Warner taking the fall for the woes reflected in the defection of dealers who refused to keep selling Hyundais in a vanishing market. “A bunch of us looked real disloyal because we kept hauling out the facts,” said Warner. “They kept looking for some magical savior.” Warner’s departure came as a distinct anti-climax after what had transpired. A month or so before his demise, Hyundai got rid of Art Meissner, another Toyota veteran, who had signed on as vice president in charge of sales.

Baik had had his sights set on Meissner for some time, not entirely because of declining sales. “I probably avoided firing the vice president for sales four or five times when Baik called me in and said, ‘fire him,’” said Warner. Meissner’s problems with the top Koreans at HMA reflected his flamboyant style — the result of “a big need,” said Warner, “for gratification and recognition.” One of Meissner’s most celebrated clashes with Baik came when Baik ordered him to fly economy class to a sales conference in New Orleans. “Meissner said he was not going to do his job flying coach,” said Warner. “I said, T agree. It’s symbolic.’ Baik ultimately relented.”

Warner might defend the Americans to a point, but he was powerless vis-à-vis Koreans. For that matter, he also had sharply limited powers in reviewing applicants for local staffing jobs. “The initial orders were, ‘No Japanese, no Jews, no fat people and no blacks,’” said Warner. Who was responsible for such a bizarre policy? “This was from Chung Ju Yung,” Warner seemed sure, but he was proud to have been able to educate Hyundai in the realities of hiring policies in the United States. Chung could doubtless decree the ethnic, religious and racial pedigrees of his employees in Korea as well as most foreign countries, but Hyundai could not get away with such gross violations in rights-conscious America.

While relenting somewhat on outright discriminatory personnel practices, however, Hyundai still had two basic local hiring hang-ups. For starters, the Koreans could not stand Japanese-Americans — an obvious reflection of Korea’s age-old hatred of Japan. “We hired a female sansei (a third-generation American of Japanese ancestry),” said Warner. “They wanted us to terminate the job immediately. She survived—but not without a lot ofhelp from above.” The other hang-up was a preference for emigrants from Korea, whether U.S. citizens or holders of “green-cards” entitling them to work in the United States. “We had a number of Koreans here who were required to be hired for one reason or another,” said Warner. “The Korean staff members would conscientiously try to push them forward for higher-level jobs.”

Influence-peddling extended to the dealer network as well. Koreans, sometimes with friends at the highest levels of the power structure in Seoul, wanted to get in on the HMA network in the early days when it still looked highly profitable. Since no Korean could have had the experience the Americans said was needed to qualify for a franchise, Koreans attempted to exploit contacts among Korean executives at HMA. In one case, an aide to Chun Doo Hwan, then president of Korea, “was trying to push his brother into franchises,” said an American with Hyundai at the time. “It was continual, the pressure.” One way for a Korean to get around the application process set up by Jamiesson was to interest an established American dealer in applying for a franchise as a partner. John Koemer, a car dealer in Middletown, New York, got a call in 1988 from a mysterious Korean named Youn claiming to represent Hyundai. When Youn introduced Koemer to one of Hyundai’s Korean managers, however, Koemer learned that Youn was merely “a friend” of the manager.¹⁸

18 Letter, John J. Koemer Jr. to Michael J. Seergy, Hyundai regional office, July 7, 1988.

When the going got rough, Hyundai panicked its hand-picked dealers by undermining their exclusive single-franchise positions. The warning bell was an agreement with Chiysler in early 1989 under which Chrysler’s 1,135 Jeep-Eagle dealers might some day sell Hyundais. “Why weren’t the dealers told of this plan before they invested millions of dollars in exclusive facilities for Hyundai,” asked Chris Koch, president of the Eastern States Hyundai Dealer Advertising Association, in an outraged letter to Baik. Chung Se Yung himself, Koch noted, “emphatically said NO” when Koch, visiting Korea in September 1988, asked the HMC chairman “if the Sonata would be shared by another group of dealers.” Koch said he had told S.Y. “that the future of the Hyundai franchise” largely depended on the success of the Sonata. “I then told him how important quality is to this up-scale buyer and I begged him not to ship the Sonatas until the quality was assured.”¹⁹

19 Letter, John J. Koemer Jr. to Michael J. Seergy, Hyundai regional office, July 7, 1988.

Koch backed up his argument with comments from other dealers. “The value of my franchise has been seriously eroded,” said one. “I’m selling my store,” said another. “It’s a loser. I held on waiting for the Sonata. This company only cares for itself and doesn’t give a damn about its dealers. They are doing what’s good for them, period.” In the end, the dealers did not have to worry. Chrysler, which had agreed to “pursue possible joint projects,” including the sale of 30,000 Sonatas a year from Bromont, backed out in 1990. It feared the Sonata had too many flaws.

There was a touch of sadness in Baik’s position. Hit by the aggrieved response of the dealers to the Jeep-Eagle fiasco, he now returned to the original requirement that dealers showcase their Hyundais in individual Hyundai dealerships. With sales on the downslide, dealers protested they could not survive, much less profit, if they could not sell Hyundais along with other makes. “I was pitching a proposal for dualing,” said Julian Morgan. Heretical though it sounded, he had to convince Baik that HMA could no longer ask recalcitrant agencies to display and sell only Hyundais.

To the Koreans, “dualing was a step backward, admitting defeat, a loss of face,” said Morgan. “They just couldn’t understand the realities of the marketplace. If we wanted a viable dealer organization, you just had to do it to be profitable.” But when Morgan tried to convince Baik of what had to be done, “Baik kept asking, ‘How do you know this?’” Morgan’s answer was, “I’ve got 25 years in the business, that’s how I know it.” Sometimes Baik would reply, “‘We’ll come back when it’s better timing,’” said Morgan, “and you could tell he was taking the heat from Korea” — from Chung Se Yung and other Hyundai brass who knew, if anything, still less than Baik.

It was against this background that Baik got organized for the big crunch — the reduction in force in September 1989 that would save money and get rid of the Americans whom he saw as responsible for the calamity around him. Having ushered Meissner out of the organization two days earlier, Baik told the American managers to prepare for the inevitable and decide whom they wanted to dump to streamline staff and strip away the fat. Gossip spread through HMA headquarters a week in advance that the top executives, the key Americans and some Koreans, would repair for a long weekend at the Lake Arrowhead Hilton Lodge in the San Bernardino mountains 80 miles east of Los Angeles.

Not even top managers such as Greg Warner would talk about what happened at the three-day conference, but HMA people called it the “Sermon on the Mount” after it was over. “They more or less voted,” said Caille. “They said this position is expendable. They didn’t look at the person. They had no idea of working him back in the lineup.”

HMA’s American staffers got more than an inkling of what was happening when Jack Collins, vice president for marketing, stood up in front of groups of them at meetings convened in the warehouse two days after the Arrowhead summit and said bluntly that Excel sales would fall far short of the original forecast of 300,000 for the year. There would be layoffs, Hyundai people were told. Those affected would get the word in a day or so. “We had people crying,” said Caille. “There was bitterness and anger.” Caille believed “the company could have managed to do better had they not let the people go.” To him, “it just didn’t ring right” — even though Excel sales had sunk to 188,000 for 1989 and the Sonata closed out the year below 30,000.

One could not blame Caille and others for their distress in view of the hype from Park Sung Hak, the first HMA president. Had he not told Caille, “I want you to realize we want you for the rest of your automobile career,” when luring him from Honda five years earlier? It was the kind of reassurance the Americans were accustomed to hearing from the Japanese, who promised to apply their own policy of lifetime employment to dutiful staffers abroad. The difference was the Japanese believed and acted on what they said — and by then had longstanding records of improving relations with American managers. In contrast, the Koreans made the Americans the scapegoats for their woes. The promise of lifetime employment, the Americans now knew, applied only to Koreans, not one of whom lost his job or was transferred in the crisis of 1989.

Morgan could tell the state of Baik’s mind when he submitted his own letter of resignation — well before the Sermon on the Mount. The fact that Morgan quit without a job indicated how badly things were going. In his letter he said only that he was leaving “in pursuit of better opportunities,” but he would not land one for nine months. Baik “was surprised, shocked and disappointed,” Morgan recalled. “The guy was so battered emotionally.” Morgan and Baik talked “about problems, what needed to be done,” before he left with a package that included six months’ severance — far more than the two weeks given to those laid off a few weeks later.

By 1992, with a new team in charge, the current American chief operating officer, Rod Hayden, a veteran of a decade as chief operating officer of Mazda in the United States, said he would retire at the end of the year. HMA had moved to a spacious new headquarters in Fountain Valley, a few miles down a freeway from the original headquarters in Garden Grove, but the outlook of the company’s Korean managers had hardly changed. “The biggest problem has been their management style,” Hayden told me six weeks before walking out the door. “These people, when they try to run the business internationally, they’re just not cosmopolitan enough.”

Inevitably, Hayden contrasted the Hyundai attitude with that at Mazda. The Japanese were “very sophisticated in dealing with Americans,” said Hayden, putting the Koreans “where the Japanese were in the sixties.” He could not get over the contrast in the power entrusted to him. “I guess where I came from at Mazda I had pretty much complete control. All I had to say was, ‘We should do this,’ whereas here you have to go through three committee meetings. At a Japanese company you are more of a chief executive officer. Here you are not. You have to go through every line item and justify it again. Until you adjust that problem, you slow everything down.” Were it not for such obstacles, said Hayden, “I might have stayed on a little longer” — rather than choose to retire for the second time as he neared his 62nd birthday.

Hayden’s impressions reminded me of those of Jamiesson and Warner, with whom he had never compared notes before or after taking over his post three years earlier. He saw HMA as suffering from the autocratic style of the founder if not the society: “The real problem is it’s been a one-man dynasty. They sent the army of Koreans in here and said, ‘take control,’ and the Americans lost control.” Some of the Korean managers had “seen the light,” he went on, “but their hands are tied because of the way things are done in Korea.” Hayden grew more critical as he talked: “It’s almost like a dictatorship, it’s so authoritarian. Now I really know what it’s like being with a terminally ill patient who doesn’t want to die.” The key to Korean control over HMA was the power the Koreans held over the money: “They still control the purse strings. You can’t really control the company if you don’t control the money.”

Not that the record of Hayden’s tenure was all bad. He looked back proudly on his success in dealing with the dealers: “My objective when I came in here was to settle down the dealer body. I came in here knowing there was a bad dealer relationship. We settled the dealers down and said that they could dual. It was 292 dealers when I came in. We built it to 504. We did it with dualing, rearranging and points where they had never been. Now the dealer situation is very stable. The dealers are happy with us.” Hayden had more trouble convincing Korean managers of the need to improve quality. “It was a very arrogant attitude. They would just deny the problem. I pounded on the table a few times. I had a few arguments” — but he was happy to have persuaded Baik of the need to “try to solve” the problem of fit and finish, and, with a salesman’s zeal, he truly believed “the car is a supercar now.”

The hard results, however, were still disappointing. “Sales have stayed stagnant,” admitted Hayden, and now they were falling through the floor. Hyundai had cut shipments to the United States sharply — 106,729 cars from Ulsan in 1991, only 77,306 in 1992 although Hyundai’s American showrooms featured four models, from the Excel to the Elantra to the Scoupe and Sonata.²⁰ No matter how hard it tried, HMA had an image problem. The vice president in charge of marketing, Thomas Ryan, admitted as much in the build-up to the Elantra debut in late 1991 when he remarked that “focus groups told us that the Elantra didn’t look or feel like a Hyundai, and we took that as a positive sign.” HMA “had to convince consumers the Elantra is not a risk.”²¹

20 Hyundai Motor Company, “Brief Status (As of Feb. 1991),” also annual records, Seoul, 1992. The exports to the United States included 3,606 Excels marketed by Mitsubishi Motor Sales America under the “Precis” name in 1991 and 3,031 in 1992.

21 AdWeek, eastern edition, October 7, 1991. Ryan left HMA several months later because of what Hayden called “different business philosophies.”

Even adding the few thousand cars assembled each year in Bromont, the results were poor. (The wonder was that HMC could compensate by increasing sales in Europe — overall 1992 exports from Ulsan were 282,301, up from 254,551 in 1991.) “There seems to be a sense of paranoia that exists on the part of the Korean staff,” said one HMA manager. “There’s a stranglehold. We had one American who said, The Korean concept of long-term planning is, What are you doing for lunch tomorrow?’” The reasons for major managerial changes were impossible to fathom. Baik in mid-1992 was sent back to Seoul in a one-for-one switch. He was named executive managing director for exports while his predecessor in that post, Chung Dal Ok, was sent to Fountain Valley to replace him as HMA president.

“I prefer it here,” said Baik, obviously happier in his native milieu than in southern California. “Korea is my country.” Baik believed Hyundai’s Americans and Hyundai’s Koreans had gotten over their worst problems. “When we started operating in the United States, there were conflicts because of different attitudes, cultures,” he told me in his office in Hyundai headquarters. “Both sides tried to narrow the gap. Now things are much improved.” Baik offered no apologies, though, for the swift dismissal of the first team that HMA hired. “They did very well to launch our cars,” he said. “Once sales just dropped, I don’t think they were well prepared to change their attitudes, their way of thinking” — the same criticism the Americans threw at him and his colleagues from Seoul.

It was “in order to survive, to overcome these tough times,” said Baik, that “we had to organize new members” — new Americans, that is, since the Koreans either stayed where they were or returned to Seoul on rotation. “We didn’t think they were the right guys. We just asked them to leave.” With a fresh American team on board, however, Baik was still not optimistic. “There are so many competitors,” he lamented. “There is a recession in the U.S.” Now Hyundai was trying to revamp its reputation as a purveyor of rattletraps. “The customers think Hyundai is a cheap car company. It is very difficult for us to jump the problem of image. We have to overcome the problem in the North American market. We are changing our ads to change our image.”

Chung Dal Ok, at Baik’s old desk in Fountain Valley, believed “we turned the comer in mid-1992” in terms of quality. “Still we suffer an image and perception problem. Sales are not going up yet. It will take time.” He saw the obstacle as a competitive environment — a phenomenon that Hyundai found less daunting in Europe, much less at home: “The difficulty is the pricing due to many companies competing over here. In Europe every country protects the consumer as well as the manufacturer. In the United States the price is much lower than Europe — almost 20% difference — even though U.S. specifications, safety, emission standards are very high. The U.S. customer is enjoying very much in those areas.” One compensation: “Without U.S. operations we could not have learned what is real competition.”

Still, Chung Dal Ok left no doubt HMA was “totally committed” to the American market though “our losses are tremendous,” $140 million for 1992 alone, as U.S. sales dropped by 34.3% to $673 million. (Things were worse in Canada, where sales fell 41.1 % to $ 180 million.) HMA was not “losing money,” said Chung Dal Ok. “We are investing.” Such sheer determination, an instinct for survival against the odds, countered the view of Alice Amsden, a prolific analyst of the Korean economy, that “HMC’s quality problems” did not augur well “for ‘business-led growth.’”²² As if to refute this opinion, HMC at the time of her writing was building new plants to manufacture heavy commercial vehicles and cars while buying land for yet another car factory to open by 2002. No government enterprise, no policy pronouncement, could replace the will that drove Hyundai to stay alive in the United States and push ahead worldwide — though no one would argue that HMC could not have risen to its present heights without the credit, guaranteed markets and import restraints bestowed by a supportive central regime.

22 Alice H. Amsden, “The South Korean Economy: Is Business-Led Growth Working?” p. 92.

The evidence lay in the investment that HMC persisted in making in its crusade to lift itself from dependence on foreigners, any foreigners. While suffering catastrophically in America, HMC in 1992 produced the first engine it could call its own — not a Mitsubishi knockoff. The trend-setter was the Alpha installed in the Scoupe first for Korean consumption, then for shipment to the United States. Top engineer Lee Chung Goo, in charge of 3,200 engineers and technicians, did not like to describe the Alpha, seven years in the making at the HMC design center in Mabookri, as “a turning point.” Rather, he said, “it is a starting point,” first of a line of engines that HMC hoped to produce separately from Mitsubishi.

The 1.3 and 1.5-liter Alpha, Lee claimed, exceeded the performance of the engines that Hyundai had been using in its Excels, Scoupes and Elantras and would last as long — well over 100,000 miles. It would make the Scoupe, gracefully styled by Giorgetto Giugiaro’s ItalDesign in Turin, HMC’s principal source of fashion inspiration since the pre-Pony days, more than just an SLC, code for “Sporty-Looking Coupe.” For Hyundai the Alpha represented a quantum leap — one that had cost $140 million in R&D and included Hyundai’s own transmission systems with electronic control. Chung Se Yung, from his vantage as chairman of HMC, was uncertain of the reception awaiting the Alpha on world markets. The engine was “competitive enough [to join] first-class engines from developed countries,” he said, but “may not be the world’s finest.” Lee suggested the tensions that precipitated Hyundai’s decision to produce the Alpha. The options were clear — “to copy foreign technology or make modification and improvement on imported technology” — or “to develop technology on its own.”

Chairman Chung Se Yung explained the dilemma — and final decision. A majority of Hyundai executives “was against development on our own on the grounds that ‘we will be only spending huge amounts of money on a project that is unlikely to be successful, and even if we succeeded after five or six years of effort, by then the engine would be outdated’” by American and Japanese products. The same pride that dictated Hyundai’s entry into the business 25 years ago compelled the company to defy a logic that “seemed very reasonable,” said S. Y. In time-honored Hyundai style “we wanted to break away from being a second-rate manufacturer [and] decided to take the risk.”²³

23 Chung Se Yung, “The Prospect and Task of Korean Automobile Industry,” 1991, pp. 7–8.

Hyundai engineers felt a still greater compulsion to design an engine after sensing that Mitsubishi was holding back on technology. “They did not give us engines when they were under testing,” said Chief Engineer Lee. “We always had to wait.” Lee did not appreciate the desire of Mitsubishi engineers to complete the arduous testing process before turning over designs. “They gave us up-to-date engineering, but we felt it was not up-to-date,” he said. “Their engineering development is always under testing. They didn’t give us the engine while it was under testing. We have to wait. We discussed this with Mitsubishi, and we agreed we should have our own engine and engineering capability.”

Lee swore none of the Alpha’s parts was on license — though Bosch of Germany provided the know-how for emission controls and the British firm Ricardo collaborated on the basic concept. Hyundai saw the Alpha, for all the qualifications about it, as opening “a new chapter of technological self-sufficiency in the Korean automobile industry, ranking Korea ninth in the world as an independent developer of automobile engines — and the first among the newly industrialized countries.”²⁴ The final test had yet to come — the engine was too new to have endured the first angry shouts of customers howling in anguish after sputtering out at 40,000 or 50,000 miles. Hyundai, in the meantime, was not burning any bridges with Mitsubishi. Lee was confident that Mitsubishi and Hyundai would get along fine as Hyundai developed more of its own engines. “If we have the capabilities,” he said, “we still have close relations with Mitsubishi.”

24 “Technological Innovation at The Mabookri Research Institute,” Hyundai Newsletter, August 1992, p. 6.

Acquiring those capabilities, however, would be uphill all the way. The design center at Mabookri, on the same wooded site where Hyundai psyched up recruits and managers at the development institute, was deep into developing Alpha’s successor, the 1.6, 1.8-liter and 2-liter Beta. “We don’t have enough engineers,” Lee said, “but we do our best.” The money HMC was pouring into new facilities as well as research and development showed it was planning for the long haul regardless of glitches. While the banks cut off credit for much of 1992 as a result of Chung Ju Yung’s political activities, HMC still invested $564 million in facilities, including an Alpha transmission factory, and earmarked $848 million for 1993, much of it for new models, out of a total investment of $2,254 billion in facilities for the year. R&D in 1992 cost $49 million — and in 1993 was zooming to $165 million. Thus R&D at HMC jumped from 5.6% of the group’s R&D investment of $1,038 billion in 1992 to 16% in 1993.²⁵

25 Hyundai group, “Hyundai’s Business Plan in 1993,” January, 1993. Hyundai computed the figures at 790 won to one dollar.

Hyundai planned to use the 12-vai ve double-overhead camshaft Alpha in the Excel X2’s successors “within four years,” while a 2-liter, 16-valve doubleoverhead camshaft Beta would be mounted on the HCD-2, “Hyundai California Design-Two,” successor to the HCD-1, a one-of-a-kind sports show car fabricated by the Hyundai America Technical Center, a separate HMC subsidiary staffed by American and Korean engineers in Chino. (HMC planned to produce 20,000 HCD-2s a year as “Korea’s first sports car” by 1997.) Later, said Lee, variations of the Beta might be mounted on the Elantra as well as the Y3, codename for the new Sonata, debuting in May 1993 but still using Mitsubishi four and six-cylinder engines. Lee doubted, however, if Hyundai would design an engine as large as the three-liter V6 types on the Grandeur and the Galloper jeep wagon, the last introduced in 1992 by HMC’s Ulsan neighbor, Hyundai Precision. “It is very inefficient for us to develop,” he said. “The volume is not sufficient.”

The engineering problem extended now as always across the sweep of a support industry that grew and improved at an erratic pace. Lee looked despairingly when asked about electronics — one of the trickiest fields considering not only the speed with which computer technology leapt ahead but also the undoubted supremacy of madly competing Japanese, European and American producers. “Suppliers like Hyundai Electronics should be stronger than they are now,” he said. “They should keep pace with us. We are planning to be stronger in various fields.” It was one of the toughest tasks the company faced considering its reliance on 20 or 30 ancillary companies for electronics alone.

The development of its own engines, however, added an exciting dimension to Hyundai’s future. They represented a risk — albeit a calculated one — for company and customer alike. Another question now was whether Hyundai could convey the excitement to Americans. Hyundai stuck with Backer, Spiel-vogel and Bates to get the message across even though BSB had not come up with a winning slogan since “Cars That Make Sense” — and revived the same tired slogan for HMA in 1992. BSB, owned by Saatchi and Saatchi, had a 10% stake in Diamond Ad, which handled Hyundai’s advertising in Seoul. The Hyundai/Diamond/BSB connection was clearly a liability if it prevented HMA from finding another agency unfettered by memories of the old days. “BSB from the beginning has done a good job for us,” said Baik, evincing a view now seriously open to doubt.

Hyundai’s American advertising began to seem a little desperate. One TV commercial in 1993 featured two women arguing that men buy big cars to compensate for fears about the size of their penises. “He must be overcompensating for a…shortcoming,” suggested one of the women. As a man drove up in an Elantra, the other woman speculated, “I wonder what he’s got under the hood?” Then, toward the end of 1993, Hyundai introduced a commercial with a man looking guilty, saying, “My name is Tony, I’m a Hyundai owner,” before an Alcoholics Anonymous-type meeting. First one person applauded, then everyone stood up and clapped madly. The ad was cute but offended AA members. “A horrendous slap in the face to sell cars using the format of a 12-step program,” said one.

In the process, Hyundai had to undersell Japanese rivals who twice raised prices in the first half of 1992. Another ad got to the heart of the issue, seizing upon the sense that Japanese cars were declining in popularity, asking, “Remember when Japanese cars meant high quality at reasonable prices?” More to the point, HMA needed to convince an unheeding public that Hyundai cars were more reliable than before — Hyundai backed up its new program with a three-year or 36,000-mile warranty that included two years free oil changes and tune-ups. Still, as U.S. car sales dropped by 9% a year from 1988 through 1991, Korea’s share fell from 3.75% in 1988 to 3.04% in 1989, 2.4% in 1990, 2% in 1991 — and an appalling 1.3% in 1992 and 1993.²⁶

26 The Korea Herald, July 11, 1992. HMA supplied 1992 and 1993 figures.

Koreans again succumbed to the temptation of blaming the Americans. Chung Se Yung wasn’t sure his new American team was any better than the old. “As time goes by, we think Americans are funny,” he said, scarcely hiding his annoyance with American bosses for gouging their Korean benefactors. “They want too much money. We really wonder if it is worth their capability.” S.Y. ruminated on the paradox of American salaries. “The American pay system is really different from ours,” he said. “Some good quality is very low” while other people of low quality are paid “very high.” S.Y. gave the impression that his new Americans fell in the latter category — second-raters making too much for doing too little.

“I don’t know American customs very well,” S.Y. said with some annoyance, bristling when asked what the polls revealed about his cars’ future in America. He was “not concerned with these matters,” he responded, suggesting his job was too lofty for such detail and advising “you talk to my managers.” One thing was clear: while Hyundai searched for solutions, the Americans were the scapegoats. The fault, S.Y. believed, lay anywhere but among his own people, the Koreans who were making the cars that were now the biggest bombs (with the Yugo out of business) on the North American market.

S.Y. claimed to welcome yet another Korean motor vehicle competitor — Samsung, the second largest chaebol, even though all Hyundai’s lesser rivals passionately protested the government’s approval of Samsung’s application for building trucks. “Samsung’s main purpose is cars,” said S.Y., amid reports that Samsung was negotiating with GM for expertise if not co-production after GM’s break-up with Daewoo. “We don’t object at all to Samsung’s coming into the market.” S.Y. may also have had in mind the interests of brother In Yung. While Samsung completed a deal to build trucks on license from Nissan, I.Y.’s Halla Engineering & Heavy Industries, under I.Y.’s elder son, Chung Mong Kook, signed on Iveco-Fiat SPA of Italy to assemble its own heavy vehicles. Halla and the Rev. Moon Sun Myung’s Tongil group, both pioneering separate car deals in China, wanted to build trucks too. Moon’s Panda Motors envisioned a car plant while Halla’s Mando Machinery, after a visit to China by I.Y.’s younger son, Mong Hwon, in 1992, hoped to sell the know-how for producing car parts and accessories and also to invest in a joint venture for manufacturing shock absorbers.

S.Y. also had designs on the China market. He was optimistic after a visit to China in June 1992 in which he looked at motor vehicle plants in Tianjin, Harbin and Changchun and talked over possibilities of a joint venture with Tianjin Automotive Industry for producing small trucks and mini-buses. With the opening of diplomatic relations between Seoul and Beijing in August 1992, Hyundai might yet produce “cars that make sense” for the Chinese whether the vehicles came from Ulsan or were put together on lines in China. Koreans believed expanded contacts with China might be a cure for economic problems, and cars ranked at the top of S.Y.’s priorities there. The lure of China outweighed the risk that Taiwan might cut its Korean motor vehicle imports of 25,000 a year, enough to turn Taiwan into Korea’s biggest overseas vehicle market after the United States and Canada.²⁷

27 Yonhap, August 22, 1992; The Korea Herald, August 23, 1992.

In the meantime, Hyundai was compensating for North American losses by selling more cars in Europe, a market potentially more forbidding than the United States due to tariff and quota barriers. Hyundai entered Germany in September 1991, helping to fill a void left by the demise of the East German Trabant, a joke of communist rule, and invaded France a year later with help from an old friend, the Korean government. Korean officials told the French their Train à Grande Vitesse had a better chance for the proposed Seoul-Pusan high-speed railroad if France opened up to Korean cars. The French weekly Journal de Dimanche predicted competition from Hyundai would be a “nightmare” for Renault and Peugeot — even with sales held to 20,000 a year, equal to those of the Mercedes Benz from EC neighbor Germany. Overall, HMC’s European sales shot up 66% from 67,510 in 1991 to 111,020 in 1992 and nearly tripled elsewhere — 7,580 to 22,218 in Latin America, 6,012 to 15,028 in the Middle East.²⁸

28 Yonhap, August 17, 1982; Hyundai Motor Company, Seoul, 1993.

The figures showed that pushing exports beyond North America might be the answer. HMC foreign sales were up 13.9% despite the decline in the United States and Canada. The question was whether Hyundai could ever overcome its American image problem. A USA Today poll of 601 dealers in 1990 had shown Hyundai third among “worst brands” with 15.8% of the votes — behind the farcical Yugo at 31.7% and Chrysler at 17.7% and far ahead of fourth-worst General Motors, fifth-worst Chevrolet and sixth-worst Ford at 4.2%, 4% and 3.5%. Those who sold only imports were even more critical — 21.3% of them put Hyundai second worst after the Yugo, judged worst in this category by only 27.8%.²⁹ Consumer Reports three years later, in 1993, rated the Hyundai, for its Excels and Sonatas, among 24 manufacturers that used-car shoppers preferred to avoid.³⁰

29 USA Today, February 9, 1990.

30 “Used Cars, Good Bets, Bad Bets,” Consumer Reports, April 1993, p. 268.

HMC, however, was not giving up on the United States. With another American executive, Doug Mazza, in charge of HMA by 1993, the company envisioned a 30% increase in exports to the United States by 1994 — even if sales never matched the honeymoon years. Mazza at the outset talked in the optimistic tones exuded by his predecessors before disillusionment set in. “Hyundai has quietly been improving its products at what I believe to be record-breaking proportions,” he told an interviewer. “I find a product that is ready to be relaunched.” The new warranty program, a promise of a new model every year, rising prices of Japanese imports as a result of the rising value of the yen were all grounds for confidence in a man who had made his reputation marketing Suzukis and Mitsubishis.³¹

31 Richard Truett, The Philadelphia Inquirer, Automotive section, August 8, 1993.

To Mazza the challenge was to change the image. “How do we close that gap between image and quality?” he asked rhetorically. “You do it one communication at a time, one car sale at a time.” His aims were simple: “To close the gap between image and quality, to continue the continuum of quality improvement, then to perfect our image in the current segments we sell in before we expand into new areas — and to look for opportunities for Hyundai to penetrate the marketplace.”³² The more he talked, the more he sounded like a facile salesman accustomed to giving presentations. Skeptics could say they had heard it all before. Such words, they knew, did not always correlate with what was happening in Seoul and Ulsan.

32 Ibid.

In the end the success of HMC would ride on the ability of its owners, managers, engineers and work-force to make good on their own. The anxiety of Korean manufacturers to produce motor vehicles defied reason and business logic, at least in the eyes of sometimes myopic foreigners. The Boston Consulting Group in 1992 put Korea “on the edge of the world’s car industry in terms of domestic sales and exports” and foresaw a struggle for the Korean industry to survive the decade.³³ No one in Korea, it seemed, was paying attention. Even fifth-ranked Ssangyong, maker of Korando jeep, insisted on getting into the act, negotiating with Germany’s Mercedes Benz for the expertise to produce a Mercedes-like car under its own brand name by 1996.³⁴

33 The Korea Times, April 24, 1992.

34 “Car Market to Have Formidable Competitors in Future,” The Korea Post, March 1993.

While celebrating the production of its 5 millionth motor vehicle on June 12, 1992, HMC was operating below its annual capacity of 1,150,000 units, including 220,000 trucks and buses. Korea ranked ninth among car-making nations, but the country’s 1992 total output of 1,729,509 vehicles, 845,030 from HMC plus 24,264 jeep wagons from Hyundai Precision, was 40% of what Korean manufacturers could do.³⁵ Other figures, however, told a more optimistic story. HMC’s 1992 sales of $7.375 billion, at 760 won to one dollar, were not only more than twice as high as those of any other Hyundai company, including Hyundai Engineering and Construction and Hyundai Heavy Industries, but were also the highest of any Korean company, ahead of Pohang Iron and Steel, the leader for the previous three years.

35 Korea Automobile Manufacturers Association provided statistics. Bruce Kim, “Too Much Junk in the Garage,” Korea Economic Report, Seoul, July 1992, pp. 36–38.

The company, moreover, reached this figure despite the worker slowdown, lockout and takeover of the plant in January 1992, more off-again, on-again strikes in the spring and summer of 1993 and losses of scores of managerial-level people in the second half of 1992 to Chung Ju Yung’s presidential campaign. (Two top executives were indicted, including Roh Kwan Ho, vice president in charge of domestic sales, who took off for the United States before he could be arrested, and Hong Du Pyo, executive managing director for passenger car sales — both charged with violating the election law by bestowing gifts and plant tours that Chung strategists believed would show voters how well he could run the country too.) Profits did go down in 1992, down 22.6% to $53.2 million for HMC, down 14.% to $32.6 million for Hyundai Motor Service at 781 won to one dollar, but HMC projected a 17.1% sales increase in 1993, up to $9.4 billion.³⁶

36 Hyundai Motor Company, 1992 Management Report, in Korean, Seoul, 1993, p. 26.

Output of all makers, Hyundai, Kia, Daewoo, Asia Motors (owned by Kia) and Ssangyong, was on its way to 2,050,058 for 1993, 678,557 for export, and would climb to 2.4 million for 1994.³⁷ As HMC’s share for the year soared toward 960,000, the company launched an audacious campaign that typified the founder’s relentless drive. “Global Top 10” was the codename for the goal to put HMC among the world’s top ten motor vehicle manufacturers by the year 2000. The company also set a specific production level commensurate with the year. By 2000, said planners, HMC would make 2 million vehicles annually.

37 Kim Min Goo, “An open Road,” Korea Business World, March 1993, p. 18; Korea Automobile Manufacturers’ Association.

Executive Vice President Park Byung Jae could not help citing the country’s most severe rival as he outlined the dream. “We are working hard to advance to levels equal to Japan’s in terms of quality, cost and efficiency,” he said. Park predicted only the American “big three,” GM, Ford and possibly Chrysler, and the three leading Japanese producers, Toyota, Nissan and possibly Honda — “plus two or three European car makers and one or two others” — would “survive the shakeout” of recession, labor difficulties and cutthroat competition.

Hyundai engineers admitted HMC lagged in such areas as paint, braking systems and steering while the average HMC worker was still only half as productive as his Japanese counterpart. Still, like the racing greyhound in perpetual pursuit of the rabbit, Korea would never give up the chase. Could Hyundai hope to match Toyota’s computer-controlled assembly line, capable of welding three different models at the same time, asked a correspondent, citing one of the Japanese giant’s awesome achievements. “That’s what we are seeking for in the long run,” an HMC official replied without hesitation.³⁸

38 Yeom Yoon Jeong, Reuters, Seoul, May 2, 1993.

There was, however, a new challenge for Hyundai Motor America. That inveterate critic of the early days, Greg Warner, was back — as executive vice president and chief operating officer of Kia North America, introducing its new four-cylinder sedan, the Sephia, and a compact sport utility vehicle, Spoilage. This time, viewing his years with HMA as a learning experience, Warner was determined to do it right. “Kia wants to put lots of distance between itself and Hyundai in the public mind,” he told Automotive News. He would “demand adequate showroom space” — but not separate agencies — while hoping to sell 10.000 cars by July. Kia, 10% owned by Ford, seemed well on its way after the Sephia’s American debut, shipping 9,022 vehicles in January 1993 compared to HMC’s 24,360.³⁹

39 Automotive News, February 3 and June 8, 1992.

HMC still aimed to set record sales of 640,000 at home, 460,000 cars, trucks and buses, up from 571,000 in 1992, and 320,000 abroad, up from 277,000, including an 18,000 increase in exports to the United States. Kia might pry open HMC’s lock on half the Korean motor vehicle industry, but not for long. Kia in December 1992 outsold Hyundai in Korea, capturing 42.9% of sales against 38.6% for HMC, while a number of bosses from HMC and Hyundai Motor Service were out playing politics. Hyundai bounced back strongly in January 1993, however, selling 73,647 vehicles, capturing 54% of the local market to Kia’s 25.9%. For the year, Kia sold 441,855 vehicles at home, a hefty increase from its 1992 domestic sales of 396,333, while exporting another 158,417 — 33,600 of them Sephias and 1,000 Spoilages, up from 103,021 the year before. Daewoo, meanwhile, was battling in third place, 206,020 in domestic sales and 102,133 in exports — great leaps from 141,539 and 54,653 respectively in 1992.⁴⁰

40 Kim Min Goo, “An Open Road;” Korea Automobile Manufacturers’ Association.

A pricing war was on. Hyundai, with American sales in the doldrums at 108,549 in 1992 and 108,796 in 1993, still advertised the Excel as “America’s lowest-priced car,” as low as $7,290, plus options, more than $2,000 lower than the lowest-priced Toyota Tercel and probably lower than the Sephia depending upon how much dealers added for air-conditioning, stereo, power-steering and the like. Hyundai, moreover, started getting some respectable reviews. The Car Book, Jack Gillis’ annual listing, in its 1994 edition rated the Excel at the top of “best bets” among subcompacts with a score of 10 — just above the nine scored by the Toyota Tercel and Mercury Tracer and the eight for the Nissan Sentra, and J.D. Powers’ Initial Quality Surveys said the quality of Hyundai cars by that time was up 57% from its nadir in 1987. Industry observers believed, however, such plugs might be too late to make a difference in the near future. Hyundai, The Wall Street Journal dourly noted, “remains near the bottom of most major surveys on customer satisfaction and vehicle quality.”⁴¹

41 The Wall Street Journal, December 13, 1993; HMA provided the statistics.

In the face of disaster in North America, prodded by more competition at home, HMC might still make world-class cars some day. To prove the point, while Samsung was aligning with Nissan as a late entry in the Korean motor vehicle sweepstakes, Hyundai in 1994 came out with yet another low-priced car, the Accent, with an updated Alpha engine, to replace the Excel first at home and then on foreign markets. If the Americans at HMA had been correct in their criticism, no one could deny the stubbornness of HMC, an also-ran in international competition, a giant among the also-rans at home. Nay-sayers had forecast bad news for Hyundai before; the group had been known to perform best when odds were worst.

Chung Ju Yung, defeated for the presidency, returned from a trip to Malaysia, Singapore and Japan in March 1993 with a co-production deal for assembling small trucks in Malaysia, engines made in Korea and bodies in Malaysia. That was only for starters. HMC in 1993 and 1994 contracted to ship CKD sets for assembly of cars by local companies in half a dozen countries, including Thailand, the Philippines and Indonesia in Southeast Asia and Botswana, Zimbabwe and Egypt in Africa. There was a wondrous parallel here — HMC was doing for third-world manufacturers what the Americans and Japanese had done for the Koreans, including HMC, in the 1960s.

Chip Shots And Other Short Circuits

XIV Memory Losses

DOI: 10.4324/9781315483214-14

When Chung Ju Yung decided he wanted to get in on a market, an industry, a piece of the action, any action, he jumped in all the way. There was no room for doubters, second-guessers, arguers and questioners. He had operated this way from the outset of his career, but few ventures revealed his style better than Hyundai Electronics America in the story of its rise, failure and possible resurrection. Here was the honorary chairman, the boss, at his best and his worst — in short, acting just like himself.

One thing about Hyundai’s approach to business — electronics, motor vehicles, ship-building, petrochemicals, whatever: the funding would always be there as long as the government was on its side. “They’re never going to run out of money,” said an American who had once worked for Hyundai Electronics America. “It’s a corporate state.” In that sense, he said, the Korean model was “not unlike the Japanese blueprint for success” — though the Japanese had long since passed the stage at which the Koreans now found themselves. If the Korean blueprint provided a framework, however, it was up to individual business leaders to develop the plans to justify the backing of the government. One of the miracles of Hyundai was that it could bull its way through embarrassing difficulties and still make money.

Hyundai was way late when it came to electronics. Other top-ranking chaebol were already capitalizing on the electronic age, producing a wide range of products while Hyundai refused to graduate from physically large items like ships, buildings and motor vehicles. Park Kwang Oh, a one-time vice president of Hyundai Electronics in Korea, had a ready explanation for why Chung branched out into electronics after having been so successful in quite different industrial fields: “The story is the backbone in construction and heavy industries. These were considered declining in the future so Hyundai planners figured they better get into something different — Chairman Chung felt he needed some other business to survive.”

Chung could see his rivals reaping fortunes from electronics and decided it was high time Hyundai exploited the boom. To Bae Myung Seung — Michael Bae to his American colleagues — the speed with which Hyundai made the plunge, the money that Chung threw around, and the ignorance and harshness that Hyundai displayed were beyond all credibility. “The reason was blind competition with Samsung,” said Bae, citing the chaebol that was then ahead of Hyundai in group sales thanks in part to its position as Korea’s leading manufacturer of electronic products. “Because of this competition, Hyundai expanded its scope.” Bae, a former Xerox executive with 30 years background in the United States, got what appeared as the opportunity of a lifetime at the end of 1982 when Chung hired him as executive vice president of a brand new electronics operation near San Jose in Silicon Valley.

“I started the business plan and then implemented it,” said Bae, who had graduated from Seoul National University before going on to Columbia for his doctorate in physics. Bae drew up an $83 million scheme for an operation with facilities in the United States and Korea. The original name was Modem Electrosystems — appropriate since “modem” is the meaning of the Korean hyundai. Soon, however, planners on both sides of the Pacific realized the name, besides sounding more suitable for an industry magazine than a company, was as simple and unrealistic as the budget. Hyundai Electronics America had a more distinctive ring for a firm whose start-up costs, by spring 1983, were rocketing above $300 million.

Chung himself, with the power to decide almost everything and approve the most trivial details, suffered from limited vision. Having got his start in construction, he liked to turn out objects that he could visualize and understand at a glance. He could not, at his age, hope to grasp the inner workings of a chip or a computer. Thus he was blind when it came to understanding what he wanted his company to make — and he sometimes admitted his weakness. “He said he knows contracting very well because he grew up with it,” said Bae. “In shipbuilding, you can see a ship and build it. In the automotive industry, you can see products coming out. But he said he’s toured several electronics factories, and everybody says, ‘Look in the microscope,’ and when he looks, he sees a lot of lines and shiny stuff, and he doesn’t know what’s going on.”

The Hyundai executive charged with functioning not only as Chung’s eyes but also as his ears and mouth was his right-hand man, Lee Heun Tae. A 1960 graduate of Yonsei University, now the man most responsible for minding the money, Lee had spent his first 11 years in business with a smaller company before joining Hyundai Construction as an assistant manager in 1971. He served in top executive positions on his way to becoming chief of the central planning and coordination department in 1981 — and clung to the job through a decade of massive expansion. With instincts finely attuned to those of his boss, H.T. was not interested in second-guessing from Bae about the project. “He has his own idea why it has to be so big,” said Bae. “He says, ‘The Hyundai idea is big, we always did that.’”

Lee had a form of intimidation that usually commanded instant respect — though not in Bae. “The chairman will be mad,” he would respond to Bae’s persistent skepticism. Anybody remotely associated with Hyundai knew the doom that befell those who incurred the chairman’s wrath. Judging from the HEA experience, one got the impression that uncertainty was part of the plan — that Chung believed in spreading an atmosphere of frightened ignorance as a device for both motivating the troops and keeping them in line. “I don’t think they had any well-designed strategy in the computer division,” said Yang Hoon, running his own research company in Paramus, New Jersey, after having succeeded Bae at HEA. Hyundai, Yang believed, was “unique in that situation.”

In the case of Hyundai Electronics America, the chairman would have done well to have adjusted his approach. “When they start doing business on a global basis, they’ll be forced to change,” said Bae, “even though the pace of change is gradual and slow.” That might or might not be true, but what was certain was that HEA had to change. If Chung did not brook debate within his executive councils, there still was a great deal of talk behind the scenes — most of it between spear carriers for Chung led by H.T. Lee and specialists and advisers such as Bae.

“Semiconductors was the primary issue,” said Bae. “They thought they could earn a lot of money” in that area. Hyundai also hoped to get into microcomputers, ordering the R&D people to design a workstation, sometimes described as “a PC on steroids,” used for specialized technical, medical and other uses, much faster, more powerful than an ordinary PC. Bae pushed for what he saw as “a balanced approach, including automotive electronics, computers and other industrial material.” Chung viewed the profits there as dull compared to the killing that he anticipated by putting 80% of the Hyundai investment into semiconductors and microcomputers. A year after signing on as a consultant Bae was in charge of a plant with 200 people on the payroll. By 1983 the plant was a full-cycle operation engaged in research and development as well as manufacturing — all in accordance with the wishes of H.T. Lee.

Lee’s idea, probably on orders of Chung, was simple: “You produce and you self-support with a new product,” said Bae. “We had a major operation in semiconductors, which supplied the Korean operation. The product was to be developed and transferred. The Korean operation was strictly manufacturing.” Chung and Lee got the notion that the American plant should manufacture in order to scale down burgeoning costs. “The original intention was R&D here, in Silicon Valley, manufacturing in Korea and marketing in the United States,” said Bae, “but now that’s all mixed up, and they said, ‘You produce, you sell, you earn money.’” Bae added the obvious: “That arrangement wouldn’t work because R&D costs a lot.”

There were other problems as well — the kind for which Hyundai was notorious. Bae learned, when he wanted to hire a secretary, that he needed the personal approval of the chairman. “We had to send background resumes to get an OK,” said Bae. He could not rent an office without going through H.T. Lee, who would then pass on the papers for the chairman to sign. Tensions once ran so high that Bae and Lee got into a Korean-style yelling and shoving match. Lee, Bae had discovered, sanitized all reports before they reached Chung’s desk. “I just sent a telex directly to the chairman’s office describing a lot of problems,” said Bae.

Bae believed H.T. Lee was “covering up all the problems” in hopes of becoming president of Hyundai Electronics. There was no question he was the highest-ranking executive — even though he also had broad group responsibilities as well. There was also no question as to who would survive in a power struggle — Lee, the insider, or Bae, the Korean who had cast his lot with life in the United States and was woefully out of touch with the inner politics of a Korean company, any Korean company, much less one as inbred as Hyundai. What Bae did know was that Lee had “the enormous trust of the chairman” — so much so that “he was handling the money, the personal finances of the chairman.”

While Lee “really meddled” in Hyundai Electronics, said Bae, Lee was still frustrated if not defeated in his efforts. Although Lee later became president of Hyundai Petrochemical, Chung passed him over for the top post at Hyundai Electronics. Instead, Chung chose another way to exert his power, his rage, his determination to make Electronics work. He named his fifth son, Chung Mong Hun, as president. The appointment, however, did not really detract from Lee’s authority. “M.H. was a figurehead who could never take responsibility for failure,” said Andrew Procassini, HEA’s marketing director. “The real power was H.T.”

For H.T. Lee, however, subservience to a princeling in the role of president of Hyundai Electronics was inherently humiliating. Similarly, for Mong Hun, the need to follow the counsel of his father’s ace money man in the role of regent was more than annoying. “I’m not sure he’s terribly smart,” said Yang of Mong Hun — like H.T. Lee a graduate of Yonsei. “He was put in a very difficult position. H.T. Lee was executive vice president reporting to him, but Lee was de facto president.” As the regent, leading but not appearing to do so, a second-class member of a ruling elite, Lee in Yang’s view “had an illusion that he is the brightest man in the entire country” and as “a think tank for the chairman is sometimes more vicious than the chairman himself.”

Although Chung Mong Hun had the title of company president, Yang said, “the guy had no leadership character, no real authority to do anything.” Yang cited a combination of insecurity and ignorance of the business along with “no training or education at all” by way of background on Mong Hun’s approach. “When I was working for him, it was a learning period for him.” In another sense, though, H.T. had no authority either. He “was active as a mentor,” said Yang. The fact that Mong Hun, like other members of his family, was not personable only reminded underlings of the force that had put him in power — and would surely keep him there.

Chung offered no explanation for appointing his neophyte son to such a critical post in a start-up company; he was not in the habit of giving reasons. With a trusted deputy like H.T. Lee pulling the strings, aides figured, why not turn the company over to the boy as an exercise in rescue operations? If Mong Hun was not a realistic solution to anything, he could still be effective as a conduit for paternal anxiety and a channel to the top. Here, then, was a chance to see what the kid could do — give him on-the-job training and weigh him against his brothers, all of whom were in charge of something by the time they were in their thirties. Lack of qualifications was irrelevant.

From his own vantage in Seoul, H.T. believed he held final authority over every detail in a country and a culture he hardly knew. The issue boiled over during one of Chung Mong Hun’s rare visits to his Silicon Valley enterprise. When Yang complained that every time he interviewed anyone for a job he had to telex H.T. Lee with a resume and letter requesting permission to hire, Mong Hun said, “OK, up to manager’s level, Dr. Yang has the authority to hire.” Said Yang: “He makes that announcement before 20 managers. A couple of hours later, in private, he wanted to reverse that. I was just fed up. I couldn’t even put a nail on a wall without H.T.’s approval. That’s one of the reasons I quit.”

The chief executive of an interim version of HEA, Park Chong Sup, recalled the troubles as if he were going over a lesson in ancient history. “Originally there was a fabrication facility whose purpose was R&D,” he reminded a visitor to his office at HEA’s headquarters in San Jose in early 1989. “It didn’t make sense to fabricate without R&D so they moved everything back to Korea.” Park, who had a master’s degree in business from the University of Chicago, did not think Hyundai had lost a cent or a won on its misadventure in Silicon Valley. “The microcomputer deal did not cost money because we didn’t invest in anything,” he said. “There was no hardware capital-related system.” He admitted “the semiconductor group cost money because of the fair size of the fabrication facility” but “the cost was only operational — they recovered from the land, all the facilities, the equipment.”

Anyone to blame? There was “a shortage of good people,” said Park. The culprits, naturally: those Americans. Those who signed on with HEA in Silicon Valley never talked to their compatriots down the California coast at Hyundai Motor America. They might have done well to compare notes; their stories bore strange similarities. The memories of Stanley Graham, hired by HEA in 1983, named director of engineering in 1984 and let go less than a year later, resembled those of the Americans hired by HMA for “career” posts — and then cut loose when all did not turn out according to original plan. “Arrogance was their main characteristic,” said Graham. “Many times they would open meetings with the statement, ‘We’re going to do this correctly, not like you Americans.’”

The arrogance flowed from the top. A colleague recalled listening in disbelief as Chung Ju Yung, at a management meeting, burst out at a skeptical executive, “Go home and take care of your babies.” Graham compared the crude way the Koreans treated him and his American cohorts to the manners of the Japanese — or at least those at one company, Omron, for which he had worked for several years in Silicon Valley near San Jose. The Japanese “knew they didn’t know. They were prepared to ask questions” — whereas the Koreans, “even the junior Koreans, always think they know.” The Japanese, as anyone who had worked for long in Japan realized, might if anything be more anti-foreign than the Koreans. On a day-to-day level, though, they had the sophistication to grasp how to deal personally with foreigners whom they secretly detested and also how to learn from them in the time-honored Japanese way.

The Koreans “have a very different attitude,” Graham summarized, extending the comparison to American companies too. “Their treatment of people is different from ours.” Some observers of American corporate mores might accuse Graham of hyperbole in his opinion of the respect accorded staff members of both American and Japanese companies, whose managers were obviously more skillful than Koreans in masking sentiments. Graham and his colleagues, like the Americans at HMA, were untutored in the Koreans’ fierce concern with face, the need to be correct, not to admit ignorance or error. To Graham, the bottom line was simple: “The Koreans don’t seem very above tribal civilizations. They use people and discard them. You never seem to be accepted.” Ironically, Graham realized something was amiss soon after Chung Ju Yung visited the electronic facility in 1984 and gave a pep talk in the cafeteria in which he assured staffers “we were really committed to computers.” Chung proffered Graham an extraordinary vote of confidence when he announced “in front of everybody I had been promoted to director of engineering.” The joy vanished when “a few minutes later he introduced another guy, a Korean, and said he was director of engineering.” Graham “wondered how I could be director — but he made it quite clear this guy reported to me.” Such an arrangement was meaningless, he knew, if the Koreans on the spot were not comfortable with it. The Korean “director of engineering” still reported directly to Yang Hoon, now in charge at HEA — a system that gave Graham the impression the engineer “was probably a member of the secret police.”

As at HMA, there were strange stories of the conduct the Koreans expected the Americans to follow to show their respect for authority. Graham liked the one about the executive named S.T. Lee, whose initials earned him the nickname “stupid” among foreigners around the building. “He wasn’t stupid,” said Graham. “He was obnoxious. He would say, ‘The chairman is visiting next week, get your managers into the parking lot.’ Why? ‘To clean up the grounds.’” Graham would ask, “Are you joking?” but he learned S.T. had “no sense of humor” so he “just ignored him.” There were more petty humiliations. “One day a Korean looked at me and then walked out,” said Graham. When he returned, “he said ‘we have to change your chair, it’s a blue chair, you need a brown chair’” — since blue chairs were for those in higher positions. Such foolishness reached a nadir when S.T. sprayed whitewash on Graham’s company car. “I asked him to turn the spray off,” said Graham. “He said, ‘No more your car.”’

The parallels between HEA and HMA went on and on. “It was difficult getting anything done,” said Graham. “They wouldn’t give me a budget. It took a long time — they had to get approval for everything.” Naturally, he had to have approval from higher echelons to hire anyone, even on a secretarial level. Sometimes hassles with personnel reflected questions not only of salary and experience but also of Korean attitudes toward women.

One of Graham’s more nagging personnel problems arose when he hired a secretary of Asian ancestry. “There was a Korean in the pay office,” he said. “Every time he spoke to her, he’d put his hand on her butt. He’d get very close to her and lean on her.” Then there was the Korean secretary who he noticed was working late one night. “She said ‘it’s my night to cut hair,’” said Graham. “I said, ‘go home.’” Whatever one might say about the attitudes of American men toward women in the office, “they knew you didn’t hire a secretary to cut hair.” Graham’s mission was doomed from the start. The goal, he said, was “trying to stop them from acting the way they do.”

Top Hyundai executives in Seoul realized the urgency of the need to bridge the cultural as well as technological gap — the reason that they had hired men such as Bae and Yang. For the same reason they turned in this period to Nam “John” Chong Woo, a Berkeley Ph.D. placed in charge of information systems for HEA in 1983. Nam had had a lot to do with taking on the nucleus of the American team under Graham. In his newly built home in Los Altos Hills, overlooking the lights of Mountain View, Nam diplomatically put the crisis in terms of Hyundai’s entry into an unfamiliar area. “Hyundai’s strength is heavy manufacturing, not in marketing, not in R&D, not in technology, but manufacturing and production. They’re good at it. They know how to mobilize people like an army, but computer electronics is more technology and marketing. They want to set up a company that does technology and marketing.”

John Nam, who had spent seven years with IBM selling mainframe computers, elaborated on the dilemma of Hyundai executives in Silicon Valley: “Two things happened. None of us was a businessman. We were scientists and engineers. Second, there was a business-culture gap.” Or, as he put it: “The way Silicon Valley works, you have to have imagination in products and technology. You develop a product. If it works, you produce and sell it.” Hyundai, he explained, “did it the other way around.” They built a huge manufacturing facility in Korea and “hired 3,000 people right away” — oblivious to the reality that “R&D and marketing in Silicon Valley cannot follow the speed with which they are building over there.” For the R&D people at HEA to come up with products “takes from three to five years,” he said, “but in Korea they built a factory within six months.”

Chung, not one to throw his money away, was restive from the outset. “Things started slowing down,” said Graham. “There was a big argument about getting into personal computers. We made a market evaluation. We said, ‘We’re not going to get into PCs, and we thought it would be a good idea if we licensed off-shore.” It was partly at Graham’s urging that Hyundai settled on the concept of building a workstation — sophisticated enough to do more than the cheapest around but considerably less than top-of-the-line. “We thought we could get in between,” said Nam.

“We put a proposal together,” said Graham. “John Nam took the proposal over.” To be of any commercial value at all, Graham and his staff had to come up with a workstation priced far below the market level set by other manufacturers. Nam’s logic sounded reasonable. “Hyundai is an engineering company,” he reasoned. “First we tried to develop an engineering and scientific workstation, but we couldn’t develop the product within the time they wished. All their concern was, ‘We have a huge factory — you have to fill it.’ We say, ‘We need the time for research.’” Nam avoided blaming Bae — despite Bae’s view that he had deliberately misled both him and top Hyundai executives with claims of prowess for himself and his people. “Michael Bae is a good engineer, a professor scientist,” said Nam, “not a businessman.”

The problems compounded when it came to selecting the Americans — specialists whom Hyundai’s top echelon, always conscious of the Japanese example, reluctantly conceded it had to have for the sake of their expertise. “I hired a lot of people at Hyundai, most of them in high positions,” said Nam with a touch of pride. He complained, however, that Hyundai did not have the name and reputation to get the best Americans available. Nor could Hyundai promise the same rewards. “In Silicon Valley, you have to offer high positions or equity, but the Koreans had the high positions, and Chung’s family will never give up shares.” Always, he added, “the biggest problem was the cultural gap. In Korea, the employer and employee relationship is like a master and slave. Chung’s family is like a king’s family. Here, manager-worker is a contract. You don’t have a master-slave relationship.”

Such difficulties made Nam less charitable in his view of the Americans on the Hyundai team than he was of the Koreans sent out from Seoul. “Hyundai could not hire the best guys,” he said. Stanley Graham “was mediocre” if “above average” — an evaluation that still placed him in Nam’s estimate above the other Americans working for Hyundai Electronics America. “We ended up hiring left-over guys,” Nam elaborated, echoing a view sometimes expressed by other Asian employers about the Americans they had hired to impart whatever knowledge and skills might elude them. “They were so-so. In Silicon Valley, there are a lot of superduper guys.” Sure, Nam conceded, his Americans could do the job — but “if you want to develop, you have to be a little better than someone else.”

Nam’s criticism of the Americans reflected his own problems as much as theirs. Hyundai, in keeping with its reputation for moving quick and hard on nuts and bolts, was proceeding apace with construction of a new building — “the steel beams were already up,” said one of the erstwhile managers, talking anonymously. Otherwise, “the situation was all screwed up” — with Nam already bypassing Bae in favor of “directions and instructions from H.T. Lee.” As if that were not bad enough, the “information and systems group,” the bunch that was supposed to be coming up with the brand new money-making product, “had no mandate or product planning” and had already “started drifting.” In the search for scapegoats, Nam bore the blame for having oversold the product and its possibilities. Bae was not the only one to accuse him of having deliberately set out to convince Chung Ju Yung of the quick money to be made — without warning of the risks.

Nam for his part could hardly decide who disturbed him more — Graham and his team members or Chung Ju Yung. “Chairman Chung liked me and I liked him, but then he didn’t like me,” said Nam. “He showed a lot of anger because that factory he built is not filled up.” Nam, with his American postgraduate education and professional experience, talked back to Chung in a way to which the chairman was definitely not accustomed. “I said, ‘I didn’t ask you to build the factory,’ and he said, ‘Nobody dares talk like that.’” Nam recalled the confrontation proudly. “Nobody talks in front of him,” he said. “I’m one of the few guys.”

XV Valley Days

DOI: 10.4324/9781315483214-15

Miraculously, in view of all the bickering, Hyundai Electronics America actually managed to produce a workstation complete with microcomputer and display it in a ribbon-cutting extravaganza at the Hotel Lotte, one of Seoul’s more prestigious meeting places, on October 7, 1983. Hyundai’s Korean plant, after all the hasty R&D on the part of the American designers, could now show off a capacity to produce four different types of computers, including one for color graphics. An added touch was the computers’ name, “Smart Alec,” suggested by a whimsical American consultant, connoting a self-deprecating modesty along with the know-how to undersell the competition.

The handiwork of HEA was suitable for display — visible proof, for senior Korean officials who dropped by for the ceremony and for the newspapers that published the photos of Chung gloating over his newest product, that Hyundai had belatedly entered the electronic age. The minister of commerce, Kim Dong Huy, cut the ribbon — tragically, just a day before he flew to Rangoon, Burma, where he was killed by the bomb set for then-President Chun Doo Hwan. The show at the Lotte, however, was no more than that, a show. All the prototypes landed in the showroom at Hyundai headquarters while specialists labored in frustration over how to start producing the dam things for mass sales. “We had a lot of technical problems,” said John Nam, citing “inexperience” and lack of “manufacturing know-how” as major culprits. “Then there was a fault in design. There were bugs in the machine. It was slow.”

By the time Chung called a halt to the whole project, the company had produced a mere eight workstations. “Only Hyundai bought it,” said Nam. “The failure was a kind of embarrassment to Hyundai.” Stanley Graham insisted “there was no problem with the workstation” even though the factory in Korea was evidently incapable of producing more than the prototypes. “They just shut it down,” he said. Nam, however, got back to the foreigners: “They did not trust the American team. There were two reasons. They built a package, and it is sitting idle. They said, ‘You guys are a bunch of Ph.D.s, and you are not building the product.’” Nam shouldered a little of the blame. “I could not find good people to join Hyundai,” he said, again shifting responsibility to the Americans.

Graham, not surprisingly, looked at the workstation fiasco from a rather different perspective. “John [Nam] is quite a nice guy,” he said, but “not only Nam but Dr. Yang and everybody else gave promises.” Among other things, the Koreans assured him that Chung had “put aside $500 million to get into high technology.” Behind that assurance, he believed, was pressure from the Korean government, which “had told them to get into high-tech.” The claim fit in with the pattern of inter-relationship between government and chaebol. Hyundai, it seemed, was lagging too far behind some of the others. With all the money at its disposal, the group had to risk some of it to advance Korea’s national interests against the Japanese.

Korean origins and contacts were not enough to save Nam from the wrath of the bosses in Seoul — he was fired before Graham. “We got a lecture from Dr. Yang about how bad he was,” said Graham. Then came word, unofficially, that he and his men were also about to go. “A Korean told me, ‘I don’t have to argue with you very long because we’ll close the division down.’” The hatchet man in the end was a vice president sent out by Hyundai Electronics in Seoul. There was no doubt about Hyundai’s view of the Americans once they decided to get rid of them. Assurances of “lifetime employment” — not to mention promotions and benefits — were forgotten. Said one American: “It was, ‘Here’s your check and get out.’” He talked clinically about his Korean colleagues. “They’re just soldiers, ordered to do what they do. You can’t get angry.” His conclusion about Korean management techniques: “It’s ready, fire, aim — in that order.”

Yang Hoon was apologetic about the dismissal of Graham and the eight other American engineers on Graham’s team: “When they were hired, we didn’t have product planning well defined. They were hired to develop a firm business plan. These people assumed there was a clearly defined product to develop.” Yang was only in charge for two or three months before getting word that the show was over for them. “It was a difficult learning period for me,” he said, and H.T. Lee, characteristically, did not make it easier. “I proposed to give them some reasonable and equitable severance pay. We didn’t have a clearly written termination policy at that time,” but he suggested “three or four months’ salary and insurance coverage.”

H.T. Lee ruled otherwise. “He was not the type who would listen,” said Yang. “They were given four weeks. They are bitter about the situation. I feel the company owes them severance pay.” He seemed defensive about his own position — and what he knew were the critical remarks made about him by the Americans. “I was caught in the middle. I couldn’t pass on the corporate policy to the American people. I tried to be as human as possible, to be sensitive, to absorb the shock myself, to hide these negative feelings.” He also said he counseled the Korean accused of harassing one of the women: “He spoke little English. He was in accounting. He was totally unaccustomed to the lifestyle. He was very young. When I heard that charge, I said, 'If you do it again, I will severely reprimand you.’”

Strangest of all, to the Americans, was the reality behind the appearance of a unified structure. “You have two organizations,” said one of them. “One is made up of Koreans and Korean trainees, the other, Americans. The Koreans meet on Saturdays when there are no Americans in the building. You have a facade where there are as many American vice presidents as Koreans.” He could not imagine any comparable modus operandi. “I don’t recall any American company separating the foreigners from the Americans. It’s very much like a military organization. It’s not like the Japanese at all. They believe in consensus-building.”

The Americans were history — or would have been had they been working in Korea, under Korean law. As it was, the nine American engineers complained to the U.S. Equal Employment Opportunity Commission, charging discrimination as well as failure to live up to commitments.

The basis for the discrimination complaint was that HEA had chosen to transfer rather than dismiss nine Korean engineers in the same division at the same time the bosses in Korea had decided it was time to cut costs and abandon the original scheme for cashing in on the worldwide electronics boom. John Pemberton, an attorney for the Equal Employment Opportunity Commission, added a couple of other points that revealed HEA’s lack of comprehension of the culture in which it was operating. HEA had no business, he said, asking Korean engineers to work Saturdays for no pay — though this merely reflected the standard work-week in Korea. And he charged an American woman hired as an engineer was the victim of discrimination when “she was told she couldn’t have an office with a window because secretaries don’t get offices with windows.” HEA, he argued, refused to provide the woman the professional training or prospects she would have had as a man.¹

1 San Jose Mercury News, October 2, 1986.

The Koreans, unaware at first of the seriousness of such charges under civil law, scoffed at the Americans for wasting everyone’s time. Finally, seeing how determined they were about bringing the case to trial, Hyundai yielded and settled. “Emotionally they got involved because they had a hard time to find the next job,” said Park Chong Sup, in charge of the revamped Hyundai Electronics America. “The company did not have business so they asked them to leave. They were discharged. The Koreans were reassigned to other projects, but the Americans were not industry experts” — so had no case for their charge of discrimination. He realized “they must be mad at something,” but he found the ruckus “very strange.”

In a much broader sense, the episode underlined Hyundai’s failure to grasp the full meaning of competition in electronics any more than it did in other protected industries. Chung was accustomed to having his own way in a domestic market carved up by central planners, and he had little first-hand conception of an arena where he was up against the strongest competition imaginable. “In Korea, the boss says, ‘We’re going to do it this way,’ and that’s how it’s done,” said Procassini. “They build a company in the belief the world market is insatiable, without regard to foreign competitors.” Again he contrasted that attitude with the consensus-building of the Japanese: “There’s an attempt to find a common solution. The statistical planning is so much more refined. There’s competition by what your competitors will do.”

Procassini, who lasted until October 1985, held the Hyundai style, retrospectively, in contempt. “The longer I spent with them, the more I realized their intention was not to be in the open market but to build for other companies or to go into the easiest products and obtain a foothold in the United States.” After having envisioned a role as “a worldwide company,” he said, Hyundai Electronics was “degraded to a commercial factory.”

Like the downturn that was to clobber the car market several years later, the recession of the early 1980s left HEA among the losers against competitors who were much more sophisticated and experienced. Chung, after anticipating profits at the end of a year in business, reversed himself. Michael Bae recalled how he learned his days at HEA were numbered. “The chairman asked me to come to Seoul.” H.T. Lee tried to block Bae’s trip, calling him “in the middle of the night, at 2 a.m.,” to say “I don’t need to come.” Bae sent a fax message saying “I am still going.” When he got to Seoul, he found that Lee had “put all the problems in front of the chairman” in an effort to undermine his presentation. Chung “was very stiff, angry, when I met him to describe the problems,” said Bae. Worse, he spoke “in a respectful manner, not ordinary conversation” — a calculated low-key response as menacing as the faint hiss of a viper.

Finally, in 1985, Chung shut down the entire operation with the same speed and decisiveness with which he had opened it. Said Procassini: “Making a product for another company and selling it — that’s the only way they can get revenue.” Whatever happened to Hyundai Electronics America, then? It hummed right along in a beautiful new building in Santa Clara — engaged neither in R&D nor manufacturing but in selling the products made in Korea. One could not be sure, though, if HEA could have had much impact at that stage no matter who gave the orders. “Hyundai as a newcomer has nothing to offer other than money so they are left out left and right,” said Yang Hoon. The experiences of HEA in its opening years were so bad that HMA, down the coast, appeared almost exemplary.

“If Hyundai Motor can serve as a good model for them, there is a lesson to be learned,” said Yang. “The electronics experience could also be a learning lesson for them. When you’re in Rome, do as the Romans do. When you’re in the United States, they have to do as the Americans do.” The Confucian work ethic, however, suggested to Yang the real blueprint for success. “It’s strange, it’s a Confucian country. There are these basic rules. One is loyalty between master and slave. That’s why the guy treats his employees like dogs. Another Confucian teaching: thou shalt be faithful to friends. It’s a lifetime experience. Another thing: the father-and-son relationship, filial piety, is an absolute must in Korea. You have to show your respect and obedience.” Chung Ju Yung — “the guy is a combination of father and master,” said Yang. “That mentality changed fast after the Korean War, but the man never changed.”

Beneath all his arrogance and bravado, H.T. Lee may have been more frightened than anyone else. “When Chairman Chung decided to go for electronics to survive, to be successful, you have to be able to read his intentions,” said Lee Yong, another American-educated Korean with Hyundai Electronics America. H.T. “at the beginning was not that crazy with electronics. He read that Chairman Chung’s mind was committed so he decided to go for it.” The consummate yes-man, H.T. knew the fate that befell the messenger of bad news. He had hired the team at HEA to get the job done, not to tell him to tell the chairman the job was impossible. He himself could hardly advise Chung, “Run HEA the American way — or go back to Korea and do as the Koreans do.” If Chung had indicated that money was no object, it was because he had no conception of the cost of R&D in the electronics industry. “Nobody said we’re going to make the money in the next four or five years,” said Lee Yong. “We said it takes more money. H.T. Lee said it costs money and doesn’t bring money back. He didn’t know about the industry. He was scared.” The best advice H.T. got was to focus on the factory in Korea — and produce dynamic random access memory chips, DRAMs, the most common type of memory semiconductor, on license from other companies. “For H.T. Lee, all the statistics said the DRAM market was the largest,” said Lee Yong. “I said, ‘Let’s do the DRAM in Korea because you will have a huge factory. That type was not good for out here.” Thus Lee’s contribution at HEA was to promote the systems needed in Korea to produce DRAMs for Texas Instruments — not creative but profitable: “We provided enough engineering help to Korea to be successful.”

Lee might also have added — to save face for H.T. and help preserve his position as the chairman’s alter ego. Lee actually felt sorry for H.T.: “He’s the guy from accounting. He adds up the numbers and comes up red.”

Then there were other problems. For one thing, neither H.T. Lee nor company president Chung Mong Hun was dedicated full-time to Hyundai Electronics—more than a full-time task. H.T. had his duties as Chung Ju Yung’s top strategic planner for the entire group, though the fledgling electronics company was to sap more time and energy than ever anticipated. M.H., besides watching over the investments his father had given him in Electronics, wore the hat of vice chairman of Hyundai Merchant Marine beginning in 1988. (Mong Hun’s father-in-law, Hyun Yung Won, had acquired the title of chairman of Merchant Marine in 1984 when he sold his own company, Shinhan Shipping, to Hyundai under the government’s policy of rationalization of competing companies.) For another thing, neither was interested in electronics as such.

The pressure for results, ones that might be seen, read, measured, was overwhelming. “There was no way they could make money in the first two or three years,” said Andrew Procassini. “They were awed by how fast the money could go without any revenue at all.” One conclusion was inescapable: mighty Chung Ju Yung, for all his wealth and power, did not have the magic to “make it” in electronics in America, much less on a global scale.

Michael Bae, in discussing HEA’s troubles, preferred to talk about an overall “lack of understanding of the electronics business” at Hyundai headquarters rather than to personalize his complaints. “Koreans are so accustomed to a quick turnaround, when they invest money, they want their money in a year or so,” he said, putting the HEA problem in a national rather than a group context. “They don’t want to spend money on the future.” H.T. Lee, then, came through as a spokesman for a philosophy held not only by Chung but by many other Korean business leaders. “He’s a very tough financial type,” said Procassini. “He would not hesitate to tell the guy who runs electronics what to do. He exercised more power than he should as a finance guy” — from Hyundai’s view, doing what he had to do.

Yang Hoon looked at Chung both as a man and a reflection of a period in Korean history. “All this bullshit about ‘the biggest asset is his people,’ that’s a lot of baloney,” he said. “His biggest management skill is fear.” He put the inculcation of fear in the context of the Korean experience through the Japanese occupation, World War II and the Korean War: “You go back to the sixties, even the seventies, there was no upward mobility. Job-hopping was unheard of. People looked at you as if you were a criminal. People are grateful to be working. If you get up in the morning and have a place to go, you are lucky. Employers know that. That mentality continues to this day.” As for Chung’s own motivation, “The biggest factor in Chung’s success is his obsessive greed.” To him there was “nothing wrong with being greedy, and nothing else matters.”

Such instincts represented capitalism in its rawest form. They — not some desire to serve mankind or promote the national good—motivated accomplishments that in the end might serve a broader purpose. Fear and hatred at Hyundai were so pervasive, however, as to raise questions as to how Chung could behave as he did and survive. “It’s not so much Hyundai Electronics as the whole Hyundai operation,” said Yang. “It’s a mystery to me that the company still grows in spite of internal pains and corporate culture. All the executives I know hate his guts, and they fear him. As a human being, he has no, repeat no, feeling. I don’t care for that kind of man. As a businessman, he is ruthless, merciless.”

Comprehension of the greed of his boss fueled H.T.’s personal fear, providing an understanding of the debacle at HEA. H.T.’s fear filled the atmosphere of HEA, of all that happened there — the same kind that also spread through Hyundai Motor America down the California coast. “There’s no intentional mistreatment of the Americans,” said Yang Hoon, again in an apologetic tone, pleading for understanding of the nature of the Koreans sent out from Seoul — the ones who offended the Americans the most. “The Koreans who came to this country were more or less trainees assigned to the U.S. operation,” he rationalized.

“They were there temporarily.” He was aggrieved by the complaint that Hyundai cared only for its own people, bringing them back home rather than letting them go. “When the division was closed, they had the choice of sending them back to Korea or reassigning them,” he said. “These people were brought in from Seoul. Many of them were without their family for a while.”

Chung Ju Yung was not going to lose out in electronics, however, no matter what happened to his venture in Silicon Valley. He would fall back on turning out the products, simple manufacturing, even if his engineers and designers and outside experts and advisers had nothing new to contribute. The key to making money lay in the land and culture that he knew, Korea. While HEA was floundering in squabbles and uncertainty, arrogance and ignorance in Silicon Valley, Hyundai Electronics in Korea was building a production complex at a pace befitting the Korean miracle.

First there was the legal registration in February 1983, then the groundbreaking in June — and, three years later, in 1986, the plant at Ichon, about 40 miles southeast of Seoul, was ready to swing into full production. “We just started from scratch,” said Cho Kyu Chung, general manager in corporate planning, showing a visitor around the sparkling facilities in late 1988. “In terms of the size of investment, this is really the largest. We just poured in 230 billion won — more than $300 million. So there are sizable amounts of money induced from our side, mostly borrowed.” With the lines humming away as if they had been at it for years, the investment by the time of my first visit to Ichon had climbed to $643 million. Cho was awed: “That’s a great deal of money. In terms of size, this company is a lot bigger than Hyundai Motor.”

Yet there it was, only seventh in earnings in the group after such heavyweights as HMC, Engineering and Construction, Heavy Industries, Precision and Industry, Merchant Marine and Inchon Iron and Steel. Whatever he was unable to borrow Chung poured in from the treasuries of other group companies, notably HMC, HHI and Engineering and Construction. As long as it showed huge losses, Hyundai Electronics was not listed on the Korea Stock Exchange. “We are not yet ready,” said Cho, offering the rationale for the reluctance of hundreds of Korean companies, including two thirds of those in the Hyundai group, to sell shares publicly. “The conditions for listing are very strict,” including “a record of paying dividends at a rate over the public interest rate” for two straight years. “We have not yet made any money.” The cost of going into business was all the more shocking considering Hyundai Electronics’ low ranking as a revenue-earner.

Among those hired to turn Hyundai Electronics into a viable entity: yet another Korean with a high-powered American background — Park Kwang Oh, who had majored in physics at Seoul National University and gone on to a doctorate at the University of Minnesota. Park was engineering manager with Intel in Silicon Valley when he was tapped by Hyundai Electronics in 1985 as vice president for manufacturing—luckily for him too late to join the operation at HE A. “It felt sort of challenging,” he said of his return to Korea. “I had been out of the country for so long. I had gone to the States in 1969.” While at Intel Park met some of the other American-educated Koreans hired for top jobs at HEA: “There is a small Korean community. You get to know everybody.”

Once all R&D was transferred to Ichon, Park found himself in charge of research as well as manufacturing. “We just reduced the scope of the business,” said Park, explaining why Hyundai “brought the facilities” in Santa Clara to the town where Hyundai Electronics was building factories originally intended to turn out products lines designed in Silicon Valley. While some of the equipment in Santa Clara was shipped over to Korea, none of it would serve the same R&D purposes as in the United States. The concerns that had hamstrung R&D for Hyundai in Silicon Valley were accentuated under the noses of the money men in Seoul. Park and his colleagues discovered they had to spend as much time preaching the virtues of R&D as actually doing it.

“The Korean economy has grown on manufacturing, not on R&D,” said Park. The purpose of R&D at Hyundai Electronics, then, was not to come up with really new concepts or ideas but to design and test basic products sure to make money. The immediate aim was to compensate for losses in California that had already climbed over $50 million — and then to establish a record of guaranteed, year-in, year-out profits without enduring risks implicit in researching and producing anything remotely “new.” R&D, by the end of 1988, was almost a peripheral activity in the array of factories at Ichon where about R&D bore out the point. Korean industry in 1990 had invested $4.5 billion on research — 34.7% of it put up by the five biggest chaebol. The Korea Development Institute noted with alarm that individual companies in other countries spent as much and more. By way of comparison, the KDI report said General Motors in 1988 had invested $4.7 billion and IBM $4.4 billion. Korean R&D spending in 1990 was 1.91% of the GNP compared with 2.69% in Japan and 2.7% in the United States. Korea that year had spent one eighteenth as much as Japan and one thirty-third as much as the United States on R&D.²

2 Korea Development Institute, “The Reality of Development of Industrial Technology and Implications of Policies,” 1992.

“It’s tougher to do R&D here,” said Park in pronounced understatement. “Here it’s a little more manufacturing-oriented. There is the need sometimes to convince the people in management they need R&D to survive.” In that spirit, Park placed the de-emphasis on R&D at Hyundai Electronics in its true Korean setting. The Ichon work-force in 1988 included only about 200 in R&D divided between two R&D institutes — 60 in semiconductors, 150 in systems. Park cited “quite a few licensing agreements with various companies,” including such Silicon Valley neighbors as Vitelic and Mosel as well as Texas Instruments, General Instruments and IBM, for which it made personal computers. “We are still growing,” said Park, but the numbers were minuscule in proportion to Hyundai’s output as well as its pretensions and ambitions.

XVI Made in Korea

DOI: 10.4324/9781315483214-16

Hyundai Electronics survived through the 1980s as a manufacturer of other’s creations. The Hyundai personal computer was typical — an IBM clone called Hyundai. The Ichon plant also produced cellular telephones and other gadgets of the electronic age, but its biggest new program, at the end of the 1980s, was the foundry operation under which it produced 256K DRAM semiconductors for Texas Instruments. (“Foundry” work, in electronics, means hammering out chips to a client’s design and specification.) TI signed up with Hyundai after modifying its Japanese operation to produce the IM (megabyte) DRAM chip and then sending over some of its Japanese experts to help. Hyundai in 1988 earned 50% of its income from TI, which used the Hyundai facilities for basic manufacturing but contributed little to long-range development.

Sometimes Hyundai Electronics’ role as a producer for foreign companies resulted in legal embarrassment. Intel in 1987 named Hyundai and other firms in a suit charging them with infringements on patents for EPROMs — erasable, programmable, read-only memory chips. After the U.S. International Trade Commission barred the import of the chips in 1989, Hyundai Electronics put out a release observing that it had made them from designs submitted by clients and would only produce those already approved by the commission. The decision meant that Hyundai, to export the chips or products containing them, needed a license from Intel, desperate to maintain its 18% of the world’s EPROM market while getting into more profitable types of EPROMs. The case was an education in the hazards of doing non-creative jobs for others.³

3 San Jose Mercury News, May 25, 1989.

“Naturally it wasn’t easy to persuade management of the need for R&D,” said Park Kwang Oh. “That must have been part of the problem in California.” He avoided blaming top management entirely, however, maintaining “the other problem was that HEA promised too much and management had too high expectations — the mistake was they had too ambitious a time schedule.” Final responsibility for the schedule rested on Chung Ju Yung and his subordinates, who pressured the American staff into production while refusing to listen to bad news. Park was almost plaintive as he talked about his desire to go off in new directions. “We wish we could do more,” he said. “We are emphasizing new products, the next generation, plus some other logic.” He pleaded guilty, however, to wishful thinking: “Nothing is easy here.”

Park distinguished between the hours demanded in producing the actual products and in designing them: “In the manufacturing and production areas, we work on three shifts. In the engineering and R&D environment, we encourage them to work on their own, to be more creative.” One wondered, though, about the commitment to creativity — especially when he remarked that “the general work ethic at Hyundai is very strong.” The inference: one had to put in long hours making a show of production — without necessarily creating much at all.

Hyundai, however, had its own way of jumping into the fray against the largest groups — in this case Samsung, Goldstar and Daewoo. “Nothing’s ever too late,” said Park in praise of Chairman Chung and the other top bosses. “If they didn’t jump in, they wouldn’t have gotten anywhere. It took a lot of nerve to join the bandwagon.” While others had achieved “high visibility and are heavily involved in consumer electronics,” Hyundai had seen a market not only in semiconductors but in industrial electronics “and the high-end of consumer electronics, high resolution TVs, high-level amplifiers.” Park also cited relative success in PCs. “If you look at the number of IBM clone PCs sold in the States, the Hyundai brand ranks number six,” he said. “What that means is we have established a considerable consumer basis in the States.”

Had such visibility in electronics come faster than in cars? “It took 20 years for Hyundai Motor to get to where it is,” said Park, implying that Hyundai Electronics deserved high praise for having come so far in a much shorter time. “I strongly believe all of us here believe we have become a leader.” Manager Cho Kyu Chung elaborated: “We will be the only one to build so fast — and the last one to do so — in Korea.” Park kept up a litany of praise for the organization’s record and reputation: “We are considered very aggressive. We will in the long run be more aggressive.” He looked expansively toward new, clean structures housing production facilities. “This is one of the most amazing things, how we could do this in five years, and make money,” for Hyundai Electronics had discovered there was easy money in foundry work, enough possibly to compensate for the heavy losses at HEA in the first few years.

“You see the digging,” Park said, pointing to more construction under way for yet another manufacturing facility. “We have plans to expand the semiconductor as well as the R&D operation.” Hyundai Electronics was spending about $40 million a year on expansion — “a lot for this size company” — with a minimum of $400 million anticipated when it reached full capacity. R&D was expanding too — if only to devise ways to get around or through the maze of copyright and patent restrictions. “There is a growing tendency to protect intellectual property,” said Park. “It makes it tougher to do business in the States. They bring up such issues to protect their turf. It’s a constant thing.”

Such contempt for creativity — that of others as well as the company’s own research people — was obvious in the disdain the company heaped on the process of meetings and group consultation. “I’ve seen a lot of companies spend a lot of time on planning and talking,” said Park. “Here we do very little talking and very little planning but jump into action. That may be a shortcoming, but we consider it an advantage.” His remarks fit in with the philosophy of Chung Ju Yung, to whom planning beneath his own level consisted of whatever group-think was needed to carry out his orders. This outlook was conducive to mass production of goods conceived elsewhere — to manufacturing efficiency and quota-filling. It also reflected a militaristic outlook, an authoritarianism useful for a dictator if not a creator.

Park wrestled with the problem of American-style meetings, discussions, consultations and brainstorming—which produced both gross inefficiency and outbursts of spectacular ideas. He attributed the phenomenon not merely to the unpredictable whims and quirks of idiosyncratic engineers and researchers but also to “the corporate structure where you have a lot of investors on your back and it’s not that easy to make decisions so quickly.” Company leaders in Korea “can make quick decisions,” he noted, without worrying about pressures of outside investors second-guessing every move. “I’m not saying meetings are a bad practice, but sometimes it’s better to translate into action rather than keep talking.”

Then there was the question of the fading American work ethic. The Koreans, like the Japanese, had come to look on American workers as lazy, demanding, complaining and selfish. If Japanese political and business leaders were openly critical of American workers, the Koreans implied, then Koreans should also not hesitate to express their views. If Korean workers lined up to sing company songs and listened to orders from their superiors in the mornings, they had to be inherently better disciplined than Americans, to whom such antics were humiliating. And if they put in 50 hours a week plus overtime, were they not stronger than the workers of a society that protected them from such exploitation?

Such was the logic that dominated the outlook of Korean owners and managers — offspring of a Confucian system merging into a new one of industrialization. For Park, this logic led to a simple conclusion: the people here are “more hard working” and, “while they might not be that creative, make it happen.” Sure, “these guys in Silicon Valley are very creative,” he conceded, “but they fail to transfer creativity into a viable product.” The Korean experience made for “one disadvantage, a shortage in manpower” — scientists, engineers, technicians, workers with enough skills to fill the slots, to catapult an organization as huge as Hyundai into instant wealth in electronics. “This industry is young and fragile,” said Park, predicting Korea and Hyundai would catch up — “maybe in 10 or 12 years.”

The hunger of Koreans for the riches of success contrasted, in this view, with the insouciance, the self-assurance of the prosperous Americans, who did not share the same urgency to succeed as their Asian competitors. “You have to understand the differences,” said Park. “The American people have enjoyed affluence for a long time. They get used to it.” For the Koreans, survivors of colonization, war and poverty, material wealth had a deeper meaning, a value that those who were too used to it might not appreciate. “The Koreans are beginning to see the fruits of their hard work. They have a longing to eat well, to educate their children well, and they work hard to get it. Sometimes Americans are too easy-going.”

If one accepted that view, then it was easy to see similarities rather than differences between Koreans and Japanese. “We share some commonality in terms of the culture and the work ethic,” said Park, who seemed envious as he cited “one distinct difference between the Koreans and the Japanese.” The Japanese were “more group-oriented. They put their companies’ benefits over their personal benefits more than the Koreans. They are used to working harder than the Koreans.” There was, however, still hope in Korea’s race to close the gap with Japan — perhaps the Japanese, like the Americans, would grow lazy. “As they become more affluent, they will go easy a little bit,” Park speculated. He advanced the theory as cause for hope that Korea could some day achieve the ultimate “miracle” of beating Japan at its own game.

Neither Park nor Cho seemed confident, however, that such a miracle would happen, at least at Hyundai Electronics. In the process of hiring and training workers — at wages far below those they would have had to pay in California — they encountered some of the same labor difficulties that plagued other Korean companies, notably the Hyundai plants in Ulsan. “There were lots of demands from them,” said Cho. “We had many talks.” Inside one of the new buildings, Ryu Hae Suk, an assistant manager, said labor costs had risen 20% in the past year. “We are planning an automated line to decrease the costs,” he said. The line over which he was watching operated on one shift with 250 workers. New automated processing techniques would double output — and obviate the need for a second shift unless justified by sales — while keeping the same number of workers.

The pace in the semiconductor division — the real money-maker as a result of the foundry contracts — was somewhat faster. Engineering Manager Jang Sung Ho reported that 2,500 people, 80% of them women, were busy on three shifts fashioning the webs of wiring needed for devices destined mainly for American companies. “We plan full automation,” said Jang. “The ground is broken to build another fabrication line.” Jang himself was recruited from Samsung when Hyundai Electronics started hiring in 1983. At first he kept his new job a secret — then, when Samsung bosses heard he was at Hyundai, “they got angry.” For anyone to move from one chaebol to another was an act of betrayal punishable by ostracism and disgrace. Jang was not alone, however. Still more engineers were lured from Samsung — and from Goldstar and Korea Electronics. “That was a big issue at the time,” said Jang, who contacted Hyundai after hearing about its plan to expand into electronics.

In fact, Hyundai had no choice but to hire from its rivals. Engineers were in notoriously short supply in Korea, where the topic was hardly taught at university level until after the Korean War. There was no way Hyundai could train the talent it needed quickly enough to fill all the vacancies for professional-level slots. While Hyundai did not want to invite retaliation from competitors by raiding their staffs, it promised the excitement of fresh careers and modest salary increases. “It’s a big chance to start a new business,” said Jang. “I have 30 engineers working for me” — compared to the five he directed at Samsung. Eventually, Jang’s former bosses at Samsung got over the insult of his departure along with some of his colleagues. “They said, ‘Welcome back.’ “Jang, however, was at Hyundai to stay. He believed Hyundai Electronics had almost caught up with Samsung in terms of automation and might be as modern as rivals in the United States — though not yet the “fully automated” Japanese.

While the emphasis was always on quantity, Hyundai Electronics borrowed from the Japanese the techniques of quality control already in practice elsewhere in the group. “The high-quality movement is all over the company,” said Ryu Hae Suk. “All members in production participate.” Once a week, “we have a QC circle” in which groups of workers gathered to discuss their shortcomings and talk over plans for overcoming them. “Every circle has data for quality improvement. They find the cause of defects.” If the concept of workers exchanging ideas at QC circles appeared to contradict Park’s contemptuous view of too much talking, its vogue at Hyundai Electronics showed recognition at the highest level of the need for this process.

Park might object to staff professionals alternately showing off or boring one another at meetings, as they often did in American companies, but Hyundai leaders had to accept QC circles as an integral facet of quality control. The concept of the QC circle — originally an American idea — had already spread throughout Japanese industry before Korea’s managers decided Japan’s record in production and profits might qualify it for emulation. Hyundai Electronics knew how to play follow the leader — follow the Americans in engineering and design, the Japanese in production.

In the final analysis, the American and Japanese inspirations were only means toward an end — the enrichment of Hyundai’s owners and, presumably, Korea. If Hyundai had seemed somewhat slow to introduce the concept of the QC circle, the reason could have been a concern about providing a forum for workers to express discontent or doubts. Managers at Hyundai Electronics were careful to avoid the topic of the company labor union — or to link the labor movement to the QC circle. “All that I know,” said Ryu Hae Suk, “is they meet one time a month.” He preferred to talk about another monthly ritual — the ceremony in which employees massed outside manufacturing facilities to listen to speeches and sing the company song, which they also heard over loudspeakers every morning at 8:20 a.m. “Look at the high sky, long live Hyundai Electronics,” ran the lyrics — a translation that clearly deprived them of some of their ring.

“Long live Hyundai Electronics.” The words were slightly different, but the tune was the same one sung by workers on assembly lines throughout the group. There was no doubt that Hyundai Electronics would live long and maybe even profitably by assiduously turning out products based on the inventions of others, holding down costs and instilling that Confucian sense of discipline that legitimized the iron-fisted authority of the founder. Its products were clearly more complicated, more subtle than those to which Chung Ju Yung had become accustomed during his years in Ulsan, but the aims and principles of management were always the same.

If the Hyundai group were likened to a pyramid, the bedrock remained the Mother Company, Engineering and Construction, and other producers of large, highly visible products, ranging from ships to motor vehicles to iron and steel. With increasing experience and sophistication, Hyundai in the 1970s could branch into the fields of banking and securities. “In the 1980s we expanded into marketing,” said Cho. It was that interest that motivated the group in the 1980s to open two of Seoul’s largest department stores in competition with long-established downtown names. And it was the same interest that led Chung Ju Yung into electronics. For Chung, the common denominator was retail marketing. As long as electronics items glittered and glowed on counters around the world, Hyundai had to produce them. Failure was unthinkable.

No wonder, then, that Hyundai Electronics not only survived its early traumas but expanded. No wonder also that Hyundai Electronics America assumed new importance — as a center of innovation as well as the North American marketing arm of its parent company. To compete, Chung had to invest more and more — so much more that Hyundai Electronics, by 1990, led all Hyundai companies in capital outlay. Total capital investment in Hyundai Electronics by 1992 had reached $1.5 billion — made in the belief that the company might soon score total annual sales of $6 billion a year and begin to make a profit.

In pursuit of that goal Hyundai executives invested in research and development on a scale that would have sent Chung into a paroxysm if anyone had dared tell him in the early days the requirements of this most competitive, technologically advanced industry. “It’s amazing the life cycle of products is so short,” said Lee Sung Hee, who had arrived in San Jose on January 11,1983, dispatched by Hyundai’s planning group to sign the lease for the first office suite in Silicon Valley and “establish the American corporation.” Lee estimated Hyundai Electronics now put 8.5% of its total investment into R&D. “Without it you cannot survive even for next year,” said Lee, by 1992 general manager for marketing of Hyundai Electronics’ information division, including PCs and workstations.

Quite aside from the problems already confronted by Hyundai Electronics, Hyundai’s earlier experience in less complex but technologically related enterprises had already demonstrated the difficulties of plunging into R&D. Hyundai engineers contrasted the kind of challenge they faced with that of their rivals from other countries, notably Japan. One of the principal differences between the Korean and Japanese systems was the manner in which they used engineers and technicians.

“We utilize engineers and workers in many different fields,” said Kim Young Nam, director of overseas sales for Hyundai Electrical Engineering, an offshoot of Hyundai Heavy Industries in Ulsan. “They are not specialists in territories but in a variety of areas.” Kim cited the general knowledge of Hyundai engineers as a strong point, but actually it reflected a dearth of engineering background around the country. The reality was that Korea did not produce enough engineers to allow the luxury of specialization, and engineering talent often was spread too thinly. “Our specialization is not as good as the Japanese,” said Kim. “Up to a certain stage our system can be better, but nowadays we recognize we have to jump to the next step. We have to keep many people in single fields — designers, engineers, planners — the Japanese style and the American style.”

Engineers in Ulsan complained frequently about the pressures of generalization. “There is some danger of growing too fast,” said Kang Kil Gun, a senior engineer who had spent most of his time on new technologies. “For example, we are developing a new field. To reach a certain goal, the normal process is five stages. We have to do it in one or two stages. All things are done by all people, so there can be some mistakes.” For another example: “I do some work. I should check 10 points, but if it’s too rapid, I can skip.” Another senior engineer, Lee Myung Ji, explained the interplay among foreign and Korean engineers: “We invite foreign engineers at the manufacturing stages. We dispatch our own engineers to the licensing company.” Although production had increased five-fold in the past decade, the number of engineers remained the same.

Chung, before launching Hyundai Electronics, could get away with that approach to R&D. His triumph with Hyundai Heavy Industries shaped his outlook on high tech. It was difficult for him to imagine that electronics could be all that different from anything else — or at least from the electrical entities that had spun off HHI in Ulsan. While HHI still focussed on ships, HHI units sprung up in answer to needs that Chung had anticipated rather late — in the same way in which he belatedly considered electronics at the more advanced level. Hyundai Electrical Engineering — and Hyundai Robot Industry as well — had begun as divisions of HHI before splitting off as they built up product lines along with identities separate from the ship-building concern that spawned them on the same compound. (Later, in 1993, to give the appearance of cutting down the number of companies in the group, he returned them both to HHI.)

Chung’s motives in business were always the most pragmatic. He envisioned Hyundai Electrical Engineering as a means to avoid costly imports of machinery for use in ships as well as other projects. “Before starting this company we purchased from overseas for construction and ship-building,” said Kim Young Nam. “Our chairman thought it is better to have our own manufac-turer.” If Hyundai’s foreign competitors, notably those in Japan, could produce the sophisticated electrical gear needed for such projects, was there any reason Hyundai could not also do the job —just as it had assumed other seemingly impossible tasks?

Chung was not happy, however, about the difficulties consumed in setting up the operation — three years from the time he conceived of such an enterprise in 1970 to the opening of the division in 1973. “It was very difficult at the start,” said Kim Young Nam. One strong selling point was the physical relationship to HHI: “If we take some customers to this area to show our complex, they can see how big Hyundai is even when we have nothing. They can believe we have a certain possibility to do something.”

From a modest beginning as a supplier of foreign-made products to Korean companies, notably HHI, Hyundai Electrical Engineering soon emerged as a manufacturer capable of exporting complicated electrical equipment around the world. “Basically from 1978 we started our own sales office,” said Kim Young Nam. “We sold a transformer to Nigeria for a power station.” Kim spent three months in Nigeria going around to different offices persuading officials “about our group image and group capabilities.” It was “very difficult to convince them, but I emphasized our technology.” The real selling point: Hyundai technology, on license from Siemens, the German manufacturing giant, was priced below the competition. Hyundai Electrical Engineering also found a ready overseas market as a result of the activities of the Mother Company: “We sold to Middle East countries for HEC projects.”

One of the vital factors in the growth of Hyundai Electrical Engineering was the government policy that directed it to sell its products overseas. The aim was to keep Hyundai from competing with other Korean companies while encouraging it to build up its technology — all in keeping with the relationship between government and big business as fostered by President Park. The prodding by the government was high praise for Hyundai. It meant that government bureaucrats believed that Hyundai had the expertise and money to go into battle against Japanese, American and European companies. They “thought we could survive overseas competition,” said Kim. “That is one of the good reasons for us to develop in a short period. We have to train our engineers and workers to a certain level of technology.”

While Hyundai Electrical Engineering could count on HHI, Hyundai Engineering and Construction and other Hyundai companies to purchase its products, it had no such assurance when it came to exporting. Overseas sales director Kim Young Nam summarized the challenge: “We have to do our best to reduce costs. Price-wise, delivery-wise, quality-wise, we have been very fast to develop.” Nor could the electrical engineering company let up in the quality of the work it did for Hyundai Heavy Industries. HHFs foreign clients expected vessels with systems that worked — shipping companies could buy tankers and freighters at bargain prices from HHI but had to have adequate equipment. Otherwise, they would buy elsewhere regardless of cost. Hyundai Electrical Engineering represented a technological advance for the entire group. As Kim observed, “Electrical equipment is more sensitive and complicated for marine specifications.”

Factory automation, non-interruptible power supply systems, numerical-controlled systems — Hyundai Electrical Engineering was into all these areas by the mid-1980s while Electronics was struggling on both sides of the Pacific. At the same time, there was tremendous pressure everywhere in the group to cut down on the licensing arrangements that Hyundai companies depended on. “Until now we bring technology like Siemens’,” said Director Kim Kwang Hoon, “but we must develop the technology by ourselves.” Even with 300 engineers, nearly 15% of a work-force of more than 2,000, the electrical engineering company was short-staffed. “We need more and more. Our R&D is not enough.”

Hyundai Electrical Engineering gained valuable experience—and probably some leeway for error — by serving as sole supplier of its products to the ship-building company. While another HHI satellite, Hyundai Engine and Machinery Company, now returned to HHI, supplied engines, HEE provided the engines’ generators. On the basis of this type of work in tandem with HHI, Hyundai Electrical Engineering could match many of the products of such fierce Japanese rivals as Mitsubishi, Toshiba, Hitachi and Fuji. For all its success, though, HEE suffered from frustrations that exemplified how far Hyundai —- and Korea — had to go. “For high voltage,” said Kim Young Nam, “we still should do our best to catch up” — a metaphor for the great leap into still higher-tech electronics.

On the threshold of progress, Hyundai had a way of hesitating. The philosophy of Chung Ju Yung inhibited growth where there was need for creativity. The paramount consideration, as always, was the bottom line, the profit margin, expenses. “The cost of investment is very high,” said Kim Kwang Hoon. “It is very difficult to decide. It is very high-priced and competitive.” He might have said the same, only more so, for the quantum leap represented by Hyundai Electronics’ quest for competitiveness. Here success really depended on the ability to crack the market worldwide. No amount of central planning or support could guarantee profits. The domestic market could not begin to pay for Korea’s electronics industry. Hyundai’s own companies could sop up only a small percentage of its products. Thus the challenge in electronics was more severe than that in any other industry.

XVII Made in the USA

DOI: 10.4324/9781315483214-17

For Hyundai, the fabulous riches of the electronic age always seemed one tantalizing step out of reach. It was to get them at last that Hyundai Electronics — and other Korean companies — had to keep raising the stakes. By 1989 Hyundai was selling IM (1 megabyte) DRAM chips. By 1991, it was selling 4M DRAMs. More significant still, they were Hyundai products — not done according to design by an American or Japanese company. Just as dramatic, Hyundai was increasing production of personal computers — by the fall of 1992 designing and assembling them under the aegis of Hyundai Electronics America in San Jose. Samsung ranked far-and-away first among Korean computer manufacturers, but Hyundai had emerged from failure to become a powerhouse in chips and PCs on a par with Goldstar and ahead of Daewoo, excluding the consumer items ranging from TV sets to rice-cookers that Hyundai avoided. By 1992 semiconductors ranked as the country’s single largest export, grossing $6.8 billion in foreign sales, including $2.9 billion in sale of chips actually fabricated in Korea, another $3.9 billion from those assembled and packaged in Korea for foreign makers and re-exported.

Whether Hyundai could compete with American and Japanese rivals, though, was another question. The U.S. Commerce Department in October 1992, responding to an anti-dumping petition by Micron Technology, shocked Korea’s top chip-makers, Samsung Electronics, Goldstar Electron and Hyundai Electronics, with a ruling that they were dumping their products below the fair market price by 87.4%, 52.41 % and 5.99% respectively. (The ruling applied only to chips they fabricated, not the ones they assembled and re-exported.) All three were required to deposit cash bonds equal to the dumping margin while awaiting a final ruling. The failure of talks in February 1993 presaged disastrous duties.

The case might have benefited Micron, the only complainant, while seriously undermining Korea’s electronics industry and playing into the hands of the Japanese exporting chips at prices only 10% above those of the Koreans. Sales of Korean-fabricated chips in the United States in 1992 came to $1 billion, about 30% of the market compared to 50% for Japan. The furor broke out at an especially critical stage for Hyundai. Its semiconductor exports were rising dramatically — $500 million worldwide sales in 1992, $193 million to the United States, excluding those re-exported for foreign firms or made on an OEM (original equipment manufacturer) basis for Texas Instruments, and $670 million projected for 1993. The numbers contrasted with Hyundai’s worldwide chip sales of $300 million in 1991, 40% to the United States.

Hyundai remained far behind Samsung, which exported $1,192 billion in chips worldwide in 1992, including $504 million to the United States, but was catching up fast with Goldstar with $513 million in foreign chip sales in 1992, $219 million to the United States. “We invested a lot of money,” said Lee Dong Hun, manager of the semiconductor division, accounting for the rise in Hyundai exports. He still “hoped our government can negotiate an agreement” and the bonanza could go on — with a boost from the departing Bush administration ambassador, Donald Gregg, who urged suspending the anti-dumping investigation in return for increased imports of chip-making machinery along with non-memory chips not made in Korea.

Gregg’s influence may have led to a compromise that saved the Korean position in the United States. The Commerce Department in March 1993 put the dumping margins for Samsung and Goldstar at 0.74% and 4.97%. Hyundai, whose chips were viewed by the trade as inferior, was not so lucky — its margin actually was increased from 5.99% to 7.19%. Still, all Korean manufacturers were relieved. “The Korean chip makers have reached the stage where production costs can be lowered so that they can compensate for a rise in chip prices caused by anti-dumping duties,” said Kim Chi Luk, vice chairman of the Korean Semi-Conductor Industries Association.

Kim Dong Sik, executive vice president of Hyundai Electronics, painted a moving picture of Hyundai’s defiance of odds. “We didn’t know much about electronics,” he said. “We learned from test and error.” Hyundai had appeared to falter when it hired and then fired its American engineers in the 1980s, but there was no hesitation in its advance up the semiconductor ladder — from 256K to IM and 4M DRAM, a prototype for the 64M DRAM in 1992, production of the 16M DRAM by 1993 and R&D for producing 256M DRAM chips within a few years. “As long as you want to get money out of the memory business, you can’t miss it,” said Lee Dai Hoon, in charge of a 19-engineer team that surprised the world by developing, along with Samsung, the 64M DRAM. “It’s like cocaine.”

Hyundai’s aggressive pursuit of the ultimate semiconductor — the gigabyte or 1024M DRAM chip seemed possible some day — reflected the drive of both the company’s founder and the country’s ruling establishment. The electronics industry, like the chaebol in general, had risen in Korea on a wave of legislation and protection — all part of the relationship between big business and big government. Hyundai never produced the household gimmickry with which South Korea entered the electronic age but benefited immensely from government support of R&D on semiconductors beginning in 1986. While Hyundai Electronics America was suffering a series of setbacks, Hyundai Electronics could lurch onward on the strength of a policy that called for a blitz on semiconductor research in order to turn South Korea’s major producers into world-class competitors.

The vehicle for semiconductor R&D was the Electronic and Telecommunication Research Institute, in Taedok Science Town near the city of Taejon, about 100 miles south of Seoul. On the basis of foundry work for Texas Instruments and Vitelic, Hyundai with its own R&D could acquire the technology to produce the IM DRAM, but the transition to 4M was much tougher — so much so that the government had to come to the rescue through a pooling of the talents of all three top producers, Hyundai, Samsung and Goldstar. Total cost, from inception of the 4M DRAM project in 1986 to completion in 1989, was about $200 million split between the government and the companies. That figure covered process and design technology — with the institute coordinating the efforts of engineers at all three companies.

Lee Dai Hoon recalled the joy with which he and his colleagues had greeted the development in April 1989 of their first 4M DRAM prototype: “We got our wafer with about six or seven chips on them out of the fabrication line. We took them to our test engineers. They tested it. The cell worked.” The news spread quickly through the office. “Everybody screamed, ‘We got it,’” said Lee. “There was an impromptu party, and several days later there was a big party.” The response around Samsung and Goldstar, as their engineers almost simultaneously tested their first chips, made on the basis of identical technology, was the same. It would be more than two years before they could go into mass production, but that April day in 1989 marked a milestone for electronics in Korea.

Government and industry cooperation was equally vital in producing the 16M DRAM. Again the Electronic and Telecommunications Research Institute coordinated the drive — this time at a cost of about $270 million divided between the government and the three major manufacturers. Hyundai successfully tested its first 16M DRAM prototype in February 1991 while still in the stage of pilot mass production of the 4M DRAM. A year later, with 4M production by now the company’s biggest money-maker, engineers were designing the equipment needed to put the 16M into mass production in a mad race with the Japanese. As for the 64M DRAM, said Lee Dai Hoon, “everybody confirms the cells are working” — with mass production likely soon.

Lee looked back with a wry smile on some of the changes that he had witnessed since joining the company in January 1987 with his doctorate from the University of Texas. “There were 60 engineers in just semiconductors then,” he said. “Now there are 600.” Hyundai had given up almost all its foundry work — Vitelic and Hyundai parted ways in 1990 and Texas Instruments, pleading budget deficits, bowed out in 1992. At the same time, Hyundai was phasing out production of 256K chips, once the mainstay of the semiconductor division. The company needed the space to keep up with demands for its latest products — the 4M DRAM semiconductor, for one thing, was not a static design. “Now we have close to 200 chips on a six-inch wafer,” said Lee. “Chips keep getting smaller and smaller as we apply advanced technology. We have to keep up with market trends.”

Was such progress enough, though, to survive against world giants? A three-way deal among Toshiba, Siemens and IBM to develop the chip of chips, the next and next and next generation, made cooperation among Korean companies look like a children’s game. “Alliances are absolutely necessary for success,” said Apple Computer chairman John Sculley, explaining the relationship between his own company and IBM. To producers of chips in Korea, Sculley sounded more alarming when he observed, “Companies that are going to invest in foundation technology — not just assemble products — are going to be the winners” in an industry turning over $80 billion in 1992, just “15 years out of the garage.” Sculley’s remarks went to the crux of Hyundai’s dilemma. “Put your priority on technology,” he said, “Put your priority on the customer.”⁴ Apple in early 1993 did just that, talking AT&T, Motorola, Philips, Matsushita and Sony into an alliance called “General Magic” in order to create the next generation of electronic communications products.

4 “Moneyline,” William Hartley, interview with John Sculley, Cable News Network, July 21,1992.

If the most powerful manufacturers in the industry were going to collude with each other, how could parvenu Korea hope to keep up? Industry experts saw the semiconductor business as a non-creative game that most U.S. manufacturers did not want to play while expanding and innovating on the cutting edge. Korean manufacturers still had to import the materials from which the chips were made along with the machinery for producing them. While they could fabricate memory chips, their share had already fallen to only a third of the world market. They did not have the technology — and maybe never would until after their rivals had acquired it — to forge ahead in non-memory chips such as ASICs, application specific integrated circuits. Again, the question was how to develop sophistication and creativity in a milieu bound by conventions, traditions and lack of engineering depth.⁵

5 The Korea Herald, December 31, 1992.

The issue alarmed engineers and bureaucrats at Hyundai Electronics as much as anywhere else, but Dr. Chung Hoon Mok, from his vantage at Hyundai Construction, saw a niche for Hyundai no matter what the big boys from the most advanced countries were doing. “We are a level below them,” he said, accepting a reality not likely to change. “We are producing staple goods. As long as you can supply 16M and 4M chips at competitive values, you can survive.” Hyundai Electronics could never give up — the enormity of new challenges posed by the biggest, brightest and best competitors abroad spurred the company into action.

It was in the marketing of PCs that Hyundai faced its deadliest competition. Here the need for awareness of trends in the American market was so acute that the company, in April 1992, decided to return full force to San Jose, the scene of bitterness and disappointment just a few years earlier. The news got out in vintage Hyundai fashion. Edward Thomas, former president of CompuAdd in Austin, Texas, and a veteran of 27 years with IBM, one day assumed the exaggerated title of president of the PC division of Hyundai Electronics America and the next day was quoted all over the United States as saying that Hyundai was shifting its PC operation to San Jose.

Thomas talked about the move in a way that showed he had much to learn about the Korean mentality as refracted through the lens of Hyundai top management. “This is an expression of Hyundai’s lack of success in the industry,” The New York Times quoted him as saying. “The Asian companies have done their business management in Asia, and that has not been a successful model.” He got more embarrassing as he talked of Hyundai’s problems in competing in the United States in the last year and a half. “They have been slow to market with new products,” he told The Times. They’re “behind, and they haven’t been able to understand why.”⁶ He was even more frank in his comments to The Wall Street Journal. The paper paraphrased him as forecasting that worldwide management of the division “will be performed exclusively in the U.S. with no control by the Korean parent.”⁷

6 The New York Times, April 20, 1992.

7 The Wall Street Journal April 20, 1992.

It was fortunate for Thomas that Chung Ju Yung by now was no longer directly in charge of the group. Otherwise his job would have been in immediate danger. As it was, Hyundai in Seoul denied all that he had said, insisting the story was “not true” and that Hyundai would run the PC division from Korea as always. The denial reflected a gut nationalistic response to comments that Koreans, in or out of Hyundai, saw as not merely impossible but insulting. Kim Dong Sik, returning from San Jose, said that Thomas reported to real HEA President Kim Yong Hwan and Hwan reported to Ichon. HEA, he noted, is “wholly owned by Hyundai Electronics,” which retained power over everything, even if Thomas had told The Wall Street Journal “you have an Asian manufacturer who is taking their business management directly into the United States.”

Kim Dong Sik maintained that “production” was “not the correct expression” for what would happen in San Jose. “We will get all the parts together and assemble them there” — with Hyundai in Ichon still turning out PCs for the Asian market. The fact remained, however, that from now on San Jose would be the focal point of both R&D and assembly of most Hyundai PCs. A visit to San Jose revealed an ebullient Thomas crashing ahead with a program unprecedented in Hyundai’s history in the scope of what a foreigner was doing thousands of miles from central control. “We’re taking it from the Asians and giving it to the Americans,” he said as we sat down in November 1992 in the same office that I had visited nearly four years earlier at a low point in the HEA experience.

Thomas said Chung Mong Hun, by now promoted from president to chairman, had “decided to move the business from Korea to the United States” and saw the move as dictated by Hyundai’s precipitous four-year decline from 4.8% to 1% of the U.S. PC market by 1991. “What are you going to do?” asked Thomas rhetorically. “You design products that will sell in the United States. You decide you want to be a player with everything you’ve got.” With Samsung and Daewoo in retreat from soaring competition, Kim Yong Hwan had sought out Thomas in Austin and “assured me the autonomy I insisted on would be given to me” to keep HEA alone among Korean giants in the fray in America. Chung M.H. had reaffirmed the vow when he visited San Jose in September, after four months in jail on charges of transferring funds to his father’s campaign. (“I’m sorry I didn’t get to see you sooner,” he said, smiling slightly. “I was unavailable.”) Thomas was impressed: “He isn’t interested in detail. He turns it over and lets you go.”

Thomas hired seven vice presidents from his former companies, IBM and CompuAdd, added about 130 people in sales and engineering and another 75 in the assembly area and went to work. Six months later, in October 1992, HEA introduced what it called “the broadest PC product offering in its history, unveiling a comprehensive line of aggressively priced high-performance desktop and tower systems designed and built in America, new color and monochrome notebook PCs and a value line of desktop systems aimed at competing low-cost clones.” All told, said Thomas, “we have 63 models on 20 different platforms.” Selling through mass-channel retailers, by mail and phone, setting up toll-free lines and investing $10 million in advertising the first year, Thomas aimed to double market share in a year “and take our business to 5%” in 1994. He promised to “be first to tell them if I don’t think this thing can be turned around” — still possible considering the competition from Gateway, Compaq and Dell, among others.

A look at the factory where the PCs were being assembled revealed the zeal with which HEA was battling to keep its word. “We’re still amazed ourselves,” said Manuel Chavez, a CompuAdd and IBM veteran hired on as vice president for manufacturing. “We’ve been on line for just two weeks with U.S.-developed products.” One of the most difficult challenges was customizing orders quickly to specific requests. “The level of orchestration is difficult,” he said. “I have 75 to 80 people. We’re adding all the time.” The factory was essentially a large room brimming with parts made elsewhere — motherboards from four blocks away, chassis and covers from Taiwan — all thrown together quickly, noisily, a Chaplinesque image of the computer age. “This thing is so fast,” said Chavez breathlessly. “The life of the technology is so short.”

Urgency sent Shockwaves through Ichon. “The price of the PC is dropping substantially every day,” said Kim Dong Sik. “We need to keep up with the American trend.” He saw “no difference in quality” between Hyundai PCs and those of its competitors but cited the need for “new product and right timing” in order to keep up with the pack. “We do not have well-trained engineers who are capable of developing the right product,” he agreed. “We are not competitive in securing components. We rely on foreign countries, Japan and America.” While government guidelines and “the consensus of all companies is to develop by ourselves,” timing was of the essence. “In construction, cars, ships, you say, ‘yes,’ and in one year, it is coming,” but in computers “everything we are talking about means an outcome five or ten years later.”

Hyundai Electronics America, in a sense, was a compromise. Hyundai Electronics could still say the products were Hyundais — even though they were designed by American engineers and came off American lines. “We can have more trained people in America,” said Kim. “We can absorb up-to-date requirements, fashions in America.” Hyundai was moving just in time — sales of Hyundai PCs, above 10,000 a month a couple of years ago, were now well below that mark. Hyundai accounted for only 2% of the PCs sold around the world in 1991. The numbers got worse in dollar terms — sales of Hyundai PCs, domestic and foreign, totaled about $500 million in 1991, a third of Hyundai Electronics’ earnings but 1% of the $50 billion spent on PCs worldwide.

The fact that Hyundai, in the PC category, was ahead of its Korean competitors was comforting but not enough — executives freely admitted their PCs were losing even if they refused to say how much. Hyundai beat the drum for the shift to San Jose with a sales pitch unprecedented among major PC manufacturers. Each new PC came with a lifetime warranty — an offer designed to overcome American doubts about shoddy Korean products and give buyers a real reason for turning to Hyundai. Said Sundi Sundaresh, director of PC marketing: “We have found that name awareness has been low for us in the computer business. This will make buyers take notice.”⁸

8 Computer Reseller News, March 9, 1992.

There was a parallel between selling Hyundai computers and Hyundai cars. Hyundai was going for the low end of the business. With its cheapest Hyundai PC retailing below $1,000, the challenge was to convince the public that the PC, unlike the car, was not a third-rate piece of work. The problem was daunting — possibly more so than Thomas initially realized. The company “will have its hands full undoing the damage of the past,” reported an industry magazine several months after Thomas and his team had taken over. “Company sources admit they’ve been saddled with resentful customers, a bloodied dealer network and low name recognition among potential PC buyers, few of whom know that in 1991 Hyundai sold more PCs in North America than CompuAdd and pulled in more revenue than Acer or Zeos International.”⁹

9 H. Garrett De Young, “Hyundai’s Gambit to be a Big Player in PCs,” Electronics Business Asia, April 1993, p. 77.

Thomas would find a legacy of resentment — as well as simple lack of visibility. “A lot of corporate buyers probably thought the company had gone out of the PC business,” said Jeffrey DeTray, president of Business Computer Publishing. Gene Kincaid, advertising director, sought to get away from reliance solely on the company’s network of about 1,200 dealers, introducing PCs at computer supermarket-type stores and selling them directly from factory to end-user. Always, however, there were risks. “Hyundai will need much more than clever marketing and aggressive pricing to restore the fractured relationships among its dealers and customers,” said Electronics Business Asia. HEA, however, might not be able to overcome resistance in a matter of months or even years. There was a legacy of the problems encountered throughout the Hyundai group, throughout Hyundai history.

In the case of electronics, American customers reported “poor communications and slapdash service” — and failure of anyone “to take responsibility for anything” including “unreliable customer service and shipping.” HEA pledged sweeping reforms, introducing such features as a 24-hour toll-free “hotline” and on-site service by vendors, but then there were deeper doubts about relations between HEA and the ultimate head office in Korea. Veteran observers of HEA history had not forgotten the past. “It’s great to have a parent with deep pockets,” Electronics Business Asia quoted an industry source as saying, “but Hyundai’s been known to keep its US people on a very short leash.” The source, in irrefutable understatement, said it would “be a while before we know whether Thomas really has total, long-term support from Seoul, and how well he can function in that kind of corporate culture.”¹⁰

10 Ibid.,p.l9.

In fact, the answer was not long in coming. When the sales volume that Thomas had anticipated did not materialize right away, the powers in Seoul suddenly grew impatient with Thomas’ independent outlook. They also were responsive to the rising chorus of complaints of dealers, the “resellers,” as they were known in the trade, who retailed the products. “They discovered the resellers loyal to Hyundai stopped selling Hyundai products,” said Barbara Smirni, hired as a public relations adviser to explain away the latest imbroglio at HEA. Thomas “was brought in for the sole purpose of taking Hyundai to the direct channel,” she said, “but when Hyundai went back to the reseller channel, he left.” Thomas and the entourage he had brought with him from Texas had been on the job little more than a year when they were let go in mid-1993.

After walking out, Thomas upset his ex-bosses still more by saying reversion to a single-channel strategy was obstructing sales and predicting HEA’s American market share would never rise much above 1% — by interesting coincidence about the same as that of Hyundai Motor America.¹¹ In keeping with all precedents, Kim Yong Hwan, as chief executive officer, held his post, more responsive to the winds that blew from Seoul than to the shifting whims of American buyers. The panicky fury of Kim and his superiors in Seoul over Thomas emerged in the cold language of a press release announcing, “New Hyundai PC management team concentrates sales and marketing effort in reseller channel.” Maintaining “our mail order efforts drastically shrank the profit margins of our reseller partners,” Kim stated bluntly, “That will change.” He cited “strong, ongoing relationships with our reseller partners that have allowed us, as a team, to serve end-users more effectively.”¹²

11 Patricia Campbell, “Hyundai’s Channel Plan Stymies PC Sales,” Business Marketing, June 29,1993, p. 27.

12 HEA press release, “Hyundai Back to Basics,” June 16, 1993.

Zeke Olazaba, newly appointed director of marketing and sales for the PC division, said, “We’re going back to what made Hyundai a major player before and to what makes resellers successful.” Clearly HEA was still floundering. “HEA is learning how to do business in America,” Smirni told me. “That is one of the things they’re struggling with” — with yet another American team now responsible for yet another reorganization. She confessed she knew nothing of the quarrels that had gone on before, but the Thomas case demonstrated that Americans were as expendable as ever. They would dance on and off stage, coming up with ideas, dreaming of a niche here, a market opening there, advising and kibitzing, but the power remained in Korea, and the Korean team, stable and determined, clung to the original vision.

The best evidence of Hyundai dedication to its dream, if not to Thomas or any of the other high-priced foreigners in whose expertise it reluctantly had to invest, was that in PCs, as in semiconductors, as in motor vehicles, as in so many other products, Electronics was going it alone, flying its own flag. No longer were Hyundai electronic products sold under other brand names. Such a shift had appeared unlikely when Lee Sung Hee met John Rossi, president of Blue Chip, in February 1986 and arranged the first contract under which Hyundai would fabricate Blue Chip computers on an OEM basis. The Blue Chip deal lasted only a year before the two separated in a dispute over payments, but Hyundai was assembling computers on the same terms for IBM and Novell before it began selling its own name models through HEA in 1987.

The pattern was a prototype for burgeoning Korean business, as observed by Michael Porter: “Many companies are suppliers of completed products to other manufacturers who sell them under their own name (original equipment manufacturers or OEMs), and most companies still depend on OEM sales for the majority of their business,” but “Korean companies are less OEM-oriented and more willing to invest in international marketing and in-house technology” — an investment seen as “vital to their ability to upgrade and sustain competitive advantage.”¹³

13 Porter, The Competitive Advantage of Nations, p. 471.

By mid-1992, Hyundai could claim that 95% of the PCs off the line in Ichon carried the Hyundai name while 80% of Samsung’s PCs were produced on an OEM basis. One might ask, however, if the battle was worth it. A PC that cost $6,000 in 1987 or 1988 now had to retail for below $2,000 to stand a chance overseas. “You have at least a 30% price drop every year,” said Lee Sung Hee. Chung Mong Hun’s arrest on April 21, 1992 — April 20 west coast time, the day Edward Thomas went to work for HEA — raised new questions. A “secret fund” from Hyundai Merchant Marine was the basis of the charge, but Electronics was also under suspicion. There was a sense of disgrace even though Mong Hun’s absence had no practical effect. Nor could Hyundai be sure, as prosecutors traced the money flow from Hyundai to Chung Ju Yung and his party, that Electronics would get the credit needed to operate effectively abroad.

“The Korean government is now negative to big conglomerates,” said Lee Sung Hee. “They don’t want to keep any subsidy or strong support to big corporations.” The government had already acted against the power of the chaebol in April 1991 with a specialization policy that forbade them from increasing their bank loans beyond a certain level each year. The policy permitted each of them to select three “core” companies as exempt from the rule, and Hyundai had named Electronics along with Motor and Petrochemicals. Hyundai Electronics’ equity totaled only about 23% of total investment by 1993.

Easy credit or not, however, Hyundai Electronics responded in Hyundai fashion — by throwing ever more money at the problem in hopes of coming up with the ultimate fix. After investing nearly a quarter of a billion dollars on new facilities and R&D in 1992, the company planned to pour in almost another billion dollars in 1993. Plant investment alone was rising from $149 million in 1992 to $727 million in 1993, much of it to propel the new 16M DRAM factory from 700,000 to 4 million chips a year by the end of 1994. That goal, only a half-million behind Samsung, made Hyundai a top competitor with the Japanese titans, NEC, Toshiba, Mitsubishi Electric and Fujitsu. R&D, meanwhile, would increase from $86 million in 1992 to $185 million in 1993 — nearly 18% of the group’s total projected R&D outlay, $20 million more than the group’s next biggest R&D budget, Hyundai Motor. Hyundai by 1994 was moving to the next level, pouring $ 1.375 billion into a 64 DRAM plant and, for another $600 million, gearing for the race with Samsung and Goldstar to produce thin-film transistor liquid crystal displays — flat panels replacing cathode ray tubes in computer monitors and TV sets.

The growing field promised what the Ministry of Trade called “the biggest market available to us since the semiconductor boom,” but the question was whether Hyundai would get the same breaks as its rivals, including research funds and reduced tariffs. “Things were already bad enough,” said Korea Economic Report, observing that Hyundai Electronics had lost $35 million in 1991 on sales of $1.1 billion. Now executives “concede the political battle is squeezing their financial position and making some customers nervous. A freeze on bank credit could have catastrophic consequences for the company’s capital-intensive semiconductor operations.”¹⁴ In a year of political and courtroom drama, however, Electronics made a tiny but tidy profit of about $ 12.6 million in 1992 on total sales of $1.3 billion, at 790 won to one dollar. Hyundai Electronics was still no match for Samsung, with profits of $91.6 million on sales of $7.76 billion, but was not that far behind Goldstar and Daewoo, whose 1992 profits of $33.5 million and $21 million were swollen by their home electronics lines.¹⁵

14 Geoff Crane, “Political Portfolio: Hyundai Electronic Industries,” Korea Economic Report, July 1992, pp. 44–15.

15 The Korea Times, February 28, 1993; The Korea Economic Weekly, March 15, 1993.

The only ominous note was that nearly half of Hyundai Electronics’ 1992 sales were on semiconductor exports, and the impact of the American antidumping penalties was not altogether certain even after the Commerce Department, in its final ruling in May, imposed new duties on Hyundai chips of 11.45%, up from 7.19%, compared with only 0.82%, up from 0.74%, for Samsung — and no increase at all in Goldstar’s duties of 4.97%. Industry experts believed, however, that U.S. market demand for chips would favor all Korean manufacturers, Hyundai included. Undeterred, the company plunged ahead with construction of a semiconductor plant in Shanghai after Chung Mong Hun visited the site in early 1993. The initial investment was $10 million — a bargain price for entry into China.

Amid such expansion plans came the news, at the end of August 1994, that HEAhad again abandoned production of PCs in San Jose. Nothing, it seemed, could beat the competition of American PC manufacturers offering ever more powerful hardware at ever lower prices. In 1993, the one full year of the experiment, sales had amounted to a pathetic $34 million. If HEA were still not ready for the big leagues, however, Hyundai Electronics was by no means out of the international PC game. Marketing at HEA would go on while the company tried to conjure a new way to survive among giants.

As at Hyundai Motor, there was no talk of failure or shrinkage, only of expansion as the answer to disappointment, competition, even defeat on foreign turf. The money, Hyundai people firmly believed, would always be there, the company would survive. “We never give up,” said Lee Sung Hee. “It’s not the Hyundai way.” There was the momentum to keep going. That was the Hyundai way.

Revolt in the Workplace The Battles of Ulsan

XVIII Kidnapped

DOI: 10.4324/9781315483214-18

The governments of Park Chung Hee and Chun Doo Hwan did not believe in the right of workers to organize independent unions, much less to strike. The history of the labor movement for the generation after the Korean War was one of subterranean struggle in which workers were routinely arrested, tortured and sentenced to prison terms for organizing resistance to the excesses of management and their collaborators in company “unions.” The police under Park and Chun were so harsh that they could — and did — smash any sign of worker revolt as soon as it appeared. Hyundai epitomized this attitude. The group, from Chung Ju Yung down to the lowliest manager, was repressive even by Korean standards. Chung at heart believed factory workers should obey blindly as did day laborers in the construction industry, where anyone bold enough to talk back, much less complain, was fired on the spot.

It was not until the five years of democracy under Roh Tae Woo that workers were physically capable of staging open, mass demonstrations similar to the shows put on by radical students in Seoul and other cities every spring for years. Several factors contributed to the dramatic rise in overt labor unrest under Roh — a circumscribed freedom, the new affluence of Korean industry and a bursting of long-repressed tension among workers who knew the owners of their companies were enriching themselves at their expense. The confrontations at Hyundai were the most visible and violent of any during this period. To Chung Ju Yung, the proper answer to force was force. Chung was not alone among chaebol chairmen in this response. Conditions could also be rough in other groups — especially in small and medium-sized industries able to isolate and crush dissent without so much publicity. Still, Hyundai, with more blue-collar workers in one place than any other organization, seemed the most vulnerable to large explosions.

Suppression of workers, to be sure, was not always a matter of naked greed and cruelty. It also reflected the deep belief of Korean leaders and planners in the virtues of unremitting hard work for the sake of enterprises whose every victory against foreign competition was a triumph for the nation. Hyundai and Samsung resolved to stamp out dissident union activity. Samsung succeeded, mingling pressure with incentives to prevent unions from organizing despite strikes and sit-downs. Hyundai failed as a result of strategic blunders as well as the concentration of so many of its workers from so many companies in one community. Hyundai in the pre-democracy period did all it could to wipe out worker dissent, forming a militia at Hyundai Heavy Industries along with “save-the-company squads” made up of loyalist workers, hired goons and security guards. The company alternated between extremes, one day beating dissidents, the next day bribing them.

Hyundai and other companies acted with the confidence that the law was on their side. The Federation of Korean Trade Unions, the umbrella group to which many of the company unions belonged, was closely linked to the government. Workers could not legally organize as long as another union was duly registered to represent them. There was no effective machinery for negotiating disputes. The government, if it wished, could bring the national security law to bear against workers, just as it did against students. Several weeks after Park’s assassination in October 1979 a worker at HHI was arrested after loaning a friend a book about the rise of the American labor movement. A court found him not guilty, but HHI forced him to resign. This episode, according to Kwon Yong Mok, the first radical organizer at HHI, the “Walesa of the Ulsan shipyard,” marked “the beginning of the labor union at Hyundai.”¹

1 Kwon Yong Mok, “History of the Labor Movement at Hyundai,” part one, Sae Byuk [Dawn], May 15, 1988.

The kind of offenses that HHI committed against its workers during that era could not have happened in an advanced capitalist country. Nor could they have happened in Korea much after 1990. Kwon, who was to spend four years in prison for trying to organize a union at HHI, offered some of the history in a series of articles. Hyundai Electrical Engineering, he wrote, had decided in 1986 that workers would only be paid for up to 50 hours a week no matter how many hours they actually worked. Those who objected were transferred to Seoul. Then, when the company failed to explain why some workers got an annual bonus of 500% of one month’s pay while others got only 150%, dissidents put up posters demanding the resignation of Chung Ju Yung, who had dreamed up the idea as an incentive scheme. “We did not have any success,” said Kwon, “but we showed our fellow workers what the united movement could do.”²

2 Ibid.

The realization that Hyundai was earning tremendous profits in an era of unparalleled prosperity for Korea contributed to the movement. “The annual growth of Hyundai was 30%, but our raise was always around 3% or 4%,” according to Kwon. “We concluded that we should request a 15% raise.” Hyundai Electrical Engineering executives replied by claiming that “Hyundai seemed to be making profits but actually was barely making ends meet.” The workers, getting nowhere, sang radical songs at lunchtime soccer games two days in a row and then returned to duty 30 minutes late each time. Activists decided the time had come to form a union and make formal demands ranging from special payment for pollution to summer vacation pay. “Since Chung Ju Yung’s policy was never give permission for a labor union,” Kwon wrote, “we thought of the strike and demonstration as our only solution.”

The organizers believed they had a better chance of recognition by the company after Roh ushered in democratic reform on June 29,1987, ending days of violent demonstrations in Seoul and other large cities. More than 100 workers met in a wedding hall in downtown Ulsan several days later, held a ceremony and filed papers at Ulsan City Hall. Hyundai Electrical Engineering accepted the union on July 14 after the workers staged a series of rallies. The workers’ struggle in Ulsan was on the threshold of a new era, but executives at other much larger Hyundai companies were not about to accept the union movement so easily. They tried to block the registration of the union at Mipo Dockyard, stealing the paperwork and blocking meetings before eventually yielding.

Kwon’s next goal was to form a union at HHI, the big one, with more than 20,000 workers. The battle for HHI really began on July 28 when Kwon led his dissident workers into the compound shouting, “Down with the company labor union, choose the democratic union.” After a four-day strike, management agreed on a number of concessions and an election for a new chairman on August 14. The radicals’ candidate, Lee Hyung Gon, won easily — “a perfect victory,” said Kwon, “for what the managers called ‘uneducated and rude laborers.’ “if HHI managers never publicly used such words, the quote revealed the sense of inferiority imbued among workers by the company’s attitude — as much a factor as anything else in inciting them to a revolutionary zeal reflecting severe class differences as well as disparities in income and privilege.³

3 Ibid., part two, July 25, 1988.

Kwon’s moves to organize workers at the HHI compound, beginning with Hyundai Electrical Engineering, paralleled a similar drive at Hyundai Motor, which had about as many workers as HHI at the time. “As soon as we heard that a labor union was formed at Hyundai Engineering, we were firmly assured that we could form our own union,” wrote Lee Sang Bum, who formed the HMC union on July 24. The mood at HMC turned ugly when word spread that management had formed its own company union first. “About 20,000 laborers gathered by lunch,” said Lee. “We set up a mike and told them how the Hyundai Motor Company had set up the company union.” HMC executives fell back on talk about “legitimate process” when confronted by Lee. “As time passed by without any solid answers,” he said, “the laborers who had gathered got angrier and began to break the windows of cars nearby.”⁴

4 Lee Sang Bum, remarks accompanying “History of the Labor Movement at Hyundai,” part two.

After 12 tense hours, however, HMC managers had the good sense to agree on the resignations of the stooges they had installed as leaders of the HMC union and allow an election. The new union leaders quickly got management to agree on lesser points — providing paid vacation time, abolishing forced overtime, running the assembly lines at proper speeds instead of revving them up to increase production. There was even agreement that workers did not have to adhere to the short hairstyle the managers demanded of the troops. Lee was not deterred by the failure of demonstrations to bring about a pay raise too. “We showed that we workers could unite together and fight for victory,” he wrote.

At the neighboring Hyundai Precision compound, pandemonium broke out when the managers failed to show up to talk to representatives of a new union. “Angry workers occupied the streets and blocked them, and the national police began to shoot teargas,” wrote Kwon. “A lot of workers were wounded, and later three of them were arrested.” Kwon saw the violence as “understandable considering that Precision had the worst labor conditions” and “workers there had to handle polluted substances with the lowest wages.” Workers around the same time formed unions at Keumkang Development, owner of the Diamond Hotel and Hyundai Department Store, both across from HHI, and Korea Flange, the company of Chung Ju Yung’s brother-in-law.

Although workers in Ulsan managed to form their own unions with a minimum of obstruction in the summer of 1987, Hyundai still had not fully accepted reality. When workers organized a federation of unions to counter the power of the Hyundai group, real trouble broke out — a foretaste of the bitterness of the next few years. Managers refused to meet with representatives of the new federation, and six Hyundai companies closed their doors. Thousands of workers demonstrated outside the HHI compound, the gates blocked by concrete and a 1,000-ton chunk of a ship’s hull lifted into place by a crane. The ranks of the demonstrators swelled to about 40,000 the next day for a march to the stadium, where the workers staged a rally at which union leaders agreed with a deputy labor minister on negotiations by September 1. Chung Ju Yung, recognizing the federation at last, assented to the same deadline in talks with demonstrators at Hyundai headquarters in Seoul.

The old man displayed his grip over his family as well as Hyundai when HHI staged a press conference on August 19 to publicize the agreement. There was sixth son Chung Mong Joon seated on a chair in front next to union chief Lee Hyung Gon while his father watched from the second row. Mong Joon hesitated in answering questions, however, since he had come home from graduate study only a few days earlier to assume his newly given job of HHI chairman. Whenever he couldn’t answer, his father spoke up, said Kwon, showing he was “still the superior leader in Hyundai.” The elder Chung’s replies did not inspire confidence. Somehow the agreement “planted a strong distrust in the leaders of the union” — thus having “a strong impact on the strike against HHI in September.”

An air of excitement permeated Kwon’s writing as he talked about the demonstrations that summer of ′87. “Although later we realized how worthless a written compromise was, at that time it was our victory” to form real unions and get Hyundai to recognize the federation too. It was a victory “achieved not by a few union members but by the efforts of all the laborers and the support of their families,” he wrote, heady with the memory of his triumphs. “They were not afraid to sacrifice themselves.” He recalled fondly “the line of workers which extended 16 kilometers” from HHI to the stadium. The display proved “what they really wanted — it was all possible because we were united into one, and we had won our first symbolic battle for laborers.”⁵

5 Kwon Yong Mok, “History of the Labor Movement at Hyundai,” part two.

The glory days were brief. One by one negotiations either broke down or resulted in agreements not acceptable to a majority of workers. Negotiations at HHI were doomed when Lee Heun Tae, Chung Ju Yung’s hard-as-nails money man in Seoul, was named to represent HHI in all-night talks. Fighting broke out after management refused to make its offer of a pay increase retroactive to March. HHI was suspected of hiring goons to break windows and destroy facilities at the stadium during a rally. “They stirred people to be violent,” said Kwon. “When the laborers got suspicious, they caught five of them and found out that they were not Hyundai laborers. After questioning, they were sent to the police only to be released immediately”⁶ — the usual story of collusion between authorities and owners.

6 Ibid., part three, October 20, 1988.

The atmosphere quickly worsened. “By now the issue was no more the wage increase but the release of all arrested workers,” said Kwon. HHI this time not only shut down the factory but cut off water and electricity and closed the cafeteria. Kwon saw hope for the future when “family members helped the laborers both mentally and physically, and each different family helped the other family who was in trouble.” Euphorically, he perceived “a significant event as the family not only participated but led the way in a struggle for survival.” Then when police moved in on a crowd, arresting a number of demonstrators, “they were questioned for five days without any sleep or food,” said Kwon. “They were ordered to sign a statement that they were the ones who set cars on fire, but the laborers rejected all this.” It got worse. “Police were arresting anyone who spoke harshly or violently.” There were “suicides by laborers who were sought by the police”⁷ — but some suspected the police killed them.

7 Ibid.

For Kwon, the worst was yet to come. He was arrested in April 1988, shortly before the first of his articles on the drama of the previous year was published. The police grabbed him in a round-up of union leaders after a scuffle inside the HHI gates, and a court sentenced him to four years in prison. “He was a very honest man,” said Phee Jung Sun, a labor organizer in Seoul. “That was why he got widespread support from Hyundai workers.” For Hyundai bosses, every challenge, every demand put forward by workers had to be a confrontation. Most of their campaigning against the unions was clandestine, veiled by cover-ups and bribes, but sometimes the group was embarrassed by exposure that showed why the workers had to fight as hard as they did. One of the most revealing episodes occurred not in Ulsan but in Seoul, not to a blue-collar worker but to a white-collar organizer right in Hyundai headquarters. His story, as a result of the publicity it received, also marked a turning point in Hyundai’s relations with its employees.

The time was 10:30 p.m. on a balmy spring evening, May 6, 1988. The place was Seoul’s Kangnam district, a relatively new area of fashionable apartment blocks and office buildings, nightclubs and restaurants, south of the Han River — several miles from the central City Hall square, the ancient palaces, the downtown hotels and soaring business complexes and the Hyundai headquarters building, all in the overcrowded wards north of the river. Suh Jung Eui, a 10-year veteran at Hyundai, an economics graduate of Pusan University, now relegated to clerical work in the Hyundai group headquarters building, was standing outside a bar. “My seniors suggested I have a drink with them,” said Suh.

It was not an invitation a clerk was likely to decline. It promised not only an evening of wining and dining on the expense account but also a chance at ironing out some “misunderstandings” resulting from Suh’s role as founder and president of the Hyundai Engineering and Construction Workers’ Union, the first Hyundai union made up of office workers, not hardhats in factories or on construction sites. “I disliked the authoritarian administration,” Suh told me much later. “Our employers were taskmasters. Our company chairman, Lee Myung Bak, was a specialist in management, but he didn’t follow regular rules on labor. I did not like that.” Naturally, “When I tried to establish a trade union, the company tried to make me give up the idea.”

Anticipating some quiet backstage palayer, Suh was only a little surprised when he got to the rendezvous point to see six men whom he did not recognize. They looked more like thugs from another part of town. Assuming his “seniors” would be coming right along, Suh was still more surprised when the thugs shoved fists and fingers into his back and elbows and ordered him into a waiting luxury car — a black Royal Salon made by Hyundai rival Daewoo. “They put me on the floor with their feet on top of me. I got a scar on my body” — a point he illustrated by revealing a bluish bruise on his left leg that he said was caused “by friction between the seats.” For five hours he remained in that position as the car plied the expressways to the southwestern port city of Mokpo, by coincidence the birthplace of radical opposition leader Kim Dae Jung.

When he got to Mokpo, Suh found himself “in a small room in a private house” where “at first they tried to make me eat food with a blindfold on.” When he refused the food, “they took off the blindfold, and I ate a very little, just two spoonfuls and no more.” His captors remained silent while he ate, after which one of them announced “they would kill me with knives.” That said, Suh was held for four days, at which point “they urged me to write my resignation letter to the company. I had to write such a letter. They threatened to kill me.”

Next, “I was pushed into a big suitcase,” Suh talked on. “I refused to get in, but one of them said they would not lock the suitcase so I agreed.” The leader of the group then went out in search of a bigger and better suitcase — apparently deemed a handy way to move Suh and not create too much attention — and left him with the others in the room. “Without their leader, the others kept silent,” he said. “I felt the threat of killing.” Understandably enough, “I also felt dread.” Finally, the leader returned without a suitcase but with the much happier idea of drinking some soju, the traditional Korean wine.

“After he was drunk, he said they would release me in a remote place,” said Suh. “I told them my life story.” He also did some proselytizing on behalf of the labor movement and the union. He was not, he observed, the first union member to be kidnapped. Indeed, he was luckier than some who had been severely beaten, endured threats to their families or been “disappeared” entirely. “I persuaded one of the hoodlums to request their leader not to do any more kidnapping,” said Suh. At the same time, he spread some propaganda on behalf of the labor movement — and believed he had convinced the hoodlums of its value to their friends working in factories.

“I told them the trade union helped workers,” said Suh. “Without the union, the workers would suffer.” His kidnappers, drinking whiskey, moved him to a yogwan, an inn of the sort where men stayed while traveling. Apparently they were deciding it was time to abandon their mission — whatever, exactly, it was. Could it be that whoever hired them in the first place was dictating their every move? Probably so, but Suh barely grasped what was happening. “I woke up in the early morning of May 11, but I didn’t know where I was.”

Discovering he was alone, Suh left the inn and hired a taxi to take him all the way to Seoul without calling or contacting local authorities. “I went straight home,” he said. The reason the kidnappers decided to let him go was clear as soon as he got there. “The police were in front of my home. I was surprised to see them there. They were looking for me. They said they set up a special squad to search for me during the kidnapping period.” Were the police about to close in on the kidnappers when Suh was freed? Was their investigation so rudimentary as to cover only a stake-out at his house and routine questioning at Hyundai?

These questions, like those in many other cases, raised the deeper issue of the relationship between the police and the authorities. What made the story of Suh Jung Eui so incredible was not so much what happened to him as who he was — a white-collar worker, a college graduate decked out in conventional white shirt, striped tie, gray slacks and, not so typically for a Korean “salaryman,” tweed jacket. Suh believed that Lee Myung Bak, Chung Ju Yung’s right-hand man, was “directing that operation” against him, but how could he be certain?

All Suh knew for sure was that a member of the board of Hyundai Engineering and Construction, Choi Jae Dong, and the director of its general affairs department, Kang Myong Ku, were arrested for ordering the kidnapping, paying the six hoodlums the equivalent of about $27,000, and later sentenced to a year apiece in jail. As for the hoodlums, they got off amazingly well. As hired hands who had done no bodily harm to their victim, they were given suspended sentences and put on probation. Choi, as an elderly man in semi-retirement, got out early, leaving only Kang in jail. Then Kang too was released on medical grounds amid reports that he had threatened to go back on the Mafia-like undying loyalty that had bound him to Hyundai, and expose the roles of his top bosses in the plot if they did not help him get out.

“So the company got Kang released,” said Suh, even though Chung Ju Yung “announced he fired him.” The story, though, was not quite over. Chairman Lee Myung Bak and his personnel director, Chon Yong Sup, were convicted of unfair labor practices for having suppressed Suh’s union — an offense that sounds quite serious except that the penalties were laughably low. Chairman Lee had to pay a fine of five million won or about $7,100 while Chon was fined two million won or $2,850. Those figures would not match the cost of a night at one of the posh little hostess clubs south of the Han River catering to executive “members-only” crowds.

Suh looked back proudly on the lessons he believed his experience had taught some of the top people at Hyundai: “Management is trying not to have a union, but after this incident, their attitude changed a lot.” Like so many of the salarymen in the Hyundai group headquarters, he reflected pride in Hyundai as he reviewed the consequences of the episode. “I expect many developments in labor policy. They have changed their views on trade unions since the kidnapping.” He admitted having told his bosses he now had “a terrible feeling against management” but now said he “will not say anything further against them.” What had turned Suh around? Hyundai at the top level had apparently decided a show of understanding, maybe contrition, would keep him from becoming a hero — and spreading discontent through the ranks.

“Embarrassing,” was the word a Hyundai spokesman offered, maintaining that “managers and workers are all Hyundai family” and calling the imbroglio “a tragedy.” Hyundai papered over the episode with newspaper advertisements proclaiming the personal “apology” of Construction President Chung Hoon Mok — but not the legally “guilty” Chairman M.B. Lee — before the nation. In philosophical vein, the spokesman said “the existence of unions will benefit the companies in the long run.” The comment, if sincere, represented a surprising change of heart for a group with a record of doing all it could to keep unions from forming or functioning effectively a year after the government had relaxed its rigid controls on their activities.⁸

8 Los Angeles Times, September 4, 1988.

“After finding out the facts,” Suh believed, “Chung Ju Yung tried to settle everything” — a decision that meant his personal ordeal “has been a turning point.” While there had not been “a total shift” in the group attitude toward labor, he conceded, “a major part has changed.” He professed to have sensed some changes while negotiating with management on a new contract. By the time the contract was signed, a year and a half after he was kidnapped, “we got around a 20% increase in wages plus some new benefits” to satisfy the demands of his white-collar following. Among them: “some educational fees for workers” and “the right to be present at board meetings.”

Suh tried to leave word with Chung and Lee Myung Bak that he would “restructure the union” to better serve the interests of everyone, workers as well as managers. Chung, however, wanted nothing to do with this troublesome office worker who was causing him and his people so much embarrassment and loss of face. “I couldn’t meet Chung personally,” said Suh, “but I told his secretary.” One dividend from all the publicity, the court cases and the negotiations: in June 1989 “we got an office for the labor union” in the Hyundai headquarters building.

In the face of superficial change, the Hyundai view remained that workers, like managers, owners and their children and heirs, should be ready and willing to invest a minimum of 50 hours a week in the job, to work on holidays and to cooperate gladly on any assignment for the good of the company. Chairman Chung Se Yung extended this theory by degrees. “When the country is better off,” he told me, “they work 10 hours a day, but when it is advanced they say eight hours a day with two days a week off.” Korean executives, however, did not think their country was at either the “better off’ or “advanced” level. S.Y. spoke for his peers at the top of both government and industry when he said, “We are not at that stage.” Hence, he believed a work week of more than 50 hours with no vacations was still necessary.

Chung Se Yung betrayed an opaque lack of understanding of the pressures and needs of workers caught in an industrial treadmill that prevented them from sharing fully in the “economic miracle” that had so enriched an entire class of Korean society, including all members of the Chung family. The workers “can take 20 days off by law, but it is not practiced,” said S.Y. At Hyundai “they get official holidays, and they work those 20 days. They get paid double.” He realized that “management and unions have not experienced well,” as he put it in his somewhat awkward English acquired during his three years’ study in the United States. Still, he said pleasantly, “my brother is very open, not very authoritarian” and suggested that the presidents of Hyundai entities “have more right to talk” to unions than current policy gave them.

While the case of the kidnapped clerk might not have changed underlying attitudes, it did make some executives more aware of the dangers of flagrant violations of the law in dealing with office workers in the headquarters. The reality was that Hyundai still believed in strongarm tactics — and might follow them whenever, wherever its managers were convinced they had to do so in order to resist the demands of workers while meeting those of the owners. Stories like that of Suh were common — though the censors had kept them out of the papers before the rush to democratic reform. Beatings and kidnappings of workers had happened with unnerving frequency in the generation in which the chaebol had risen to greatness. If Hyundai had learned to mind its manners in Seoul, the group still reigned supreme in Ulsan, the city it had helped to build. Industrial sites and production facilities were the scenes of the major battles between workers and bosses.

No sooner had prosecutors begun interrogating Suh’s kidnappers in Seoul than more than 3,000 workers struck against two plants of Hyundai Precision and Industry in Ulsan. The strike got rough when workers, on May 27, 1988, seized one of the factories while the company chairman, Chung Mong Ku, Chung Ju Yung’s second son and the most powerful man in the group after the old man, was still at his desk. Mong Ku was held for five days along with ten other top bosses before the workers relented under threat of an attack by policemen outside the compound. Next door at Hyundai Motor, more than 20,000 workers walked out on May 30 demanding a 48% pay increase. Hyundai turned the walkout into a lockout, shutting its doors to everyone including those who wanted to report for work. Chung himself appeared in danger when workers at HHI hurled dirt at him as a phalanx of his managers hustled him into an office building. The workers, however, had a strategic edge — they knew the company needed to feed the American market while the government fretted over the negative impact of labor disputes in the run-up to the Olympic Games in September.

Workers began showing up again at both HMC and Precision when HMC opened its doors after 22 days. The chairman of the Hyundai Motor union, Lee Yong Bok, virtually apologized for the strike. “It is regrettable to me to have caused inconvenience and economic loss in the course of negotiations,” he said, promising “an all-out effort for settlement of the dispute as soon as possible.” The workers, however, were not in the mood for apologies. The strike lasted another three days before the union settled for a 28% raise but no pay for the 26 days they were on strike. “The settlement is not 100% satisfactory,” said Lee, “but I am sure most workers would understand what we have achieved.”⁹ Hyundai put the cost of the strike at $490 million in lost sales of nearly 70,000 cars, 40,000 for export.¹⁰

9 The Asian Wall Street Journal, June 24, 1988.

10 Associated Press, Seoul, June 26, 1988.

The settlement spared company and country much embarrassment amid the outpouring of national pride surrounding the Olympics. Radicals, however, walked out of a rally staged by union leaders — a portent of much worse to come. The strikes of spring 1988, like the case of Suh Jung Eui, were over, but the story went on. Both the strikes and the kidnapping epitomized a much larger conflict between owners and workers. Management still could not get over the conviction that excising the trouble-makers would get rid of the cancer. Owners, managers and workers, in the spirit of patriotism, suppressed their hostility through the Games before warming up for more confrontations — decisive for the future of this newly industrialized country.

XIX Night Attacks

DOI: 10.4324/9781315483214-19

There was a raw, rough quality to Ulsan. In the downtown, crowds swirled along streets lined with shops filled with furniture, clothing, household goods — emblems of an industrial community that had expanded to more than 620,000 people in the past decade and was still growing. Along the banks of the Taehwa River, curling through the center of the city, children played, couples strolled and workmen hammered away at projects to beautify the esplanade. Traffic clogged the city center during the morning and evening rush hours, and bars, cabarets and discos, “room salons” and darkened coffee shops vibrated with the noises of jovial company men on expense accounts, Filipino singers belting out Top-40 recordings, sailors and contractors from a score of distant lands flirting with the bargirls, and teenagers engaging in cozy chitchat and laughter until the early hours.

A thin smoky haze wafted through the air, streaking the sky above the low-lying hills separating the downtown from the factories of the Hyundai group. Across the Taehwa River, the refineries of the country’s major oil companies spilled their waste into the sea. “This is the worst city in the country for pollution,” said Ha Kab Jong, a young independent businessman. “Swimming has been prohibited off the beaches for several years, but the most serious problem is air pollution. The government doesn’t seem to really take care of health.” The complaints from a fishing community near one of the refineries were almost forgotten amid more immediate concerns — the perpetual conflict between workers and managers and owners. Ulsan might be “a hole,” as foreign contractors growled in the Diamond Hotel bar, but the city remained a goldmine for the organization that had profited the most since turning the one-time farming and fishing community into Korea’s most thriving industrial center.

“Hyundai City” was the name the French magazine UExpress in all seriousness had given Ulsan in a map accompanying a special report on Korea in 1978 — an understandable error in view of the hold that Hyundai had over the area. “Hyundai City” was how many of the people of Ulsan referred to their town, and no wonder. From Ulsan University, owned by Hyundai on the western fringes, to the Hyundai Department Store and the “Ten Thousand Apartments” across from Hyundai Heavy Industries on the eastern peninsula, the reality was plain: Hyundai was Ulsan. Beyond the rice paddies and vegetable patches, Hyundai manufactured the motor vehicles, the railway containers, the pipes, the high-wire steel towers, the robots, the engines and heavy machinery, the deep-sea drilling rigs, the platforms and frames that soared above them, plus the ships to carry all that hardware and more to every seaport on earth.

From one end of east Ulsan to the other, from the long, low plants of Hyundai Motor to the smokestacks and cranes rising above Hyundai Heavy Industries, east Ulsan was the “Korean Miracle.” Nowhere else in all the Korean peninsula, North or South, did one find such a variety of large-scale enterprise in one place, under one ownership. About 80,000 people worked for one Hyundai company or another in Ulsan, and they supported another 200,000 family members. Then came the merchants, the suppliers, the restaurateurs and bar owners and hostesses and all the others at the service of the Hyundai community. The conclusion was inescapable: the vast majority of the people of Ulsan depended on Hyundai for their livelihood.

Despite its image as the archetypal “company town,” Ulsan seethed with a strange discontent. “This city is a consumer city,” said Ha Kab Jong. “The shopkeepers don’t want to lose their vested rights. They are afraid because of the labor situation.” The police, it was rumored, were everywhere. The National Security Planning Agency watched carefully for trouble-makers who came up from Pusan, about an hour’s drive south, or down from Seoul, a half-day trip by train or bus or 45 minutes away by plane. Phones were tapped, suspects tailed, offices of dissident union leaders and radicals watched and sometimes harassed. Ulsan/Hyundai merited top priority for a regime dedicated to the security of the chaebol.

“This is the Kingdom of Hyundai, and Chung Ju Yung is king,” said Lee Chul Soo, a minor loser in National Assembly elections of April 1988 and March 1992 in which Chung’s son, Mong Joon, won and then retained his seat from Ulsan’s eastern district, covering Hyundai factories and apartment blocks packed with workers and their families. Mong Joon, the American-educated sixth son, chairman of Hyundai Heavy Industries and a political independent in his first campaign, won by an even wider margin the second time around as a candidate of his father’s United People’s Party. This time he carried with him two allies running from neighboring districts, giving three of Ulsan’s four seats to the party. Charges that Hyundai had guaranteed Mong Joon the votes, the crowds and all the funding he could use only burnished the image of Hyundai as a power in politics as well as business.

The fact that Mong Joon had converted to the ruling party midway through his first term — and then defected to help his father organize the UPP or Tongil Kukmindang — enhanced his status as a power-broker. Lee Chul Soo, a member of a conservative grouping led by Kim Jong Pil, one-time head of the Korean Central Intelligence Agency and now a leader of the ruling party, sounded like a dissident as he talked about the UPP political steamroller through Ulsan. “Anyone can be elected if he belongs to the party of Chung Ju Yung,” he said. “All Hyundai men vote for him.” That seemed strange considering the vehemence with which thousands had struck Hyundai factories, denouncing Chung father and son. “But who gives the salary to the workers,” asked Lee. “Who gives them food? That’s why they vote, very simply. There are many ways to buy votes. There are gifts and entertainment. They can do anything.”

Some of the radicalized workers’ representatives believed Mong Joon had offered still more. “They hold a banquet and give food and money,” said Lee Suu Won at the office of the Hyundai Group Federation of Trade Unions. “They give 70,000 won (nearly $100) worth of rice. One person takes about 100,000 won in cash.” Mong Joon “is not an honest man,” said a worker in the office. “He is not a brave man. He has only money. He cannot be our friend. He has arrested our friends.” Workers who were otherwise unhappy with their employer explained the phenomenon. “Before the National Assembly election the people believed the government would act against the Hyundai group,” said Lee Dong Suu at Hyundai Heavy Industries, in the central office of all the unions in the middle of the Ten Thousand Apartments area. “If Hyundai is bankrupt, most of the shopkeepers will lose, so they think they must save Hyundai.” Another worker, Baek Hyung Rok, quoted one of Chung’s campaign lines, “We must save Hyundai.” At that time, he said, “the rumor of a crisis at Hyundai appealed to most of the workers.”

It was not difficult to arouse suspicions and fears here. Hardly a rabble-rouser, unsuccessful politico Lee Chul Soo still qualified for sometime surveillance. Although his hostility to Mong Joon now coincided with that of authorities in Seoul, he had once opposed established local order. About 10 minutes before I arrived for an appointment at his office in mid-1990, he got a call from a policeman asking if he had a visitor. “They check on who is coming here,” said Lee, owner and principal of the Hyundai English School, which he insisted was not named for the group from which he got some of his students. A few years earlier, police in plain clothes had “surrounded” the building, a ramshackle four-story walkup in the center of town. “We called this the ‘House of Democracy in Ulsan,’” he said, having once donated the top floor to the Ulsan Social Action Committee, fighting for workers’ rights at Hyundai.

When the pressure was really on, Lee observed, the intelligence apparatus of the armed forces coordinated with that of the police and the National Security Planning Agency, but usually just the police were responsible for daily grunt-work. By mid-1992, their job was somewhat easier. The radicals who had once occupied Lee’s top floor were gone. First they moved to a headquarters above a billiards hall down the street; then they shifted to a vantage point across from the Hyundai Motor compound. “Now they have disappeared,” said Lee. “Some of them work for Chung Ju Yung. Some are with the government party. They have to eat.” Workers outside the main gate of Hyundai Motor handed out leaflets inviting the faithful to the next organizational meeting, asking for support for some who had lost their jobs — reminders of the ongoing conflict.

Just as it formed an intrinsic element in the Korean “economic miracle,” so “Hyundai City” dramatized the social ills that divided the society between rich and poor. “The most important point is the employee and employer don’t believe each other,” said Lee. “The employer doesn’t want to negotiate with the employee honestly. They just want to ask for public power. The policeman coming to a company uses the power to control a strike.” In the end, “the company controls the labor organization by their own manner and style, offering low compensation, poor working conditions.”

The official Hyundai attitude toward labor had at times been so heavy-handed — so brazenly unlawful — that prosecutors and police could not ignore the misdeeds of some of its more aggressive bosses. Otherwise, as everyone knew, worker revolt could turn from ugly face-offs in carefully defined areas to open civil conflict that could shut down entire industries for months on end. Thus it happened that the government, in early 1989, had to arrest one senior Hyundai executive along with his hired consultant for their roles in ordering and organizing two of the more notorious, violent episodes of the post-war Korean industrial revolution.

It was 5 a.m. on January 8, 1989, when between 40 and 50 men showed up on the street near the Ten Thousand Apartments complex outside a small office that was headquarters and home of the Hyundai Group Expelled Workers’ Association. As the name suggested, the association was a rather pathetic aggregation of malcontents with a membership of just 14 people. Nonetheless, to Hyundai it represented a clear and present menace that had to be eliminated.

The office was not a dormitory, but ex-workers slept there when they had nowhere else to go or had been up late planning and partying. Six of the 14 members were lying on mattresses on the floor when the goon squad banged open a window with baseball bats and iron pipes and poured inside swinging wildly. Armed with a name list, they demanded the identities of those who were there, then pulled them outside and beat them with the bats and pipes. Others destroyed the group’s microphone, loudspeaker and table cabinet and seized a videotape recorder, recording tape and business papers in hopes of finding evidence they could display in court as proof of the members’ nefarious activities. All the victims suffered the kind of injuries the goons had been instructed to inflict — painful but not incapacitating.

The story of Kang Sung Man, fired in April 1988 from his job at HHI for his labor activities after five years on the payroll, was typical. “They hit me with an iron pipe for 15 minutes,” he said. “I went to the hospital, but it was not serious.” Why did the goons say they were beating him? “My name was not on their list. They said, ‘Who are you?’ ‘What’s your job?’ ‘What company do you work for?’” The attackers demanded the whereabouts of the office leaders, none of whom was there. Getting no reply, they broke the right arm of the union chief at Hyundai Engine Manufacturing, a hotbed of dissent on the HHI compound. The attack was all the more outrageous since the victims were jobless, defenseless and harmless, meeting as much to provide solace for one another as to gain revenge. It was especially shocking since it happened only a few blocks from the HHI walls, in the shadows of the apartments of thousands of Hyundai workers.

The attack came one and a half hours after another assault, this one on 19 members of the union of Hyundai Electrical Engineering as they slept in an inn on a hill about 25 miles north of Ulsan. They had arrived several hours earlier for a weekend “training” session — a social and political gathering that Hyundai executives saw as an anti-Hyundai hate rally. About 100 goons armed with pipes, bats and sticks pounced on them, shouting, “We will kill you,” striking again and again but refraining from lethal blows. “Maybe the attackers were terrorists,” said Chun Chang Soo, talking several days later in an Ulsan hospital bed through bandages on his badly bruised face. “Some of them are policemen. We think they were hired for this attack. They were given money.” He could not identify any of them. “It was dark. I could not see.” Kim Su Ko, also beaten and injured, believed “they were a gang of special policemen — the same men were in both attacks.”

That assumption was understandable in a society where the police, in the name of whatever authority controlled them, sometimes behaved like gangsters. Chung Mong Joon had made a rare visit to his office at HHI just two days before, but he and his father probably did not have to dirty their hands by directly ordering a criminal act. More likely, they only had to ask subordinates to “find a solution” to the “illegal” walkout initiated nearly four weeks earlier, on December 12,1988, at HHI and its satellite companies. Or, in the elder Chung’s case, he may have said that he “expected” a solution before returning in January from his ground-breaking mission to Moscow. “Expectation” from Chung Ju Yung could be interpreted by any Hyundai employee as an order, the fulfillment of which might determine his entire future career.

Whatever word had wafted down from on high, the Hyundai executive responsible for the attacks, Han Yu Don, had acted out of fear and duty rather than vicious rage. A friendly looking man, handicapped by the loss of several fingers in an accident on a site overseas, Han had gone from an easy post in Seoul, in charge of training for the entire group, to Hyundai Engine as senior vice president with a mandate to clear up the “labor problem.” A law graduate of Seoul National University, now bound in the ropes of a prisoner, he appeared somber and mystified as he stared from the front pages of the newspapers after his arrest. Someone had to be the fall guy, and Han was it. He knew that Hyundai would take care of him after he had done a year or so in jail and gotten out — but he did not appear exactly consoled by the thought of that far-off prospect. He had made a mistake, carrying the episode beyond conventional bounds and, worse, getting caught.

Han’s error was to have accepted the advice of a zealous consultant named Lee Yun Sop, “James” Lee, a mysterious Korean-American. An orphan of the Korean War, Lee had moved to the United States in 1978, married a Korean resident, served in the U.S. Army, worked as a leftist union organizer among Koreans in the Los Angeles area and then returned to Korea to run his own “Labor Research Institute” in 1987.¹¹Back on his native soil, Lee offered rightist rather than leftist advice, turning his dubious talents to advising Han and others on how to deal with recalcitrant factory workers. At the same time, he ingratiated himself with unionists by saying he was helping them, not management.

11 The Korea Times, November 1, 1989.

James Lee lectured workers on labor issues — and imbued some of them, the ones that management liked most and most workers hated, with conservative views while getting visibly upset by the sight of red headbands and radical placards at rallies. “James Lee said we are communists because we demonstrate against Hyundai,” said ex-worker Lee Won Kap, out of his job as a spray painter. “I said to him, ‘You are a liar.’” James Lee’s retort: “If you fight Hyundai, you must be communists.” Lee Won Kap, picked up before the attacks when police surrounded a workers’ dormitory and forced workers onto the street by firing teargas grenades, spent the next three months in jail for inciting co-workers.

No one had seen James Lee on the scene of either attack, but the police were as convinced as the strikers that he had persuaded Han of the wisdom of his plan — and then masterminded it. Workers believed Lee’s goons were moonlighting cops, but none of the men who wielded the bats and pipes was found — startling indeed considering how many were involved and how ferociously they had behaved without attracting the curiosity of patrolling police. “Whenever we fight the police, it is meaningless,” said Lee Won Kap. “What can we do? The police treat us like animals and savages.”

It was Han who had authorized Lee to buy the bats, and it was in Han’s room that investigators later discovered a piece of paper listing the names of two men on whom he could count. One was the chief of the local police, and the other was the local head of the National Security Planning Agency. In the days after the attack, though, Han became a virtual pariah. Chung Ju Yung, back from Moscow, told reporters at Seoul’s Kimpo Airport he had “nothing to do” with the attacks and “could not understand” why one of his men “would do such a thing.” In the HHI headquarters, a senior vice president, Hwang Sung Hyuk, said “the events of January 8 will be recorded as one of those ridiculous acts, an unbelievable story of labor history.” As for Han, he described him as “a kind of victim” — and called James Lee “a kind of victim as well.”

With Han and Lee in their custody, the prosecutors tried to demonstrate how even-handed they were in their response to infractions of the law. The workers accused them of conspiring with Hyundai, but here they could show the nation they were bringing charges against a top Hyundai executive and his hired hand. “Our theory is that in this case there are several persons concerned,” said Byun Jin Woo, chief prosecutor for Ulsan. He had, however, already ruled out one crucial element — that of police collaboration with Hyundai. “No, I do not think the police are Hyundai,” he said curtly, ending his brief answers to my questions, while an assistant prosecutor still questioned Han, wearing his blue Hyundai windbreaker, down the hall.

In the aftermath of the two night attacks, the strike was just warming up. Every day, workers poured out of the Ten Thousand Apartments complex, fanning through the sidestreets and rallying along the main road running past the HHI compound walls. Chung Ju Yung had to cancel the annual Hyundai dinner — an elaborate affair in a hotel banquet room in Seoul to which Hyundai invited its own top executives and their wives along with other businessmen, politicians, diplomats and journalists. Hyundai public relations managers, calling to rescind the invitations, said politely that the honorary chairman was “too busy.” In the glare of daily television footage of workers rampaging past the main gate of HHI, flinging Molotov cocktails and rocks, Chung had suffered loss of face. Radical workers by the final week of March were taking over the HHI compound, rallying in the main square, writing protest letters to President Roh and Chung, shouting slogans, playing traditional songs over loudspeakers.

Work slowed down precipitously as demonstrators ran from workshop to workshop, yelling at those still on the job, urging them to join the walkout. The strikers did not damage production areas but poured into administrative offices, hurling files and furniture in a wild melee with scores of HHI staffers and security guards. The rumor spread that HHI managers had slipped 200 detectives, disguised as workers, into the yard to look for 55 dissidents blamed for the strike. The ringleader, “most wanted,” was Lee Won Gon, twin brother of the first president of the HHI union, Lee Hyung Gon, in jail for having kidnapped his successor, a moderate opposed to the strike.¹²Lee Won Gon said dissidents had stockpiled 10,000 petrol bombs and thousands of “metal objects.” Strikers were seen guarding an arsenal of gas masks and hard hats, LPG containers, bolts and nuts for homemade minju — “democracy missiles” made of pipes with paint thinner for an explosive. Revolution was at hand.

12 The Asian Wall Street Journal, April 14–15, 1989. Joseph Manguno reported from Ulsan.

In the predawn of March 30, the strike’s 109th day, Lee Won Gon wrapped himself in a Korean flag, vowing to “fight until I am killed.” About 700 or so hard-core dissidents were still in the yard as 14,500 riot police massed around the compound. At 5 a.m. they launched a two-sided assault, climbing over the walls facing the road, wading ashore from boats, firing teargas grenades from helicopters. Within 35 minutes the police had rounded up the last of the militants still inside the compound. Most of the hard-core had disappeared through a secret exit into nearby “single workers’ apartments” without using any weapons. “This is not a class struggle,” Lee Won Gon told journalist David Bank before escaping. “We just want better working conditions and better status for workers. We have been looked down on in Korea for a very long time.”¹³

13 “The Battle of Ulsan,” Newsweek International, April 10, 1989. David Bank reported from Ulsan, Peter Leyden from Seoul.

The police had cleared the compound, but the struggle boiled on. Next day I estimated about 3,000 workers were outside the main gate by 10 in the morning, rallying, shouting slogans, tossing firebombs and rocks at 200 policemen backed up by a black teargas truck, the bronze police seal on the side, parked menacingly in the lot of the Diamond Hotel. That afternoon I followed demonstrators fanning through the Ten Thousand Apartments neighborhood, the vanguard of a crowd that included radical university students from Seoul and local high-schoolers. The confrontation assumed a desultory air. An occasional hothead ran forward, challenging a line of policemen in their Darth Vader-like armor at close range with a firebomb, then dropping back amid shouts and laughter.

There was a communal atmosphere. Signs displayed the names of Hyundai companies for which the demonstrators worked — a group of 30 from Hyundai Motor were cheered as they joined their comrades from Hyundai Heavy Industries, Hyundai Engine and Hyundai Electrical. One group identified itself not by company name but by dwelling place — “single workers’ apartments” where the militants were holed up. The police surrounded the neighborhood, firing teargas grenades into clusters of serious trouble-makers as leaflets fluttered to the ground from helicopters. The police did not attempt, however, to break up a speechfest in the middle of the apartment complex the next day.

The principal speaker, Lee Bu Young, co-chairman of Chonminryun, the anti-government National Democratic Alliance, exploded in emotional, rabble-rousing shouts and slogans. No sooner had he finished his 10-minute spiel than HHI workers advanced against columns of police blocking the routes into the Ten Thousand Apartments for another round of rock-throwing. That evening, as the day’s clashes died off amid scores of arrests, Lee talked to me in calm, academic style in the office of the Ulsan Social Action Committee, over a downtown billiard hall. “I have read histories of the American labor movement,” said Lee, likening blue-collar revolt in Korea to that in the United States at the turn of the century. “There were many small offices like this in Pittsburgh and Detroit. Many church groups supported them. The same kind of symptoms arise here and in the United States. So many brutal and inhuman phenomena appear during the process of industrialization.”

A graduate of Seoul National University, fluent in English, Lee defended the role of the radical students: “Those who have social consciences show their concern. This government denounces them as leftist or communist.” Lee compared the police to “Roman legions,” claiming they outnumbered the workers. “There was some pull and push,” he said, playing down the workers’ physical defiance. “There was a bigger size crowd then normal.” He was encouraged by a walkout of 7,000 Hyundai Motor workers in sympathy with those at HHI. “Maybe next week they will fight in the areas of their own factories,” he said hopefully. Or “maybe there will be no showdown but steady and tedious agony.”

Lee’s agony was only beginning. Back in Seoul, he was charged with violating the labor law barring third-party interference in disputes and the national security law barring pro-communist activities by inciting to riot and spreading radical propaganda through his Chonminryun. He spent a year in jail — a martyrdom that got him elected to the National Assembly in March 1992 on Kim Dae Jung’s Democratic Party slate. The arrest of Lee and other “outside agitators” dramatized the authorities’ refusal to get at the causes while conceding that beating up the trouble-makers had been bad for the image, Hyundai’s and theirs. Chung Ju Yung apologized for nothing: “It is natural for the government to mobilize police forces whenever national security is threatened. State power will naturally withdraw when security and order are restored.”¹⁴An HHI senior vice president, Shim Young Soo, in charge of planning and coordination and a member of HHI’s negotiating team, tried in top-management style to reduce issues to irrelevancies. “We were negotiating with a collective bargaining contract,” he said in quiet frustration. “We were negotiating on 136 items for more than six months.” By December 8, 1988, when the walkout began, “we could conclude and agree on 134 articles.” The sticking points were a union demand for an extra months’ bonus at the end of the year, reduction of the work week from 48 to 44 hours, before overtime, an increased retirement allowance and a bonus for productivity. As everyone knew, however, the dispute went beyond those issues, important enough on their own merits, to that of union leadership. The vast majority of HHI union members believed management had purchased the support of their union president, whose leadership they disavowed in favor of Lee Won Gon, the strike’s most radical leader.

14 The Korea Times, April 8, 1992.

HHI officials had what they saw as an airtight argument against a strike: Korean law forbade industrial action against military industries, and HHI produced vessels for the Korean Navy. “The radical union is linked with political and social activists,” charged HHI negotiator Shim Young Soo. “They are instigating laborers to attack the government. They are anti-American too.” The HHI dilemma was that “this situation is more a political than an industrial issue.” Thus “we asked for the intervention of the police to give a chance, a turning point, in solving this protracted labor unrest.”

Shim had an array of statistics to prove that most workers were back in the fold: by the latest work day, 14,198 or 74%, had shown up, “a little increase from the day before.” Soon “we are going to raise the ratio to more than 80% of the 20,138” on the rolls. Shim was both right and wrong. The workers came back, but only after more fighting. The strike did not really end until April 18, the 128th day after the walkout had begun. Several days later, Lee Won Gon was captured. The police then released hundreds of workers after getting them to sign statements promising to return to work, but 50 others got jail terms. Lee, dismissed by pro-management members of the HHI union council, was accused of staging a coup d’état against more malleable union leaders, seizing power over the union and staging the illegal strike.

Hyundai, meanwhile, counted its losses — orders canceled for three ships for which HHI had contracts for more than $100 million and talks suspended on another 12 ships for which the company expected to earn $400 million. Those losses were in addition to the $1 million a day the yard lost by standing idle, delaying work under way. Then there were the losses for the workers, nearly $20 million in four months’ wages never paid, still more in losses suffered by owners and workers alike in small and medium enterprises plus an incalculable ripple effect through the local economy. The Ulsan Chamber of Commerce estimated “total losses, including damages to subcontractors and other costs, at about $1.2 billion.”¹⁵

15 Joseph Manguno, The Asian Wall Street Journal, April 14–15, 1989.

The company had made a stand on a principle. Now both sides had to compromise if HHI were to go back to making money and sharing the wealth with workers who were not likely to surrender in their own industrial revolution. Lee Won Gon for his part would serve a year and a half in jail, missing the action but catching up on reading, waiting for another chance as workers struggled on — toward disaster, or compromise, or both.

XX A Vote for Peace

DOI: 10.4324/9781315483214-20

We are going to establish a new practice of labor union activities,” said Hyundai Heavy Industries Senior Vice President Shim Young Soo. “All should be conducted within procedures and principles of law.” Rank-and-file HHI workers did an about-face and accepted legal niceties — including the election of a union president on April 28, 1989, 10 days after the police had put down the radical worker rebellion. “Chung Mong Joon is a very reasonable person,” said Chung Shi Son, an accounting clerk and president of the voting committee, when asked about the HHI chairman and sixth son of Chung Ju Yung. “In the future he will control the company reasonably.” Chung Shi Son shrugged off hints of trouble from the people who had thrown the rocks and firebombs. He seemed to have convinced himself — and other workers too — that management might have a change in policy if not in heart.

“Our working time will be revised reasonably,” Chung Shi Son predicted. The company, he was confident, would reduce the work week to a compromise 46 hours, with time-and-a-half for overtime and a six-month bonus — just as the workers were demanding. “From now on our management will concede our workers’ desires,” he said. First among them: “welfare and trust between management and workers.” Second: “communications and consultation between management and workers with an open mind.” The organization of fired Hyundai workers had sent “some papers to our workers urging them to boycott the election,” he added, “but there are candidates for the strikers, so there is no reason for a boycott.”

After the violence I had witnessed, I could hardly believe that labor leaders could now talk seriously about peaceful solutions. The fight-talk strategy was one that both sides, management and labor, persisted in thinking might bring about ultimate victory. On the day of the HHI election for a new union president, the aura of law and order gave a clear impression that both company and union had suddenly repented of their folly.

The balloting itself could not have been more orderly. “Here there is no protest,” said Chung as more than half the 18,550 eligible voters cast their ballots by 2:30 p.m. “The voting is proceeding smoothly.” Scenes at the dozen polling places on the company grounds appeared to come straight from the textbook on cordial labor relations. “Our union has problems,” said Shin In Kyun, one of the union election officials, a technician in the electric design department, but he saw nothing too serious on the horizon. “We will work hard,” he promised, waving in the direction of union members serving as guards and observers.

Shin could not deny that “Hyundai workers have some trouble” but placed it in the context of “discussion about raising wages.” As he chatted, it seemed as though the walkout and the riotous protests were almost forgotten. “I always have pride in Hyundai,” he said. As for the radicals, “Of course they love their company, and they also will work for the company — and for themselves.” During our conversation, rows of workers stood at the entrances to the polling places, bowing respectfully to each voter. Poll-watchers carefully scrutinized identification cards against name lists. Union guards also stood inside and outside the gymnasium as the count began at 7 p.m. There was no sign of police or company guards. There was no need for them.

Ju Sang Myong was the winner in a field of six candidates with 9,306 of the 15,463 votes cast. To the surprise of no one but foreign visitors, the new union president talked peacefully and placidly. “I am trying to do my best for Hyundai Heavy Industries,” said Ju, a crane operator. “I will show all the people that HHI people do not want to demonstrate any more.” After what everyone agreed had been the freest, fairest, most open kind of election imaginable, Ju was irrepressibly upbeat. “Hyundai is trying to change, to bring better conditions and circumstances now,” he said.

Just what was Hyundai doing to keep the workers happy besides talking more politely and promising more talking? “They put in new machines to change the air inside the plants everywhere, to clean the air,” he said, addressing one of the more serious complaints about actual working conditions beyond pay and benefits. “Next, they will try heating and air-conditioning” — two other problems for workers accustomed to bundling up in near-freezing winters and sweating through terrible summers. Come the first of June, union and management negotiators would discuss those pay increases. Ju fully expected the kind of raises that union members had understood earlier would be theirs for the asking.

In the mood swing toward peace, an obvious theory advanced for the change in heart on the part of HHI management was that the Chungs did not want to risk another strike. While the police had come to their rescue, they might not have moved as swiftly and forcefully as the Chungs would have liked, and officials in Seoul had passed the word along that the time had come for significant concessions in the interests of long-term good-will. There was considerable speculation as to Chung Ju Yung’s role. No one doubted that he had the power, but the question was how he had chosen to use it. Did he mastermind first the crackdown and then the settlement — and at what point did he delegate authority to negotiators and experts on the scene?

“Chung got too nervous about the demonstrations,” said Ju. “He gave the power to staff members to solve all problems. He said, ‘You settle it yourselves,’” but, at critical junctures, staff members “should ask Chung for approval, and he decides everything.” No one believed that younger brother Se Yung was involved even though he had the title of group chairman, and son

Mong Joon’s real role was believed to have been secondary. “Chung Mong Joon does nothing, even though he is a politician,” said Ju, alluding to Chung’s dual position as a member of the National Assembly.

One early casualty of the walkout was the HHI president, Park Yung Wook, sent to Ulsan originally in November 1987 at the apex of a brilliant career in which he had emerged as one of Hyundai’s ruling inner circle, a member of the chairman’s planning committee. “I cannot deal with those labor problems,” said Park of his transfer in February 1989 to a cushy but powerless post in Seoul as president of the Hyundai Research Institute. Park did not go into all the mayhem that occurred during the strike but blamed it on “big change in society in the course of democratization” — a view that no one could dispute. “HHI was a target rather than a victim,” said Park, on his way to early retirement. “You cannot understand what is the conception of these radicals.”

The assumption was that Park, an expert in such tricky maneuvers as obtaining loans in the millions of dollars, had incurred the displeasure of Chung Ju Yung for having failed to take care of the walkout. It was his baptism in the field of labor relations, and he clearly was out of his depth. Chung himself had refused to recognize the complexities of the conflict, assuming that any of his top executives could deal with any problem. “Labor costs have gone up about 50% from 1980 to 1988 and our organization is not so efficient,” said Park with an air of pathetic helplessness. “Overhead costs became higher and higher.” Park offered a personal opinion of the sort that Chung scorned. “We have to totally change our strategy,” he said. “We have to establish a new culture. We have to make a very big transition.” Park talked with the conviction of a convert to a new religion — but not one that Chung Ju Yung was about to join. “In the long term, in order to comply with the change of society,” he said, there must be a change in “the conduct of corporate culture, revitalization of the organization.” Most important, he now believed, “is to change one’s consciousness.” The company had to “give a good vision” to the workers, he said, for “they are the same human beings.”

The more Park talked, the more revolutionary he sounded, at least for one who was once one of Chung’s right-hand men. “The humanitarian spirit is not only monetary. In oriental society, communication, eye to eye, is much more important. That means attitude.” Even if Park had failed in the toughest assignment of his career, he believed his words might yet have impact. He had submitted a report to Hyundai Research Institute while he was still HHI president on “the strategy for transition” of HHI — only to find himself a couple of months later evaluating his own report as institute president.

While such thoughts were permeating the atmosphere around the time of the election of Ju Sang Myong as union president, both management and workers were really taking a breather — nothing more. Ju soon made clear he was not about to fall for sweet talk and become a stooge for the bosses. Among his priorities was one that HHI management could never stand — freeing all those arrested during the walkout and getting them back on the payroll along with all the others dismissed by HHI for one reason or another. “If Hyundai refuses to rehire them,” he said, “I will fight again.” Rehiring would be necessary “to put the situation back just as before the walkout” — a preliminary step to opening the next round of negotiations.

“Trouble always happens because of the arrested leaders,” said a local reporter, Park Yung Ju, covering the scene for Kyongsang Ilbo, then Ulsan’s only newspaper. “That is the biggest issue. Human relationships are more important than money. It is the duty, the responsibility to get the leaders out of jail.” The gulf between management and labor on that point was clear in conversations the next day with a senior manager in the labor control department and with union members attending a fire-eating rally in the company auditorium. “The meeting today will not talk about the dismissed employees,” said Seo Mun Hwa, the manager, in HHI headquarters an hour or so before the rally. “We have to see what the courts do,” he explained, arguing that those found guilty might not be eligible for their old jobs. In any case, “Those who do not follow union policy will not be back” — meaning HHI would not rehire anyone who might lead union members into another “illegal” walkout. The bottom line: “Only those who regret their past may return.”

As workers began filling the company auditorium for the rally, it became clear that Seo Mun Hwa was out of touch with the mood. “Release the arrested employees” was not just the slogan emblazoned on banners and posters. It was the rallying cry for most of those addressing the 8,000 to 10,000 workers filling the auditorium. “The strike was too long and the people want peace,” said Choi Kil, a member of the engineering department. “We will see after the meeting what the company will do. We will try to have all the fired workers rehired. We will try everything.” Speaker after speaker harangued the crowd with demands for freedom for “all the arrested workers.” Said one, just freed: “That is our first demand.”

The arrest of organizers and union officials, beginning in 1987, had given the workers a rallying cry — a crusade that captured the popular imagination in the same way as the holding of hostages by a foreign power. “The reason we didn’t go back to work for such a long time was due to the arrest of the workers,” said an assembly line worker at Hyundai Motor, Lee Sang Hui. “They are most angry about the arrested workers,” said Chang Seok Gyo, a salaried official of the Hyundai Group Federation of Trade Unions, citing each of the arrests as emotionally-charged causes célèbres that gave a moral point to demands that might otherwise have seemed motivated by a simple desire for more pay and better conditions.

Far from discussing issues other than the arrests, as HHI management had predicted, the workers talked about little else. “The people in the Ten Thousand Apartments suffered psychological damage,” said welder Kwon Chung II. “They want an apology from the company. At this moment, there will be no more demonstrations, but we want those in prison released.” Always there was the threat, implicit or explicit, of a new walkout. “We will plead with the company to release the arrested people and withdraw civil suits,” said Kwon. “If it refuses our offer, in the worst situation, the strike will be extended, and then both the company and the union will suffer.”

If that was the fate that awaited them a year later, in 1990, there was no reason now to believe the worst had to happen. “Eventually we want a compromise,” said Kwon. “That is the solution.” A young assistant manager, Lee Uk Hyung, not a union member, had some advice for both sides. “The results do not do any good for anyone,” he said. “If I were a labor leader, I would like more reasonable negotiations. If I were top management, I would be more careful about working conditions. If I were Chairman Chung, I would be more receptive to improvement.” What could management do to improve conditions? “It is hot in summer and cold in winter,” he observed. “There is bad ventilation.”

Lee’s comments extended to his own responsibilities. “Workers in offices complain they have no authority from top managers to cope. If I were Chairman Chung, I would emphasize the role of the top executives. They should delegate more authority to make our decisions and contribute to the company’s development.” For starters, he suggested, directors should be able, on their own, “to raise salaries, organize their departments and make the environment what they think best.” Top bosses, he said, should not cover up problems “by insisting our life is good.”

The system, however, conspired to cover up any threat to its authority or reputation. Although Chang Seok Gyo was a salaried labor federation official who had never worked for Hyundai, he spoke from first-hand experience of the way the local police, prosecutor and courts conspired to suppress dissent. He was arrested in February 1990 on charges of violating the national security law by playing videotapes portraying “suppression of workers” and distributing booklets depicting the workers’ day-to-day struggles to feed and clothe their families. His three-month incarceration was typical of the punishment inflicted on those whom the authorities viewed as routine nuisances — pains enough to keep in jail for a while but hardly dangerous enough for beatings or long-term imprisonment.

Chang was held in the Nambu police station where accused offenders waited in a large circular cell area before going to longer-term facilities. “Nambu is the worst in Korea,” said Chang. “The other criminals beat the political prisoners and take money and other things from them.” He believed the police either looked the other way or actually encouraged bullying of political prisoners to make them suffer. The prison in Pusan to which he was sent before trial was a step up. “There were no physical attacks and no beatings in Pusan,” he said, “but it is difficult to live in a limited space.” The Pusan facility shielded political prisoners by confining them to a special section and forbidding them from working while in prison. Just as he was getting accustomed to his surroundings, Chang got off with a sentence of one year on probation — a judgement that released him to rejoin the workers’ struggle.

In view of his experience, Chang might be forgiven for viewing Hyundai as crueler than the other chaebol. “Hyundai is very tough, severe, the worst,” he said, not discriminating among Hyundai entities. More specifically, Chang might have said, Hyundai Heavy Industries was the worst among Hyundai companies. Goon squad attacks, riots outside the gates, walkouts that lasted for weeks — what else was left to happen in the contest between management and labor at an industrial complex that represented both the glory and the shame of the Korean economic miracle?

XXI View from Above

DOI: 10.4324/9781315483214-21

There was a sense at Hyundai Heavy Industries of failure and disillusionment stemming from the breakdown of the “understanding” surrounding the election for a new union president in April 1989. Sang Myong Ju served for eight months as president of the HHI union — what was left of the term of his vanished predecessor — and then trouble began to brew. The new union president, Lee Yon Hon, was arrested soon after his election, and his deputy was arrested several days before the next walkout actually began. They were accused of agitating to bring about an illegal strike on April 25,1990—a charge that showed how little both sides were committed to keeping the truce hammered out the year before after the disastrous 128-day walkout.

No one could be sure whether protracted police-labor brawls on the streets of east Ulsan were preliminary skirmishes before armed civil conflict or final acts of violence before management and labor got along with each other — or management won. It was difficult to imagine a peaceful denouement, though, as long as a number of labor leaders languished in jail. The mood, if anything, was touchier at HHI than at Hyundai Motor, several miles down the road. The reasons lay deep in the history of the company and its relationships with workers. HMC remained one of the go-go concerns of the Hyundai group; HHI, always buffeted by the ups and downs of the ship-building industry, could only retain its lead over Japanese competition by holding down wages.

HHI workers, earning about three quarters the wages of those at HMC, had to fight longer and harder for their rights than their compatriots in other large industrial organizations. Thus the spark that set off the 1990 strike blew from the HHI compound. The rumor spread on the night of April 27 that the police were about to raid the HHI complex in order to break up the walkout that had started two days before — ten days after the first anniversary of the police attack that ended the 128-day strike against HHI. Word spread that as many as 13,000 were on their way at the request of Hyundai officials. The national police in Seoul, at the behest of the National Security Planning Agency and the Blue House, had the duty of keeping the strike from engulfing all Korean industry before Labor Day, May 1, when hundreds of other unions backed by radical students at the height of the spring riot season might join the struggle.

To Hyundai management, police experts and government officials, the mission was clear: eradicate the illness before it consumed the body. To the more radicalized HMC workers, the mission was equally clear: defend your friends. “They thought the HHI strike was fair and reasonable and blocked the road while the police were moving there,” said Chang Seok Gyo, the professional labor activist newly released from three months in jail. Chang talked to me in the Labor Union Association’s office, tucked above a billiard hall on the main street of restaurants and bars, barber shops and billiard parlors catering to HMC workers strolling by in their sky-blue work uniforms, across from the facility producing Sonata V8s for the American market. The mood in the labor office was bitter, outraged, tense — partly because the union president, Lee Sang Bong, was also a leader of this very association.

There was a feeling of betrayal, embarrassment, and a resolve to disavow the agreement that Lee had signed after a month of street-fighting, arrests, and police intimidation of union leaders and their families. Radical HMC workers stood “right in front of the gate and for two more kilometers,” said Chang. “They blocked the road from 5 a.m. to 6 p.m.” There was no way for police to get around them. The road ran along a peninsula bounded by the open sea, Mipo Bay and the mouth of the Taehwa River, deep enough for ships to dock right at HMC and pick up cars for export without delays caused by awkward rail and truck shipments. The police had to crash through — or admit defeat at the hands of both HHI and HMC workers and face a tidal wave of equal or worse challenges around the country.

The radicals were soon joined by thousands of other HMC workers. As was typical in such melees in Korea, the demonstrators tossed rocks and firebombs. Not quite so typically, they also torched several police cars and a fire engine while rows of policemen wearing helmets, gas masks and padded uniforms charged the mob behind cannonades of peppery teargas. About 10,000 policemen got through — some of them had actually sped on by before the demonstration began — while another 10,000 were temporarily cut off. As the hot afternoon wore on, riot leaders realized they could not hold the line much longer and began falling back. Teargas filled the air again the next day as radical workers rallied again and again.

Authorities, denouncing the strike as “illegal,” seized upon the rioting outside the wall to put down dissent within. “Only a small number of workers were blocking the road at first,” said Roh Sang Soo, a young assembly line worker, going home one day in June. “Then the police threw teargas into the compound while we were working. We could not work. They did so to scatter the people who were staging a sit-in inside the building. I was on the Excel line at the time. I smelled the teargas. I came out of the plant and joined the demonstration. It was very violent. They even sprayed teargas from a helicop-ter.” Those who came to work the next day again got teargassed. “We couldn’t work because of the gas,” said assembly line worker Lee Sang Hui. “If one person cannot work, the whole line stops. I just joined the demonstration and sang songs and clapped. There were crowds on the street at either end of the compound, and about 200 police were caught in the middle.”

At the height of the fracas about 10,000 demonstrators were on the street. There was little blood shed — and no thought on either side of killing or maiming. “We only threw stones and pebbles,” said Park Sang Minh, another assembly line worker. The rocks were easily deflected by the shields and helmets of the policemen. Through it all, Park remembered seeing circling helicopters dropping leaflets imploring the workers to stop. The leaflets had no impact, but the authorities still had the power. The radicals could battle on sporadically for only another week after surging policemen had reopened the road. Still, the strike itself did not end until the union president, Lee Sang Bong, disgraced himself, in the eyes of the workers, by signing the new contract on May 27, 1990, a month after the radicals had first hit the street in defense of the strikers at HHI. “We suspect there was some kind of scheme between Lee and the company,” said worker Roh Sang Soo. “We suspect the company controls him.”

For all the heroics of the HMC workers, those at HHI saw themselves as the real pioneers at the forefront of the labor struggle in Korea, and their battles with the police tended to be more bitter, longer, more likely to resume than those in any other company, including HMC. Thus HHI bore the brunt of the assault — even though HMC workers took their licks while blockading the road. The fear was the stand of the HHI workers might inspire thousands of other dissatisfied laborers throughout the country. “When HHI begins its strike, seven Hyundai group companies joined the strike at the same time,” said Park Chong Hee, manager of the Ulsan Social Action Committee. “Before the HHI strike, our labor movement was very silent for a while, but when the strike began 170 labor organizations said they would begin striking.”

All told, several hundred thousand workers pledged to support the movement — potentially the largest since the series of strikes that had preceded Park Chung Hee’s assassination in October 1979. No Korean in authority could forget that the KCIA chief, Kim Jae Kyu, before drawing his pistol, had shouted that Park was ignoring the realities surrounding the walkouts. Park’s assassination had precipitated more disturbances before his successor, General Chun, cracked down with repressive measures. Against those memories, Korean leaders faced renewed unrest in Ulsan with a single resolve. “Never again,” summed up the deepest feelings of a power elite facing another challenge to established order.

Thousands of police again poured into the HHI compound, driving out about 2,000 union zealots barricading the gates. Among the first tasks of the policemen was to round up the trouble-makers, the ringleaders — and to seize caches of Molotov cocktails piled up within a few hundred feet of the main gate on the central road leading to the drydocks. For days afterward the charred skeleton of a van lay in front of the compound headquarters building, but most of the workers shrank from pitched battle when confronted by the overwhelm-ing strength of tight-knit lines of police. The police, flailing away with bamboo sticks and iron pipes, picked up scores of “suspects,” punching and beating them as they hauled them into vans and dumped them in hotel and motel rooms — even a gymnasium — for sorting out and questioning.

The fury of the police was all-encompassing. Bystanders, family members, watching from the Ten Thousand Apartments complex across the street from the long wall surrounding the HHI compound, were also punched and kicked if they got too close to the action or had the nerve to taunt nearby cops. There was no doubting the sympathies of the crowd. “Citizens gave workers rice and drink,” said Park at the Social Action Committee. “Citizens and workers from other cities were invited to stay in homes. Even middle school students helped the workers, throwing stones and rocks. Women broke brick blocks to give to the laborers to throw at the police.” By the time the scuffling was through a week later, at least 40 HHI workers were under arrest and another 50 in hiding — besides 25 arrested before the strike including the HHI union leader.

The police cleaned out most of the compound — but not all. About 100 of the workers, seeing the cops crashing through the front gate, retreated to one of the Goliath cranes over a drydock containing the shell of a ship under construction. As the police approached, they dashed up the 82-meter-high crane, capable of lifting 450 tons, and began a hunger strike that lasted eight days. “We knew the police would raid,” said Kim Mun Bae, who stayed on the crane with 51 diehards for another week after the hunger strike. “The distance from the front gate to the rallying site was short. The crane was the last place we could go. We showed all the workers in Korea we were doing our best.”

The crane sit-in symbolized the unequal contest between labor and authority. The police, fearful of a bloody incident, refrained from chasing the workers up the crane, 140 meters across but only a dozen meters wide at the top. Instead, they surrounded the base while the crane-sitters worked out a plan for taking turns sleeping. They existed on one large bottle of water a day — sent up by the company — and some food they had had the foresight to bring up before the hunger strike. The families of many of them carried still more food to the outer gate, but Hyundai authorities refused to let them in or accept food packages to send up with the water bottles.

“The most difficult thing on the crane was not the food shortage but the cut-off of information from outside,” said Kim, who ordinarily worked in the HHI paint shop. “Our small pocket radio batteries went dead in a week, and the company jammed our three walkie-talkies. The company closed the compound to all workers. We were too far from the gate to hear them outside. We were isolated.” Then there was the sanitation problem. “There was a toilet on top of the crane,” said Kim, “but the company cut off electricity so we couldn’t use it.” The solution was vinyl bags, which the demonstrators gleefully heaved into the water far below them to the disgust of hapless Hyundai authorities and police.

Isolation and loneliness on high, in fact, were slightly less than total. Three or four times, the police permitted reporters to go up the crane for interviews. Each time, the reporters donated camera batteries to keep the workers’ radios going for a few more precious hours. During the night, said Kim, “we just flashed lights to show we were all right.” By the time the holdouts had clambered down, 14 days after the ascent, Kim had lost 51 pounds. It took him four days to recover, but he believed the ordeal had accomplished something: “It was worth it to show all the workers in Korea our resistance.”

HHI management, predictably, saw the strike — and its eventual defeat — from quite a different perspective. “The issue itself was not so serious,” said an HHI executive vice president, Lee Jung Nam, chatting with a visitor over coffee in his office inside the HHI compound. Strike organizers had placed top priority on asking HHI to drop a suit charging union hotheads with having “disturbed company operations by sabotage” — that is, by agitating and stirring up workers for the next round of contract negotiations. “That was the main issue. They threatened to strike if we do not accommodate their request. Then they did an illegal strike. They blockaded the gate, so the police came in and pushed them out.”

Lee spoke angrily of the need for management finally to teach these union rabble-rousers to obey the law that required a cooling-off period before they could legally call a strike or walkout. “The company throughout this period has taken a firm position,” he said, talking in an urbane tone reflecting his background as an engineering graduate of Seoul National University. “Management thought this was the right time for labor to learn a lesson. They think a violation of law is nothing. They should establish sound practice.” Lee clearly believed, moreover, that HHI and the authorities had carried the day. “Now we are back to normal. From now on the situation will be much better.”

Bitterness gnawed deeply into the fabric of the management-labor relationship. Both the president and the deputy president of the HHI union were among those under arrest, said Lee, “because they did this agitation and conducted illegal practices.” He liked to place the HHI stand in the context of the law, paralleling criminal and civil procedures. Theirs “is a criminal case,” he explained patiently. “Our suing is a part of it but not the main reason they were arrested.” As for the civil case, “we did not withdraw the suit in order to show them the company is going to sue them” if union members misbehaved again. A suit, Lee elaborated on the rationale, “is nothing more than reporting how their action harmed the company’s operation.”

In the HHI union office, in the center of the compound midway between the front gate and the drydocks, the new acting union president, Suh Yung Taek, vowed “to recover the aftermath of the struggle for the workers” — beginning with a petition to the company and the government for freedom for those still in jail. “I hope to get them out as soon as possible. We will do our best according to the law. If the company does not follow the law, we will not either.” While the company formally “recognizes the labor union,” he said, “they are very reluctant to follow our demands” and “would not agree even when we ask a small thing.” But what was it, exactly, that the workers wanted — beyond release of those held by the police or serving jail sentences? What constituted basic demands — and what were “small things”?

The familiar complaints of long hours and low wages still ranked at the top. “Though the company says they pay high wages,” said Suh, “eight hours a day is not enough to make a living.” Workers averaged 10 hours a day, six days a week, in pursuit of the equivalent of $1,000 a month plus a six-month bonus. “Sometimes we have to work on Sundays. The regulation says we work until 3 p.m. on Saturday, but we usually work until 5 p.m. that day.” The company’s calculation, not unexpectedly, was different. According to HHI, workers averaged 1.6 to 1.8 hours of overtime every day.

Then there were the other issues. “Welfare here is much better than at small and medium-size companies,” Suh conceded, “but there is a lot to be changed.” Among immediate complaints: “The quality and quantity of the shower rooms is low. The lunch is not very good; they must serve better-quality food.” Another issue was housing. “The company is planning to build houses for workers by 1992, but at the moment, 7,000 married workers do not have houses” and had to live alone. Suh was “not sure if the company is paying lip service about housing or means it.” HHI said the company meant what it said—that it already provided transportation and clothing as well as free lunches.

Suh also complained of minor irritants that the company perpetrated to upset union leaders. At the top of the list: the number of people whom HHI would keep on the payroll while working full-time for the union. At present, 38 union members were assigned to the union office “and do not have to work on the job,” he said, “but 17 of them are here for only three months and have to go back to the company for permission to extend.” The company refused requests for longer-term if not semi-permanent status in the union office, he charged, in an effort to “create conflict between the company and the union.” The root problem was the government-chaebol relationship: “The company and the government are closely connected.”

Otherwise, Suh asked, how could both company and police be serious about the charges they brought against one of the union leaders arrested before the strike? “He was charged with ‘third-person interference’ and ‘hindrance of work.’ I understand he hindered some work, but as the worker is in the same company, ‘third-person interference’ is too much.” Suh denied, moreover, that the strikers had been truly violent. “The workers did not attack the police, and the police just wished to scatter the people. Rocks and Molotov cocktails were thrown only for the protection of themselves, the workers.” Suh’s indignation mounted as he talked. “When the workers have a rally, if they help organize it, the company calls it ‘hindrance of work.’ The prosecutor is always on the company’s side. That’s an unchanging truth.”

Suh saw the government and the prosecutors in a kind of conspiracy “to keep the regime safe.” The prosecutor “reflects the government, and Hyundai is very close to the government,” he said. “The company must stay close to the government to survive.” HHI bosses saw matters differently. Some even suspected officials had held back on ordering the police to attack in order to embarrass Hyundai and win the workers’ support. “They are in the upper salary bracket for ordinary workers,” said one manager. “There is not much to complain about. That is why they strike on the issue of withdrawing this suit.” Crane-sitter Kim “knew it was an illegal strike” since “we did not have a cooling-off period,” but union leader Suh denied even that much lawlessness.

In June the level of anger and fear was still running so high that the protocol department at Hyundai Motor, normally eager to show off the plant to foreigners, closed off most of the grounds and turned aside requests to take journalists on tours. “Our chairman told us not to show the guests our factory,” said a protocol official when reached by telephone. Would he like to hear the reason for the request for a tour? “No, I am not interested,” he said. Could he at least see me in his office? “No, I have no time.” Honorary Chairman Chung Ju Yung and Chairman Chung Se Yung were embarrassed. Nothing could have been so humiliating as an outburst on the premises before the eyes of foreign witnesses.

The success of the authorities, HMC, the National Security Planning Agency, the police, at wiping out union leadership either by arrests or by payoffs accounted for the strike’s failure. “Basically we were short of leaders, and it looked as if this agreement was the end of the strike,” said Chang Seok Gyo, “but the workers are still angry, and there are a lot of complaints.” What do they need? “The workers want a better living under safe conditions. They want to be treated as human beings. There is not much direct injury like cutting off fingers and things like that, but they have a lot of diseases due to working conditions, incurred from dust and oil spray.” And they wanted more than the 7.8% raise to which HMC had agreed after the union had asked 18%.

With workers still far from satisfied, the question was whether management and labor could ever reach a comfortable understanding. “Probably there will be another strike,” said Shin Chil Shik, an HMC assembly line worker, putting in 44 hours of regular time and up to 16 hours a week of overtime for less than $1,000 month in regular payments plus the customary six-month bonus. An overwhelming majority were disgusted with the terms. Shin adopted a relatively moderate stance when he said he was “not fully satisfied with the results” but had to “follow the president of the union since he controls all the workers.” Like most of the others, he accused the union president of having knuckled under by agreeing the workers would receive no pay while striking: “I don’t agree with ‘no work, no pay.’ Any solution must make all the workers happy.” By that criterion, a final solution, in June 1990, remained far out of reach.

XXII Showdown on Company Street

DOI: 10.4324/9781315483214-22

From the late eighties into the nineties, the battles between rioting workers and police not only dominated headlines in Korea but also slowed production. The Americans let go by Hyundai Motor America blamed strikes — both at Hyundai Motor and its subsidiaries — for having delayed or altogether stopped crucial deliveries of vehicles needed to stay competitive as car sales plummeted in 1988 and 1989.

“The labor situation was deadly,” said Greg Warner, the former HMA executive who was most outspoken in his criticism. The strikes against Hyundai Motor Company were devastating in part because they penetrated so deeply into the fabric of the company. Americans could not understand how this society that seemed so disciplined could foster such open revolt against authority that seemed so solidly entrenched. “It wasn’t just the hourly workers who struck,” said Warner, “but the development people, the engineers went on strike too.” For all the stand-offs between management and labor in the United States, “You don’t have that problem in Detroit.” Overall, Warner estimated “they were losing 10% of their labor a year for four years — and they haven’t met the objectives, the deadlines or the quality.”

Ulsan reporter Park Yung Ju believed “the atmosphere influences the workers to violence — there are so many workers, mass psychology incites people.” He predicted the strikes eventually would wear Hyundai down and force real changes. “If the strikes go on too long, Hyundai loses a lot. That is why they have to be violent. Even if the situation is quiet now, it’s not the end of the strike. The workers are young and sensitive to violence” — that is, when inflicted on them by the police. Official toughness would always give workers another reason for defiance.

The clash in attitudes had long been evident inside and outside the tall fence that surrounded Hyundai Motor, but the government for most of the company’s history could suppress signs of labor dissidence. The great turning point came on June 29, 1987, when Roh Tae Woo pressured his stubborn ally, President Chun, into agreeing to step down at the end of his term in 1988 while accepting the principles of democratic elections and free speech. “Since the declaration of democracy,” said Foreman Lee Chun Woo, in charge of 28 men on one of the assembly lines, “we can talk freely.” More to the point, from the workers’ vantage, they had the right to strike — provided they gave due notice, went through a cooling-off period and observed other formalities.

The catalyst that drove the Chun Doo Hwan regime to yield to Roh’s advice was the spectacle of more than a million demonstrators gathering daily in sometimes violent struggle on the enormous square facing City Hall in the center of Seoul. In making concessions, under immediate physical pressure, government leaders belatedly recognized a tough reality: workers were lagging so far behind owners and managers in pay and benefits that the Korean miracle could turn into a nightmare of civil war. The result might be the overthrow of the political/military complex in place ever since the young general, Park Chung Hee, had seized power on May 16, 1961. There was a certain parallel: demonstrations staged by hundreds of thousands of idealistic young students had brought down the regime of Rhee Syngman in April 1960.

Roh-style democracy was only a concession to pressure, not a commitment to change, but Hyundai felt the impact. One difference between the era of Roh and that of his predecessors was that previously an organization as mighty as Hyundai could suppress bad publicity — and probably prosecution too. The censors who had monitored every newsroom in the eras of Park Chung Hee and Chun Doo Hwan simply excised whatever did not appear fit to print. No suggestion of defiance of official policy had been acceptable. Another difference was that, under previous regimes, a worker could not have dreamed of founding a union — or trying to turn an existing company union into a mechanism for change.

As Korean industry exploded, however, no one was sure how much the new policy differed from the old. A highly circumscribed freedom to speak out did not mean the view of the government or the chaebol was really different. “The Chun regime and the Roh regime are both the same in nature,” said a young organizer from Seoul National University who had come to Ulsan to aid the workers’ struggle. “There was no democratic workers’ union in the Chun regime, but now the government was more cunning in its use of power. They promote unions but arrest more union leaders. There were almost no arrests under Chun’s regime because there was no labor union or union movement. There were only occasional spontaneous small strikes — and no violent ones. The power of the workers and the people was very weak. It was nearly impossible to express workers’ power.”

The ambivalence in labor policy under Roh emerged again around the end of 1991 and the beginning of 1992 in one of the oddest standoffs ever between management and workers. After the violence of 1989 and 1990 at Hyundai Heavy Industries and Hyundai Motor Company, the conflict this time was slow in building — so slow that Chairman Chung Se Yung claimed in the fall of 1991 that “we are seeing steady signs of a turnaround.” In the case of HMC, “we’ve experienced production disruptions the past few years due to labor disputes, but this year we managed to avoid such a problem.”¹⁶ The trouble began in December with the HMC union protesting a management decision not to give an “extra” year-end bonus of one and a half month’s salary — in addition to the six months’ bonus that HMC workers received automatically.

16 Chung Se Yung, “The Prospect and Task of Korean Automobile Industry,” p. 5.

The HMC position was that profits were down so sharply the company could not afford yet another bonus. HMC had given the year-end bonus as a present, a pat on the shoulder, at the end of extremely profitable years — such as 1990 — but did not view it as obligatory. Workers disagreed. “The basic reason for having this problem continuously is the management does not want to accept the union,” said Park Sang Chul, fired from his job in the assembly line office at HMC nearly two years ago and now education manager for the HMC union. “The company does not run the company democratically. There is not mutual trust. The company keeps breaking promises.” Park stoutly defended the loyalty of workers. “The last time there was a heavy rainfall, some cars were in the water,” he said. “Union members rushed out and moved the cars to a safe place. The company praised us and promised us a bonus for Chusok,” in the fall when Koreans honor their ancestors at family gatherings after the harvest. “They said they would give us the bonus at the end of the year.”

Park was talking to me under extraordinary circumstances. It was January 18, 1992, six weeks since the company had refused the bonus. Park was in a management meeting room in the headquarters of the compound. Workers wearing headbands emblazoned with “keep-up-the-struggle” slogans wandered around the room hefting iron pipes and bamboo poles. The workers had taken over the entire HMC plant. Executives and managers had disappeared. There were no policemen on the street outside the compound wall, though thousands were posted on all roads leading to the compound, checking papers, making sure “outsiders” did not join the workers inside.

Upwards of a thousand workers were massed on the grassy square between the headquarters and the assembly lines. Hoods covered their faces. Fires, most of them fueled by tires, flickered and flared on the grass, adding a touch of menace. The workers listened to speeches, chanted slogans and sang. “Fight for democracy,” “Fight for our union workers,” ran some of the songs, in rough translation. Still more workers, also hooded and armed with pipes and poles, guarded the entrance to the compound, looking over credentials and identification cards of would-be visitors — as had HMC guards before the seizure of the plant.

Park was at first reluctant to issue me the same type of press pass that he had given to Korean reporters, happily sipping coffee and using HMC telephones, all with his “permission.” The reason, he told me, was that many of the workers were “anti-American” as a result of U.S. pressure on Korea to open up to American imports. “Some of them might attack you,” he said before relenting when I told him I had interviewed HMC executives and wanted the workers’ view. He was then anxious to convince me the workers were “responsible,” were not “destructive,” were, in fact, “protecting” the compound for the day when they could come to terms with their managers and resume working together. “We are not going to explode a bomb any place,” he said. “Why should we? This is our working place.”

Scenes inside the compound left a different impression. Wrecked cars were scattered around the parking lot in front of HMC headquarters. Inside the building, on the second and third floors, workers had hammered away at a dozen or so computers, scattering shards of glass from screens across desks and office floors. A few telephones had been yanked out, some of the furniture destroyed. Basically, though, Park was right. Managers’ offices remained clean and neat. Most of the computers had not been touched. The door to a central computer room was still locked. Filing cabinets were closed. Obviously a few hotheads had done the damage right after the workers had seized the compound a couple of days earlier, on January 16, after the company had retaliated for slowdowns by shutting down the plant and locking them out.

Park was angry about reports that the workers had bombed valuable property: “The bombing report is all nonsense. It will never happen.” To disprove the claim, which he attributed to management agents, workers led reporters through a darkened assembly plant, past lines with half-made cars suspended motionless on high, to prove management was “lying” when it accused them of deliberately destroying property and sabotaging production.

The recriminations and accusations flew back and forth between the union leaders inside the HMC compound and the managers on the outside. The latter were now grouped a couple of miles down the road in the new headquarters building of Hyundai Motor Service, a separate entity responsible for sales, upkeep and repair of those millions of Hyundais now on South Korean roads. Reporters moved with impunity from the HMC compound to the Motor Service building, where smiling Hyundai public relations people served them with more paper cups of coffee, handouts and briefings. Hourly, more busloads of policemen, truncheons and helmets at the ready, took positions around the compound. There were reports of plans for an assault across the docks where ships loaded on cars for export. Helicopters buzzed overhead — one or two from the police, another from Hyundai. The main street of the town was deserted, shops closed except for a few little restaurants serving the press.

“Most of the workers do not want to strike,” said a manager who did not want his name used. “If they strike, nobody benefits. There is no pay, no work. Machinery and buildings can be destroyed.” He said the workers were slowing down production for a month before the company closed the plant at 5 p.m. on January 15. “Sometimes they produce no cars in a day,” he said. “The production rate is nearly zero.” Workers had mocked managers by telling them their goal was to produce “zero-defect cars so they must work slowly.” Still, the seizure of the plant the day after its closure had caught managers by surprise. Workers at dusk had overrun the gates, forcing the guards to leave and swarming over the walls. “Most workers want to work,” the manager insisted. “Next week work starts normally.”

The latest strike had resulted not only from Hyundai’s familiar difficulties in coming to terms with labor but also from the company’s rapid growth in the previous year or two. The company in 1990 had put two more cars into production — the sporty Scoupe and the mid-sized Elantra and, in 1991, had produced 767,656 vehicles aiming for annual production of a million. As the company built new plants and renovated old ones on the crowded compound, the number of workers nearly doubled from 21,000 in 1989 to 41,000 by 1992. “The new workers are young men with no family,” said one of Chung Se Yung’s assistants, talking to me anonymously. “They have no experience. That is a problem.”

HMC portrayed many of its new workers as unstable, without roots, difficult to control, but the workers also had a point when they accused Hyundai of simple greed. Despite the high cost of expansion and possibly insurmountable difficulties in the United States, Hyundai Motor’s profit of $45 million in 1990 had jumped by 55% in 1991 — still not enough, in the management view, to share more of the wealth with the workers. “We have to invest more in R&D,” pleaded S.Y.’s assistant. He wondered how HMC could rev up to its goal of 7,500 units a day while coping with such problems: “Some days we produce 2,500 units. It will take a long time.”

Some Korean observers were sympathetic. “How can Korean cars stay competitive?” one of the South Korean journalists asked me as we awaited the latest bulletins from the union in the HMC headquarters. Union leaders might have legitimate complaints and grievances, but the reality also was that wages in the same period had doubled. The average worker now received the equivalent of about $1,400 a month including the normal bonus — a statistic that far exceeded the national average and might jeopardize exports by forcing the company to raise the prices of its cars on overseas markets. The company in 1991 had shipped only 106,729 vehicles to the United States — and blamed the decline in the American market in part on worker inefficiency. Some flaws might reflect engineering and technical problems, but others occurred on the line — all the more reason, said management, that workers did not deserve the “reward” of an “extra” bonus.

Hyundai managers zealously ground out mimeographed summaries of losses resulting from the impasse since workers started slowing down on December 2. The first column showed a “production loss” of 57,869 units, the second an “export loss” of 20,000 in December and 23,000 predicted for January. Another page in the handout cited “effects of a long strike on the national economy.” The release mingled practical impact with appeals to national pride. Point one: “Our vendors will go into bankruptcy.” Point two: “Hyundai Motor is the key industrial company in Korea so the national economy is in the balance.” Point three: “Hyundai Motor does not belong to a person but to the Korean people.” Point four: “The Korean people’s company is struggling as a result of the strike.” And, lastly, point five: “The Korean auto industry will go backward due to the strike.”

The broader implications of a prolonged strike were worrisome indeed. A strike at Hyundai Motor shut down not only the motor company but 456 parts suppliers and 1,500 subcontractors with about 150,000 people on their payrolls. Such major companies as Pohang Iron and Steel and Dongbu Steel had to delay shipment of steel and zinc while Hyundai Electronics lost a market for products it had trouble selling outside the group. Failing to make shipments to overseas buyers, Hyundai feared long-term losses as customers turned to rivals. Government officials were in firm agreement with Hyundai managers on the need to crack down hard—before small companies went into bankruptcy and the entire country writhed under the impact. Vowed Labor Minister Choi Byung Yul: “We will be strict with regard to the law.”¹⁷

17 The Korea Herald, January 17, 1992.

There was also the fear, if the strike did not end quickly, that it would spread to Hyundai Heavy Industries, suddenly a model of decorum amid booming ship sales and unprecedented overtime. “I am concerned but not worried,” said sixth son Chung Mong Joon, lunching with aides. An “adviser” to HHI since resigning as chairman in early 1989 to focus full-time on politics, Mong Joon saw “no problems” inside the HHI compound from his vantage point in the coffee shop of the Diamond Hotel across from the main gate. That afternoon, as more and more policemen set up positions on nearby roads, Mong Joon played basketball with HHI workers at a welfare center built with Hyundai money. While Mong Joon affected aloofness from the storm, the leader of his political organization, Park Byung Ki, once a managing director at HHI, offered a conventional view: “Underground politicians are responsible for labor problems.”

By the morning of January 21, as workers clung tenuously to the HMC compound, a violent police assault appeared increasingly likely. Lee Hun Gun, union president, walked into HMC headquarters looking glum but stubborn. “There is little possibility of a dramatic solution,” he informed me. “The company side just wanted this union to yield.” Lee, hired to work in the repair shop five years earlier after three years with Daewoo Motor, appealed to reason. “We are trying to solve this problem very peacefully. At today’s meeting with management, there was a big chance. We intended to yield a big step, but the company wants complete surrender.” He did not reveal the “big step” — there was now no doubt the company would settle for nothing less than withdrawal of all the workers who had “stolen” their property. There would be no compromise.

“A police attack is expected at 5 a.m.,” said Park Sang Chul, the union education manager, talking to reporters in the evening. “We tried to get some negotiations, but the company does not try to get in touch with the union so there is no way until now.” He looked saddened as he said “the union tries to do its best to avoid confrontation with the police but the company does not try negotiation so there is no way to avoid it.” For dramatic effect, he introduced a woman who screamed and gesticulated about the working conditions her son had to endure. Then he emptied an envelope of documents purporting to show the company was spying on the union and blacklisting members. “The police will attack these peaceful premises tomorrow morning,” he said, winding up defiantly, “No matter how much force they bring, the labor union will fight.”

Down the street at Hyundai Motor Service, reporters crowded the pressroom. There was a tingling edge of excitement. Everyone was prepared to stay up all night, to watch the assault. No one wanted to be in the compound with the workers when the police dropped all those canisters of teargas and came storming over the fence, banging every head in sight, but no one was about to miss the moment as seen from outside. By 10 p.m., reporters were on deadline for morning editions, telephoning updates, quotes, color, for stories written earlier. Then a journalist came in from a sortie up the street. “No one can see any more workers at the gates,” he said. “It looks as though they’ve all gone.” Gradually a realization dawned: the workers, after their final show of bravado, had chosen to disappear rather than get their skulls cracked, their bodies pummeled and dragged into vans and thrown into jail cells in a losing, dying struggle.

I hailed a taxi and returned to the compound. Nobody, either management or union, was guarding the gate. Rather, police in long silent rows filled the parking lot in front of the smashed cars. Hyundai executives slowly filtered back, greeting one another in the dark with tight little smiles, talking occasionally to reporters, inspecting the damage. The pipes and poles of the workers were strewn by the gates. Slogans were painted on both the inside and outside walls. The police looked tense but did not put on their helmets and masks. Black teargas trucks were parked outside, no longer needed. No one had the faintest idea where the workers had gone. Some had noticed that the numbers inside the compound had been thinning steadily for the last day or so. Clearly there had been a plan to vacate the premises secretly, gradually, before the riot police, about 15,000 strong by this time, moved in.

The next morning, January 22, Hyundai managers returned to the offices where union members had held forth the day before. Chairman Chung Se Yung, not quite his gregarious self, strode by me on the way to the executive suite through which I had strolled several times while the workers were in charge. His main office was at Hyundai headquarters in Seoul, but there was no mistaking which was his down here — the one with the private, carpeted toilet. He looked grim when I congratulated him on his return. “It’s not congratulations, it’s a mess-up,” he said. What would happen next? “Only a fortune-teller knows,” he responded. Although 88% of the union members had voted to strike, Chung said “only a small minority are for the strike.” Any other comments? He just wanted to say, “Very sorry to the people and authorities.” With that, he went into emergency session with key staffers.

Hyundai public relations people were in the ground-floor room where union leaders had staged press conferences the day before. On January 23, after all the slogans had been painted over, a “final report” was posted: “Cars for sale, destroyed: 1,758, including 120 for export; cars for company business, destroyed: 34; cassettes, accessories, bolts and nuts destroyed: 750 million won [$ 1 million at 750 won to one dollar]; total damage to facilities, cars accessories: 4.3 billion won [$5.7 million]; damage in terms of loss of sales and manufacturing: 310 billion won [$414 million]; overall loss to supply companies and Hyundai: 1,000 billion won [$1.33 billion].”

A public relations manager handed me a mimeographed statement, in Korean, entitled, “Hyundai Motor Company, Present Situation.” The statement listed the order of business for the week. First day: simply, “Clean Company” and “Damage Search.” Second day: “Leader of small parts manufacturing line, briefing,” and “squad leaders, welding, cutting, briefing, persuading” and “damaged facilities, repair for manufacturing.” By day three post-strike: “Company expects 15,000 workers will report” with “persuasion activity for normal manufacturing at the top of the schedule.” Day four, the last on the list before resumption of normal, full-scale production: “small meetings to agree unanimously for normalization, grasping the atmosphere for normalization, why the company closed on January 15 as a legitimate mechanism.”

The memo mingled new-found enlightenment and old-fashioned toughness. On the one hand, management had clearly opted for an educational approach with the promise of forgiveness for those who had fully comprehended the company’s objectives and the sins of those who had led them down the wrong path. On the other hand, there was always the prospect of stern retribution for the ringleaders, along with any others who might be so foolish as to follow them. It was clearly with that implied threat in mind that the memo closed with “problems which are considered by the company.” First among them: “Important workers who lead the union should be captured by police as soon as possible” and “unity will become bigger and bigger.” As “the union’s powers outside the factory get weaker and weaker,” the memo concluded, “the situation will be better for the company.”

Several blocks from Hyundai Heavy Industries, in the neighborhood of the Ten Thousand Apartments, at the office of the Hyundai Group Federation of Trade Unions, puzzled labor representatives had no idea what had happened or why the strike had ended as it did. As best they could tell, the union had decided on a tactical retreat. “We got out of the place,” said Han Chung Hwa, an office employee who said “we” to identify with HMC union leaders even though he had never worked for HMC, was not a member of its union and had not visited the plant during the strike. “It doesn’t mean we stopped fighting. We got out to fight outside. There’s no plan to go back to work. Who knows when? The company ordered the stoppage. The union leaders are in hiding, nobody knows where.”

The police had searched the office and asked “many questions on the strike spreading” to other Hyundai companies, said Han, “but they didn’t find anything, and they did nothing.” One of the workers offered to drive me over to the nearby office of dismissed Hyundai workers. Nobody there understood what had happened either. They doubted, though, if the trouble was over. “For the moment, the workers will not strike,” said one, but “there will be more strikes.” It was a safe prediction. If the union had lost, it had conceded nothing. If the managers had won, they had done so through physical power, not negotiations. The anger smoldered, building for the next cycle of confrontation and eruption.

For now, though, the mood was one of waiting. Kim Keun Tae, a founder of the National Democratic Alliance, tortured with electrical prods in 1985, jailed for three years, then arrested again in 1990 and jailed for two more years for his role in demonstrations in Seoul, believed “the labor movement overestimated its power” in strident shows of force in Ulsan. “We made a serious mistake by making too much of a demand,” he told me after he got out in August 1992. “Labor lost the support of the people.” Workers themselves were uncertain. “The labor union character has changed,” said Lee Suu Won at the Hyundai Group Federation of Trade Unions. “Many don’t like violence. Too many were 2arrested and dismissed. They are afraid of management. Many don’t want to strike.”

Kim, who had served part of his sentence with three jailed union activists, including one from HMC, believed Hyundai has “a sophisticated method of infiltrating the labor movement and dividing up the labor force” while using “very skillful methods to discredit labor.” Lee Bu Young, the radical jailed after haranguing HHI workers in 1989, was subdued as he welcomed Kim’s return at a reception at the Seoul YWCA. “Labor camps are facing difficult circumstances,” said Assemblyman Lee. “The labor movement is quite changed. We have to admit changing circumstances.” More than that, “Labor is afraid of being put out of business,” said Kim. “Labor and management find common cause to protect the company from government efforts to wipe it out” — a dividend of Chung’s challenge. At the same time, “the relationship between Hyundai and labor is not settled — an atmosphere of mutual distrust” lingered on in conflict between workers and owners in “Hyundai City.”

Labor unrest in Ulsan was by now an annual event, much like student rioting in Seoul. The inauguration of Kim Young Sam, one-time foe of establishment rule, as president in early 1993 did nothing to placate Hyundai workers. The Hyundai Group Federation of Trade Unions spearheaded the movement, uniting workers from all Hyundai factories in Ulsan more successfully than ever before. The walkouts of the summer of 1993 were sporadic, fitful, sometimes intense, other times uncoordinated but potentially more dangerous than any of the other blow-ups. Korea by this time was hit by the recession afflicting its two greatest trading partners, Japan and the United States, and could ill afford a prolonged strike that could devastate the economy.

The Hyundai Group Federation of Trade Unions’ demand for pay rises between 14.5% and 20.3% was far higher than the 4.7% proposed by Hyundai. The government, moreover, seemed to be on the side of the group despite Kim Young Sam’s insistence on going after Chung Ju Yung and his confederates for their election campaign insults and transgressions. The fear was most acute at HMC, which epitomized the nation’s worldwide visibility as an exporter of manufactured goods. A strike at HMC, if it went on and on, could have an incalculable ripple effect. HMC’s production in mid-1993 accounted for 48% of Korean car output — and closure of the plant would force 2,600 suppliers and contractors to slow down or suspend production. A Ministry of Energy and Resources official on June 17 summarized the implications: “Hyundai Motor’s strike, if any, will give a red light to our auto exports which are booming these days. It will further do harm to the overall industries as the giant company has a broad range of influence on other fields.”

Two days later, on June 19, Kim Young Sam put out a statement intended as a carefully balanced effort at holding both sides responsible. The government “will take appropriate steps in due course,” he said over breakfast at the Blue House for leaders of companies awarded such personal attention for having formed “exemplary relationships” with their workers. He would “neither come down on the side of either nor wink at any law-breaking acts on either side.” Kim also attempted to be fair in judging where to place the blame, doling out disgust in equal doses. “Despite higher pay for Hyundai workers than their counterparts elsewhere, labor disputes take place there annually,” he noted. Still, he wondered “if there is a lack of a humanistic attitude on the side of Hyundai management toward workers.”¹⁸

18 The Korea Times, June 19, 1993.

Such words were certainly more diplomatic than some of the harsh edicts issued by Kim’s military predecessors, but the effect was much the same. A Blue House staff member hinted later that dissident forces were spurring on union members and warned that “police officers will be sent in to break unlawful strikes.” Kim tilted on the side of management against workers when he said the latter “have to realize that if they go to the extremes of selfishness, they will damage not only their firms but also the national economy, eventually doing harm to their own interests.” He worried “if Hyundai workers are deep in egocentrism” — by Korean standards a liberal attempt at understanding that Park or Chun would never have evinced before ordering out the troops.¹⁹

19 Ibid.

The strike was perplexing in part because of its episodic nature. At HMC, workers in June put in only three hours a day. Workers at Hyundai Electrical Engineering, in a show of solidarity with management, agreed to delay a strike while the International Standardization Organization carried out a regularly scheduled inspection. Workers at Hyundai Precision staged a three-week walkout, then suddenly returned in late June with a plan to sit down for one hour a day so management would “not get the wrong impression that they have given in to their ways.”²⁰ As walkouts simmered on, leaders of the unions of HMC, HHI, Precision, Pipe and Wood decided to go back to work for just a day as a gesture to elicit sincerity from the managers. Workers at Korea Flange, run by Chung Ju Yung’s brother-in-law, Kim Yong Ju, not part of the group though it used the Hyundai symbol, declared a “Family Day” as the reason for a one-day walkout.

20 The Korea Times, June 27, 1993.

Then, on July 5, unions at HMC, Electrical Engineering and Construction Equipment called for a general strike as the government was about to unveil a “five-year economic package” to rescue the country from economic doldrums. The economic impact of the strike worried everyone from local residents, dependent on Hyundai’s welfare, to bureaucrats in Seoul. One day in July about 20,000 citizens rallied to protest the strike. “The disputes are placing an extremely heavy financial burden on ventures,” observed Oh Hae Yong, president of Ulsan’s Small Industries Association, as he led 10,000 members in urging Hyundai workers and managers to bury their differences. In Seoul, after HMC workers took a three-hour break and workers at HHI sat down for two hours, a labor official estimated the friction in Ulsan had cost the country $200 million in exports in June. Slowdowns in the first month had cost the group $464.3 million in sales and $126.3 million in exports. HMC estimated $364.88 million in lost domestic sales plus $91.5 million in exports. Suppliers had lost another $202.5 million.²¹

21 Reuters, Seoul, July 8, 1993.

By the third week of July, amid worsening numbers, the government was losing patience. With the usual 10,000 riot police standing by, Labor Minister Rhee In Je flew to Ulsan, warning of “intervention” after meeting with union leaders as well as Chung Se Yung, whom he suggested make “sacrifices” too. More to the point, he set a 48-hour back-to-work deadline and, on the morning of July 20, invoked the rarely used Labor Dispute Adjustment Law to intervene in disputes at HMC. “Labor and management should closely and sincerely follow the guideline,” he said, calling drastic measures inevitable. Under the emergency law, union workers had to suspend walkouts for 20 days amid attempts at mediation. “Union workers of Hyundai Motor must return to the production floor and engage in normal manufacturing operations,” said Rhee, estimating production losses by that time at 230 billion won, somewhat more than $2.9 billion, and losses from exports at $284 million.²²

22 The Korea Times, July 21, 1993.

The next day was one of high drama at two sites. First, riot police stormed one of the Hyundai Precision factories — not the one next door to HMC in Ulsan but in Changwon, west of Pusan, where Precision made railway cars, among other things. About 1,000 police troops streamed into the compound shortly after 9 a.m., quickly obliterating a sit-in by 400 workers who had spent the last three nights there after more than a month of stoppages. (They did not, however, nab the five leaders of the Precision union, who had escaped two nights earlier.) The police raid threatened to turn nasty when about 200 workers locked themselves behind the plant’s steel doors, but the last of them surrendered two hours later. The biggest news of the day, however, was that labor and management negotiators actually reached some semblance of compromise in all-night talks in Ulsan, meaning the government would not have to use force to back up its declaration of emergency.

Negotiators “took a break near midnight,” said one report, “then met again at 4:10 a.m. when the compromise was sealed, virtually ending 36 days of dispute.” HMC workers, already earning the equivalent of about $1,500 a month, got a 4.73% increase in wages, bonuses of 650% of monthly pay (up from 600%) a housing fund and a guaranteed one-week vacation beginning July 31.²³ The troubles, though, were far from over. For one thing, The workers approved the deal by the slimmest of margins, less than 1%. A bare 14,175 of 28,300 union members at HMC supported the compromise, giving a 24-vote edge after 377 ballots were invalidated. Workers who voted for the compromise expressed the same sentiments they had voiced at the end of earlier strikes. They didn’t like the deal, they told reporters, but they had no choice. It was either give in or face the troops — and lose more wages.

23 The Korea Times, July 22, 1993.

The mood was worse down the road. Union leaders at seven other companies, including HHI and Precision, promptly ordered strikes, which they said would last anywhere from a day to as long as needed to compel management to yield. Enthusiasm for striking, though, was fading. After HMC resumed operations, workers at Pipe returned on July 24, at Precision and Korea Flange on July 28, at Mipo Dockyard on July 30. By then workers at only four companies were still out. Managers at HHI threatened to lock the doors of the entire compound after a month of slowdowns and sitdowns and strikes — and votes by 65% of 1,800 members of the Hyundai Electrical Engineering union and 64% of the Hyundai Construction Equipment union not to accept “final” offers. Fearful of provoking another pitched battle for the compound, however, HHI dropped the lockout plan on a hot Saturday at the beginning of August while HHI workers decided to go on leave, as it were, for another five days.²⁴

24 Reuters, Seoul, August 1, 1993.

The decision to avoid a quasi-armed confrontation was a wise one. In the days after the workers returned from their “unauthorized” summer vacation, the will for defiance flickered even within the boiling HHI compound. One by one the unions at the holdout companies — over the demands of the all-or-nothing hotheads and ideologues — agreed to go back to work. First Construction Equipment on August 7, then Electrical Engineering on August 12 and, finally, Wood on August 18 and the big one, HHI, on August 19, went back on line. “If the economy is engulfed in labor problems again this year, it will be felt in disappointing condition for several years,” a senior economic official warned while the workers were walking out in June. No sooner were they back in the plant full-time than HMC was at full throttle, setting the pace for the group, determined to meet goals.

The strike season of ′93 was history. The implications, however, were ominous in a society that could not shake off a legacy of confrontation — North and South, government and business, radicals and conservatives, management and labor seemed at perpetual odds with no solutions really in sight. By mid-1994, HHI was in turmoil again. Disciplined workers, shaking their fists before cheerleaders swathed in slogans, shouted their demands at rallies in the soccer stadium inside the HHI compound. This strike, beginning with a partial walkout on June 24, picked up momentum as the workers demanded the same number of seats as managers on personnel disciplinary boards—an area viewed by Hyundai bosses as sacrosanct. After Chung Se Yung ordered a worker lock-out and shut down the plant on July 20, thousands poured over the barricades, hundreds of them occupying an LNG carrier in the final stages of construction, camping out on the same Goliath crane they had seized four years earlier as well as a smaller crane looming over the compound wall.

One morning I waved my way past the guards at the gate, walked over to the rows of tents set up by strikers and hitched a ride to the pier where the LNG carrier, union banners draped over the rail, was moored. Several hundred strikers were sitting on the dock, listening to a pep talk by one of their leaders, shouting in unison as appropriate. That evening, at a rally in the stadium a striker wearing white shirt and tie portrayed a loud-talking executive in a battle with a hard-hat — a scene that ended as triumphant workers waved a flag disporting the letters “LNG” on a red field to the strains of revolutionary music. “What Hyundai makes is made under one of the worst working conditions in the world,” said Kim Myung Ho at the Hyundai Group Federation of Trade Unions.

The HHI union blamed overly zealous HHI bosses for the deaths on the job of eight workers in 1993 and eight more in the first half of 1994 — and accused “the Chung dynasty” of perpetuating its power by appointing unqualified cronies to top posts. “If there is no solution now, this strike will be repeated every year,” said Kim, a recent graduate of Hyundai-owned Ulsan University. “We want to end this kind of strike — this time forever.” The government promised to bring charges against some of the strike leaders, but HHI Union President Lee Kab Yong drew cheers when he announced at a rally that Labor Minister Nam Jae Hee had rejected HHFs plea for soldiers and police to raid the compound and end the strike — an indication of residual displeasure over the 1992 presidential campaign in which HHI had been the source of most of the funding for Chung Ju Yung.

Under strong government pressure to come to terms, S.Y. ended the lockout on August 18. The union, split between radicals advocating a tough stand and moderates who wanted to get back to their jobs, caved in six days later on the 61st day of the strike. The settlement was a compromise. The workers got a hefty 11.3% pay raise plus an increase in annual bonus from six and a half to seven months’ pay but had to settle for “no work, no pay” for the time they were out. In return, HHI agreed not to press criminal charges against 49 union leaders. The hard-liners were in a precarious position. Thousands quit the union rather than risk having to go along with another strike call; HHI estimated its lost sales at $600 million, including export losses of $319 million, and another $200 million in losses to subcontractors.

Clearly, the strife in Ulsan was a corollary of Korea’s much larger industrial revolution. It was a campaign in a broader war that Hyundai would go on waging with competitors, contractors, consumers, bureaucrats, engineers, researchers — and rank-and-file workers too. The labor struggle, while perhaps losing intensity as workers shared the spoils of the Korean industrial revolution, remained a work in progress whose ultimate outcome was far from clear.

Business and Politics Fighting the System

XXIII Chun vs. Chung

DOI: 10.4324/9781315483214-23

After Park’s assassination on October 26, 1979, Chung remained aloof from the struggle as Major General Chun Doo Hwan, in charge of the investigation, maneuvered for power. Chun opened his bid on December 12 with a wild shootout at his superior’s house, arresting the army chief of staff and 30 others on trumped-up charges of complicity in Park’s killing. Chun, defense security commander, was backed by 9th division troops led by 1955 Korea Military Academy classmate Major General Roh Tae Woo, who obliged by pulling his men from critical positions below the Demilitarized Zone. Come May 1980, students played into Chun’s hands, first rioting in Seoul, then holding Kwangju, loyal to the Cholla region’s firebrand son, Kim Dae Jung, until soldiers prevailed on May 27 after slaughtering hundreds of young people.

Intoxicated with the power of martial law, Chun pressed treason charges against Kim Dae Jung, placed Kim Young Sam under house arrest and staged a “purification campaign” against “corrupt” enemies. In August he completed his coup, forcing Choi Kyu Ha, the former prime minister and Park’s legal successor under the Yushin constitution, to quit on the 16th; then he had himself named president — first by the military chiefs, then by an electoral college, all sanctified by the constitution. Chun lacked the vision of Park, but he shared his sympathies and predilections. A strong central bureaucracy would reinforce the alliance with commerce and industry, intervening to eliminate wasteful competition and get rid of bad elements but dedicating itself to capitalist progress. Critics charged the generals were headstrong, cracking down too hard on “corruption” or acting too hastily to force inefficient companies or groups out of business.

Chung had to adjust to a regime that might tear apart the empire he had built so astutely under Park’s sympathetic eye. “He experienced some trouble in contacts with the power group of Chun Doo Hwan,” said Chang Seung Woo, then a young Blue House economist. “The major military power group believed that too much concentration of wealth was not desirable. They came directly from military camps to the government. Their way of thinking was that the chaebol accumulated wealth by irregularities” — by no means an unreasonable assumption. Chung got his first taste of the new outlook before Chun became president. The government, in mid-1980, while Chun and his clique were in charge in fact but not yet in law, gave Chung a choice of giving up the manufacture of either motor vehicles or power generators.

The logic of the new bunch was much the same as that of the old — it did not make sense for big groups to compete with one another on the same product. Since both Hyundai and Saehan (GM Korea’s name since 1976) were manufacturing motor vehicles, why not have one or the other of them make all the cars? The chaebol that gave up the motor vehicle business could have exclusive rights to power generators. Hyundai the year before had taken over Hyundai International, maker of the generators, from Chung’s errant brother, In Yung. Thus central planners believed that Hyundai would yield motor vehicle production to Saehan. The company was 50% owned by GM, still in charge of management, but Daewoo in 1978 had bought the rest from the Industrial Bank of Korea, which had acquired the Shinjin half two years earlier.

The episode was an instance of the incompetence of Chun Doo Hwan and his central planners guided by pet theories, egged on by military idealists. It was not likely that Park Chung Hee could have imagined that Chung Ju Yung would willingly abandon motor vehicles. For that matter, Park would have sensed that Hyundai was far better equipped than Saehan to make them. Hyundai had been in the business, one way or another, from its inception while Daewoo had bought into a failing company. Chairman Kim Woo Choong, after all, had built Daewoo by buying out other organizations. If the Chung brothers, Ju Yung and Se Yung, were not exactly “car guys,” they had come to know far more about them, from factory to show room to garage, than Kim would ever learn.

“It was a crazy policy,” said Lee Byung Kyu, Chung Ju Yung’s long-time chief secretary. Privately, Hyundai executives blamed Kim Woo Choong for influencing Chun’s economic advisers through a report prepared for the World Bank by a Korean professor in the United States. “That proposal went into the wastebasket at World Bank,” said Chung Mong Joon, “but Kim Woo Choong brought it to economists here.” If Kim had had his way, according to M.J., the government would also have forced the merger of shipyards and electrical companies with Daewoo’s faltering operations, enriching themselves while Hyundai lost not to market competition but to bureaucratic rule-makers.

As it was, to the consternation of both Daewoo and government bureaucrats, Chung Ju Yung opted to give up Hyundai International while clinging tenaciously to motor vehicles. After taking over the manufacture of generators, however, Daewoo encountered severe problems in keeping the arrangement. For one thing, Daewoo could not come up with funds to finish building the generator plant. Rather than drop more loans into a well dried up by Chung In Yung, the government took over the plant and ran it as Korea Heavy Industries — a money-losing headache that retained a monopoly in power generators in the face of Hyundai Heavy Industries’ repeated efforts to get into the field. As if that were not enough, GM did not go along with the sell-out, insisting on 50% partnership in a merged motor company. Hyundai refused to share control of an operation that it had built from nothing, putting the value of its stake in a combined venture at well above 50%.

As a gesture of compliance with the government order, Hyundai offered to buy out Daewoo’s half of Saehan. Under those terms, as S.Y. explained it to me, GM as owner of the other half would have had 23.4% of a merged company. Never close to terms with HMC, GM stuck with Daewoo for 12 more rocky years. Daewoo in 1983 assumed management of Saehan, renamed it Daewoo Motor and bought out GM in 1992 for $ 165.1 million. (DMC, in third place far behind Kia, promptly agreed with Honda to assemble Legends — Acura Legends in the United States — from 1994 in its plant in Pupyong near Inchon while Daewoo Shipbuilding had already begun making Tico mini-cars on license from Suzuki in 1991. DMC would assemble the LeMans “world car,” designed and produced by GM’s German Opel subsidiary as the Kadett, until 1995 in the Pupyong plant where it had produced the LeMans with GM since 1985. GM remained half-owner of Daewoo Automotive Components near Taegu.)

The Chun regime, again as part of its forced merger policy, was working on other measures to improve competitiveness and efficiency, all in accordance with the views of military and academic theorists rather than practitioners. A number of magazines, news agencies and papers, plus one TV network, were shut down — no need for so many voices repeating the same censored news and editorials. Turning to strictly business, the new measures required the chaebol to get rid of some of their fast-growing real estate holdings, unload companies deemed peripheral to their main industries and submit to audits.¹ Journalists would have to wait to recover a degree of independence, but for businessmen these rules were made to be broken. The question was not how to comply but how to get around them.

1 Lee Kyung Tae, “Policy Measures to Reduce Industrial Concentration and Economic Power,” Economic Development in the Republic of Korea: A Policy Perspective, Cho Lee Jay and Kim Yoon Hung, editors, 1991, pp. 496–497.

Chun, even after the Hyundai International fiasco, made the job somewhat more difficult than expected. One way his aides believed they could trim Chung — and the chaebol — down to size was to force Chung out of his influential post as chairman of the Federation of Korean Industries, sort of a club of owners. “The FKI was not run by government, it is private business,” said Lee Byung Kyu. “Chairman Chung tried to develop the economic system by the policy of free market competition, without monopoly. The government had different views.” The real issue was power. Chung, never known to encourage competition when it meant a challenge to Hyundai, could use the FKI as a base against government. First elected FKI chairman in 1977, he defied all pressure to quit through five two-year terms before relinquishing the post in 1987.

For Chung, the trick was how to win Chun’s favor — and stay as close to him as he had to Park. “He had a hard time in persuading the military group,” said Chang Seung Woo. “They thought for reform of the social and economic structure, the economic power of the conglomerates is too big and should be reformed for social equity.” Chung, however, had time on his side — that and the acquired taste among Chun and his allies for a share of the riches of their new business acquaintances. “As time passed, the will for reform gradually diminished,” said Chang. Chung may not have admired Chun as he did Park, but he did come to know how to deal with him. Chung’s approach was basic: return favors with favors. Chaebol bosses “have to contribute to survive in the long run,” said Chang. “They think that contribution is one of the tools to survive and prosper.” As they “succeeded in persuading Chun of their role, they regained a good relationship.”

There were many ways in which Chung could reward a politician, but the public could only speculate on how the chaebol bosses conducted their relations with top leaders. A former Hyundai public relations manager, Paek Si Jong, fueled speculation in a scandalous novel, Money Emperor. It told of a fabulously wealthy, self-made man who perpetuated “the myth of walking sideways,” a Korean expression for bribing and otherwise taking care of friends and contacts, written after Chung had forced Paek to resign. The novel described a fictitious chaebol chairman named Wang — the “money emperor” — as he “almost broke himself in half giving a 90-degree bow” to an army captain sent to his office in 1980 by the new president.

“For Wang, it was a time when the odds were against him,” said the novel in a vein reflecting Chung’s problems at the time. The army captain “had a message from the new men in power.” It was that “public opinion is not in favor” of Wang’s continuing his old ties with the government and he should “retire from all active roles” since he was “one of the primary causes of corruption and injustice in our society.” After three or four months of confrontation, however, the fictional chairman adopted anew technique: “He gave large sums of money to the new government and succeeded in buying their favor. It was all opportunity for Wang’s rebirth and greater leap forward.”²

2 Paek Si Jong, Money Emperor, 1989, in Korean; English-language excerpt, “A Wickedest Dirty Old Man,” The Korea Post, June 1989, p. 21.

The transition for Chung from one regime to the next might not have happened exactly that way, but the account reflected the spirit and style of change from Park to Chun. “Throughout the 1980s, the government maintained a position to decrease the influence or power of the conglomerates,” said Chang Seung Woo, who left the Blue House in 1981 to work for the Economic Planning Board. “That policy was not successful.” He saw the problem as one of outlook: “We did not emphasize the equality or moral aspects of economic development. The major emphasis was on efficiency. But with the emphasis on efficiency, efforts to decrease the economic power of conglomerates has its limit. The conglomerates have their advantages.”

In the swing to democracy in 1987, however, pressure mounted for a full-scale exposé of corruption in the Chun administration. “The suppressed demand of the people for more even income distribution and balanced growth expanded in the latter half of 1987,” Chang observed, after Roh Tae Woo’s democracy declaration of June 29. Roh, victorious in December 1987 in Korea’s first direct election of a president in 16 years, was now cast in the role of a reformer—if only to maintain his popularity and win support in a fractious, divided National Assembly. He managed to get past the 1988 Olympics, after which the world again forgot about Korea. Legislators then zeroed in on Chun in order to destroy him forever politically — and embarrass his military allies too.

Thus Chung was compelled to appear as a reluctant witness in November and December 1988 during nationally televised parliamentary hearings on his role as chairman of the Ilhae Foundation, established by Chun in 1983. Chung made clear beforehand that he believed the hearings were a political stunt staged by opposition politicians, but he could not ignore the summons to appear at the first spectacle of this sort in Korean history. Once on the stand, Chung put on public display the self-confidence that had enabled him to build the Hyundai group. Whether pointing an index finger or sitting with hands flat on the table before him, he talked firmly, in a low voice, sometimes sharply if interrupting questions he disliked, all the while sticking to his claim that businessmen had received nothing from Chun or his cronies in return for their donations.

Nonetheless, Chung provided a rare first-hand insight into how a rotten regime could and did extract money from the chaebol. Chun had set up Ilhae — a pen-name he derived from the Chinese characters for “sun” and “sea” — ostensibly to collect funds for the families of the 18 Korean officials killed by North Korean agents throwing bombs intended for Chun himself on his visit to Burma in October 1983. Whether he had ever imagined the foundation would serve such a purpose was not certain, but he clearly viewed it as a collection agency for bribes. Chung, on the stand, portrayed himself as an almost innocent dupe. Businessmen “in the first stage voluntarily, donated 10 billion won for the establishment of the foundation,” he said. “We agreed with the object of setting up the institute.”

In other words, nobody in the business community, made up largely of self-made men like himself who were famed for their parsimony, minded much when asked to turn over more than $15 million apiece. “I knew that the foundation was originally set up to provide financial assistance to the bereaved families of the people who died in the Rangoon bombing attack,” Chung went on. “So I thought that 10 billion won was enough for the establishment of Ilhae.” He admitted having given much more but made plain he had no choice. “We could not help donating additional money to prevent unfavorable treatment,” he explained, stopping a shade short of describing the extra gifts as forced payoffs. All told, Ilhae had amassed 60 billion won in “donations” — about $90 million.³

3 Yonhap, Seoul, November 10, 1988.

Chung claimed to have been acting as chairman of the Federation of Korean Industries in asking colleagues to contribute. “In raising the rest of the funds, I neither took the initiative nor lagged behind,” he said blandly. “The additional fund-raising thereafter was not in line with my thoughts.” Chung denied, moreover, having accepted a payment of 650 million won — a trifling $1 million or so — for the land on which the foundation was built. Rather, he said matter-of-factly, he wrote a receipt stating that he had received the money while refusing to accept it. He had an equally disingenuous explanation for why the land had been falsely registered in the names of seven local farmers. The reason, he responded, was that it was farmland.⁴

4 Yonhap, Seoul, December 14, 1988.

Chung deftly sidestepped more embarrassing questions as legislators tried to accumulate evidence that would bring Chun, his cronies and relatives to justice. One target of the wrath of opposition members was Chang Se Dong, the former chief of the presidential security force and one-time director of the National Security Planning Agency, formerly the Korean Central Intelligence Agency. Chang, as an army colonel, had participated in Chun’s mini-coup of December 1979 and was believed to have masterminded the payoffs. Assemblymen wanted to catch Chang in a contradiction, to show that he had perjured himself. Chung’s remarks contradicted Chang’s claim that Chung and other businessmen had given of their own free will — and that Chung had “voluntarily” turned valuable real estate over to the Ilhae Foundation.

The plot thickened with the testimony of a rival businessman, Yang Chung Mo, chairman of the Kukje group, the seventh-ranking chaebol until Chun broke it up by using the power of the government over financing to force it into bankruptcy. Yang charged at the hearing that the government had turned against him only after he had refused to “donate” as much as required to the Ilhae Foundation. Assembly members hoped to trip Chung up by asking why he had called a meeting of the Ilhae board to approve Yang’s resignation as an Ilhae board member. “I don’t remember any board meeting called to approve Yang’s resignation,” said Chung, otherwise known for an extraordinary memory for minute detail. Indeed, Chung added, it was only “recently” that he had conveniently discovered “that the seal used to approve the resignation was not mine.”⁵

5 Ibid.

Some of the opposition members claimed that Chung and Chang agreed beforehand on what they would say — that Chung would reveal enough to avoid getting into trouble but not enough to implicate Chang. Thus, when an assemblyman told him, “Chang Se Dong said that the donation was not forcefully pressed while Yang Chung Mo said that a compulsory donation might have existed,” Chung could reply with some impatience: “First I flew to pay. Second, I paid voluntarily and the third time I paid because I thought it would be a lot more convenient.” When the same assemblyman asked, “Who chose the standards of the donors,” Chung responded, with a show of frankness that nobody believed: “I did — I looked at the taxes paid by companies. I told the companies that were depressed or faced disaster it was all right even if they did not pay.” And when the assemblyman boldly remarked, “There isn’t a chaebol leader who paid with his own money,” Chung snapped, “The enterprise paid — we received receipts, and they got tax exemptions.” How, he asked rhetorically, “can any individual pay such money?”⁶

6 Shin Bong Seung, “King Chaebol Who Came to the Hearing — Chung Ju Yung,” Jik Jang In [Working Man], December 1988.

For Chung the Ilhae hearings turned into a great opportunity to show off his toughness and wit before a reluctantly admiring nation. The eyes of 60% of the South Korean people were glued to their TV screens, and Chung was the star attraction. He displayed his business common sense when he said he had no desire to become an owner of the Ilhae Foundation. He viewed the whole project as a “waste and extravagance” — proof of the frugality for which he was famed. As for Chun, whose favor he had courted, Chung let it be known he had no use for him either. “Directors appointed by former President Chun should leave,” he said. When asked for a retrospective view on Chun, he replied simply, “I have no interest, and I want to forget it.”

The mass TV audience was impressed. The image of Chung, in dark blue business suit with red tie, flashed on screens in bars and shops almost all day, even when he was not testifying, as the camera caught him waiting patiently in a hard-backed chair behind other witnesses. Sixth son Mong Joon, the assemblyman from Ulsan, sat quietly in the back of the hearing room, giving an appearance of loyalty without ever changing expression. As the hearing closed, Chung accepted congratulations of friends while his son accompanied him to a limousine waiting by the granite steps outside the landmark rotunda of the assembly hall — built largely by Hyundai Construction in the 1970s. “Some might think of Chung as a daring person or some might think of him as distasteful,” said an article entitled “King Chaebol Who Came to the Hearing” in a Seoul magazine, “but it seems sure that most of the middle class have a strange and weird interest in Chung.”⁷

7 Ibid.

Chung was back on the stand in the third week of January 1989 — this time under scrutiny not by querulous National Assembly members but by prosecutors conducting a month-long investigation with every intention of bringing charges against as many of Chun’s proteges as they could snare. The damning this time in his remarks about the type of pressure exerted on chaebol leaders. “At first I agreed with the purpose of the scholar foundation, so I willingly donated,” he said, repeating his remarks at the open assembly hearing. Then, with measured contrition, he added, “I came to know the donation would be burdensome, but I kept fund-raising in an effort to ease my way up in business.”⁸

8 The Korea Times, January 18, 1989.

Never before had Chung been so frank, open and cooperative. He was, at that time, on such good terms with the government of Roh Tae Woo that the prosecutors permitted him to testify a day ahead of schedule so he could leave on his precedent-setting trip to North Korea. There was no speculation that Chung himself faced arrest. Rather, the task force of the prosecutor-general’s office, formed the day before the big televised hearing in December, viewed him as a friendly witness, clearly on the side of the investigators. Nor was it hostile toward any other businessmen. In the five weeks of its investigation, the task force could claim to have put 10 people into jail. Among the victims: a former presidential chief secretary and two cabinet ministers. Now the prosecutor wanted Chang Se Dong — who was soon arrested and jailed.

Chun himself, as a result of his relationship with Roh, remained above the law. He and his wife, Lee Sun Ja, who once had her own shakedown operation, the Saesedae Foundation, could go to a Buddhist monastery and do a form of penance — a retreat with precedents going deep into Korean history — while uttering all manner of apologies. The prosecutors, unable to “get” Chun, had to content themselves with going after relatives of both him and the former first lady. A younger brother, Chun Kyung Hwan, once a professional bodyguard, symbolized the corruption of the era with his trial and conviction for embezzling funds from Saemaul Undong, the New Community Movement, a modernization program for the countryside subverted into yet another shakedown scheme.

Almost every close relative of the president seemed to have done wrong. Chun’s elder brother, two cousins, a nephew, a brother-in-law and a brother-in-law of his wife’s were on the arrest list. Chun fell into disgrace from the hubris that he might last in the Blue House for as long as Park. While Roh or Roh-backed politicians were in power, however, he was safe from investigators. Opposition politicians charged that Roh’s prosecutors only pursued the most flagrant abusers and bullies from the Chun era, but there was little they could do to bring about more arrests.

The critics might also view Chung as the personification of much that they abhorred — big capital in the pocket of big government. Or was it a case of big government in the pocket of big capital? Either way, on the stand, Chung accomplished something that he might not have anticipated: he gained national visibility, even respect. He was now a media star. His picture appeared on the covers of weekly magazines. He was a favorite on television interviews — when he consented to be interviewed — answering questions about the investigation, the economy, the political scene. Chung developed a reputation beyond that of “successful tycoon” — or even “unscrupulous operator” or “tough negotiator” or “tyrannical boss.”

Thus Chung’s persona emerged before a people often drawn, as the Japanese never were, by charismatic leaders, wise men and fortune-tellers. Suddenly, Chung was an icon, with instant recognition beyond merely the newspaper-reading, educated elite of the capital. People wanted to know still more about him, to grasp how one man could have amassed such wealth and power — to see what force enabled him to joust nimbly on the witness stand and, at the end of an hour’s questioning, step down clearly the winner of the match.

“Many people think Mr. Chung is a senior entrepreneur with a natural career,” said an analysis in Hankook Ilbo, a leading daily. “He’s looked on as clearly different, distinguished among others.” Whatever else might be said, “he exercised his influence and power without regret,” said the paper, describing him as Korea’s “economic president.”⁹ Another commentary summarized the popular mood. “People call Chung the great tree of the business world,” said a magazine whose title meant “Working Man.” “Abolishment of luxury, diligence and a farmer who liked to drink native rice wine” — such was the new image.¹⁰

9 Hankook Ilbo, April 25, 1989.

10 Shin Bong Seung, “King Chaebol Who Came to The Hearing — Chung Ju Yung.”

There were always nasty stories about Chung, rumors of his wild private life, of the manner in which he controlled his wealth. Chung had an earthy reply to such talk — one that showed he was a man of the people and also a man of wisdom, an inordinately rich celebrity who had not forgotten his peasant origins. It snowed a lot in his old village, he told those who dared ask him about some of the reports. “When it snows, it goes more than one and a half meters deep, and it is no use to use a broom when it snows. So you have to use the broom to sweep the snow after it stops.” It was, he said, “the same when media and people criticize.” There was no point in using the broom, in issuing blanket denials or comments. “This only causes a counter-effect,” he advised. “That’s why I’m being quiet. It’s not because I don’t have things to say.”¹¹

11 Ibid.

XXIV Sons and Brothers

DOI: 10.4324/9781315483214-24

Chung Ju Yung could not stay quiet for long. His impatience grew as ambitious bureaucrats began to look into the elaborate network of financial devices by which he held his group together. The hypocrisy of the democratic reform movement was not his style. He felt more at ease with the old arrangements, under which he had funneled money into the coffers of whoever was in power in return for the favors he wanted. If he could never respect Chun Doo Hwan as president, he viewed his successor with boundless contempt.

Chung Ju Yung soon lost patience. He believed the government was “stupid” to force Hyundai to sell off land set aside for office buildings, said aide Lee Byung Kyu, citing the real estate regulation as “an example of wrong government policy.” Chung also opposed the ban on credit for the chaebol but stopped protesting after discovering how Hyundai could get around it. Explained an S.G. Warburg analysis: “The [core-company] measure was announced as a means of encouraging chaebol to specialize in those businesses in which it was strongest and reduce inter-chaebol competition.” Instead, the chaebol “were able to ‘feed’ other, more cash-consuming parts of the groups’ business.”¹² Hyundai’s “core companies,” Motor, Electronics and Petrochemical, could suck up credit, then merrily ship funds elsewhere around the group.

12 S.G. Warburg Securities, “What Is a Chaebol?”

Chung found much else to criticize, castigating Roh in speech after speech for “misspending” and “waste” and “abuse.” He had had enough of generals and their policies and plans. If they believed they could run his business better than he, who was to say he could not run the country better than they? The issue, as it had been with Chun Doo Hwan, was, “who’s in charge?” Roh and his bureaucrats resented the ease with which they believed Chung had reaped his billions. They viewed his group as a threat to their authority. Chung now opposed the center that had once been his ally.

Chung believed he knew a thing or two about running the country, just as he had demonstrated his ability to run a company. Besides, Chung had to prepare for the future — for his sons, his family, his people, his name in history. If he appeared to operate on sheer guts and instinct, he had an underlying strategy that never got mentioned in speeches or interviews. It all revolved around the family structure — first his five brothers and sister, then his eight sons and daughter. As the eldest, Chung displayed a Confucian sense of family that went beyond mere nepotism. He saw it as a sacred duty to insure that brothers and sons assumed positions of top responsibility — as it was theirs to be loyal to him in return.

Lee Byung Kyu suggested the influences that impelled this man to bring wealth to all his blood relatives while requiring a loyalty and discipline that conjured images of the blood fealty demanded by a mafia godfather. (Weekly magazines in Japan, after Chung had retired from the group to go into politics, called him “Don Chung.”) “His father has four brothers,” Lee reminded me. “His father shared his fortune with his brothers even though it was small. Chairman Chung learned it.” Son Mong Joon repeated the credo: “Since my father’s father was the eldest, he had to split his property among his younger brothers.” In that tradition, the patriarch needed to make certain that his brothers — and his sons and their children — had a measure of his fortune.

There were problems. One was the instinct of siblings to compete with each other. A second was the overwhelming pressure for achievement. A third revolved around the question of ability. If Chung were strong, bright and quick enough to rise from day laborer to tycoon, did each member of his family possess the same potential? Not quite, Chung might agree, but every son, regardless of education or business success, had a place at the top. Owner, chairman, president — those were the titles that each of them knew would be his if he toed the old man’s line, did his homework and stayed out of trouble.

In such high expectations lay the seeds for disappointment. Not all could get along so perfectly with the father. Some, for all their wealth and privilege, would feel downtrodden, intimidated, probably frightened. Family members were so skilled at covering up internal affairs that no one outside the small inner circle could perceive all the traumas it experienced. Suffering was unavoidable. While much remains hidden, the death in Germany of fifth brother Chung Shin Yung was the first of three major tragedies to torment the family.

A law graduate of Seoul National University, Shin Yung was in some ways the family’s most unusual and gifted member. Spurning business, he became a reporter for Dong-A Ilbo, “East Asia Daily,” one of Korea’s leading newspapers, and then went on to Hamburg to study for his doctorate. He had completed his thesis on economic problems of developing countries and almost all his examinations when he was hospitalized with a severe stomach problem. Released from the hospital, he was rushed back again — too late to save him from death by a ruptured spleen. Chung’s response to the suffering of the widow, Chang Jung Ja, exemplified his family obligation. She had a son and a daughter; the son, Chung Mong Hyuck, fatherless, was accepted as a son by Chung Ju Yung.

Blood superseded any business considerations, promises or commitments. Anthony Groag of British Petroleum discovered the priorities in 1988 when he believed BP had a deal with Kukdong Oil, 49.9% owned by Hyundai on behalf of the widow Chang, “to build one of the most modern refineries in the world.” Besides being the widow of Chung’s brother, Chang was also the elder sister of Chang Ho Sun, principal owner of the other half of Kukdong Oil. The government had approved the papers for a new company, 60% Korean-owned, 40% in the hands of BP, to acquire Kukdong’s assets, said Groag, but “the new company was never formed, the physical assets never acquired for it to gestate and we withdrew in April 1988.” The reason for the failure: the “Hyundai half of Kukdong Oil, although not involved in management, vetoed the deal. Groag, after two years in Korea, was understanding: “Every company has their culture. We waited a long time.”

While Chung might not have wanted a daily say in Kukdong, he feared he would have no control over the company and the “integrated, upgraded refinery” that BP envisioned on Korea’s west coast. He would never accept a minority role in a venture in which his side, including the widow of a beloved brother, owned only 30%. Chung Se Yung, group chairman, put the Hyundai case in power terms. “We have a 50% share,” he explained to me. “Why should we become a minority company? Why should we give up our share?” He believed BP had treated Hyundai with contempt — a great mistake. “BP did not give us even the agreement papers,” said S.Y. “I thought it funny. Isn’t it nonsense? The way they behaved was disgusting.” Even as Hyundai was pulling out, Lee Heun Tae, leader of the group’s planning committee, was pressing for Hyundai to form its own petrochemical company — a project that might compensate for the memories he had left around Hyundai Electronics.

Five months later, in September 1988, H.T. Lee was named president of newly formed Hyundai Petrochemical with the mission to oversee construction of a petrochemical complex on the west coast beside the Kukdong complex at Taesan north of Sosan, site of Chung Ju Yung’s prized reclamation area. The cost by 1993 was nearly $2 billion — more than that of Hyundai Electronics. Hyundai also built a naphtha-cracking plant, and Kukdong built the hydro-cracking plant that BP had counted on. Shut out of everything, BP was not even called on for technical advice. “They’re using Japanese and other Western firms.” said Groag, but he might have felt requited by what happened next. The company was bankrupted by a fire in the cracking plant — and by 1993 had piled up debts of about $380 million.

State-run Korea Petrochemical Development Corporation, owner of 2.3% of equity, managed Kukdong after Chung forced brother-in-law Chang to resign in July 1991 in a drive for government approval to buy out much of the rest of the company.¹³ Chang, owner of 30.5% of equity, at first rejected a demand by Hyundai, with its 49.9%, for the right to three quarters of the board seats, insisting on representation in exact proportion to ownership. In mid-1993, however, Chang succumbed and sold most of his shares. Hyundai promptly pulled Kukdong into the group and renamed it “Hyundai Oil Refinery” despite the founder’s pledge to break up the group into mini-chaebol. Chung had won another battle — an intra-familial one that got little publicity but was as significant in its own way as some of his larger triumphs. One year later, as Hyundai Oil’s brand “Oilbank” replaced “Kukdong Oil” at gasoline stations, the company had begun a $1.25 billion expansion of its refinery at Taesan. Up-and-coming Hyundai Oil had no compunctions about outraging Yukong Oil, which had Korea’s largest refinery across the Taehwa River from Hyundai factories in Ulsan, by muscling into its business with sometimes violent face-offs between rival managers.

13 “Hyundai May Take Over Kukdong,” Business Korea, February 1993.

The bloodline, meanwhile, flowed on. Chung Mong Hyuck, son of Shin Yung and the widow Chang, was transferred from Kukdong Oil to a new post as senior vice president of Hyundai Petrochemical as it went into production in October 1991. In mid-1992 he went to Beijing in quest of a contract for importing naphtha for the cracking plant — a new frontier since Hyundai had been getting most of its naphtha from Saudi Arabia and Kuwait. The quid pro quo was that China might purchase naphtha products from Hyundai, helping it fulfill a requirement set by the Korean government for exporting 50% of its output. M.H., a 1989 UCLA graduate, was proving worthy of the care his uncle had lavished on him as the son of the brother who had shown such promise — and moved comfortably back to Hyundai Oil as senior vice president after the takeover. (In a payoff to Korean journalists, Chung also memorialized his deceased brother by setting up the Shin Yung Foundation to support journalists doing research abroad.)

The less gifted among the brothers were entitled to similar consideration. Chung Soon Yung, the only one among them after Ju Yung who had never made it to college, had gone to work for Ju Yung during the Korean War. He had become senior vice president of the construction company when he was rewarded with a company of his own — Hyundai Tiger Cement, which Ju Yung tore off from the construction company in 1969. Lee Byung Kyu explained Ju Yung’s generosity: Soon Yung “was not so much educated and not so physically talented, not so healthy. He suffers from heart disease.”

While Ju Yung felt a sentimental attachment to Hyundai Tiger Cement as his “first property,” said Lee, he believed “it would be stable, steady, unrisky” — just right, in short, for a slightly dull but otherwise obedient, hard-working, dedicated sibling. Tiger Cement, guaranteed to grow steadily on sales to Hyundai Construction alone, had already increased its capacity in 1968 and would do so again in 1974 — this time under Soon Yung’s supervision. So well did Cement perform over the years that Soon Yung in 1990 included it in a chaebol of his own, the Sungwoo Group, which also manufactured metal products.

The most difficult of brothers, In Yung, the second oldest, was equally entitled to fraternal assistance even though he had rebelled in 1976 after opposing the push into the Middle East. In Yung liked to appear capable of standing on his own, forming a mini-chaebol, Hyundai International, in 1962, the year of Shin Yung’s death. Hyundai International “has become the largest and most recognized manufacturer of a multitude of plant machinery and equipment in Korea and overseas countries as well,” In Yung boasted. “We are an ambitious, futuristic company, always searching for bigger and better ways of enhancing worldwide operations.”¹⁴

14 Chung In Yung, “To Our Valued Patrons and Associates,” Seoul, date unknown.

Chung Ju Yung no doubt gloated when In Yung failed, but family loyalty came first. Ju Yung was outraged when In Yung was held in prison for several days in 1980 as prosecutors, egged on by advisers of Chun Doo Hwan, investigated charges of currency violations — depositing Hyundai International assets overseas. Ever willing to forgive a rebellious sibling, Ju Yung encouraged I.Y.’s renaissance as chairman of the Halla Group, named for South Korea’s highest mountain on Cheju Island, even though I.Y deluded himself into believing that Halla could compete with Hyundai Construction. Without Hyundai Motor contracts for subsidiary Mando Machinery, Halla could not have survived.

If I.Y. were the obstreperous one, Se Yung remained the perfect younger brother. Born in 1928, 13 years after Ju Yung, S.Y. had always been a lot of things his eldest brother was not. He was genial, smiling even when angry. He did not fly into towering rages or otherwise overtly intimidate aides. He was also well educated. With his brothers scrapping for contracts during and after the Korean War, Se Yung studied at Korea University, on a prestige level with Yonsei, right after Seoul National University. For that he could thank Ju Yung, said to have cried when he was admitted. Ju Yung picked up the bills for the young man who, more than the others, respected his advice. So proud was big brother of S.Y. that he attended a mock parliament session in which S.Y, leader of the university’s political studies group, served as committee chairman.

At the same time, S.Y. showed his older brother that he could make it on his own. When Ju Yung assured him of the finances he needed for advanced study in the United States, he enrolled at Columbia for a semester on his way to a master’s degree. He had no source of money other than his brother, however, and grew restive when funds were late arriving. Unable to get a scholarship to go on at Columbia, he turned to a list of universities in the back of a Webster’s dictionary, wrote letters to some of them, won a grant from Miami University in Oxford, Ohio, and finished in 1957 with a master’s in political science. S.Y. joked to me about the advantage of the lesser institution: “Miami later gave me an honorary doctorate. Columbia would never have done that.” His independence also induced big brother to give him responsibility when he got back.

Chung’s passion for schooling for his brothers — and, later, for his sons and other family members — was part of his own as well as his country’s upwardly mobile drive. He might allude proudly to his own lack of more than a primary education, but, as fiercely as any of his countrymen, he was caught up in the mania for study, study and more study. Koreans knew from first-hand observation the educational levels of the Japanese and the Americans. They could see that all those college degrees bore some relationship to the military and economic strength of the two foreign countries that most impinged on their lives. They realized they needed basic skills, especially in economics and engineering, if they were to advance and compete internationally.

For men such as Chung, education also offered entree into a society that measured its citizens by a precise pecking order of the institutions from which they had graduated. Chung represented the new class of nouveaux riches construction people and merchants for whom education insured a cachet that money alone might not buy. The figures showed how much Koreans by 1960, when most of Chung’s offspring were in the throes of schooling, had invested in education. Illiteracy dropped from 78% in 1945 to 27.9% in 1960 — on its way to less than 1% by the 1990s. The number of students in institutions of higher learning, largely closed to Koreans under the Japanese, rose from 7,819 in 1945 to 101,045 in 1960. As important for industry, the numbers in vocational high schools climbed from 33,171 to 99,071 in the same period.¹⁵

15 Ministry of Education, Statistical Yearbook of Education.

No brother, however, could have been more important to Chung than his sons — especially the eldest, Mong Pil, born on December 29, 1936, only three weeks after the birth of Uncle Sang Yung, the sixth and last of the brothers. Together with Sang Yung, Mong Pil had attended Dongkuk University, a well-known Buddhist institution. There was no suggestion, however, of parallel careers despite an enduring close friendship between sixth brother and first son. Sang Yung went on to pick up a business degree from Korea University — enough for big brother to anoint him senior vice president of HMC in 1970 and, six years later, present him with Korea Chemical, pillar of a chaebol he could call his own.

Mong Pil, rightful heir to all the responsibilities and riches a proud father could offer, would not inherit a secondary cluster. He was to assume the mantle of group leader. His father had him serve an apprenticeship with a metals subsidiary and then show what he could do as president of Inchon Iron and Steel, a troubled entity taken over at President Park’s behest in mid-1978. The company had fallen into Hyundai’s hands as a compensation prize after the government refused Hyundai’s bid to build Korea’s second integrated steel mill. The bid instead had gone to POSCO, Pohang Iron and Steel, a government-invested showcase responsible for vaulting Korea into the steel age with its first integrated steel mill. Park had favored POSCO even though Hyundai had pulled out all stops, favoring “certain journalists and high-ranking government officials with choice apartments recently built by Hyundai.”¹⁶

16 Joseph J. Innace and Abby Dress, Igniting Steel: Korea’s POSCO Leads the Way, 1992, pp. 140–144.

Against this background, the privileges of the first-born came with a definite downside. To prove himself in the aftermath of the POSCO embarrassment, Mong Pil had to turn Inchon Iron and Steel, a much smaller operation, into a profitable competitor. “To have Inchon Iron and Steel is a first step to get into steel,” said Lee Byung Kyu, who had begun working for Chung Ju Yung around then. “At the time it was a small business. It was not a good business. They were losing money.” It was in a black mood of concern about the company’s problems that Mong Pil left Ulsan one night in April 1982 for the long drive back to Seoul.

The departure was hasty, the chauffeur drowsy. The car, a Ford Granada off the line in Ulsan, was hit by a truck near Taegu on the expressway completed by Hyundai twelve years earlier. Mong Pil died instantly together with the chauffeur — the worst tragedy to befall the man who was to title his autobiography Ordeals But No Failures. Chung was in Los Angeles, meeting with Hyundai associates on his way to Washington, D.C., where he was to receive an honorary doctorate from George Washington University. “I got the message from the office in LA,” said Lee Byung Kyu. “A telex was sent from the headquarters to me. I got the telex to Chairman Chung in the hotel. He said, ‘Is it real, is it true?’ I said, ‘Yes, it’s true.’”

The father’s expression remained impassive, but in his shock and grief he called the one who would understand, with whom he could share his deepest emotions and thoughts — not his wife, Byun Joong Suk, but brother Se Yung. “So he had a talk,” said Lee. With that, the bereaved father ordered the funeral and went on to a round of activities. “He did not tell anyone about his son’s death,” said Lee. “He did not want to let people know his son was dead.” With no thought of returning to comfort his wife, he went on to Washington and GW while staying in touch with the home office through his then-favorite lieutenant, M.B. Lee. “The show went on,” said Phillip Grub, GW business school professor who had known Chung for more than a decade. “I had a major reception for him at my home the afternoon he got the degree. He had a dinner and meeting with all the Korean students from the area.”

Yang Hoon, then in charge of Hyundai Electronics America, was standing next to Chung. “He never uttered a word about his son,” said Yang. “He never acknowledged it. The man tried to picture himself as a big man in the oriental tradition. I’m sure he was emotionally in pain, but he never showed any emotion.” Chung showed his emotions in deeds. In the fall of 1982 he donated $500,000 to GW and, a year later, gave another $750,000, pocket money for scholarships mainly for Koreans in the business school. He also sent his youngest son, Mong Il, and other deserving Koreans independently to GW and influenced eight of his nephews to go there. Back in Seoul, Mong Pil’s widow, Lee Yang Ja, and two daughters remained on the compound next to his. After yet another tragedy, the cancer death of the widow in 1990, the girls lived on in the same house. The sisters in 1992 both entered Ewha, Korea’s elite all-women’s university — the younger after scoring first on the entrance exam, the elder on returning from study in Paris.

The family tragedy, terrible though it had been, was not over with the passing of the first-born and his wife. The record, on the surface, indicated that Chung Mong Woo, the fourth son, was moving up his father’s ladder pretty much according to plan. His academic performance was undistinguished but all right — he had majored in economics at Chungang University, respectably second tier, and chosen a conventional career pattern, joining Hyundai Construction and moving on to Hankook Pavement, then a Hyundai subsidiary. By November 1987, he was deemed ready for responsibility — the old man made him chairman of Hyundai Aluminum, small by Hyundai standards but a chance to prove himself.

Mong Woo, however, had a background of mental illness. He had been in and out of hospitals since returning from a stay in the United States after college. He accepted the job but called his wife’s elder brother, Lee Chin Ho, who had a master’s degree in business from George Washington and was working for the FBI. A martial arts expert, Lee was a good enough shot to teach target practice to budding agents and picked up American citizenship while in charge of a unit dealing with Asian gangs. He had an enviable record that included two months under cover in San Francisco when Mong Woo got in touch, asking him to come over as president of Hyundai Aluminum. Mong Woo “was mentally unstable,” said eighth son Mong Il. “There was unconscious pressure” — perhaps more than unconscious considering the discipline imposed by the father.

Others close to the family said that Mong Woo “always believed he was inferior” — “never felt good enough” — also understandable considering the demand to measure up not only to father’s standards but also to the competition from two aggressive, favored older brothers and four more younger brothers who seemed destined for greater things. The coup de grâce came in August 1989 after his mental problems became too severe for him even to make a pretense of staying on the job. The old man dumped him from Hyundai Aluminum, naming the next born, Mong Hun, to the post on an interim basis. In retrospect, Mong Woo’s suicide by an overdose of pills in April 1990 culminated a long-established pattern.

Might Chung have actually been cruel to Mong Woo? Was he singled out as the loser, the runt of the litter who got smothered, psychologically and professionally, pushed aside by all the others at the trough? Whatever the answers, no one doubted that his father cared for him — and would go on providing for the widow and three bereaved sons as surely as he would his own. Father did not deviate, however, from a public appearance of total business-like toughness. There were no words of remorse, of sadness, of self-doubt or introspection. He might show fury, anger, frustration or irritation, but he was never known to display personal hurt or injury, either privately or in public.

Conversely, even when Chung displayed a sense of humor, it was only for mercantile or political advantage. Revelation of real feeling was a sign of weakness — proof of woman-like qualities in an irredeemably male-dominated society. Through any hardship, he manifested a stoicism typical of the man, of Hyundai — of Korea. At the same time, his cold public demeanor belied his wild private life, an extra-curricular existence as rich and improbable as his career in business and industry, as smoothly as it masked personal grief.

The worst-kept family secret in Seoul was that not all Chung’s eight sons and one daughter were from the same mother, Byun Joong Suk, the woman he had married 56 years earlier. Chung himself, after plunging into politics in 1992, was somewhat more frank than previously about his private life. He confessed to the press that last-born Mong Il, a senior vice president of KKBC International, the Korea Kuwait Banking Corporation, a fling in international investment with an infusion of Kuwaiti money, had a mother other than his wife. The record showed that Mong Il, born in March 1959, was 22 years and three months younger than first son Mong Pil, born in December 1936. Father’s response was calculated to cut off gossip on a topic that was obviously annoying him.

All the children were legally registered as the offspring of Chung and Byun Joong Suk, a formality in the Korean context. She was said to have run the home for the lot — though she was believed to be the natural mother of only the first three sons and one daughter. “Mother spent most of her time taking care of us,” said seventh son Mong Yun, insisting all the brothers except Mong Il were her natural children. The word around town, however, was that Chung had “accepted” the last five sons into the family after consultations with local geomancers and fortune-tellers as well as investigation into the family history of the mothers.

In every case, according to the gossip, the mother was paid a handsome sum, including bank account and luxury home, which would be hers for life provided she never reclaimed her child. It was all very much in a pattern under which women were “relegated again to the subjection that Confucius believed was their proper state,” as journalist Robert Elegant explained in a commentary not on Korea but on China, the wellspring of the tradition. “Social pressure kept families intact,” wrote Elegant. “A well-to-do husband would take a second wife as well as quasi-wives known as concubines. His pretext was often his first wife’s inability to bear a male heir or additional male children. But she remained his wife and all the children called her ‘mother.’ No matter how it hurt, wives would put up with other wives and with concubines rather than become unpersons through divorce.”¹⁷

17 Robert Elegant, Pacific Destiny: Inside Asia Today, 1991, p. 344.

Daughters, other than the one publicly acknowledged, were not so lucky as to become heiresses to the empire. Their mothers were paid off royally, to be sure, but they were never Chungs — and possibly never knew the identity of their illustrious father. Nor did all the mothers accept the loss of their children. At least two were said to have refused to give up their sons, fleeing into seclusion with the usual hush money. A singer and an actress were among those widely rumored to have had still more of Chung’s children — but they like the other mothers were never known or named publicly. Chung’s public relations men, his official biographies and autobiography said nothing beyond what he wanted the world to know—his tough upbringing, work habits, “can-do spirit,” glory on behalf of company and country.

Newspapers and magazines were equally unrevealing. They printed his refutations but were too awed and intimidated to probe into his life even after he had become a public figure. “I may not be as morally clean as a clergymen,” he said in response to the rumors, “but I have committed nothing abominable that will prompt people to reject me — I am confident I have nothing to be ashamed of.”¹⁸ It was a veiled way of claiming that he had assumed responsibility for his ex-mistresses, making sure they lived in comfort and kept their mouths shut. Family members and executives were equally secretive. All Mong Yun would say about his father’s love life was the old man saw Byun Joong Suk “two or three times a week” in Hyundai Chungang Hospital, Seoul’s best medical facility, financed by the Asan Foundation, dispenser of good works named for Chung’s native village. She had been there since before the assembly elections in March 1992, suffering from severe arthritis.

18 The Korea Herald, April 18, 1992.

To my astonishment, Mong Il, when I met him in his office a block or so away from his father’s political headquarters, professed not to have known another woman was his mother before the local papers quoted his father as saying so. “I heard he talked about my mother one day,” said tall, soft-spoken Mong Il, a Yonsei graduate who had earned a degree in business administration from George Washington four years after the university had awarded his father his honorary doctorate. “I got a little shock,” confessed Mong Il, who looked neither unhappy nor embarrassed and appeared to have recovered fully from the surprise. He insisted no one in the family — aside from his parents — imagined anyone other than the lady he called “awmonee” for “mother” was really mother.

“Did he say that?” Mong Yun later asked me with a grin, claiming Mong Il did know his real mother but rarely saw her. “No, no, nothing like that,” he responded to speculation that she was a movie star or TV actress. Mong Il for his part would not have dreamed of asking his father about this woman any more than he would have asked him why he was put to work in the bank instead of the robot factory in which he had expressed interest. It was not that he was really afraid to bring up an embarrassing subject. “It’s also individual,” he said. “If I get a hurt, my father also is hurt, so I don’t want to talk about it.”

The family dramas were likely to remain hidden — except when the veil was partially lifted in oblique references in local journals or in an occasional fictional account such as Money Emperor. The novel recounted an incident in which a newly hired public relations manager for the fictitious Hoso chaebol, presumably the author’s self-caricature, visited the home of the chaebol chieftain while working on his official biography. He was surprised to discover the great man’s wife wearing “a pair of the work pants worn by Korean women during the Japanese occupation and World War II, when they had a really difficult time,” using “worn-out utensils” and living in “a small kitchen maid’s room in the big house instead of the main room” — reserved for her husband, Chairman Wang.

Always eager to improve the chairman’s image, the PR man in the novel suggested the woman “get some publicity” as “a model of modesty” in traditional Korean style. He could not understand why his boss turned down the proposal until he “finally found out why Wang did not allow his wife to get publicity” — he was “deathly afraid his family background would be exposed to the public.” Wang “had nine sons who were entered in his family register as legitimate sons,” said the novel, but “only two of them came from Mme. Wang and seven were from different girls.”¹⁹ If the story were less than 100% accurate, several details rang true: Chung did have nine acknowledged children, his wife was rarely displayed in public, much less interviewed, she did wear simple clothing, and she had once been mistaken for the maid by a visiting Hyundai official.

19 Paek Si Jong, Money Emperor, 1989.

The old man’s experiences in and out of marriage might have impelled him to give his sons a freedom of choice that he had not had in selecting a mate. Since their marriages were not prearranged, however, he had to face the reality that his offspring did not have the same ties through marriage as the children of other powerful families. His isolation from the socially prominent, many of them descendants of the yangban class who looked back on their ancestry with pride regardless of an overlay of democratic values, might have deepened his outrage at bureaucratic attempts to harness him. In his fury against the system, Chung revealed the complexes of one who had never been accepted by society’s pillars. His wrath was part of a “me-against-them” complex — family loyalty, personal loyalty, discipline and fear were the foundations of the Chung organization. None was more important than the first.

Lee Myung Bak and Lee Heun Tae, for years the closest of Chung’s inner circle, came second, acting on behalf of the sons who would inherit the wealth, regardless of intellect or experience. To people like M.B. and H.T. fell the real work, the planning, the conceptualizing — and the infinitely thorny task of conveying the results to Chung. Sons and wives and grandchildren might mourn in their own ways the tragedies that befell the family — or rejoice secretly over the elimination of family rivals. M.B. Lee and others — neither family rivals nor mourners — were the ones who got the job done while protecting their boss and his heirs. “M.B. Lee would be always three steps ahead of the chairman,” observed Yang Hoon. “He thinks alike, anticipates in advance, looks always prepared, quickly adapts to a changing situation.”

Might M.B., then, have been a logical choice for chairman of the group, jumping ahead of the sons, or at least have been eligible for a piece of the action, equity in one or more companies? Whatever honors he might earn, the inheritance could never be his. Chung, refusing M.B.’s demand for a significant slice of Inchon Iron and Steel, waved off suggestions that M.B. might “expose” Hyundai’s dark secrets. When Chung formed his party in 1992, M.B. “retired” — and got elected to the National Assembly in March as a candidate of the ruling party that Chung was zealously seeking to dethrone. M.B. knew he could never pass the blood test of kinship with Chung. “Blood is thicker than professional managers,” he remarked, choosing his future with the ruling political establishment, not his maverick ex-boss.²⁰

20 “Blood Blocks Path of Professional Managers,” Business Times, March 1, 1992, p. 52.

Chung never flinched in his drive to establish his remaining sons in authority regardless of qualifications. The Korean and foreign press might speculate on who was the real heir to the group. Chung, as he stormed around the country campaigning for president, said that Hyundai would cease to exist as a chaebol, suggesting each son would take over a mini-chaebol, perhaps on the scale of those of his brothers: “I’m not concerned with the dissolution of the Hyundai group if this is what is needed to serve the interests of the national economy.” Chung Se Yung was the leader for the interregnum — a temporary chief who could not remain group chairman when time came to divide the spoils. With succession in mind big brother took pains to divine which son was best for which job — without giving any a voice or choice.

Mong Il smiled when asked what might happen if a son simply said, “no,” when told to go to such-and-such a company: “Nobody can say no to my father. No one dares to say no or disagree.” What if he or another brother were so frustrated with what he was doing that he was unable to contain his feelings? “Complaining means nothing. We have to do what is our duty.” Very occasionally, Mong Il, as the youngest son talking to a grandfatherly figure who had spent his greatest passion on the older brothers, would say, “I’m interested in that kind of business.” The old man responded to such rare remarks with paternal amusement. “He just laughs,” said Mong Il. “He says you are too young so keep to your company first.”

Nephew Chung Mong Hyuck, 31 in July 1992, youngest of the old man’s breakfast club, closest in age to Mong Il, agreed. “Nobody knows how he decides,” said Mong Hyuck, but he clearly venerated his surrogate father. “Mr. Chung loves his family very much. Also he loves his sons, even his nephews and his nieces. He never neglects them.” Mong Hyuck, like Mong Il, smiled when asked if he could request a field — or question why the old man wanted to send him to a certain company. “Nobody asks,” said Mong Hyuck, shaking his head. “He has his own idea. He knows.”

The death of eldest son Mong Pil in 1982 had added urgency to Chung’s lonely search for the right son for the right job. The local press loved to speculate on the succession, asking whether he would scrupulously follow the order of birth or dip down the line for younger blood. Mong Ku and Mong Kun, second and third sons after Mong Pil, both engineering graduates of Hanyang University, another second-tier institution, had begun their careers on similar tracks. They put in apprenticeships as executives with the Mother Company, Hyundai Construction, and were about even in 1974 when father tapped Mong Ku for the presidency of Hyundai Motor Service and Mong Kun for that of Keumkang Development.

Hyundai Motor Service turned into one of Hyundai’s most prosperous companies as the number of vehicles on Korean roads roared above 7 million in 1994, a quarter of them polluting and strangling Seoul alone, up from 647,000 in all Korea in 1982 and 1.3 million in 1987. The company picked up more speed than ever in 1989, becoming sole distributor of all Hyundai cars in Korea except for Seoul and the surrounding region.²¹ Keumkang vied for a different kind of prestige, establishing two of Seoul’s most fashionable department stores.

21 Korea Automobile Manufacturers Association.

The second Hyundai Department Store — after the long-established one in Ulsan — opened in December 1985 in Seoul’s trendiest young-fashion district, Apkujungdong. A neighborhood of smart boutiques and cafes, Apkujungdong achieved local immortality as the setting of a 1992 cinematic paean to gilded youth, When the Wind Blows, We Head for Apkujungdong. The other store opened in time for the 1988 Olympics among new office buildings and expensive apartments dominated by the Korea World Trade Center near the Olympic Stadium south of the Han River. Two other stores followed — one in a “leisure town” in Seoul’s upscale Kangnam district, the other in the Pupyong residential area near Inchon. Then, in 1992, Keumkang opened the five-star Hyundai Hotel in the ancient Shilla capital of Kyongju, north of Ulsan. (“Most of the guests,” a clerk told me, hand over her mouth, were Hyundai employees on 40% discounts. “Members of the royal family,” down to Chung’s grandchildren, got 50% discounts.)

If Mong Ku and Mong Kun’s companies more than symbolized modern Korea’s affluence, a couple of other brothers were also candidates for succession, at least to judge by their responsibilities. Fifth son Mong Hun got the nod for the presidency of Hyundai Electronics when it was registered in February 1983 — four months before he received his master’s degree in business from Fairleigh Dickinson University in New Jersey. His father was so pleased with him that he gave him his second top job five years later as Merchant Marine vice chairman under his father-in-law, Hyun Yung Won, a figurehead. Next year, the old man had Mong Hun take over from unhappy older brother Mong Woo at Hyundai Aluminum and, on January 1, 1992, named him chairman of Electronics.

Sixth son Mong Joon remained a dark horse, leaving the chairmanship of Hyundai Heavy Industries in February 1989 to pursue a higher calling as national assemblyman, right-hand man to his father in the 1992 presidential race — and, if he played his cards well, potential national leader. Had he not shown early promise by going through officers’ training at college and serving two years as an army lieutenant, his first job before the old man sent him to HHI? Father gave the impression that he was watching over M.J.’s climb to higher office. Chung’s dreams for his sons were difficult to fathom, but he believed Mong Joon was a little above the crass commercial world around him. Could it be that the chairmanship of a chaebol was not enough for the only son who had gone to some of the finest schools on both sides of the Pacific?

“I think my father expects me to stay in public service, whether it’s in politics or real public service,” said M.J., talking to me in the coffee shop of the National Assembly building about the push the old man had given him as the only son granted a career outside the group. M.J. placed his father’s “sacrifice” of a son in what he saw as an “oriental” context: “We are a large family. We have enough of the family in business. My father thinks highly of politics and public service. He thinks I am somebody who is fit for that. In order to have honor, it’s good to have someone in public service.” Not that Chung and Chung had heart-to-heart talks of the sort that a Joseph Kennedy might have had with his sons. “According to Korean or oriental philosophy, father does not counsel his sons,” M.J. went on. The father “simply tells him.”

Sons seven and eight, Mong Yun, born in 1955, and Mong Il, born in 1959, were too far down the line to predict their rise beyond their companies. Mong Yun, after a year in college in Seoul and service in the air force, had entered the University of Oregon at the urging of a friend and spent three and a half years there before returning home and marrying an Ewha graduate, Kim Hye Young, daughter of a businessman. Moving to San Francisco with his bride, he finished up in 1984 at San Francisco State, from which he received a master’s in business a year later. Father made him senior vice president of Hyundai Marine and Fire Insurance when he got back and promoted him to president in 1988. Mong Il followed the pattern, going to work for the Hyundai Corporation in 1990, moving over to KKBC International the same year as executive managing director and becoming senior vice president in 1991.

There was, said Mong Il, a certain logic behind his father’s choice of companies. “Japan and America are highly developed countries,” he explained, citing a conversation in which his father had discussed the rise of the two nations that had most influenced Hyundai and Korea. For Korea to reach their level, it had to enter the world of high finance. “In Korea the most successful businesses are labor-intensive,” said Mong Il. With the older brothers all in charge of industries dealing in visible products, father wanted the two youngest to go into companies dealing in money. “Now we have to work to become high class, international,” said Mong Il. “He says you have to contribute to financing” before expanding horizons.

Still, the division of power among sons, regardless of individual talents and achievements, showed there was nothing so sure as primogeniture. However qualified others might be, second son Mong Ku was most often mentioned as heir-apparent. Mong Ku avoided the press, but Chung Mong Joon, whose American education and political instincts made him the most accessible to foreigners, provided the simplest explanation for Mong Ku’s rise: “According to the Confucian philosophy, the eldest son is very important. He’s a kind of keeper of the family — the flag-carrier for the family.”

Filling the void left by Mong Pil’s death 10 years before, Mong Ku by 1992 had acquired five chairmanships besides Hyundai Motor Service — Hyundai Precision and Industry, Hyundai Pipe, Inchon Iron and Steel, Hyundai Housing and Industrial Development and Hyundai Construction Equipment Industrial. He was credited with having established Hyundai Pipe and Hyundai Precision — with his father’s blessing — and turning them into two of the group’s best companies. Mong Ku had long since outstripped third brother Mong Kun, seen as not so bright and suffering from unspecified health problems. His aggressiveness appealed to his father. It was at Mong Ku’s bidding that Hyundai Pipe, the country’s largest pipe manufacturer, was leading the push for a new steel mill — one of the founder’s unfulfilled dreams. As for Precision it was not only the world’s largest maker of cargo containers, manufacturing between 20% and 30% of the world’s supply, but also produced railroad trains, tanks and even a few helicopters, on license from Kawasaki Industries, at its plant in Changwon, west of Pusan near Masan.

Mong Ku made one of his most interesting power plays in 1991 with the introduction of the Galloper jeep, manufactured in Ulsan on license from Mitsubishi to the design of the Mitsubishi Pajero. In a typical group drive, HMC fabricated the 2.5-liter engines, transmission and body panels for its next-door neighbor — and designed a fuel-saving “T” model diesel independently from Mitsubishi for use in 80% of the Gallopers being produced by 1994. Mong Ku’s pervasive Hyundai Motor Service network sold 3,006 Gallopers in 1991, 24,264 in 1992 and 37,971 in 1993 while smashing competitors Rocsta, “rock star,” made by Kia’s Asia Motors, and Ssangyong’s Korando. He was talking to Mitsubishi about exporting the Galloper and building an 800 cc mini-car on license. He might want to build trucks and buses in competition with HMC, next door to Hyundai Precision’s Ulsan plant. (Not all Precision’s vehicular ventures were so successful. The company’s investment in the Kl tank, modeled on the vaunted American Ml, with General Dynamics Corporation was a disaster. Soldiers found the tank stalled as a result of an underpowered German transmission, and the Texas Instruments gunsights often had to go to the U.S. for repair.²²)

22 The Wall Street Journal, December 29, 1993.

By showing he knew about motor vehicles, Mong Ku might challenge Uncle Se Yung in his posts as group chairman and chairman of HMC. If he had designs over HMC, however, he would face a foe in Chung Se Yung’s beloved only son, Mong Kyu. Like his father a graduate of Korea University, Mong Kyu had studied for two years at Oxford, England, not to be confused with Oxford, Ohio, where S. Y. had done graduate work. While big brother was deciding which son got what, S.Y. started his own son as an assistant manager at HMC in 1988, promoted him to managing director in 1991 and anointed him executive senior vice president in January 1993. Mong Kyu, when he assumed total power over HMC, might return Mong Ku’s challenge by fortifying the company financially as the center of a mini-chaebol if the greater group finally broke up.

However much Mong Ku lusted after cars, he had much more to consider after Korea selected the Train a Grande Vitesse (TGV) to run between Seoul and Pusan. GEC Alsthom, the French manufacturer, announced on November 17, 1993, that Precision would be “the leading manufacturer of the TGV” inside Korea. After Precision and Daewoo Heavy Industries wound up with equal shares of production in a consortium that also included Hanjin Heavy Industries, they coordinated with the Korea High Speed Rail Construction Authority and other manufacturers on a plan to assemble and test the trains, all with GEC Alsthom technology. And that wasn’t all. The same month, Precision agreed with Russia’s Yakovlev Aircraft Corporation on a joint venture in which Precision would make 150-seat YAK42H and 30-seat YAK40H models, all with Russian technology. If Precision did not have the original ideas, in the Hyundai tradition, it would forge into new fields with foreign expertise and Mong Ku leading the way.²³

23 Hyundai Newsletter, January, 1994.

The build-up for Mong Ku was so adulatory as to reflect a campaign for his ascendancy. “Mong Ku is often called the chairman of the ‘mini-Hyundai’ group within the parent chaebol as the six affiliates he leads account for 20% of the giant chaebol’s total annual sales,” said one magazine in late 1991.²⁴ “Will he become head of the group?" asked another under the headline, “Prince of Hyundai Who Looks Exactly Like His Father.” Mong Ku’s “character and business style” were “exactly like his father,” the article raved, making much of their “special bond” while overlooking the perks of the eldest. “It’s because Chung Ju Yung really trusts him that among Chung’s children, he is the one who has made the fastest progress.” So “powerful” was Mong Ku that “people call him ‘M.K.’ and his followers ‘the M.K. group.’” Not that success would go to his head: “He is really modest. He doesn’t like anything luxurious. He keeps his office quite simple.”²⁵

24 “Chung Mong Koo — A Shy Bulldozer?” Business Times, December 1, 1991, pp. 28–29.

25 Yoo Ho Kil, “Prince of Hyundai Who Looks Exactly Like His Father,” Maekyung Kyungjae [Maekyung Business Week], April 15, 1992, pp. 32–35.

The last paragraph made a fulsome effort at putting down speculation on fraternal rivalry. “Many people are interested to know whether Mong Ku will become the real chairman of the group or will remain as the prince,” it began, posing the sensitive question, “How will he control the traffic between Chung Se Yung and the other children if the big group is divided into small groups or factions?” The article artfully denied rumors of feuds: “People say among the children there are a lot of fights, but that’s not true. They value kinship as important. That’s Chung’s philosophy of raising children so it’s just a rumor when they say there are lots of fights. Only those who do not know his philosophy say that.” Rivalry among cousins was not mentioned.

As if suppressing family jealousies were not tough enough, Chung faced other ticklish problems in dividing up the empire. In accordance with his custom of cutting corners, he had avoided the complexities of the tax law in apportioning the pieces of the pie. Such high-handed dispensation of shares provided ammunition for his enemies in the Blue House, plotting to torpedo his ambitions in revenge for his refusal to lower his profile in “retirement” and go along with their edicts. The unpaid tax totaled $181 million (at 752 won to one dollar) on stock transfers that the government charged Chung had made to sons and other relatives in order to divide the group among them before the day came when they would have to pay inheritance taxes.

The tax case was the last straw that drove Chung over the edge and into politics. Hyundai would pay the bill as Chung’s final gesture before “retirement” at the end of 1991, but it did so only after he had mounted a huge advertising campaign attacking the government. Hyundai promised to appeal — a gesture that would get it nowhere unless Chung could pledge to cooperate. The case hinted at the complexities of chaebol control, but it was only the beginning of the government’s bid to destroy Chung’s political career if not his business empire too. The more the bureaucrats delved into his manipulations, the more secrets the public learned. Revelations of transfers from Hyundai companies into campaign funds showed his power over a group over which he held sway long after his theoretical retirement.

The ruling elite might not have been that concerned about such financial manipulations had Chung paid the requisite obeisance. As long as he posed a political threat, however, there was nothing sacred, much less secret, about him. Chung believed the way to avenge this assault was to take over the government. He tore into Roh Tae Woo’s protégé, Kim Young Sam, so enthusiastically, denouncing him for ignorance of economic issues, that compromise was impossible. The generals had done it with guns; he turned to the best weapon in his arsenal: money. He counted on his sons and his executives to play martyr’s roles. Members of his family and group all served a purpose even if they had to go to jail for the cause, that of Chung Ju Yung.

XXV Facing the Law

DOI: 10.4324/9781315483214-25

The mandarins in the Blue House wanted to tear Chung apart — preferably without jeopardizing the economy by ruining Hyundai. The job was complicated, however, by the nature of ownership of Korean chaebol. There was no corporate owner of the conglomerate, as in the United States or Europe. Nor was there linkage beyond cross-ownership of stocks among family members and companies bound together in a single chaebol. In the case of Hyundai, there was only Chung and his relatives. In the absence of a central company, the Mother Company, Hyundai Engineering and Construction, as well as Hyundai Heavy Industries and Hyundai Motor, played roles unparalleled in the West. The authorities could break up Hyundai on paper, but they could not tear apart the blood ties that really held it together.

While the rules might inhibit crossholding by limiting one company’s equity in another, the tentacles of chaebol holdings spread everywhere — though legally the entities of a chaebol were “independent.” Such a structure brought Hyundai closer to the form of the Japanese keiretsu, “related lines,” than to any Western organization. “Separate” since the break-up of the zaibatsu during the U.S. occupation, the many different companies of each Japanese ex-zaibatsu owed allegiance to their group. A network of ties, financial, personal, spiritual, held a keiretsu together, but economist Michael Porter warned against overdoing comparisons: “It is important not to confuse the Korean chaebol with the Japanese keiretsu whose members have informal ties and partial interlocking ownership but are managed with great independence.”²⁶

26 Porter, The Competitive Advantage of Nations, p. 472.

Thus ownership of Hyundai was far more centralized and personal than that of any keiretsu — though how Chung doled out the shares was deliberately unclear. Only the companies that Chung listed on the Korea Stock Exchange needed to divulge owners publicly. There was no chance that an outsider could stage a takeover. Chung and his family controlled nearly two thirds of the shares. They owned outright “approximately 27.4% of the net assets” of the group, according to a study by the American accounting firm Ernst and Young, while “companies in which they own a controlling interest [had] an additional 40%.”²⁷ The study, supervised by Park Chong Sup, former chief executive officer of Hyundai Electronics America, revealed some but hardly all percentages of ownership of Chung, his sons and brother Se Yung, as disclosed by the Office of Bank Supervision in 1992 before Chung had unloaded still more shares for his political adventure:²⁸

27 Park Chong Sup, editor, Chaebol in Transition: The Hyundai Group, 1992, p. 37.

28 Ibid., Appendix 5, p. 201.

Chung Ju Yung: HHI, 53.7%; Hyundai Steel Tower, 45%; Hyundai Engineering, 21.8%; Hyundai Housing and Industrial Development, 5.6%; Hyundai Corporation, 10%; Hyundai Marine and Fire Insurance, 4.3%; Hyundai Engineering and Construction, 4.4%; Inchon Iron and Steel, 0.9%; Hyundai Electronics, 1.3%; HMC, 0.5%; Hyundai Precision, 0.2%; Hyundai Pipe, 0.2%; Hyundai Petrochemical, 9.4%.

Chung Mong Ku: Hyundai Pipe, 27.7%; Hyundai Housing and Industrial Development, 30.2%; Hyundai Precision, 14.4%; Hyundai Engineering, 21.3%; Hyundai Motor Service, 13.2%; HHI, 8.2%; Hyundai Electronics, 0.1%; Hyundai Petrochemical, 4.1%.

Chung Mong Kun: Keumkang Development, 24.9%; Hyundai Electronics, 30.2%; HHI, 0.3%; Hyundai Petrochemical, 2.8%.

Chung Mong Hun: Hyundai Electronics, 15%; HHI, 8.2%; Keumkang Development, 2%; Hyundai Wood, 1.3%; Hyundai Pipe, 0.5%; Housing and Industrial Development, 0.5%; Hyundai Petrochemical, 2.9.%

Chung Mong Joon: HHI, 12.56%.

Chung Mong Yun: Hyundai Marine and Fire Insurance, 25%; Hyundai Wood, 6.4%; Hyundai Electronics, 0.1%; Hyundai Petrochemical, 0.7%.

Chung Mong Il: Hyundai Petrochemical, 1.5%.

Chung Se Yung: Hyundai Motor, 3.7%; HHI, 0.7%; Hyundai Petrochemical, 0.2%.

Sometimes family members’ wealth was calculable in other ways. A Korea Stock Exchange report on the chairmen of the 30 top chaebol showed Chung Se Yung holding $47.6 million worth of shares in firms listed on the exchange while In Yung’s listed holdings were worth $43.4 million — small change but clues to aggregate wealth. In Yung and the two other brothers ranked among Korea’s wealthiest men as a result of their control over their own secondary chaebol. Soon Yung owned 29.7% of Hyundai Cement; Sang Yung “and others” 36.4% of Korea Chemical and 23.9% of Keumkang (not related to Mong Kun’s Keumkang Development); In Yung 38.6% of Halla Cement and 6% of Mando Machinery, 18.6% of it held by his unlisted Halla Engineering and Construction.²⁹

29 The Korea Herald, September 22, 1992; Korea Company Handbook: Investment Guide, Asia-Pacific Infoserve, Seoul, 1992. Conversions computed at 780 won to one dollar.

Actual ownership was obscured, however, by many devices. Chung Ju Yung exercised some of his control through his non-profit Asan Foundation, a tax dodge with hidden investments throughout the group. Then there was the puzzle of shares held by Hyundai companies — or under fictitious names by anyone. The Office of Bank Supervision recorded ownership of unlisted as well as listed companies, but the public had ready access only to those that were listed. The government no longer pressured companies to get listed, however, and talk of banning fictitious names was — just talk.³⁰ Not even the introduction of the “real-name system” in mid-1993 could expose the complexities of who owned how much of what. The reasons for such secrecy were clear. Owners did not want outsiders knowing where they spread their wealth — and also had to play off demands of competing heirs.

30 Former Exchange Chairman Shim Song Myun, responding to my questions at a Seoul Foreign Correspondents’ Club luncheon on April 6, 1989, could cite no cases in which penalties were invoked as provided by law.

All the Chung relatives, not just sons and daughters, brothers and sisters, but nieces and nephews, grandchildren and in-laws, were rivals for bites of the pie. How much any of them was fed, however, was never clear. Indeed, even where it was possible to determine which son owned what percentage of which company, total assets were not known. For one thing, the real value of shares in unlisted companies was a matter of conjecture. Tax records provided clues that were far from definitive.

Thus it was a fluke when fifth son Mong Hun showed up as the country’s second largest earner for 1991 (after construction magnate Mun Chung Yul) with an income of about $9.4 million. His income that year was a blip on the screen — the result of the tax evasion case involving Hyundai Merchant Marine that forced him and the company to pay millions of dollars in back taxes. Although the Ernst and Young study did not say so, Mong Hun owned about 23% of Merchant Marine — just a percent or so below his father’s share, as revealed through the company’s prolonged efforts at getting the Securities Supervisory Board to approve it for listing on the stock exchange in order to raise money for both father and fifth son.

Had it not been for the aberration of Mong Hun’s abnormally high bill for 1991, the top taxpayer from Hyundai would have been Mong Ku. As it was, he ranked just below M.H. as the country’s third biggest earner for 1991 with an income of about $6.6 million. Mong Kun was ninth with $4.6 million for 1991. Chung Ju Yung came in 14th in taxes on income equal to $3.4 million, but brother Sang Yung, 15th in taxes, was ahead in reported income equal to $3.7 million. Se Yung, 25th, made just under the equivalent of $3 million, In Yung, 45th, $2.2 million, and Soon Yung, 85th, $1.5 million. Others drifted on and off — Mong Yun, 41st in 1990, was not on the “Top 100” for 1991.³¹

31 “100 Highest Tax Payers, 1991,” Office of National Tax Administration, Seoul, October 17, 1992. Also The Korea Herald, October 1, 1992; The Korea Times, October 18, 1992, October 4, 1991. Figures were computed at 780 won to one dollar.

Reported income, however, was a fraction of real earnings, and such a list could only suggest who was ahead of whom in order of wealth. The details of Chung’s blueprint for his family were never hinted at, much less revealed, in all the speeches and publicity leaflets bearing his name and photograph. The risks of public wrath as well as intra-family warfare were too high. A former executive, Yang Hoon, back at his own company in New Jersey, reflected the rage of many as he considered Chung’s amassing of riches for his heirs. “You have to know the mentality of these people,” he said. “They are dogs, animals.”

Mong Yun wanted to be helpful when I called on him in a brand new office tower at the heart of a posh business district south of the Han River to which he had moved with Hyundai Marine and Fire Insurance in July 1992 after his father took over its downtown building as a political base. “My oldest brother, Mong Ku, has the most,” said Mong Yun, whose company was battling to move from third to second, behind Samsung, among Korea’s “Big Three” non-life insurance companies with 13.6% of the market. “My brothers own 10 out of 40 Hyundai companies” — with Mong Ku controlling “five or six.” Each brother held portions of equal significance in “his” company.

Records of listed companies provided more clues of how the money went around. HHI owned enormous portions, 49% and 42.5% respectively, of Hyundai Mipo Dockyard, Korea’s biggest ship repair company, and Inchon Iron and Steel, by now Korea’s biggest furnace steel maker and producer of 80% of the H-beams for domestic construction. HHI was HMC’s biggest shareholder after Mitsubishi with 11.2% and also the biggest holder of shares in the Hyundai Corporation with 16%. The Hyundai Corporation, greasing the way for nine tenths of Hyundai’s exports and much of its import of raw materials and machinery, held 23.6% of Aluminum of Korea, owner of Korea’s only aluminum smelter.³²

32 Ibid.

Crossholdings got more dizzying still. The Asan Foundation owned the biggest chunk of Engineering and Construction, 7.2%, as a tax writeoff, while Inchon I&S was Construction’s third largest stockholder with 1.5%. The Mother Company owned pieces of numerous other Hyundai companies, including, at one point, 25.4% of Electronics, 8.6% of Petrochemical, 17.2% of Pipe, 37.5% of Wood, 5.7% of HMC and 10.7% of HHI, among its most significant holdings. Meanwhile, HHI was second largest shareholder in Electronics, Precision, Wood, Marine and Fire Insurance, and Securities with holdings of 19.1%, 16%, 12.8%, 10.2% and 3.1% respectively. HMC was Securities’ biggest shareholder at 14.3% and HHI-controlled Inchon I&S was Precision’s third largest shareholder at 7.8%.³³

33 Korea Company Handbook, Autumn 1992, gives figures for listed companies. “Hyundai Group (as of 12/31/90),” Bankers Trust International, Seoul, 1991, provides figures on unlisted companies from data supplied by Securities Supervisory Board. “Hyundai Group,” W.I. Carr Overseas Limited, Seoul, 1988, provides an earlier graphic breakdown of crossholdings.

Records of unlisted companies indicated whirlwinds of financial juggling on the part of the old man. To finance Electronics, he had to pull vast sums from four major companies — Construction, HHI, Motor, Precision and Merchant Marine were listed as owning 25.4%, 19.1%, 15%, 7% and 6.9%. The pattern at Petrochemical, the other new giant, was similar — HHI owned 28.9% while Hyundai Housing and Industrial Development, Engineering and Construction and HMC owned 10.3%, 8.6% and 7.1%. Chung “and his family” — including perhaps nephew Mong Hyuck — at one stage owned as much as 21.1%.³⁴

34 Bankers Trust International, “Hyundai Group.”

Hyundai’s planning office revealed the complications when it explained why Fortune in its 1994 “Fortune 500” cited HHI as by far the world’s largest producer of “transportation equipment” with sales in 1993 of $6,735 billion. The planning office had thrown in the sales of four other companies, including Electronics and Inchon I&S, which had nothing to do with transportation. The rationale, said the man who had given Fortune the phony figures, was that HHI “heavily invests” in the others. Just how much was “confidential,” but one could use that trick to exaggerate the size of any company in the group.³⁵

35 “The 500 Ranked Within Industries,” Fortune International, July 25, 1994, p. 88. HHI sales in 1993 actually were $3.381 billion. Fortune undervalued HHI profits, however, putting them at $ 158 million, when actual profits for 1993 were $275 million. (See Appendix 4.) Fortune figures for HHI include Electronics, Mipo Dockyard, Precision and Inchon Iron and Steel. One reason for the low profit figures reported by Fortune may have been the inclusion of $61 million in losses incurred by Precision. Fortune also listed all Samsung group and Daewoo group sales as sales for their electronics firms alone, making them two of the world’s largest electronics manufacturers.

What was the real value, though, of HHI, whose financial and labor difficulties had once been easy excuses for why Chung chose not to list it on the stock exchange? HHI was still not listed after having racked up record profits in 1992. “Chung J.Y. and his family” at that time owned a preposterous 69.2% of HHI while Construction was the second largest shareholder with 10.7%. “My father is selling his shares for fund-raising for political activities,” Mong Joon assured me in August 1992 — a portent of the scandal of the HHI “secret fund” that HHI executives were to siphon from the company for the campaign. “Family ownership will be less than half,” said M.J., whose minority share would leave him in control of HHI despite his father’s campaign plundering.³⁶

36 Bankers Trust International, “Hyundai Group.”

The old man, however, had the final say — even after he had incurred the wrath of tax authorities and “retired” to seek his revenge at the polls. It was because of his arbitrary control of the purse strings that he could draw funds as needed for the party from his companies’ coffers — maybe by selling shares, more likely by simply moving funds to where he could readily get at them. “The big difference between him and Ross Perot is that Perot got a lot of money from donations,” aide Lee Byung Kyu told me. “Nobody gives money to Chung Ju Yung.” Thus the tax case was an elaborate effort by the government to hobble him before he ran out of control.

Long before he got the bill, Chung had been an increasingly nettlesome threat. He was by now criticizing almost everything, and there seemed to be no way to shut him up. That said, ideologues among government advisers were also concerned, as always, about the overweening power of the chaebol, which controlled most of the economy through their holdings and those of thousands of satellites. Chung was the most abrasive symbol of all that was wrong with the system. Officials had often gone after businessmen who had fallen from favor — but none of such stature, such national and international power.

Hyundai responded with a defiance that suggested the protracted war that Chung was contemplating — not just against the taxes, a relative pittance in terms of his own wealth and that of his family and group, but against the entire leadership. One instrument of the campaign was the group’s “department of corporate culture,” as the public relations office was renamed in 1990. The office deluged the papers with advertisements testifying that the group followed the law and declaring Hyundai’s refusal to accept “the unreasonable tax charge, which goes beyond the boundaries of current tax laws and practices.” Chung himself said the group could not “afford” to pay.

The case against Chung and his interests reflected the sordid side of big government and big chaebol. The government had a point when it charged that Hyundai’s claim that Chung had finessed the stock deal in response to new guidelines against cross-investment was nonsense. The fact was that Chung, when he divested his shares, made sure to provide still more holdings for the coming generation. The tax bills — in aggregate the most ever assessed against a single chaebol at one time — suggested where the shares came from, nine companies plus brothers Ju Yung and Se Yung, and where they went, to five of Ju Yung’s sons, to S.Y.’s only son, Mong Kyu, and to Lee Yang Ja, the widow of Chung’s first son, Mong Pil. (The breakdown appears in the table below.³⁷)

37 The Korea Times, November 2, 1991.

The division of taxes hardly provided a precise indication of the pecking order — aside from the high importance of son Mong Ku along with that of some of the major companies. The reality, however, was that all the chaebol were bound by crossholdings. Chaebol chieftains were accustomed to dividing their companies any way they chose, keeping deals secret, setting up dummy companies or placing shares in false names. The government’s interest in Chung was proportional to the level of Chung’s attacks on government.

While Chung for months had been chastising Roh Tae Woo for economic shortcomings, their differences went back to Chung’s reluctance to comply with orders for Hyundai to get rid of vast real estate holdings blamed for driving up land prices. Hyundai was not the worst offender in the land grab — Samsung owned several times as much in area and Lucky-Goldstar’s holdings might have been worth more, but Chung believed Roh had no business depriving him of what was his. Bureaucrats saw the rise of a landed class as a threat to both social stability and prices. Memories of exploitation by idle yangban, the landed aristocracy of pre-colonial rulers, were embedded in the national subconscious-ness. “The land system of the Yi Dynasty made the yangban class a privileged land-owning class,” wrote Park Chung Hee after seizing power. “Bureaucratic tyranny infiltrated the land system” — an abuse that might recur amid new freedom and affluence.³⁸

Hyundai Companies

Tax

Family Members

Tax

Engineering and Construction

216

Chung Ju Yung

96

Heavy Industries

138

Chung Se Yung

5

Precision and Industry

95

Chung Mong Ku

407

Marine and Fire Insurance

85

Chung Mong Kun

2

Motor Service

5

Chung Mong Hun

7

Inchon Iron and Steel

4

Chung Mong Joon

44

Engineering

73

Chung Mong Il

39

Koryeo Industrial Development

11

Chung Mong Kyu

127

Keumkang

3

Lee Yang Ja

3

Five others

1

Total

631

Total

730

Grand Total:

1,361

($181 million at 752 won/dollar)

Chung Ju Yung’s sons are listed, after his brother S.Y., in order of age. Units: hundreds of millions of won.

38 Park Chung Hee, Our Nation’s Path, 1962, p. 73.

Chaebol land holdings, said the Office of Bank Supervision, were rising by 2% or 3% a year — by 1989 they equaled two thirds the area of Seoul. “Excessive concentration of real estate in the hands of the upper crust has conspicuously deepened the disparity between the rich and the poor and threatens to ignite angry anti-government outbursts among laborers in particular,” summarized one journalist.³⁹ “Hyundai was found to possess a lot of land for non-official use,” meaning the land was idle, awaiting speculative profits, said Weekly Chosun, a leading magazine. Chung did not hide his fury. “It is widely known that there have been some conflicts between Chung and the Power and the Power did not like Chung’s boldness,” the weekly reported. “The government pressed it to sell it quickly or to change its usage, but Chung did not follow this instruction.”

39 Shin Sang Kap, “The Great Land Grab,” Korea Business World, August 1989.

More offensive still, said the magazine, Chung “went around criticizing and evaluating the present government’s economic policy” — a gambit that “annoyed the president.” Then came the crucial moment when Chung enraged Roh at a gathering of chaebol leaders by remarking, “Things were good under the rules of Park Chung Hee and Chun Doo Hwan.” Forgetting Chung’s role in the “Korean miracle,” Roh “directed some actions to take against Hyundai.” The protagonists were just beginning to fight. When Chung’s “actions and remarks still got on Roh’s nerves,” said Weekly Chosun, Roh ordered the tax investigation. Chung twitted Roh all the more. “If I were chief of construction of Seoul,” he delighted in telling all-too-appreciative audiences. “I could clear up the traffic problem at once.”⁴⁰

40 Weekly Chosun, October 20, 1991.

Against this background, Chung shocked and entertained the country at a press conference in which he said “the tax is not acceptable,” “it is regrettable that we are unable to pay taxes” and “we don’t have that much money.” Managing his most straightforward look, he averred, “Hyundai’s basic entrepreneurial philosophy was to honestly do business in accordance with the tax laws.” The government escalated the battle with threats — Roh called for “a firm and strong” step to force Hyundai to come up with the money, and his economics secretary, Kim Chong In, then in charge of the anti-Hyundai campaign, said darkly the tax authorities must “invoke their right to collect the taxes.” Another official talked of investigating the Chung family’s finances overseas as well as at home — a clearly impossible task.

Thus the machinery was in motion to “get” Chung. The government was now resorting to the heaviest weapon at its disposal — control over the loans extended by the banks. The campaign to hit Hyundai where it hurt the most got under way even as Hyundai gave every appearance of caving in and paying the tax bill. The campaign showed how the government, if it wished, could exercise authority by decree. Theoretically all the government needed to do to prove who was boss was to get the Office of Bank Supervision to order Hyundai’s most important designated creditor, the Korea Exchange Bank, to turn down loans for expansion — easy credit that Hyundai had long been accustomed to getting.

The threat was potentially disastrous. The chaebol, all of them, had relied upon easy credit in keeping with the guidelines set by Park Chung Hee — “export or die,” “sell, sell, sell.” The message was clear — so clear it endured in the customary business practice of running a debt burden several times higher than equity. By the time the government made noises about cutting off Hyundai’s credit, the Office of Bank Supervision put the net worth ratio of the 30 leading chaebol, computed by dividing capital and reserves by assets, at 20.8%. Hyundai, reeling under the electronics and petrochemical ventures, was below average — 17.8%, 21st on the list. The second, third and fourth largest chaebol were sounder. Samsung’s net worth ratio was 20th, 19.2%; Lucky-Goldstar was 17th, 20.4%, and Daewoo 10th, 24.1%.⁴¹

41 The Korea Times, September 24, 1991. Soundest is Lotte, owner of up-scale department stores and hotels, at 38.3%.

Both sides — Hyundai and the government — wanted to avoid the risk of a collapse that could not merely tear apart the country’s leading chaebol but also undermine international confidence in the Korean economy and threaten economic stability at home. The government breathed heavier as it disclosed how Chung and his family had purchased shares in some of their own companies by “borrowing” from others. “If we find the companies lend money privately for the alleged stock transactions,” said the Office of National Tax Administration, “we will punish them through credit controls and penalties.” Economics Secretary Kim Chong In observed “it has never happened that a business group has been openly against a government order to pay tax.”⁴²

42 Reuter, Seoul, November 19, 1991.

Nor did it happen this time. Hyundai, on the day the government disclosed the expanding investigation into a labyrinth of Hyundai stock transactions, caved in. Chung Ju Yung himself presided over the meeting at which members of the group’s celebrated planning committee decided the easiest course lay in paying the bill — and then suing later on the grounds that the tax went “beyond the boundaries of tax laws and practices.” There was talk about whether Hyundai would meet the November 30, 1991, deadline or pay most of the money then and get an extension for the rest. Superficially, though, the government had won. Chung, after spewing fire and brimstone in press conferences and newspaper advertisements, seemed to have given up.

Reports of Chung’s defeat, however, were premature. The crusty campaigner, yielding on the immediate issue of taxes, put off a crippling confrontation while gearing for a much bigger war against the entire government. The temporary “loss” of son Mong Hun a few months later was a small price to pay for the privilege of going into retirement shouting down the mandarins, bureaucrats, elitists and military buffoons who showed every sign of wanting to destroy his empire. Success for Hyundai might have once depended on the relationship between big business and big government, but at the core was the “corporate culture” of the group, the Hyundai group, the prototypical chaebol. Chung could draw upon the loyalty, fear and veneration of relatives and followers to defend him, to rally around him in the last act of his career.

Prosecutors now wanted to follow up strongly lest Chung’s “disgrace” as a tax evader be forgotten as just another fight between chaebol and government. The Office of National Tax Administration singled out Hyundai Merchant Marine and Chung Mong Hun to pay 27.2 billion won — 14.2 billion won or $18.1 million at 780 to one dollar levied against the company, another 13 billion won or $ 15.7 million against M.H. in penalties and taxes evaded for the previous five years. (Mong Hun’s father-in-law, Hyun Yung Won, titular chairman, removed from daily operations, was never under suspicion.) Investigators ransacked the homes and offices of Mong Hun and his executives in search of incriminating evidence on April 9, one day after the penalty was announced, but waited 12 days to arrest M.H. while he languished in Keumkang Hospital, an Asan Foundation facility, suffering from heart pain.

To look at him, Mong Hun did not seem like the right person to be going to jail for his father, who owned more stock in Merchant Marine than his son and might well have been directly implicated. My impression when I met M.H. at the Hyundai New Year’s reception at the Lotte Hotel in January 1992 was that his face bore an uncanny resemblance to that of the old man but without the hard edges, cockiness and cynicism. Shy before groups, he was inclined to keep to himself and a few friends. (He promised me an interview — then had my call shunted to an aide when I phoned his office.) Thus he looked strangely defenseless in newspaper photographs showing him in flowing white prison robe, his hands bound in ropes, as security officials escorted him to and from Seoul district court after his arrest on April 21.

The basic accusation was that Mong Hun, as vice chairman of Hyundai Merchant Marine; two former presidents, Park Se Yong and Song Yun Chae; a senior manager, Choi Kyong Hee, and four lesser employees had forged papers to switch the equivalent of $27 million from the company to a “secret fund.” Since they had diverted the money from taxes, M.H., Park, Song and Choi were charged under the tax offenses and foreign exchange control acts. Most of the money had come from the company, but M.H. was accused of having slipped $7.4 million of his own tax money into the fund.

There was an irony in Park’s arrest. He was the same Park Se Yong whom the Saudis had imprisoned in 1979 for trying to bribe a Saudi general. Here he was in jail again — this time in Kwachon, the southern suburb to which many of the government’s ministries and bureaus had moved in recent years. He had reached the presidencies of both the Hyundai Corporation and Hyundai Merchant Marine, resigning in March 1992 with investigators hot on the trail. What was there in Park’s personality, his dedication that put him in two awful cases — taking the rap each time? “Coincidence,” responded Hyundai officials. “He’ll do anything for Hyundai,” said an ex-Hyundai man, suggesting that superboss Chung Ju Yung expected the sacrifice.

The other sacrificial lamb, Song Yun Chae, had led a career that had also taken him closer to the center of power than most Hyundai executives were likely to get. A graduate of Seoul National University, he had spent nearly 20 years moving up the ladder with Hyundai Construction. A clue to his influence was that he served as an executive of the Asan Foundation, a repository for Hyundai money, before becoming a senior vice president at Hyundai Merchant Marine. Finally, in 1988, he moved to the top as president of Aluminum of Korea — the company that imported the ingots turned into finished products by Hyundai Aluminum. Song, like Park, resigned after surrendering to the prosecutor’s office.

Prosecutors during the investigation claimed that Mong Hun had “ordered the raising of a secret fund and personally kept the account books” from which Park and Song, now “special assistants” to Chung the politician, had drawn funds to help set up his political headquarters and finance his election bid. The prosecutors said that lesser officials with Hyundai Merchant Marine had already confessed to having diverted the funds. One of them had admitted acting on orders from M.H. when he set up the fund while two others withdrew the money from the company’s account. They had attempted to cover up their deeds by falsifying bank remittance notes and invoices from foreign companies. All told, they were accused of finessing 292 bank transfers in an effort to confuse investigators — the cash held in a safe until needed.⁴³

43 The Korea Herald, April 11, 1992.

Mong Hun served the cause as the only one of the sons ever to go to jail. At first there was talk of getting him out in a hurry, playing up his medical condition and portraying the prosecutors as cruel henchmen of the Blue House. He had “an illness because of his heart,” said Lee Byung Kyu. “He cannot endure life in jail because of his illness.” After the government freed the lesser characters, there were rumors the court planned to fix bail for Mong Hun and the three ex-company men in jail with him. Chung and his aides, however, saw advantages in martyrdom. The case “is now a political burden for Roh,” said Mong Joon, even as he denied that Mong Hun was useful as a prisoner. “He will be released soon. The purpose of politics is to liberate the people. You have to be free first.” That too, he said, “is Confucian philosophy.”

Behind bars in Kwachon, Mong Hun suffered quietly for his father. “He doesn’t even want his brothers and friends to visit him,” said youngest brother Mong Il. “At first his wife did not come there.” Not that Mong Hun felt shame. “He is proud of being there and being quiet,” explained Mong Il. “He does not show his feelings. He wants to keep his posture and his patience. He is very morally, successfully doing his job.” Was Mong Hun now a hero, a legend among relatives and colleagues? “How can I say hero,” asked Mong Il. “His father is very angry. He obviously appreciates his being there.” The sons united for the crisis. “We don’t call him a hero,” said Mong Yun. “He just has a hard time.”

Mong Hun looked anything but heroic as he again showed up in newspaper photographs — again swathed in prison garb, wrists and arms bound, a guard gripping his left elbow as he was led from the Seoul District Criminal Court on August 14 after his sentencing. His head slightly tilted, his face drawn and thin, his hair falling over his forehead, he went through public humiliation for the last time. The remarks of the judge revealed the awe with which the system held Hyundai. “Chung and others have successfully managed a leading industry contributing much to the state and society,” the judge pronounced, betraying doubts about the whole charade.

Righteously, the judge rejected Mong Hun’s argument that the secret fund was a device routinely exploited by many companies to provide rebates for clients. Still, the “contributions” of the Hyundai executives to the nation set up the rationale for suspending the terms of two and a half to three years for all the eight accused. They had to return to prison in vans but were freed later in the day to go home in limousines. Mong Hun’s sentence, though, included another horrendous price tag — 25.4 billion won or, at 780 to one dollar, $32.6 million, $15.4 million of it in fines plus $17.2 million in “penalty surcharge,” and no credit for the 115 days spent in jail.⁴⁴ In addition, the Hyundai Corporation had to pay another 10 billion won, $12.8 million. The others did not have to cough up a won — and were well rewarded for their travail. Park resumed the presidency of the Hyundai Corporation while Song was promoted to chairman of Aluminum of Korea.

44 Yonhap, August 14, 1992; The Korea Herald, August 15, 1992.

Chung Ju Yung’s people found scant comfort in the decision. Investigators might have discovered “some mistake” in Merchant Marine’s bookkeeping, said aide Lee Byung Kyu, but he asked indignantly how such errors could become a criminal matter. “The case of the fifth brother is all political,” said Chung Mong Joon. Hyundai and the United People’s Party denied everything, charging the government’s aim was to force Chung to abandon his campaign. If Chung raised funds this way, they said, so did everyone else.

The drama, however, was not over. While the old man went off on his own unpredictable tangent, the brother and sons he left in charge of the business had to cope with the repercussions of his confrontation with the ruling establishment. At the behest of the government, three major creditors, the Korea Exchange Bank, Korea Development Bank and Cho Hung Bank, held back on loans amid claims they had to be sure that Chung was not diverting funds for his party — the source of the fortune needed for a full-scale assault on the presidency. Funding was “confusing because the company’s accounts and Chung’s accounts are all mixed up together,” said a Hyundai executive.⁴⁵

45 Geoff Crane, “Political Portfolio: Hyundai Electronic Industries,” Korea Economic Report, July 1992, p. 45.

“Our domestic credit is blocked,” said Dr. Chung Hoon Mok at Hyundai Construction. “So we have to deal with our own in-house resources.” The government banned borrowing from foreign banks without permission, but the ban was less than all-inclusive. “When it comes to performance bonds, we depend on foreign banks who know us,” said Dr. Chung. “A performance bond is not borrowing.” His company gained a small degree of satisfaction by publicizing the Blue House debt for a “change order” on an earlier project on the presidential enclave — a bill for the equivalent of nearly $30 million. It was the type of job that Hyundai, in the good old days, would do for nothing — a thank you for favors past and future.

Times, however, had changed. Hyundai sued for the bill while the Blue House made life increasingly tough for the group. The days when Park Chung Hee and Chun Doo Hwan could destroy a defiant titan of business might be gone, but the elite wanted to show it had the power over an unruly buccaneer, even one as rich and famous as Chung Ju Yung. By early 1992, as Chung plunged ahead with his party, the government tightened the screws to the point at which brother Se Yung begged for relief. He wrote to the Blue House, the Office of Bank Supervision, the Securities Supervisory Board and creditor banks complaining that Hyundai had been denied loans.

Finance Minister Rhee Yong Man said it wasn’t so, that the government had never acted to blockade credit for Hyundai, but Rhee soon revealed his hand when he demanded that S.Y. call in all loans made not only to his brother but also to other family members linked to Chung’s party — meaning Chung Mong Joon, the son in charge of policy planning. Rhee made the demand a prerequisite for approval of issuance of $150 million in bonds for Hyundai Motor, which relied on borrowing for half its capital spending and had not had access to credit since the beginning of the year. All told, Hyundai was denied about $480 million in financing and had to postpone putting about $2.7 billion into schemes ranging from a new passenger car to expansion of the Galloper jeep assembly line to electronics R&D — the last perhaps the most crucial of all.⁴⁶

46 Kim Chong Tae, “Government by the Chaebol,” Korea Economic Report, April 1992, pp. 36–40.

There was some hesitation about keeping up the anti-Hyundai vendetta as business and political leaders considered the implications of their campaign to undercut the country’s largest chaebol. At first the government threatened to withdraw the preferential credit line to which Hyundai Electronics was entitled as one of the group’s three “core” companies while examining its records to see if it too was the source of yet another “fund,” for $26 million. Then, on second thought, the bank superintendent in April 1992 said the government would put off that particular sanction in view of the company’s export record of about $2 billion a year. Still, Electronics could not get all the funding it needed at a critical period in both chips and PC competition. Next, in June, the Office of Bank Supervision blocked credit for 13 Hyundai companies for failing to call in the equivalent of $241.8 million in loans. Electronics was not on the list — it was not necessary to cite a company formally in order to cut off funds.⁴⁷

47 The Korea Times, June 2, 1992.

The whole array of charges gave Chung a marvelous opportunity to lambast the government. Mong Joon talked like one of the radical union leaders demonstrating against HHI or HMC in Ulsan as he discussed the persecution their father’s party had to endure. “Our phones are bugged, we are followed constantly,” he told me when I dropped by his office on the floor above that of his father in party headquarters. “We expect this kind of government conspiracy. We should put those guys in jail.” He spoke in a casual voice that belied the seriousness of his mission, saying “there are many examples” of Roh’s skullduggery. “He has some companies,” he said. “Some of his relatives are working as sleeping partners.”

Later, when I called on Chung Mong Joon in the National Assembly building, he talked disdainfully of the likelihood of prosecutors going after him as they had Mong Hun. “They cannot,” he said threateningly. “I can do to them, but they cannot.” Unlike most radicals, M.J. had at his disposal a large staff of researchers, earnest young men with records of graduate study at top-ranked American universities, capable of digging up dirt of their own while also analyzing this or that aspect of national or foreign affairs. They pounced zealously on every scandal that came along, coming up with “the facts” to buttress the innuendoes.

One day the old man urged the government to investigate the source of $37 million used by Chey Jong Hyun, chairman of rival chaebol Sunkyong and father-in-law of Roh Tae Woo’s only daughter, to buy shares of a securities company. “Such money is likely to have come from secret funds,” Chung said portentously. When the government awarded Sunkyong a multi-billion-dollar contract for a mobile telephone project, he called on the National Assembly to investigate “favoritism” — something he forgot to mention when bequeathing leadership as well as ownership of his companies to his own sons. Next, he turned to a scandal over sale of army-owned land. “Powerful politicians are pulling the strings,” he said ominously, as if such a technique were beyond his own experience.

Chung believed he could draw blood by calling on the National Security Planning Agency to “return to their own role of maintaining national security,” and the party at a seminar produced a notebook of police records of spying on radicals. The notebook purported to reveal “that the police eavesdropped on communication between students” — a practice about which Chung had never complained when the police were doing it amid strikes incited by student radicals. Chung also revealed police monitoring close to home — the police near his factories in east Ulsan had “confessed that they did eavesdrop” and “disclosed a document from the police chief asking for the bureau’s help for the government’s spying.” M.J. promised more. He and his father were going for vengeance, and the payoff lay in “evidence” to discredit Roh and Kim Young Sam before the election.

Chung Se Yung for his part was in the humiliating position of mendicant, beseeching the finance minister and financial secretary at the Blue House for extensions and moratoriums while the family returned the money. Was the stage now set for a battle to death between government and chaebol — or at least one chaebol, the country’s biggest? Observers saw the sides as so hostile as to disregard the consequences for the country. At the American embassy, where Chung Ju Yung called on Ambassador Donald Gregg, a diplomat summed up the mood of bureaucrats as “vindictive.” Roh had “lost control of the chaebol” while wages had doubled, inflation was rampant and the country suffered a trade deficit.

Lee Byung Kyu agreed. “The government is dealing everything with unfairness,” he said. “If the campaign gets harder and harder, then the pressure will be stronger and stronger.” He made a vow: “We will try to find a suitable response to their pressure,” not distinguishing whether “we” meant Hyundai, the United People’s Party, the clique of family members or all three. The tax investigation, he added, had been going on since 1990, long before his boss’s great leap into politics: “They cover all aspects, all types. They do not permit the Hyundai group to issue bonds to raise capital, and they do not permit more companies to make public their shares.”

S.Y., meanwhile, affected non-concern. “We cannot borrow from foreign banks” under current regulations, he told me, but “we don’t need credit” — meaning that Hyundai could get by while waiting for the mood to shift again. Hyundai no longer bothered at this stage to go to the Korea Exchange Bank, its principal creditor, as designated by the government. “We know they don’t have the money,” he said. He remained irrepressibly optimistic when I encountered him one day walking alone through the lobby of the Hyundai headquarters, anonymous as big brother never had been among his salarymen. “Everything will be solved after the presidential election,” he said. “We are only waiting.”

In the short term, S.Y.’s optimism was justified. The banks lifted their sanctions at the end of August, more than three months before the election, after S. Y. formally declared that family members had repaid a total of 183.82 billion won — $233 million — “borrowed” from 13 Hyundai companies. The restoration of Hyundai’s credit meant the Blue House had come to its senses. Hyundai could also resume raising capital by floating corporate bonds and putting more shares on the market. Its companies could now pay for capital improvements, buy real estate, open new projects, invest in new ventures — activities on hold while the government leaned on the banks to withhold credit.

Hyundai, said the cognoscenti, was too valuable a source of foreign exchange for prolonged gamesmanship. “The government wants to divide Chung Ju Yung from the Hyundai group,” said Gong Byong Ho, a researcher at the Korean Economic Research Institute, a private group financed by the five largest chaebol. “The government knows hardship for Hyundai has a negative effect on the economy.” Blue House strategists might plot to suppress Chung Ju Yung — but not at the expense of the group that he had built with the support of their predecessors. S.Y. reinforced this theory when he withdrew Hyundai’s suit for bills for Blue House construction. Good times had to be here again.

There was still a feeling, however, that Chung had amassed much more for his campaign war-chest through deals that the government had failed to track. Such enemies as economic guru Kim Chong In, at least until he took a seat in the National Assembly in March 1992, were on the trail. “They think they understand politics,” said an indignant Mong Joon. “They try to apply political ideas on the economy. They are after Hyundai because Hyundai is big and Hyundai is independent.” Was the Blue House colluding with the notorious National Security Planning Agency on behalf of mysterious military officers and intelligence types, Korea’s real defenders of faith, to get to the bottom of Chung’s schemes?

The Securities Supervisory Board got into the act with the charge that Chung had raised money to pay off his taxes by the sale of stock in HHI and other companies to Hyundai workers. Chung and members of his family had obtained the funds largely by “selling” 12,620,000 shares in HHI to tens of thousands of Hyundai employees in 40 companies, almost the entire group payroll. The sell-off meant that everyone who worked for Hyundai was financing his campaign. “It was my choice,” said Song Jee Hun, a salaryman who had paid 1.32 million won or about $ 1,692 by having the money deducted from his annual bonus. “I think it’s a good deal because Hyundai and the government will settle down and our shares will rise up.” Still, there were some complaints. “Hyundai employees aren’t happy about the price they’re paying,” said one report. Some “say they had little choice in the matter”— even though unions had been known to include demands for shares in negotiations.⁴⁸ Chung’s manipulations through sale of HHI shares were only the beginning. By the time his campaign was in full swing he and his family members were selling stock in a dozen companies.

48 Geoff Crane, “Political Portfolio: Hyundai Electronic Industries,” pp. 44–45.

By election day “large Hyundai group shareholders, including founder Chung Ju Yung,” according to securities sources, “had pocketed [the equivalent of $546 million] from the sale of their stocks in five unlisted affiliates and six listed ones.”⁴⁹ Most of the shares were HHI, but Chung sold $31.4 million in Engineering and Construction in November, said the Securities Supervisory Board. Money also came from selling shares in 10 other companies. No entity was immune in the search for funds.⁵⁰ All told, the board disclosed, Chung and his relatives sold shares worth 172 billion won, $217.7 million, to 130,000 Hyundai workers at bargain prices. Hyundai was not accused of overpricing. The offense was that the group’s planning office had failed to get the board’s permission — and then had not bothered to report the sales afterward.

49 The Korea Herald, December 9, 1992.

50 The Korea Herald, November 12, 14, 1992.

One culprit, in the board’s view, was another of Chung’s trusted lieutenants — Lee Heun Tae, the legendary planning chief, now president of Hyundai Petrochemical. Lee tried to ride the storm in the United States, running Hyundai Petrochemical by phone and fax for several months. “He was in charge of the planning group for more than ten years,” Mong observed. “He had trouble. It is time for a rest.” Returning home before the election, H.T. wound up with a promotion from president to chairman of Petrochemical but might have wished he had retired abroad. Prosecutors, eight weeks after the election, indicted both him and Chung for having engineered the sale of 12,340,000 shares of stock in Hyundai companies for a grand total of 138.8 billion won, $175.7 million. Clever H.T., always anticipating his boss’s desires, had come up with the idea in December 1991, before Chung’s formal entry into the politics, said prosecutors, and Chung had endorsed the scheme.⁵¹

51 The Korea Herald, February 14, 1993.

Sale of Hyundai stock, however, would not be enough. Chung needed much more to bring out the crowds, pay the organizers, buy the votes. There was one other way to get it: siphon the funds from Hyundai accounts. The anti-Hyundai campaign turned ugly on December 4 when 40 plain-clothed policemen, some from the National Security Planning Agency, raided four Hyundai companies — Construction and Precision in group headquarters, Keumkang Development and the Hyundai Department Store under UPP sidekick Chung Jang Hyun, Keumkang Development president before his election to the assembly. Anything — account books and computer disks, watches and umbrellas handed out as gifts — was fair game.⁵²

52 The Korea Herald, The Korea Times, both December 5, 1992.

The National Security Planning Agency and national police had orders: expose this arrogant upstart. The charges ranged from “premature” campaigning, as when UPP members gave out souvenirs while rounding up support at rallies at HHI and HMC, to organizing political “sightseeing tours” for HMC workers and Hyundai customers, to compelling workers at Hyundai Precision “to recruit a number of people as members of the party” to forcing six Hyundai Wood section chiefs to join the campaign. After one of the six died during rigorous training, Hyundai Wood President Um Yong Ki, a vice president and a director were the most prominent among Hyundai men arrested before the election. Urn’s revelations were damning: Chung had asked executives to help him at meetings in July and October, and 60 of them had been summoned for “campaign-related training” in September — appropriately enough at the managerial institute at Mabookri where Hyundai routinely sent executives and new recruits alike for organizational brain-washing.⁵³

53 The Korea Herald, November 1, November 20, November 22, December 8, 1992; The Korea Times, December 1, December 8, 1992.

There was no hint of doubt among these stolid company men. No one told the boss: “Leave me out of your politics.” All Koreans knew the penalties for such defiance: dismissal, loss of bonuses, disgrace. Um and his managers, visiting the Hyundai Wood factory at Yongin southeast of Seoul, picked up UPP membership forms from 21,000 residents. Other executives performed similar services. A deputy director of Precision’s technology center purchased teaspoon sets from Hyundai Department Store for his employees. They in turn had to fill UPP recruiting quotas: managing directors, 100 members; division chiefs, 70; department chiefs, 50; assistant chiefs, 30; other workers, 10 to 20, en route to 15,000 new members. There was even a police report that workers of brother Chung In Yung’s Halla Group were “mobilized to campaign.”⁵⁴

54 The Korea Times, November 6, 1992.

These charges paled beside the deepening inquiry into the source of the money that Hyundai was doling out. The crack in the wall of HHI loyalty was on the clerical, not the managerial or the hard-hat level. Investigators from the National Security Planning Agency got the name of a 27-year-old HHI clerk, Chung Yun Ok, responsible for receipts. They gave her a choice: tell us all you know or face prolonged interrogation. Induced to betray her innate Confucian loyalty to her bosses, Miss Chung, a devout Christian, absolved her conscience by facing the press in a church in Seoul at 1:30 a.m., December 5. As police waited patiently to whisk her off for more questioning, she talked about HHI’s “secret fund,” the basis for the government’s most telling complaint. In charge of receipts, she put the fund’s value at the equivalent of $44.8 million — nearly half the sum that prosecutors later alleged had gone astray. HHI President Choi Soo Il, said Miss Chung, had ordered the handover of 60% of it to the UPP; the rest was in a bank. “My company withdrew the U.S. dollars it received in payment for exports from the head office of the Kor-Am Bank,” she enlarged, showing seals, bankbooks, a notebook and other evidence.⁵⁵

55 The Korea Herald, The Korea Times, both December 6, 1992.

The police next invaded branches of the Korea Exchange Bank and Shinhan Bank near Hyundai headquarters in Seoul. They discovered that HHI executives had cashed checks at both of them for much of the fund, which they had transferred into two other Hyundai creditors, Korea First Bank and the Hanil Bank, before withdrawing most of it. Where was the money now? A note found at Shinhan Bank gave a clue: “honorary chairman, 10 billion won” —$12.8 million of the 76 billion won or $97.4 million that investigators believed might be in the fund.⁵⁶

56 The Korea Times, December 8, 1992; January 16 and 29, 1993.

The raid on the Shinhan Bank yielded a secondary windfall — and embarrassing insights into the relationship between HHI and the government. Investigators discovered records revealing the channeling of funds to seven bureaucrats, senior officials at the Ministry of Trade and Industry, the Export-Import Bank and the Industrial Advancement Association. HHI Managing Director Chang Byong Su had admitted bribing the suspects, said prosecutors. It was a rare revelation of the payoffs that greased the way to the privileges and rule-bending that a company like HHI needed to earn the fortune that Chung had invested in his bid for the presidency. Prosecutors promised to humiliate both givers and receivers.

First, however, they had to dispose of the much weightier case against Chung and the United People’s Party. They had all they needed after finding more incriminating documents in a raid on HHI headquarters in Ulsan in January. Choi, Managing Director Chang Byong Su, a manager and a clerk, already imprisoned, were indicted on January 30, 1993. Said to have channeled as much as $84 million into the UPP, they were charged with embezzling most of it with vouchers that made the payments look like purchases for components. Lee Byung Kyu, Chung’s senior aide, was the alleged bag man — he and a young assistant, Chong Hee Chan, purportedly collected monthly contributions of 1 billion won or about $ 1.28 million for the first six months of 1992, then 5 billion won or $6.4 million and, for the last three months, twice that, 10 billion won or nearly $ 13 million. A week later, Chung was indicted for his role in embezzling 50.9 billion won, $65.2 million of the secret fund. The crime carried penalties ranging from seven years to life — though a judge could suspend sentence.

One great mystery, however, was how the agents had known where to look in all the computerized records and file cabinets. They had to have had informants inside Hyundai — perhaps their own agents working for Hyundai. Former employees might also have spilled secrets. Lee Myung Bak, the former Engineering and Construction Chairman, now an assemblyman in the ruling Democratic Liberal Party, was suspected of having struck back at his ex-boss for his refusal to give him the stock he had wanted. (Lee was rumored to be after a post in the Kim Young Sam administration as construction minister or mayor of Seoul, also an appointed post, but was disqualified after he and other legislators and bureaucrats were forced to reveal that they had acquired rich real estate and other assets. An office building he owned was worth at least $6 million — more than he could possibly have saved legitimately from Hyundai.)

Chung Mong Joon escaped charges in any embezzlement or payoffs but was involved with Ahn Choong Seung, executive vice president of HHI’s off-shore division, in another explosive case. Prosecutors said Ahn had orchestrated the taping, with a highly sophisticated device, of a meeting in a basement restaurant in Pusan of a former justice minister, the mayor of the city, the chief of the Pusan office of the National Security Planning Agency and several other local figures plotting strategy for Kim Young Sam in violation of the government’s pledge of strict neutrality. UPP Co-chairman Kim Dong Gil disclosed the bugging at a sensational news conference three days before the election on December 18 in order to embarrass Kim Young Sam. The mayor and three others were dismissed, and the justice minister was indicted.

The affair, however, rebounded against the party when prosecutors hunted down the HHI people who did it. M.J. was indicted after admitting having given the equivalent of nearly $25,000 to the HHI worker who had promised the tape of the infamous meeting. The actual charge against him was that he had “hidden” the worker and a co-conspirator from investigators, but the evidence seemed flimsy since they had surrendered of their own volition. M.J. denied having offered millions of dollars to a former agent of the NSPA who had recorded the meeting and tipped off HHI people about it. Ahn, who had obtained U.S. citizenship and an American passport during his years as a student there, flew to Tokyo ahead of a ban on his travel abroad, then went on to the United States — and was never indicted.

The noose was now swinging over Chung’s head. HHI was the focal point even though scores of managers in other Hyundai companies were quizzed about such offenses as the gifts they had bestowed on voters on “tours” of Hyundai plants. All the prosecutor had to do was round up the culprits. The job was not without frustrations. In the dawn after the election debacle of December 18, Lee Byung Kyu, who had the most damning evidence on HHI and much more, vanished with all he knew in his head, hiding in UPP headquarters, then eluding a nationwide manhunt by 40 agents. With him was his equally polite, affable assistant, Chong Hee Chan.

Their ordeal was an act of supreme loyalty to a harsh patron. “Probably Lee is moving around the country,” a secretary in Chung’s office told me. “He cannot call us. Our lines are tapped.” Not everybody, though, believed the prosecutors were so eager. “Lee has a lot of secrets with regard to the funding of the party,” Kim Dong Gil remarked to me some months later, “but I wonder if the prosecutors are determined to find him” — or had already been called off the hunt while the government made a deal with Lee’s boss.

XXVI Facing the Nation

DOI: 10.4324/9781315483214-26

Seventh son Mong Yun was chatting with Uncle Chung Se Yung one morning over the phone about the proper name of S.Y.’s first grandson. He hung up after a few minutes of discussion on the most appropriate Chinese character and mused for a moment about the future. “We postpone our investment in new enterprises,” he said, agreeing with uncle, “but it is a temporary problem.” Even Hyundai’s enemies in the government, he believed firmly, “do not want Hyundai to break up.” For that matter, he doubted if the bureaucrats were out to get the old man just because they couldn’t stand to see this nouveau riche peasant’s son and his 120 or so immediate family members rolling in far greater wealth than those same bureaucrats, for all their Seoul National University degrees and socially proper marriages, would ever see before drawing their paltry pensions. No, said Mong Yun, “I don’t think they’re jealous about my father.”

Now, in retirement, Chung was no longer inhibited by the strictures of conventional codes of conduct. He was furious about the rules, regulations, policies and guidelines that controlled him and reveled in deriding those responsible for enforcing them — and for harassing him and his family with their taxes, credit blocks, investigations and, finally, arrests. “We have a pessimistic future with the present economy, and I have to do something about it,” he told reporters called to his residence on January 10, 1992, the day after Hyundai’s New Year reception at the Lotte Hotel. He was “very critical of the present regime,” he went on, facing the crowd from behind a desk in the spare front room. “The last regime at least could control the prices.”

Chung betrayed his deepest resentment of his subjugation, his forced subservience to the person in power, by his admission that, yes, he had had to give enormous gifts twice a year, once for New Year’s and once for Chusok in October, ever since the days of President Park. “I gave donations to Park of 500 million won and raised it to 2 billion won,” Chung revealed. “I gave between 2 billion and 3 billion won to Chun” — and 5 billion on two occasions for Roh after sensing that a lower amount “could not satisfy the receiver.”

Chung offered this confession not to clean the slate, or to ease his conscience, but as part of a declaration of war. His point was that he had stopped giving “donations” to Roh two years ago after completely falling out with him over his “incompetence.” Nonetheless, the news was a bombshell to the Korean media — although the numbers were on the low end of the scale. Nor did Chung’s revelations say how much he had given other politicians. He also had “donated” to Kim Young Sam long before Roh finally endorsed Kim as candidate of the ruling Democratic Liberal Party.

In a society accustomed to chonji, literally “envelope,” and the cruder don bongtoo, “money envelope,” donations of much greater proportions smoothed relations among politicians, bureaucrats and businessmen. Never before, however, had a kingpin of Korean business confessed to outright gift-giving if not bribery. “It is the first time that a business leader voluntarily disclosed to the public that he made political donations,” said an analysis by rival Daewoo Securities, Korea’s largest securities house.”⁵⁷

57 K.S. Choi, “Hyundai Shares Impacted by Chung’s Remark on Political Donations,” Daewoo Securities, Seoul, January 15, 1992.

The report said the government “is going to put pressure on Hyundai group by excluding it from major government projects” — and observed that group companies were already excluded from issuing corporate bonds. “Impacted by Chung’s revelations,” said the forecast, “share prices of Hyundai subsidiaries have experienced hefty losses.” Said a spokesman for the Democratic Liberals: “Chung said he stopped giving money to the government two years ago because the government did not give privileges to Hyundai” and warned that Chung “had better be more discreet about what to tell and what not to tell.” Assemblymen called for special legislative sessions, investigations and hearings — but none materialized after days of screeching headlines.

Chung was playing the billionaire rebel — an act without parallel in his country’s history. How could a man of such wealth bear such bitterness? What did he really want? Aide Lee Byung Kyu traced the division back at least 12 years, to the early days of Chun Doo Hwan’s rule. “The Hyundai International problem was one of the reasons Chairman Chung decided to go into politics,” but the animus doubtless went back to Chung’s origins, his struggle against poverty, against the Japanese, against the heirs to the landed gentry that still forms the upper class of Korea today. Chung’s lifelong rage exploded in his old age as the mandarins under Roh chipped away at the foundations of Hyundai — all in the name of democratic reform.

The same reforms gave Chung the right to behave as he could never have done under Park or Chun. He campaigned with a ferocity reminiscent of his rise as a businessman, crisscrossing the peninsula by helicopter, blitzing the media with interviews, statements and ads financed with funds “borrowed” from his companies — all to destroy his enemy in the Blue House. The theme of his victimization pervaded his statements even after he scored an impressive victory in the March elections, securing 31 seats in the 299-man National Assembly while the ruling party barely managed to hold its majority after luring a couple of independents into the fold. Like the radicals who sometimes tossed firebombs over his factory walls in Ulsan, Chung talked in grandiose terms lacking provable specifics.

Twice, Chung answered questions from me — first with written responses put together in English by Chung Mong Joon’s researchers and, second, in an interview arranged by Lee Byung Kyu. Each time he came across as a billionaire with nothing to lose. “I consider the current situation of our country a total crisis,” he wrote. “We are witnessing that the old is receding and the new is setting in. The great whirlpool of change is demolishing the old-fashioned politics.” To criticism that he was an autocratic tycoon bereft of political savvy, he replied, “I believe the abilities that enabled me to build Hyundai can help set the government in a fresh setting.” Chung charged that Roh’s “unreasonable economic policies have caused the current ailing economy” — and “greatly diminished the international competitiveness of our economy.”⁵⁸

58 Chung Ju Yung, written response to author’s questionnaire, May 26, 1992.

Roh, said Chung, blamed “businessmen for the failure of his government’s economic policies, thus creating frictions between the government and business.” He added that “one of his aides [Kim Chong In, the former economic adviser] has misled the relationship, deepening the discrepancies even further.” Chung, deemed sure to lose the election by just about every poll, was ready to promise anything to win votes. He would convert Korea’s trade deficit of nearly $10 billion into a surplus of the same amount after one year in office. He would double and triple that in the second and third years. He would inveigle Japan into opening up to more Korean imports. He promised income per capita of $20,000 a year by the end of his five-year term.

Long on promises, Chung was short on facts. “I believe that our real prescription of the nation’s political and economic problems is vision,” he said in the speech accepting the presidential nomination of his party in mid-April. He had a strategy for Korea’s assertion of its position: “With a collapse of Cold War era as well as worsening trade frictions between the United States and Japan, the Far East will witness a political and economic shakeup and restructuring.” Such a shake-up, he forecast, casually shrugging off the enormous power of both of Korea’s main benefactors, “will offer Korea a great momentum of overcoming all difficulties and taking advantage of realistic opportunities.”⁵⁹

59 Chung Ju Yung, “Presidential Candidate Nominee Speech,” May 15, 1992, p. 3.

Chung expanded on this idea in his written response to my questions. “In the post-Cold War era, Northeast Asia would be reshaped on the heels of a great political and economic change.” As the upheaval occurred, he suggested, “we can turn all the difficulties and uncertainties into capital chances for our country to take a big stride forward and become a key actor in Asia.” When I interviewed him in UPP headquarters, he talked as if he were discussing a wayward son, saying he was “sorry if Roh has been displeased with my remarks” and excoriating him for having failed to elevate Korea to greatness. If only Roh would listen to the voice of experience, he would see sure trouble in “the double-digit interest rate and the money supply.”

Chung suggested Roh “look at Japan,” Korea’s historic enemy and colonizer, now as before the dominant regional power. “It makes companies competitive with a single-digit interest rate.” Look at “many advanced countries” where “the supply of money is related to production.” By contrast, in Korea “the supply of money is curtailed so there is not enough money to finance activities.” He accused the government of compounding the problem by its new policy of denying credit to all but the three core companies of each group, keeping the other companies from operating aggressively overseas: “Big companies should be encouraged to advance into foreign countries. Why should they be held back? Any division of a company that can do very well overseas should be encouraged.”

It was my first one-on-one meeting with Chung since I had met him three years earlier in his office at Hyundai headquarters. For an interpreter this time Chung had Park Chong Sup, whom I had met in Silicon Valley when he was chief executive at Hyundai Electronics America. Now with Ernst and Young, the American accounting firm, Park remained a “consultant” to Chung while working on a costly study of the Hyundai group. Park’s background, however, was no guarantee that Chung would say more to me than he tossed out in press conferences for Korean journalists, pampered with free rides and accommodation along with lunches, tea and coffee in the party’s spacious suite of press rooms. In dark blue suit, white shirt and daring blue tie with large white polka dots, Chung showed off his common sense and business experience — but not much more.

Chung had windy solutions for everything. Typical was his commitment to medium and small industries. “One of our primary goals is to let big enterprises advance into overseas countries by specializing in areas which they can do very well,” he told me. “For domestic markets I would like to encourage small and medium-size enterprise.” For all the lip service he paid to their welfare, however, no one really believed he was enthusiastic about breaking up monopolies in key fields. Asked about opening up the motor vehicle industry in competition with Hyundai, he had a facile answer: “As far as the automotive sector is concerned, this is maybe very inadequate for the small and medium-size sector. We need to scrutinize which areas are the most important.” The remark was consistent with his real outlook. “For Korea’s companies to compete with global companies,” he had once said, “large size is necessary.”⁶⁰

60 Chung Ju Yung, “Enterprises Grow thru Rational Management & Self-Effort,” Korean Business Review, September 1986.

Acampaign brochure published in English on Chung’s “new vision to restore the Korean economy” was scarcely more convincing. “In order to activate small and medium industries,” said the brochure, reviewed and approved by Chung Mong Joon, “we will introduce policies to lower the interest rate [to 7% or 8%], the level of those of international competitors,” and “adopt policies to draw manpower from service industries to the manufacturing sector” while supporting “industries which voluntarily develop innovative technologies.”⁶¹ The flaw was that all these measures would help the chaebol as much if not more than smaller industries. Who, for that matter, would decide which technologies were “innovative” enough to qualify?

61 United People’s Party, “Chung Ju Yung: A New Vision to Revive the Korean Economy,” p. 17.

Other elements of Chung’s economic platform showed still more blatant self-interest. “We will pursue an economy led by the private sector…. We will minimize the government’s intervention, adopting the theme of a ‘small government,’ leaving the economic operation to a free market play.” Would Chung consider such a policy, though, if competing chaebol were killing each other by investing in the same industries — and how would Chung control inflation and interest rates? Among the more self-serving points: a call for “practical privatization of banks” to prevent the government from denying credit and, in revenge for all those tax bills, a tirade against “abuse of taxation power.” The platform also called for banning fictitious names on bank accounts and ownership of lands — all in contrast to the secrecy shrouding Chung’s own deals.⁶²

62 Ibid., pp. 20–21.

Yet another target: Roh’s program for building enormous apartment buildings. He expressed himself more fully on this topic in the written response to my questions than in the interview. The program “has greatly diminished the international competitiveness of our economy,” he said, denouncing the “two-million housing unit project” as “clearly against the basic principle of balanced financing.” The program had forced “the import of construction materials such as cement,” resulted in “lack of construction labor” and raised “the wage level in general, pushing the manufacturing cost up” — surely not a grievance that Chung would have made if Hyundai were getting the contracts.

Chung was more vague on political issues. He supported the government’s demand that North Korea reveal its nuclear facilities to inspectors from the South but suggested the South, to solve the impasse, “should depend on United Nations initiatives instead of American authority” — easy to say since the UN’s International Atomic Energy Agency had sent a team there. At the same time, he opposed any cut in American troop strength in Korea. “Kim Il Sung just mentioned the basic condition [for inspections], withdrawal of American troops,” he said. “Nothing can move at this time” — a remark that reflected his anger at Daewoo chief Kim Woo Choong’s opening to the north four months earlier.

If Chung were adept at cutting a rival down to size, he was unversed, or unrehearsed, on some of the realities of the North-South standoff. On a visit to Washington at the end of August, he suggested over lunch at The Washington Post that Kim Il Sung and his son and heir presumptive, Kim Jong Il, go into exile in China or the forests of Russia as a prelude to reunifying Korea. North Korea, meanwhile, should have “no capability whatsoever to develop nuclear weapons” before the United States withdrew its nukes from the South. Reminded that U.S. officials swore there were no nuclear weapons in South Korea, a mystified Chung replied, “I’m a little worried.”⁶³

63 The Washington Post, September 1, 1992.

As for U.S. pressure to get his country to lower trade barriers, Chung shared the view of the vast majority of his countrymen, including rival candidates Kim Young Sam and Kim Dae Jung. “I have a firm belief that the United States should not pressure South Korea in terms of trade negotiations,” he told me. “We are not like Japan,” added the man whose chaebol had risen behind the shield of Park’s trade restraints, scorning the inclination of U.S. negotiators to get as tough with Korea as with Japan. “The United States is registering surpluses here. Korea is the market and customer for the United States. There is no reason for the United States to pressure us.” He suggested Korea should open up to U.S.-made goods, impossible to find if they competed with local products, as it grew stronger: “My rationale is to strengthen the national economy so it has more purchasing power to buy from the United States and does not put Korea in a more precarious position.”

Only on the ticklish question of how much freedom to give radicals did Chung adopt a position quite different from that of the government. When I interviewed him he had just spent several days explaining away a comment he had made at a closed forum at which he had observed that it was “legal to have meetings or express thoughts if there could be no harm to society or the nation.” As long as “democracy and a free market system could be accepted,” Chung had said, “there could be no harm if one could have communism in his head.” The comment, when it got into the Korean papers, had the arch-capitalist Chung advocating legalization of the Communist Party — a traitorous view in the South in view of the unresolved war with the communist North.

Chung in our conversation was still sensitive to the screaming headlines his remarks had created. “I have been grossly misquoted,” he said, charging that the local media, not invited to the event, had picked up a quote or two out of context. “What was meant was the current national security laws should be revised to allow more freedom.” He was aware, he added, “of gross wire-tapping or one-sided information by the ruling party” in its effort to discredit him. Indeed, well-scrubbed demonstrators with neatly painted signs — clearly organized by the National Security Planning Agency — had been forming outside his headquarters every day chanting slogans denouncing him as a “communist sympathizer.” His gaffe made him look more like a political amateur than a leftist — and raised real questions about his political skills.

Chung, however, portrayed himself as a civil libertarian as he enlarged on his views for my benefit: “Unless religion or thought harms other people, they should not be limited in their activities.” He saw no contradiction between this remark after his battles with union dissidents at Hyundai’s plants in Ulsan. “Labor has some expectation for me and my party as evidenced by the overwhelming victory of UPP candidates in Ulsan” in the National Assembly elections in March, he said. “Very few workers really support violence at Hyundai Heavy Industries.” He was even charitable toward Lee Bu Young, jailed after his rabble-rousing at Ulsan more than three years before and now in the Assembly. “Lee Bu Young is not really like Kim Il Sung,” he observed amiably.

Chung’s sweet talk had found a ready audience in a once implacable foe whom I met for the first time when I revisited Ulsan several weeks after interviewing the old man. There, at HHI union headquarters, inside the HHI compound in Ulsan, was Lee Won Gon, leader of the notorious 1988–1989 strike. After 18 months in jail he had not only persuaded HHI executives to rehire him in the interests of management-labor tranquility but, in January, had been elected again as chairman of the HHI union — and chairman of the Hyundai Group Federation of Trade Unions as well. Lee talked confidently to me in the presence of smiling, approving union workers, including twin brother Lee Hyung Gon, also a former union leader, also once jailed. Union workers bestowed on the pair the same kind of veneration that Hyundai executives showed the owning Chungs. “At all the unions, there are no problems now,” said Lee. “Maybe we receive a pay increase. If no increase, we strike.” Now “we help Chung Mong Joon,” Lee added with a grin.

As for M.J.’s renowned father, Lee found him “better for the economy” — better than in his days as Hyundai chairman, better than the country’s leaders. Lee dismissed the past as “history” and believed Chung’s “mind now is different — now he is a statesman.” Chung before he entered politics “had no respect for the people,” said Lee. Now he “is no longer a businessman, he is a good man.” Lee’s public moderation put him in tune with many HHI workers. “The attitude of the trade unions is in turmoil because of the fragile economic situation,” said Kim Bong Suk of the Federation of Korean Trade Unions in Seoul. “The workers’ mind is becoming more mild. Our sluggish economy affected the mind of the workers. Many small enterprises every month go bankrupt.” A majority of workers in Ulsan preferred job security to protest against owners who were courting them — and no doubt paying some of them — for support.

If Chung could win over workers through assiduous politicking and gift-giving, what would happen if they and their radical sympathizers rampaged again after the election and some hard-line general plotted a coup in the name of law and order? Could Chung, if elected, deal with a clique of pseudo-patriotic military officers? He avoided criticism of Park Chung Hee’s seizure of power in 1961 or the rise of Chun Doo Hwan in 1980 as he said, “I do not believe the time is ripe for military takeover.” Nor did he doubt his capacity, without a military background or strong ties to a military establishment linked to Roh, to handle insubordination: “I have a firm belief in my ability” — a statement few would dispute.

Chung cast his campaign as a crusade against corruption, as had Park and Chun in their early days. “My Conviction: Clean Government” was the self-righteous title of a speech he gave at the National Press Club during his Washington visit. “We can prove that clean and democratic politics is not only compatible with but also indispensable for economic health and justice,” he said.⁶⁴ Back in Seoul, his remarks inspired mirth. “Chung, The Champion of Democracy?” asked the journal of the Seoul Foreign Correspondents’ Club. “Good God, [he] is starting to sound more like Lincoln than Perot.”⁶⁵

64 Chung Ju Yung, “My Conviction: Clean Government,” 1992.

65 “Chung, The Champion of Democracy?” The Seoul Correspondent, June 1982.

In self-styled “retirement,” Chung had discovered an exciting way to keep busy. Incredibly, he never tired even after political observers, analysts, journalists had ruled him out. In July he moved his party headquarters from the ten-story building that it had occupied near but not near enough to the center of Seoul to a much larger office tower owned by Hyundai Engineering and Construction right where he wanted it, in the heart of the capital. Awed aides said the move was “Hyundai style.” On a weekend, with two days’ notice, all offices were cleared out to make way for Chung and his entourage. Come Monday, the chairman settled into the same posh suite that he had occupied before Hyundai headquarters had gone to its current address in 1983, nine years previously.

Chung, in his written answer to my questionnaire, said “I have clearly mentioned that I and the UPP severed the relationship with Hyundai,” and he was “not in the position to talk about the management of Hyundai.” He had no compunctions, however, about ordering Hyundai executives, managers, clerical workers to leave their jobs with Hyundai companies and join him. One executive described the summons. “He called me into his office and said, ‘How would you like to go to work for me beginning Monday?’” There was no saying no — though luckily the executive was “glad to have the chance to do something new.” The headquarters assumed a permanent appearance. Chung meant to keep it after the election — which he truly believed he could not possibly lose.

Chung’s headquarters complex was turned into a factory, holding strategy sessions, manufacturing releases, doing studies, receiving politicians, businessmen, petitioners, anyone with an axe to grind. If the polls still showed him last among the three major candidates, he had the most elaborate headquarters — and the most money too. There was in the outpouring the desire to promote a personality cult, to deify him just as Kim Il Sung was deified in the North. A comic book glorifying his successes illustrated the message. There was Chung, larger than life, square-jawed, resolute, introspective, soul-searching, almighty. The book, with its youthful audience in mind, made much of Chung’s role as chairman of the 1988 Olympic Promotion Committee in bringing the Olympics to Seoul. There he was fighting the skeptics. There he was, among the high and mighty of the International Olympic Committee as they made their choice at Baden-Baden. There he was, basking in a glow of inner joy as the Games opened in Seoul.⁶⁶

66 Hyundai Munhwa Shinmun Sa, editors, Giant Chung Ju Yung: Ordeals But No Failures, in Korean, 1992.

No matter how hard he claimed to have retired entirely from Hyundai, however, Chung fell back on Hyundai money and contacts. The comic book, to cite one small example, was the handiwork of Hyundai Munhwa Shinmun, a press that had begun publishing a “cultural daily,” Munhwa Ilbo, shortly before Chung’s debut in politics. Copies of Chung’s autobiography, Ordeals But No Failures, were free for the taking in the lobby of the new headquarters building. Chung’s confidence increased as investigators came closer to exposing the devices by which he was pouring Hyundai manpower and money into his campaign. “Some 90% of the charges, in terms of the amount of money involved, are totally groundless,” he said, leaving unanswered whether the rest were true. Any investigation, he predicted, would “eventually result in the wrecking of the national economy.”

Chung fought wildly. He claimed the Bank of Korea had issued 300 billion won, more than $384 million, in banknotes to finance Kim’s campaign. He charged that Y.S. had sent emissaries to the North Korean capital of Pyongyang — a grave offense. Hyundai and party workers staged protests against civil rights violations, including police surveillance of the homes of 700 Hyundai workers. Turning its guns on Seoul’s leading daily, Chosun Ilbo, the party flew a banner on the wall of its headquarters demanding the paper “repent for biased coverage.” Party officials banned Chosun Ilbo reporters from the premises and staged a sit-in in front of the paper’s offices a block away. They spent millions of won on political ads in all the papers — except Chosun Ilbo. The paper’s editors claimed Chung also intended to withhold ads normally placed by Hyundai companies.⁶⁷

67 “Media Flap Heats Up,” Business Times, January 1, 1993.

Where was Chung’s quest for glory leading? An executive in one of the Hyundai companies told me that Chung several years before had ordered bronze statues made of his father. He was about to plant them around some of his buildings when his sons, in a rare show of opposition, talked him out of it. The deepest feelings of the sons about their father were a mystery, but one of them surely would be loyal enough to fulfill his father’s dream of immortality in bronze no matter what happened after a new president assumed office and struck back at Hyundai and Chung.

So strong was Chung at this stage that the only power that could stand up to him was the government — or the ruling party through the government. That appeared uncertain too when President Roh’s brother-in-law, Kim Bok Dong, an assemblyman and retired general, jumped to the UPP after Roh’s agents had cut off his car and hauled him back to the Blue House. Kim was not alone; the UPP Assembly bloc rose from 31 to 38 after more defections. Chung’s capacity for inspiring fear ran deep even among the bureaucrats who wanted to subdue him. His power, as exercised through his family and his extended family of executives and workers, was believed in some quarters, notably around Hyundai and the UPP, to exceed that of any other Korean. He commanded respect, moreover, among those who said they would never vote for him. “I like him as a businessman,” was one often-heard remark. “We need a businessman to lead our economy,” ran the corollary — though most did not go so far as to say he was qualified for the presidency.

With or without the presidency, Chung could keep organizing his family, his future, his legacy. “It will be a split of the group rather than evolution,” said Chung Mong Joon, supporting his father’s vow that Hyundai “will cease to exist after my election.” Did the old man really mean that his creation would break up? Or was he laying the foundation for a network of secondary chaebol as closely bound to Hyundai as were the lesser ones of his brothers? Next son Mong Yun offered a more balanced view than the politically-oriented Mong Joon: “My personal opinion is that Hyundai is going to be like the Japanese enterprises. Most of the Japanese groups have come apart, but they cooperate with each other.” M.Y. did not know the Japanese term keiretsu, “related lines.” After I had explained it, he agreed that keiretsu connoted the links that Hyundai entities might form — even though Korean law prevented such a group from controlling a central bank as it could in Japan.

“I don’t think we need a major-type bank,” said Mong Yun. “We have several financial companies” — including his own Hyundai Marine and Fire Insurance. Would they be enough to fulfill much the same function in the midst of a campaign of vengeance by the bureaucracy? “The government attitude is not going to change,” M.Y. replied. That realization alone suggested the concerns that clouded Hyundai’s future as the founder tilted at the windmills of his tormentors, the mandarins who had oppressed his father, the yangban who had lorded it over his village and family until a sequence of historical accidents, war, freedom, more war, freedom under dictatorship, had conspired with his willpower and that of men like him to graft a new society on the old.

While Chung searched for fame and glory, others had to mind the store. Beneath the bravado, there were genuine worries. How long could the group go on financing his political ambitions? Even if he raised the won that he needed for immediate purposes, what if he needed more? Would his relatives, so far so humble, so controlled, remain passive as he unloaded ever more shares on an enterprise that would only be a loser — financially as well as politically? S.Y. showed the strain when he invited me for lunch at the Lotte Hotel after I ran into him at a reception hosted by the American ambassador, Donald Gregg.

“We want to see domestic problems settled first,” S.Y. replied uneasily when I asked what Hyundai was doing to solve long-range financial needs while big brother lurched on in politics. “Foreign bankers will always make loans to us,” he claimed. S.Y. was jealous, however, of Daewoo Chairman Kim Woo Choong’s good standing with officials. “Is he a politician or a businessman?” he mused amid reports, which Kim later denied, that he might run for president too. S.Y. was now getting so upset that I decided not to ask if he had posed the same question to his brother. He could not contain himself, however, when I tried to shift the topic by soliciting his views on small industry, one of his brother’s favorite themes. “I am not interested in such things,” he snapped. Then what were his major concerns? Between the fish and the fruit, S.Y fixed me with a cold gaze. “My major concern now is from now on I am not going to meet you.”

The remark effectively ended our conversation. Such emotion in a man who had once come across as nice guy of the family and the group revealed much about his fears. Two weeks before the election, S.Y told 8,000 Hyundai workers in front of group headquarters that Hyundai might be “forced to shut down as long as persecution goes on to disrupt the normal operation.” The workers demanded authorities end “oppression of the group” and the founder’s party. The affair was bogus — a show stage-managed for sympathy. It was also an affront to non-Chung stockholders, who might not welcome the suicidal threat, and to 173,000 people on Hyundai payrolls. Several days later, S.Y, having recovered his senses at a meeting with his presidents, pledged to “tide over the current difficulties for fear [that suspension] would deal a great blow to the national economy.”⁶⁸

68 The Korea Times, December 6, 1992; The Korea Herald, December 12, 1992.

In the campaign’s last week, all but Chung and his yes-men could see the obvious: he had misled himself. Aides hinted Chung would “drop a bombshell,” and expose the real sources of Kim’s finances, at a rally on Yoido Island six days before the election. They promised one million people would attend and shuttled foreign as well as local reporters to the site on the Han River by Seoul’s financial district. Only 200,000 people, many bussed in by the party, were seen standing half-bored, half-frozen as he yelled on about an unlikely plan for a parliamentary system. Forcing smiles between angry orders to Security Chief Lee Chin Ho and party workers, he waved and shouted at more paid crowds in Taegu and Taejon and, on the last day, quick stops in Seoul. Almost everyone I met among the crowd at Taegu told me he or she worked for Hyundai in Ulsan or Changwon. In freezing rain at Taejon, ralliers were spaced a few feet apart in a pretense of filling the square.

Chung’s campaign schedule on the final day, under dismal gray skies, was frantic. There was a rally at a bus station, another at a primary school, a third before what was supposed to be a huge crowd in front of Chongryangri Station, where Chung had first arrived in Seoul as a runaway from home 60 years before. The district, bereft of the airs of modern downtown Seoul, then as now was tough, gregarious, noted for one of Korea’s cheapest, biggest red-light districts, where rough country girls catered to the city’s working class. It was an appropriate setting. Backed up by the same professional banner-wavers and noise-makers who had been with him throughout the campaign, Chung tore into Kim Young Sam, denouncing him as a “stonehead idiot,” among other choice epithets. The desultory crowd applauded but without conviction. The rally ended in a chorus of hollow cheers. The curious who had gathered on the station plaza, a flurry of rush-hour movement, turned away, glad to have seen a celebrity.

The next day, December 18, Chung awoke at his usual time and, after the customary all-sons’ breakfast, walked down the hill to the Chungwoon Primary School, where he cast his ballot, confident, as congenial as he could manage, looking presidential before the cameras. All was ready for the “victory party” on the 16th floor of UPP headquarters. That evening, he and a legion of party officials drafted from Hyundai or, like Kim Dong Gil, recruited from outside, sat down comfortably in lounge chairs ranged before a big-screen TV overlooking the room. Hangers-on clustered behind them, on the sides, in the back. For a few minutes Chung and his lieutenants watched expressionless, then left abruptly as the news went from bad to worse.

All evening, the devastating returns poured in from the TV above the empty lounge chairs. Bottles of OB beer and plates laden with dried squid and peanuts remained untouched on little side tables. Low-level campaign aides and reporters, too respectful to gobble up the snacks left by Chung and his entourage, dove into the tidbits set out on tables along the walls. The room was decorated for a celebration, but the atmosphere was funereal. Intermittently Kim Young Sam flashed on TV, saying “I am very satisfied with this result.” All that was left to do for the hungry horde in Chung’s headquarters was to watch the great man in defeat.

Soon the rumor swirled among the press, the reporters who had been covering Chung, who had been lapping up the chonji, the envelopes full of cash doled out to journalists by politicians and bureaucrats in Korea: Chung would make a statement. Television cameras were poised at the end of a table in a conference room next to the party room. Chung would be back at 6 a.m. He would be back at 6:30 a.m. Would he ever appear? Was he still hoping against hope — or too ashamed to show himself before the country on TV? More reporters gathered, awakened from their slumber in the press room. Suddenly there was a stirring among those in waiting. Aides showed up. The elevator doors opened, and dozens of dark-suited figures got out, somber but determined.

Among them, with no aide to guard him, I glimpsed Chung Se Yung for the first time since our lunch at the Lotte, rushing to comfort his vanquished brother, to commiserate with him in defeat as he had exulted with him in success. “Hello, Kirk,” S.Y said grimly, recognizing me but responding with icy silence when I asked if he had any comment. Next, I spied suave Lee Byung Kyu, the wanted “bag man,” and quickly shook hands with him as he dutifully followed his superboss striding through the party room, on into the conference room, ready to face the press as he would his executives. Quietly, his face impassive, Chung sat down before a hushed room, Kim Dong Gil at his side, uttering just two sentences: “I accept the results of the election and give thanks for the support I have received despite the hardships we faced. I am sending a congratulatory message to Kim Young Sam.”

With that Chung got up, followed by the same aides, and went home. The respectful press did not shout questions. The statement-making, however, wouldn’t stop. The image of Kim Dae Jung giving his own press conference soon flashed on the TV screens, saying “I accept the result and I want to instruct Kim Young Sam to accomplish national development and improve the life of the people.” The victor had the final word, waiting for another hour before appearing before an exuberant crowd at Democratic Liberal Party headquarters. “My victory is a victory for the people who wanted change, reform and stability,” said Kim Young Sam. “This is the first civilian government in current history. This is the most clean election. It opens a new stage of political culture.” Grandly, Kim promised “to listen to all supporters of other candidates” while repeating pledges of “democratization” and “a new Korea.”

Stunned Chung followers were at a loss to explain what had happened. How could Y.S. have won so big — and how could Chung have been so deluded? There was speculation that Kim Young Sam’s strategists had also planted “upset” talk in order to get out the votes of YS. fans who might have stayed home. With 24,095,170 or 81.9% of 29,422,658 eligible voters casting ballots, Y.S. had 9,977,332 votes against 8,041,284 for D.J. and 3,880,067 for Chung. The Hyundai founder finished far behind Y.S. in one province that he had been sure was his, South Kyongsang, dominated by Ulsan and his “Hyundai City” machine. There YS. had 1,514,043 votes over Chung’s 241,135 and D.J.’s 193,373.⁶⁹

69 Central Election Management Committee, December 1992.

Cheating on the count was not an issue. Voters stamped their chops or seals on ballots tallied by the abacus, all watched by each party’s observers. Nobody trusted computers for fear of tampering. The simple reality was there had been no “typhoon for Chung,” no “late surge,” as aides had convinced, among others, the local representative of London’s Financial Times, who had perceived Chung as “winning votes at the expense of Kim Young Sam” — so many as to “tip the election in favor of Mr. Kim Dae Jung.”⁷⁰ In the hour of defeat, I spied a press aide quietly tearing blow-ups of several FT articles from the wall.

70 Financial Times, London, December 7, 1992.

The post-election inquest, however, was more portentous for Hyundai than the election, which almost everyone except Chung, his closest advisers and some artfully deluded journalists had known was a foregone conclusion. The mood in the ruling party’s camp was to destroy Chung politically, to keep him from rising again as a threat to the military and civilian bureaucracy that would remain in power under Kim Young Sam as it had under the military leaders before him. YS. might some day show mercy, but first he had to avenge the insults hurled at him by this man who had shown him the deepest contempt. Prosecutors still wanted to try the “conspirators” despite Chung’s abdication as UPP chairman, his apologies to his opponents and his announced decision to stay out of politics.

A suspended sentence might do for Chung on charges resulting from the way he had raised campaign funds — first for embezzlement from HHI and, second, for having violated the securities transaction law in hasty stock sales. HHI President Choi Soo II, Hyundai Wood President Um Yong Ki and the missing Lee Byung Kyu, like so many other executives, were educated men to whom penance in prison was a sacrifice for their boss, but they also prayed for suspended sentences. Choi and Um, after majoring in economics at Seoul National University, had advanced from the Mother Company to presidencies of other Hyundai companies before taking the posts they were asked to subvert. Lee, a Yonsei graduate, had told me early on he had “no experience” in politics and hoped to return to Hyundai as an executive. At 39, he did not want to remain forever in hiding, in jail — in disgrace.

UPP officials occasionally suggested the party share common cause against “oppression” with the Democratic Party, led by Kim Dae Jung until he too quit after the election. Chung, however, inspired little sympathy for either himself or his followers. Stories of his bullying subordinates while enriching his family were too widespread. Fearful of going down in history as a convicted villain, he unloaded his stock in politics as if he were getting rid of a bad investment. Rather than risk the expulsion from the National Assembly dictated by conviction on a criminal charge, he resigned his seat. There was no concession he would overlook to show the new Blue House bureaucracy he was willing to buy and bargain his way back into favor. Nor did Chung hesitate to sacrifice his party for his salvation.

First he told son Mong Joon to quit the party, though not his Assembly seat. Then he tore up the UPP by getting his sidekicks to leave and undercut Kim Dong Gil, the new chairman, who had aroused his ire by proclaiming outrage over Chung’s refusal to make good on his campaign pledge to fund the UPP forever. In vain, Kim charged that Chung’s Hyundai men had run away with the books while leaving the party tens of millions of dollars in debt to Hyundai companies that had loaned the funds. Chung would not even fight for non-Hyundai men charged with hustling votes — though Hyundai workers were in for promotions after returning to Hyundai. “He started crawling toward Kim Young Sam some time ago,” Kim Dong Gil told me as he rallied the remnants of the party. “He lost his integrity as a leader. He was determined to sell out the party. He has lost his direction as a human being. He just wants to save his own life, but he has hurt so many innocent people. How could he do this?” D.G. demanded Chung “assume legal and moral responsibility,” but no one imagined the old man taking the high road if there were a short cut to avoiding risks.

In the meantime, a Hyundai official totted up for me the arrests of Hyundai executives and managers: 19 Hyundai men in jail, 83 free pending trial, among a much larger number of party members in trouble with the law. The impact of the loss of managerial talent was immeasurable, but Hyundai added up to much more than the sum of its parts. The group might decentralize and reorganize but still forecast greater sales, exports and profits in 1993 than ever. Investment of nearly $3.3 billion in facilities and R&D, 28% more than in 1992, indicated a long-term outlook impervious to political erosion. Labor protest might yet pose a greater threat than the loss of executives as replaceable as cogs in a machine. Unions were restive after honeymooning with candidate Chung early on. Politicization had been destabilizing, said a union official. Chung, the HMC union paper argued, might have better invested his secret fund in workers’ welfare than in politicking.⁷¹

71 The Korea Times, December 11, 1992.

With an eye to the future of the dynasty, his family, Chung returned to his former 12th-floor suite at Hyundai headquarters, installing Mong Joon in the floor below. Chung Se Yung descended to his old office a few floors down while Hyundai Engineering and Construction kicked the remnants of the UPP out of the building it had occupied in July. A visit to UPP headquarters the weekend after Kim’s inauguration revealed disconsolate workers tossing out filing cabinets, wondering when their phone service would be cut, where, if anywhere, they would set up a new headquarters. The chairman “just got sick of politics,” said one hurt-looking party worker, refusing to say a bad word about his former hero. “Chung shut down his party with all the brutality of a plant manager firing loyal workers at Christmas,” wrote reporter Choe Sang Hun. “He leaves behind the broken dreams of thousands of volunteers who poured themselves into his presidential effort.”⁷² Out in the cold, Chung’s one-time UPP cronies left impressions similar to those of other non-Hyundai people who had done business with Chung. There were countless “stories of betrayal, portraying Chung as an autocratic egomaniac who manipulated allies, broke promises and ultimately deserted those from whom he had demanded so much.”⁷³

72 The Korea Herald, March 3, 1993.

73 “Chung Ju Yung Sent Packing,” Korea Economic Report, March 1993.

Conversely, Chung was generous as always to loyalists who had fled the UPP behind ex-Keumkang Development President Chung Jang Hyun, financing an “independent” law-makers’ mini-group, confident they would protest if the wheels of power geared to roll over him or his empire. At the same time, like a bad boy promising to be good, he pledged to “devote myself to the nation’s economic development” — by bringing contracts to Hyundai. Plants in China, resources in Russia, a canal in Mexico were all on the agenda. Mong Joon, after a quick trip to Washington to defend his doctoral dissertation at Johns Hopkins, seemed bewildered. “What would you do if you were me?” he replied when I asked him if he would stay in politics and join the ruling party — or return full-time to HHI.

M.J. was equally concerned with conveying a sense of his father’s inner turmoil behind the mask of cold all-business professionalism. “My father is getting much better,” he said, but “he is feeling bad.” No longer did his father walk to work from his home on the distant slope. “He rides,” said M. J., all filial concern. “I recommended swimming for him instead of walking.” He wanted me to believe his father was not that worried about his wealth. His holdings in HHI, since the election campaign sell-offs, were down to about 30% of the company. “His desire for natural wealth is not important,” said the son. “He is not interested.” M.J.’s tone deepened. “Father is very energetic by nature. He needs a more favorable environment. It takes time to change gears.”

As the old man attempted to put his life and business back together, the real question was whether his presence — and that of so many relatives — might still upset the establishment he hated. Could Chung ever distinguish between his own fortune and that of his companies? Might Hyundai still run aground on the ego of an angry autocrat who had refused to say, “I quit,” and mean it, until confronted with the destruction of all he had built in 60 years in business? It would be a long time, certainly, before Hyundai enjoyed the same ties with the Blue House that Chung had formed in the good old days of 30 years before. “The government will not forgive the involvement of business leaders in politics,” Kim Young Sam had told Chung Se Yung after the election, “but it guarantees the normal operations of Hyundai.” Many observers wondered if Kim would really show Hyundai such mercy.

Hyundai executives complained of “indirect hardship” from the government in the form of bureaucratic delays and threats of closer examination of credit applications along with preference given to competitors, notably Daewoo, on government contracts. The Securities Supervisory Board added insult to injury by stonewalling Hyundai’s application to list five more companies, HHI, Hyundai Merchant Marine, Hyundai Housing and Industrial Development, Hyundai Elevator and Koryeo Industrial Development, on the stock exchange. Hyundai wanted the companies listed to raise money sorely needed after Chung’s campaign spending spree. Besides, Hyundai workers wanted to sell off some of the unlisted stocks they had “voluntarily” bought to finance the campaign, the most disastrous investment decision Chung had ever made.

The Securities Supervisory Board ruled in mid-February, around the time of Kim’s inauguration, that Chung had disturbed the exchange enough. Only the week before he and his family had sold 3.2 million shares to pay off the 50.9 billion won, $65.2 million, that prosecutors had charged Chung and top HHI executives with having embezzled from HHI — all part of his campaign financing. By the public sale of stock the group had hoped to pick up 481.4 billion won — $609 million. Such an enormous sell-off, the securities board believed, would “pour cold water on the local bourse, which is still in deep water.” Hyundai countered that its companies had fulfilled all requirements and charged the refusal was for “political reasons touched off by Hyundai founder Chung’s fight” for the presidency. With Chung’s exodus from politics, group strategists hoped the board would relent.

Chung, in the meantime, campaigned so hard for exoneration that he appeared to have lost not only his self-respect but also possibly his sanity. Flying to Singapore “on business” to avoid Kim’s inauguration on February 25, he stopped off in Tokyo on the way back to prepare for his return. For three days he invited reporters to dine with him in a fine restaurant at the Imperial Hotel where he was staying — first the Japanese press, then foreign correspondents and, finally, Tokyo-based Koreans. Each time he talked of resuming his title of honorary chairman of Hyundai with top priority on breaking up the group: “I have to go back to my place in the business world,” he said. “I would like to enjoy myself as a business leader for the rest of my life” — after one or two months dividing Hyundai into 50 or more companies.

Chung advised other chaebol to do the same. “Such groupings were formed so that the government could easily exert pressure on them” — a radical turn-around, if sincere. It was humiliating self-abasement, a pathetic attempt at fitting in with Kim’s campaign against corruption and big business, just as he had appeared the sturdy peasant-patriot whenever he had fawned before Park. Sadder still, Chung’s remarks made him look like a condemned man begging for mercy. “There is no reason I should be indicted,” he whined. He claimed all his indictments had been suspended or dropped — a demented instance of wishful thinking denied by Korean prosecutors — and blamed Roh Tae Woo for his foray into politics.

“Roh forced me,” Chung complained. “He harassed Hyundai firms with the tax inspections and imposed exorbitant taxes on them. In the last three years, our relations got worse and worse and became intolerable. As a businessman I could not fight him and therefore I founded a political party and became a parliamentarian.” It was all a mistake. “I should not have involved myself in politics. I regret that. I am relieved that I could get out of it in a short period of time.” Unabashed, unashamed, he groveled before the man he had reviled in daily rallies and press briefings. “Honest politician,” a man “of fine character,” was the revisionist view. “That’s why he was approved by the public. The voters made a very wise choice.”

Tirelessly Chung angled to meet Y.S. personally, promising “to limit our talks to only economic affairs” if only the great man would receive him.⁷⁴ Critics in the UPP rump perceived a familiar scenario—there might be “some leniency to Chung,” an aide to retired Marine General Park Koo Il, a UPP assemblyman who refused to bow to Chung, told me. “Perhaps he gives some substitute for economic business.” If Y.S. could not be bribed, maybe he could be bought by other means. The timing, however, was not good. Y.S. was in the midst of an anti-corruption campaign ensnaring hundreds of military officers and bureaucrats found to have enriched themselves in an extraordinary array of payoffs in return for promotions, contracts, whatever. (Even Miss Korea was suspect. A high-ranking official of Hankook Ilbo, one of the most respected newspapers, publisher of the English-language Korea Times and contest organizer, was charged with having received huge payoffs from parents of some of the lovely candidates as well as owners of beauty parlors responsible for sponsoring them.⁷⁵)

74 The Korea Economic Journal, March 15, 1993.

75 The Korea Herald, June 30, 1993.

Chung himself as defendant was less than cooperative. He failed to show up on April 26 for his trial on illicit electioneering charges and a month later, on May 11, obtained a delay after his lawyer pleaded he was “not feeling well.”⁷⁶ Nonetheless, in June he was indicted yet again — this time on charges of violating the presidential election law by ordering UPP members to dole out cash gifts to voters along with free tours of Hyundai plants. The latest charges were perhaps not so serious as those he already faced for embezzling Hyundai funds to finance his campaign, but they were embarrassing. The prosecutors, presumably at Kim Young Sam’s bidding, might give Chung time to organize his affairs, but they still wanted to go after him.

76 The Korea Times, May 11, 1993.

On the first day of November, 1993, Chung walked into Seoul District Criminal Court and listened impassively as Judge Yang Sam Sung intoned, “The accused used millions of dollars of company money as political funds and mobilized countless numbers of employees in his campaign.” The judge, saying Chung “should justly be reproached,” meted out a three-year sentence — but freed the humbled defendant pending the outcome of a lengthy appeal process. Finally, on July 11, 1994, the Seoul Appellate Court upheld the conviction, but suspended the jail term in deference to Chung’s age and his undoubted “key part in economic development.” Chung was branded a criminal, without making him a martyr by jailing him. The system against which Chung had rebelled had had its revenge. Chung was in disgrace before his countrymen, embarrassed in screaming headlines and blaring broadcasts. He appeared, as he neared the end of his life, as another scoundrel caught up in the wave of righteous reform promised by Kim Young Sam as he crusaded against corrupt business tycoons, military officers and civil officials allied in a system of payoffs in return for bureaucratic favors. (One of Chung’s erstwhile political cronies, Park Chul Un, a nephew of Roh Tae Woo’s wife, was sentenced to two years, not suspended, for having accepted $625,000 in bribes from a slot-machine “godfather” as payment for influencing tax authorities. Park, once Roh’s senior aide, a cabinet member and potential presidential candidate, had made the fatal error of jumping to Chung’s party after Kim Young Sam won the presidential nomination.)

Before his own staff, meanwhile, the old man was tough as ever, shuffling executives, threatening on-the-spot inspections, shoving S.Y into the background, letting younger brother deal with the latest strikes while he, the founder, put his house in order. If nothing else, he could still swing his weight around Hyundai as he promised to “revive the splendid past” of Hyundai Construction, berated for a somewhat sluggish performance while he was out campaigning. And Hyundai Motor, bidding to become one of the world’s top ten car manufacturers, rebounded from disappointment in North America by announcing plans scarcely more than two weeks after Chung’s sentencing to invest more than $4 billion by the end of the century in three new factories designed to meet a goal of two million vehicles a year, nearly triple current output.

Back in his element, Chung Ju Yung would put the group, the whole group, not just 40 or so separate companies, on course after a confused year of political glory, humiliation and defeat. Politics might explain away an embarrassing fall in profits of some of his companies, but no one could give that excuse again. Besides, Chung knew his favorite “cash cow,” HHI, might not do so well amid a cyclical decline in worldwide ship orders and new strike threats.

Among Chung’s preoccupations, though, was ownership — specifically which heir owned how much of what company. Brother Se Yung had repeatedly said, “I will be last chairman of the Hyundai group” — possibly for rhetorical effect. In his 78th year, however, Chung Ju Yung would not be easy to crush. If Koreans did not love him, many believed he had done more for them than had most of the petty politicians and office-holders. Son Mong Joon portrayed his father as a selfless nationalist, always sacrificing for the higher good. “My father is for a split of the group, more independence,” said M.J. “He wants to improve the Korean economy.”

The old man who had fled home to bulldoze his way into Korea’s greatest fortune would fight on to honor the commitment that mattered most to him — division of the group among his sons. There would be crossholdings, keiretsu-style, as there had been since Motor split from Construction in 1967. Chung had no qualms about appearing to “break up” Hyundai while conniving for his family and himself. On May 22, 1993, Hyundai made a seemingly portentous announcement — Hyundai Marine and Fire Insurance, Keumkang Development and Hyundai Aluminum would no longer be under group control. Then in the fall of 1993, Hyundai Electrical Engineering, Steel Tower, Construction Equipment and Robot were merged into Hyundai Heavy Industries while Hyundai Resources Development, responsible for business with Russia, was being absorbed by the Hyundai Corporation, the trading company. Actually, the group was expanding. The addition of Kukdong, now Hyundai Oil Refinery, left the group bigger than ever as Hyundai planners plotted to fulfill an old ambition, that of a steel plant in competition with Pohang Iron and Steel.

The purpose of pretending to reorganize was clear. The Economic Planning Board had mapped out a reform package. The guidelines envisioned forming public corporations, a throwback to the Park Chung Hee era, giving the banks more equity in the chaebol and forbidding them equity in mass media. Hyundai had to give an appearance of compliance with the program. Or, as a Hyundai spokesman put it, the group wanted to “actively participate in the creation of the New Economy initiated by the Kim Young Sam administration.” The difference, in practical terms, was negligible. The same members of the Chung family owned the same shares as before. They consulted as before. They paid homage to the old man as before. The Hyundai group was intact — and let it be known it was having second thoughts about divesting Hyundai Merchant Marine and Fire Insurance, Keumkang Development and Hyundai Aluminum, still on the group’s rolls in 1994.

Kim Young Sam had appeared to indicate his outlook when he remarked that he did not believe “large enterprise groups are as efficient as they were when it comes to fierce competition in the world market.” He unnerved leaders of all the chaebol when he asked a meeting of business representatives, “Isn’t it enough [for a large shareholder and his family] to hold 5% or so of a corporation’s equity?”⁷⁷ And he appeared as a man of action when he went on national television in August 1993 to issue a presidential emergency order banning use of fictitious names in financial transactions. “From now on, all financial transactions should be conducted under real names,” he proclaimed to disbelieving ears. “Black money will disappear” — clearly an impossible dream though the order would make it tougher for tycoons to invest in “secret funds” such as the one that had financed Chung’s campaign.⁷⁸

77 The Korea Herald, June 1, 1993.

78 Korea News Views, Information Office, Embassy of the Republic of Korea, Washington, D.C., August 13, 1993.

The planners, however, were already losing their nerve. Chaebol owners and executives argued passionately that plans to strip them of their vast power might jeopardize the economy in a time of incipient recession. The same bureaucrats who listened so earnestly as analysts at the Korea Development Institute called for a regulation or law or policy empowering the government to dissolve this or that chaebol now listened to equally convincing arguments that such action would immobilize the economy. Yes, all agreed, or at least pretended to agree, the chaebol were too big. No, no one wanted to be responsible for destroying them — and perhaps the Korean “miracle” as well. “The latest bid to overhaul the chaebol has had little success,” hemmed and hawed an Economic Planning Board official, “but the topic will continue to remain on top of the agenda of the government.” No one doubted it, just as no one expected much to really change.

Epilogue

DOI: 10.4324/9781315483214-27

Four or five days a week, by the beginning of 1994, the old man tended his farm on the Korean west coast at Sosan Bay. It was no ordinary farm, however, and he was no ordinary farmer. The farmer was Chung Ju Yung, Korea’s richest man, founder of the mighty Hyundai group, rival with Samsung for the title of Korea’s biggest chaebol. The farm was the culmination of a dream. For years, he had been saying he wanted to retire to this plot of land, 38 square miles reclaimed from the sea, that boasted some of the best rice grown anywhere on the Korean peninsula. Now, after the trauma of his presidential campaign, the humiliating trial and conviction for misappropriating millions from his companies to finance his politicking and the efforts by the government to break up his group, he tried to keep his peace — with himself, his family, his organization, even with the rulers he dared to challenge.

Chung in a sense was going back to his origins. Like his father, Chung prided himself on running the farm rigorously, just as he ran his business. A top executive, Kim Yung Duc, president of Hyundai Corporation USA, responsible for selling to Americans everything Hyundai’s 40 or so companies produced except for cars and electronic items, said he missed the phone calls he once got almost daily from the man who had hired him as special assistant on construction projects in the Middle East a generation ago. “He’s not involved in daily affairs,” said Kim. “Before we communicated a lot. He always told me he had a big farm on the coast and said when he retired he would spend much of his time there.”

Nobody, however, underestimated the power of Chung within the group, back in his role as honorary chairman. No one doubted he remained the real power, passing orders through his brother and six surviving sons. “Chung Se Yung treats day-to-day affairs,” said an aide, “but in case of big projects, China, Moscow, other countries, he controls it, he is still firmly in power — he is our major stockholder.” All that was only to be expected in this society where feudal loyalty was the bedrock beneath a glistening steel-and-glass overlay of Western and Japanese modernization. “The boss is still the boss,” ruminated Kim Yung Duc. “That aspect of Confucian culture is still the same — though some companies are trying to get out of it.”

The pervasive spirit of group loyalty, of fidelity to the founder, was forged for Hyundai in the battles Chung had fought and won throughout a career that began with the flight from home and early adventures in Seoul. Kim Woo Choong of Daewoo or the late Lee Byung Chul of Samsung, scions of families of entrepreneurs and teachers, never faced quite the same challenges — though they too embodied the Confucian tradition that permeates society in Korea perhaps more so than in any other Asian country.

The chaebol, as exemplified by Hyundai, manifested the Confucian past as much as they symbolized the modern age in business and research. Whenever they came to the threshold of a new era, their legacy rose to remind them of their cultural and social antecedents, as crucial to their power as were Western invention and business methods. There was, then, a palpable sense of relief among business and political leaders that nothing much would change after all. Kim Young Sam’s five-year New Economy plan was laden with schemes to open markets, encourage competition from both foreign and Korean companies and reduce government interference, but his aides were soon willing to temper idealism with the reality of the contribution of the chaebol to the economy.

In the tug-of-war between the forces for conservatism and those for revolution, the most realistic goals might be those based on careful adjustment in a spirit of moderation and compromise. Newspapers on January 28, 1994, showed Kim Young Sam actually shaking hands with Chung Ju Yung for the first time since the election 13 months earlier. The occasion was the funeral the day before, at Korea University, for Kim Sang Man, honorary chairman and former publisher of Dong-A Ilbo and a leader of the family that had founded both the university and the paper. Both Kim and Chung might have gone to the funeral under any circumstances, but their appearance at the same place, the same time, might not have been entirely coincidental. The handshake, formal, not accompanied by conversation, signified that the two protagonists might no longer be at war.

The gesture appeared all the more significant when a Blue House official intimated later that day that the government’s “de facto financial sanction” on the group was over. While banks theoretically could extend credit as they had in the past, Hyundai’s travail was not done. The group still had difficulty obtaining financing, and a sense of unease spread through the ranks as Samsung edged ahead in sales in 1993. The fact that Hyundai sales also climbed in the face of both political turmoil and labor strife was remarkable, but the danger was that Samsung, under son and heir Lee Kun Hee, with no siblings in a position to undercut him, would pull further ahead while Hyundai wallowed in uncertainty. At 46, Lee combined the attributes of a traditional authority figure with a youthful dynamism, a desire to cut through bureaucracy and an apparent willingness to delegate — all of which conveyed a modern style quite unlike that of Hyundai.

Sixth son Chung Mong Joon was philosophical as he considered the future of big business and the role of the men, such as his father, who had dominated it. “Society wants more diffusion, more organizational influence rather than personal influence,” he told me, parrying questions about the break-up of the group. “Hyundai is still in the founding generation period. However, there is opinion in Korean society they want to see more professional managers than founding families in the companies.” M.J. smiled wryly, clearly not convinced. A photograph of him, capped and gowned, standing beside his wife on the Johns Hopkins campus in Baltimore, doctoral diploma in hand, hung conspicuously behind him in his office. “I don’t think there is any empirical test that demonstrates non-family people are professional,” remarked the man who could now be called “Doctor” just like the most distinguished professors, honored in Korean society.

M.J.’s remarks suggested the dichotomy between old styles and new, between the authoritarianism of the past and the democratic professionalism of a period heavily influenced in political ideology by the West. The legacy of Confucianism, more acutely felt in Korea than in any other country undergoing the pangs of rapid industrialization, explained much about Korean society that upset foreigners. Why did the armed forces, in both the communist North and capitalist South, hold sway? Why did strongmen rule both Koreas — Kim Il Sung in the North ever since the Soviets implanted him in 1945 and a succession of former generals in the South? How did these leaders get away with installing their successors? “Great Leader” Kim Il Sung, years before he died of a heart attack on July 8, 1994, named his eldest son “Dear Leader” Kim Jong Il, as his heir to power in Pyongyang; retired General Chun Doo Hwan passed on the mantle to his Korea Military Academy classmate, retired General Roh Tae Woo, who backed an ally of political convenience, Kim Young Sam, to succeed him in Seoul.

Why was one-man rule over the chaebol not only universal but also widely accepted? Communist or capitalist, Buddhist or Christian, Koreans of the North and South paid homage instinctively to the man at the top. Confucian veneration of the authority figure explained the longevity of politicians, generals, religious and political leaders, titans of business. Powerful rivals might stage coups d’etat, but they confronted tight-knit cadres of aides and allies of their adversaries when they did. “Minority” figures, opposition politicians such as Kim Dae Jung or leaders of lesser chaebol, commanded their empires top-down, demanding the same unquestioning respect as did mafia chieftains.

“The Confucian cultural heritage inculcates a value system based on ‘correct’ superior-subordinate relationships of the sort conducive to a smoothly operating hierarchy,” concluded SaKong Il, one-time finance minister, and Leroy Jones, SaKong’s collaborator at the Korea Development Institute.¹ The shocks of more or less forced entry of foreign commercial interests, along with Christianity, in the 19th century, followed by Japanese occupation and the Korean War, created deep schisms in Korean society. Hundreds of thousands of young Koreans, venting pent-up hahn or resentment, might disregard admonitions of their elders and rebel against whoever was in power. Critics and dissidents themselves, however, also formed hierarchies under a single unquestioned leader.

1 Leroy P. Jones and SaKong Il, Government, Business, and Entrepreneurship in Economic Development: The Korean Case, 1980, p. 48.

The lesson, of Chung’s rise, seeming fall and subsequent revival, recalled previous shifts of power in the South — the more things changed, the more they stayed the same. Workers and managers might lower the level of confrontation, owners might rely more on experts and technicians than gut instincts, large companies might forego the urge to absorb or smother the smaller ones, government and business might distance themselves from one another while resisting payoffs and bribes, but everyone knew such reforms would end as quickly as they had begun.

The new democracy, new freedom and new morality, a miracle in the making as portentous as the industrial miracle of the previous 40 years, faced yet another challenge that could destroy the whole structure in the South. The economic duress of North Korea, deprived of cheap oil from Russia and China, presented by far the worst danger. One move by the North would arm the generals-in-waiting with the ammunition they needed to tell Kim and democracy to step aside while the real guardians got to work. Kim’s promise to open markets and financial institutions — if anything more impenetrable than those of the Japanese — gave Washington a practical reason for supporting him. Yet, as the North writhed in economic agony, hunger and misery, the fear of a violent and, most terrifying, a nuclear North Korean response increased, as did the threat to a democracy that Kim was stubbornly attempting to perpetuate, against odds, in the South.

A similar insecurity, the ancestral heritage of the Korean peninsula, pervaded the outlook of all Koreans, none more than the founders and heirs to the chaebol Their deepest instinct was to fight for the status quo, to continue what had worked, and hope to avoid a new hell of reversion to war and suffering rather than the great leap forward to democracy and prosperity for all. In the end there might be no way to rationalize disparate interests of authority and democracy, big business and small, management and labor, public and private sector, much less South and North.

Hyundai, amid all the talk of reform, would remain a model of mercantile autocracy in a Confucian society. The former American ambassador, Donald Gregg, joked that the election had been “Chung’s delayed mid-life crisis.” Now that Chung had paid obeisance, the group, after the Chung-Kim handshake, announced plans to increase investment for 1994 by 119.5% to 4.5 trillion won, $5.6 billion, much of it for motor vehicle and semiconductor production and research, all under the banners of such catchphrases as “World’s Hyundai” and “Technical Hyundai,” all in hopes the banks would shower Hyundai with credit as of yore. Routinely, the Bank of Korea approved Hyundai Electronics’ request to invest $150 million for a 40% stake in a hard-hit California-based computer disk-drive company, the Maxtor Corporation, with plants in Singapore and Malaysia. Hyundai officials were shocked, however, when the government in March 1994 refused Hyundai Motor’s bid to issue $60 million in securities on foreign markets.

Nervously the group waited to see if the Korea Development Bank would extend the credit of more than a billion dollars Hyundai needed to invest in electronics, shipbuilding and motor vehicle factories. One good sign: the Korea Securities Dealers Association in June 1994 supported the group’s bid to list the stock of HHI, Hyundai Elevator and Hyundai Housing and Industrial Development — a move seen as the precursor also to listing Hyundai Merchant Marine and Koryeo Industrial Development and reapplying for KDB financing and permission to float foreign exchange-denominated securities overseas. Yonhap reported that the government had “decided to lift all financial restrictions” on the group — a day after Kim Young Sam had said “no business should be subjected to favors or disadvantages for political reasons.”²

2 Yonhap, June 23, 1994

Chung himself, no doubt anxious for Hyundai to get all the credit it needed, made a public show of fading away. In May 1994 he convened a press conference and solemnly announced that he was “retiring,” this time forever. True, he would stay on as “honorary chairman,” but from now on he would spend half his time traveling abroad and most of the rest on his farm. As always, the old man had an eye on the profit margin. He would, he said, devote his energies to “exporting Korean rice” — not that fanciful considering his pride at growing some of Korea’s best rice at Sosan.

“Politics,” said Chung in yet another display of humility for the man in the Blue House, “should be left to the politicians.” Korean newspapers editorialized that government-Hyundai relations were “normalized.” Chung’s remarks, The Wall Street Journal reported, “sent stock prices among the group’s listed affiliates skyward…. Hyundai Motor finished up 1,300 won at 43,100 won, while Hyundai Engineering and Construction ended the day at its upper limit after gaining 1,600 won, to 41,600 won.”³ Prosecutors, however, wanted more — in particular the surrender of the fugitive Lee Byung Kyu, still on the lam with all the secrets of the group and the founder. In the end, to appease the establishment, for the sake of the group and the man to whom he had dedicated his career, Lee had to come in from the cold. So it was, on the morning of September 5, 1994, he walked into the prosecutor’s office in Seoul and gave himself up. Charged with embezzling the same sum as his boss, Lee resigned himself to playing the sacrificial lamb.

3 The Wall Street Journal, May 4, 1994.

Chung could now essay the role of elder statesman, wise man, rehabilitated at last — or so he hoped. Korean policy, however, was far from settled. Controversy roiled the society, and bureaucrats inside the government still clashed with bureaucrats inside the chaebol — when they weren’t dining out with them. Perhaps no one would win, neither the idealists around Kim Young Sam nor the conservatives in the chaebol, the armed forces, the ministries. The failure to unify behind an outlook, a philosophy for governance — all that and the propensity for vengeance tinged with corruption exemplified in Chung’s venomous whims — had long since shown why Korea could not be “the next Japan.” As long as internecine strife and nepotism were ways of life, Korea was exposed to the depredations of militarists and bureaucrats in the guise of democracy, divide-and-rule by foreign powers (notably Japan but also the United States, Russia and China) and ferocious class differences that Kim’s patchwork reforms were not likely to cure.

Chung Ju Yung, as a major actor in this Northeast Asian drama, had as much as anyone turned South Korea into an industrial nation. Hyundai, more than any other chaebol, embraced a range of enterprise and industry as broad as that of any other conglomerate in the world. Like the society, however, the group tyrannized and divided its members while encouraging and sheltering them. And, like the society, the group broke rules and opposed new ideas in an atmosphere of intimidation and retribution, as had Korea’s rulers from ancient times. Thus the Chung dynasty had done as much to uphold the decadent past, perpetuating class warfare and repression, as to modernize and uplift an energetic people who deserved better for the miracle they, not Chung, his brothers and sister, sons and daughter, nieces and nephews, in-laws and grandchildren, had made.

Appendics

1 Hyundai Companies

The Hyundai group by 1994 encompassed 40 companies with interlocking ownership controlled by Chung Ju Yung and his family. This table includes companies in the group as of mid-1993. Hyundai Electrical Engineering, Steel Tower, Construction Equipment and Robot were absorbed by Hyundai Heavy Industries in September and October 1993. Hyundai Resources Development was being absorbed by the Hyundai Corporation in 1994. Employee figures fluctuate depending on orders and seasonal shifts, among other factors.

a Hyundai's companies (in order of founding)

Hyundai's companies (in order of founding)

Company

Founded

Employees

Hyundai Engineering and Constructiona

May 25, 1947

22,700

Hyundai Marine and Fire Insuranceb

Mar 5, 1955

1,876

Hyundai Securitiesc

June 1, 1962

1,523

Inchon Iron and Steeld

Sep 1, 1964

2,820

Hyundai Oil Refinerye

Nov 19, 1964

1,200

Hyundai Motor

Dec 29, 1967

40,900

Keumkang Development (department stores, hotels)

Nov 14, 1971

3,836

Sun Eel Shippingf

Jan 18, 1972

—

Aluminum of Korea

July 19, 1973

258

Hyundai Heavy Industriesg

Dec 28, 1973

21,500

Hyundai Engineering

Feb 2, 1974

1,336

Hyundai Motor Service

Feb 26, 1974

11,500

Hyundai Mipo Dockyard

Apr 28, 1975

2,657

Hyundai Pipe

May 1, 1975

909

Hyundai Aluminum Industries

Dec 20, 1975

527

Hyundai Merchant Marine

Mar 25, 1976

1,701

Koryeo Industrial Development

Apr 7, 1976

1,313

Hyundai Corporation (trading)

Dec 8, 1976

851

Hyundai International Merchant Bankh

Dec 31, 1976

121

Hyundai Precision and Industry

July 1, 1977

10,500

Hyundai Housing and Industrial Development

Oct 14, 1977

18,600

Hyundai Wood Industries

Dec 30, 1977

2,786

Hyundai Electrical Engineering

Nov 1, 1978

2,196

Hyundai and TEC Systemsi

Jan 14, 1982

—

Korea Industrial Service

Feb 3, 1983

209

Hyundai Electronics

Feb 23, 1983

12,200

Diamond Ad

Nov 1, 1983

—

Hyundai Elevator

May 23, 1984

941

Hyundai Research Institute

Oct 10, 1986

42

Hyundai John Brown Offshore Engineering

May 23, 1987

—

Korea Electronic Fuel Injection Company (KEFICO)j

Sep 3, 1987

531

Hyundai Media Systemsk

Feb 4, 1988

67

Hyundai Investment Management

Feb 19, 1988

26

Hyundai Information Technologym

May 15, 1988

56

Hyundai Steel Tower

Aug 8, 1988

352

Hyundai Robot Industry

Aug 12, 1988

302

Hyundai Petrochemical

Sep 1, 1988

1,333

Hyundai Engineering Equipment Service

Nov 1, 1989

983

Hyundai Construction Equipment Industrial

Dec 8, 1989

1,058

Hyundai Resources Development

Aug 23, 1990

25

Hyundai Munhwa Shinmun (publisher)

Aug 29, 1990

—

Korea Soviet Shipping

Nov 1, 1990

—

a Renamed from Hyundai Construction in 1981.

bAcquired October 7, 1983.

cAcquired November 16, 1977.

dAcquired June 22, 1978.

eFormally integrated into the Hyundai group on April 1, 1993. Until then its name was Kukdong Oil Refinery.

fAcquired April 3, 1984.

gRenamed from Hyundai Shipbuilding in 1978.

hAcquired April, 1978. The company, first named Korea Kuwait Banking Corporation, then KKBC International, gained its present name on June 1, 1994.

iAcquired April 3, 1984.

jJoint venture among Hyundai Electronics, Bosch of Germany and Melco of Japan. Hyundai Motor owns about a third of the stock.

kAcquired May 11, 1991, as Konic Systems, renamed in October 1992.

mRenamed from Hyundai Allen Bradley in 1993.

2 Hyundai Group Industrial Fields

“Major business” listed by the group includes: “Construction, engineering, shipbuilding, plants, heavy machinery, precision machinery, robotics, automobiles, auto parts, motor service, electronics, steel, metals, petrochemicals, trade, shipping, furniture, department store, hotel, research, finance, education.” Figures supplied by Hyundai group.

Ratio of total sales by industrial fields for 1991

Ratio of total sales by industrial fields for 1991

Manufacturing industry

39.9%

Machinery

4.6%

Electronics, electrical

3.5%

Automobiles

18.8%

Shipbuilding

7.1%

Steel and Metal

4.3%

Chemicals

0.1%

Wood

0.9%

Others

0.5%

Engineering, construction

13.5%

Wholesale, retail business

10.2%

Trading

30.7%

Shipping

2.7%

Finance

3.2%

Others

0.1%

3Hyundai Group Sales

Hyundai reported 1993 worldwide sales of approximately $58 billion, up from $53.2 billion in 1992. While that increase might appear huge, it represented a disappointment in two respects. First, the total fell short of the group’s 1993 sales goal of $63.3 billion and, second, fell behind that of Samsung, whose 1993 global sales reached $62.25 billion in 1993, thanks largely to semiconductors. The relative setback for Hyundai reflected both the strikes against Hyundai factories in 1993 and the reluctance of banks to extend credit.

The dollar figures for 1992 were computed at the year-end rate of 781 won to one dollar and those for 1993 at the year-end rate of 803. (See Appendix 9 for list of rates.)

n Sales of key Hyundai companies (millions of dollars)

Sales of key Hyundai companies (millions of dollars)

Company

1992

1993

Hyundai Corporation

$14,367n

$13,756

Hyundai Motor

$7,784

$8,943

Hyundai Motor Service

$4,123

$4,861

Hyundai Engineering and Construction

$3,454

$3,455

Hyundai Heavy Industries

$3,101

$3,381

Hyundai Precision and Industry

$1,644

$1,673

Hyundai Housing and Industrial Development

$1,513

$1,557

Hyundai Electronics

$1,348

$1,567

Inchon Iron and Steel

$1,175

$1,350

Hyundai Merchant Marine

$1,127

$1,460

Hyundai Marine and Fire Insurance

$1,080

$1,117

Keumkang Development

$551

$600

Hyundai Petrochemical

$434

$498

Hyundai Wood

$415

$495

Hyundai Pipe

$332

$400

Hyundai Mipo Dockyard

$225

$200

Hyundai Securities

$203

$197

Aluminum of Korea

$192

$242

n This figure includes sales of many products included in figures for other Hyundai companies.

4Hyundai Profits and Exports

Not all Hyundai companies wanted to release profit figures. Here are those made available in 1994:

Profits of Hyundai companies (millions of dollars)

Profits of Hyundai companies (millions of dollars)

Company

1992

1993

Hyundai Heavy Industries

$360.05

$275.34

Hyundai Motor

$53.2

$72.52

Hyundai Electronics

$12.6

$57.04

Hyundai Motor Service

$32.59

$21.53

Hyundai Engineering and Construction

$24.29

$25.83

Inchon Iron and Steel

$ 18.49

$ 14.30

Hyundai Securities

—

$10.83

Hyundai Corporation

$6.72

$6.78

Hyundai Mipo Dockyard

$11.08

$3.35

Aluminum of Korea

$ 1.24

$ 1.66

Hyundai Precision

$7.1

−$60.96

Keumkang Development

$3.91

−$6.21

Hyundai Wood

$2.5

−$5.65

Hyundai Pipe

$ 1.62

−$6.1

Hyundai reported exports for 1993 of $8.3 billion — down from $8,672 billion in 1992 — but set an export goal of $9.8 billion for 1994. The group’s top six exporters in 1992 and 1993:

p Exports of Hyundai companies (millions of dollars)

Exports of Hyundai companies (millions of dollars)

Company

1992

1993

Hyundai Heavy Industries

$2,469

$2,130

Hyundai Motor

$2,359

$1,770

Hyundai Electronics

$ 1,442

$910

Hyundai Engineering and Construction

$1,014

$900p

Hyundai Precision and Industry

$428

$650

Inchon Iron and Steel

$223

$ 136

p Hyundai Engineering and Construction’s overseas projects are not technically cited as “exports.” The

5Hyundai Vehicle Production

More than 6 million vehicles rolled off Hyundai assembly lines in Ulsan from 1968 through 1993. Below are HMC’s figures on production of all models, excluding the more than 100,000 Sonatas assembled at Bromont, Canada, from 1989 through 1993.

HMC vehicle production, Ulsan, 1968–1993

HMC vehicle production, Ulsan, 1968–1993

Type of vehicle, years in production

Totals

Fords, 1968–1985:

Cortina, Nov 1968–Sep 1971

9,290

Granada, Oct 1978–Dec 1985

4,708

Ford 20M, May 1969–June 1973

2,406

Mark IV, Mar 1977–Dec 1980

23,105

Mark V, Sep 1980–May 1983

42,049

Total Fords

81,558

Pony I, Dec 1975–Dec 1982, Jan 1982–Jan 1990

741,510

Stellar, from July 1983

412,777

Excel I, Feb 1985–Mar 1989

1,356,534

Excel II, from Apr 1989

1,328,780

Sonata I, June 1988–Apr 1993

535,238

Sonata II, from May 1993

135,955

Grandeur I, July 1986–Sep 1992

99,963

Grandeur II, from Oct 1992

29,122

Scoupe, from Feb 1990

192,309

Elantra, from Oct 1990

603,448

Trucks, buses, mini-buses, special purpose vehicles

906,118

Grand total

6,423,312

6Hyundai Vehicle Exports

Hyundai Motor’s first exports were to third-world markets in 1976, then to Europe in 1978, Canada in 1983 and the United States in 1986. Cars sold in North America are marketed through Hyundai Motor America, HMA, and Hyundai Auto Canada Inc., HACI. Mitsubishi Motor Sales America, MMSA, sold Excels under the Precis name from 1987 through 1993, the final year for that arrangement. In addition, HACI and HMA sold Sonatas assembled at Bromont, Canada, from CKD or complete knockdown sets shipped from Korea from 1989 to September 1993 when the Bromont plant suspended production.

HMC vehicle exports: Cars shipped to North America

1986

1987

1988

1989

1990

1991

1992

1993

HACI:

64,862

30,094

29,873

13,736

17,762

17,630

11,370

20,035

HMA:

203,291

283,418

301,930

132,945

123,076

103,123

74,275

107,734

MMSA:

—

27,097

27,743

5,906

3,265

3,606

3,031

1,078

Sonatas assembled in Bromont:

20,160

29,340

25,020

14,220

14,307

HMC vehicle exports: Cars shipped to other continents

1986

1987

1988

1989

1990

1991

1992

1993

Europe

11,493

26,796

20,097

20,963

28,168

67,510

111,020

106,337

Middle East

9,091

11,392

6,997

3,208

4,246

6,012

15,028

29,747

Africa

483

1,073

1,208

1,269

1,698

2,769

4,443

5,055

Asia & Pacific

6,823

12,851

13,068

16,815

15,841

20,127

27,216

42,728

Latin America

5,478

9,794

6,117

5,037

5,342

7,580

22,218

16,856

7Hyndai's Chairmen

Two people, Chung brothers, have been Hyundai group chairmen.

Chung Ju Yung:q

November 25, 1915: Born in Asan, Tongchon, Kangwon Province.

March, 1930: Graduated from Songjon Primary School.

March, 1940: Founded Ato Service garage in Seoul.

April 1946: Founded Hyundai as automobile repair company.

April 1952: Board member, Korea Construction Association.

June 1974: Co-chairman, Korea-British Economic Promotion Committee.

February 1977: Chairman, Federation of Korean Industries.

July 1977: Chairman, Asan Foundation (named for his native village)

March 1981: Chairman, 1988 Olympic Promotion Committee.

February 1985: Chairman, Korea Sportsman Club.

May 1992: Ph.D., public service, honorary, George Washington.r

February 1987: honorary chairman, Hyundai group.

February 1987: Honorary president, Federation of Korean Industries.

January–February 1989: Visited Soviet Union, North Korea.

February 8, 1992: Founded Tongil Kukmindang, United People’s Party.

March 24, 1992: Won National Assembly seat on UPP slate.

December 18, 1992: Received 16.1% of votes for president.

February 6, 1993: Indicted for role in embezzled campaign fund.

February 9, 1993: Quit politics with resignation from UPP.

November 1, 1993: Received three-year suspended prison sentence.

r Chung also has honorary doctorates from five Korean universities, Sogang, Ewha, Yonsei, Chungnam, and Kyunghee.

q This list excludes dates of founding of companies listed in Appendix 1, except for ventures before World War II and immediately afterward.

Chung Se Yung:

August 6, 1928: Born in Asan, Tongchon, Kangwon Province.

February 1953: Graduated from Korea University, political science.

April 1957: Received master’s degree, Miami University, Oxford, Ohio, international relations.

December 1957: Executive managing director, Hyundai Construction.

December 1967: President, Hyundai Motor Company.

May 1983: Doctor of law, honorary, Miami University.

February, 1987: Chairman, Hyundai group, Hyundai Motor Company.

Other positions: Chairman, Korea-British Business Promotion Committee; deputy chairman, Korea-Japan Economic Association; vice chairman, Federation of Korean Industries, deputy chairman, Korea Employer’s Federation.

8The Hyundai Dynasty

Chung Ju Yung’s family includes five brothers and a sister, eight sons and a daughter, 20 grandchildren and numerous great-grandchildren. All four surviving brothers and six surviving sons, plus husbands of his sister and daughter and two nephews, hold top posts. Other nephews are with the lesser chaebol of their fathers.

Name

Date of Birth

Position, Notes

Brothers and Sister

In Yung

June 6, 1920

Chairman, Halla Group.

Soon Yung

Dec 12, 1922

Chairman, Sungwoo Group

Hee Yung

1925

Sister, married to Kim Yung Ju, chairman, Korea Flange.

Se Yung

Aug 6, 1928

Chairman, Hyundai group

Shin Yung

Mar 5, 1931

Died 1962.

Sang Yung

Dec 7, 1936

Chairman, Keumkang Group.

Sons and Daughter:

Mong Pil

Dec 29, 1936

Died April 1982, was president Inchon Iron and Steel.

Mong Ku

Mar 19, 1936

Chairman, Hyundai Precision and Industry, Inchon Iron and Steel, Hyundai Motor Service, Hyundai Pipe, Hyundai Housing and Industrial Development, Hyundai Construction Equipment.

Mong Kun

Apr 11, 1942

Chairman, Keumkang Development

Kyung Hee

Feb 8, 1944

Daughter, married to Chung Hee Yung, president, Seonjin Shipping. (Chung Hee Yung is not even a distant relation despite the coincidence in family name. Also note the coincidence between his given name, Hee Yung, and that of Chung’s sister, Hee Yung.)

Mong Woo

Feb 24, 1945

Died April 1990, was chairman, Hyundai Aluminum. (Lee Chin Ho, chairman of Hyundai Aluminum and elder brother of Chung Mong Woo’s widow, was Chung Ju Yung’s security chief during his campaign for president.)

Mong Hun

Sep 14, 1948

Chairman, Hyundai Electronics, Hyundai Elevator; president, Hyundai Information Technology; Vice Chairman, Hyundai Merchant Marine. (Father-in-law Hyun Yung Won is chairman.)

Mong Joon

Oct 17,1951

National assemblyman; former chairman, Hyundai Heavy Industries

Mong Yun

Mar 18, 1955

President, Hyundai Marine and Fire Insurance.

Mong Il

Mar 25, 1959

Senior Executive Vice President, Hyundai International Merchant Ban

Nephews Mong Hyuck

July 29,1961

Senior Vice President Hyundai Petrochemical, Hyundai Oil Refinery, treated as a son by Chung Ju Yung since his own father, Chung Shin Yung, died when he was a year old.

Mong Kyu

Jan 4, 1962

Vice President, Hyundai Motor, Chung Se Yung’s only son.

9Won Exchange Rates

The exchange rate of the Korean won relative to the U.S. dollar has changed considerably since economic planners drafted the first five-year plan in 1962. The shift reflects in part a steady relaxation in central control. Exchange rates were set by a fixed-rate system until May 3,1964, when the planners introduced what they called a “mono-flexible system” under which the Bank of Korea notified banks daily of the rate. Then, in 1980, the planners shifted to a “multi-currency basket system” in which banks were still notified of the exchange rate every day but were more responsive to other currencies. Since April 1990 the value of the won has been determined by market forces — with the daily rate set by the country’s 91 foreign exchange banks on the basis of the previous day’s average market rate. Korea plans to implement an entirely “free-floating system” in 1996 or 1997, acording to Shin Yun Su, deputy director, foreign exchange policy division, Ministry of Finance. Figures graphed below and in the following table were supplied by the Economic Planning Board, overall planning division.

Year

Won/Dollar

Year

Won/Dollar

1961

130

1978

484

1962

130

1979

484

1963

130

1980

608

1964

214

1981

681

1965

266

1982

731

1966

277

1983

776

1967

277

1984

806

1968

277

1985

870

1969

288

1986

882

1970

311

1987

823

1971

348

1988

731

1972

393

1989

672

1973

405

1990

708

1974

484

1991

734

1975

484

1992

781

1976

484

1993

803

1977

484

1994

800

10Chaebol Assets and Equity

Korea’s Fair Trade Commission compiled net assets, defined as the difference between total assets and total liabilities, government subsidies and investments in subsidiaries, of the top ten chaebol and their 374 subsidiaries, as of April 1, 1994. The second column lists total investments. Figures are in millions of dollars, converted at the rate 805 won to the dollar.

Group

Net Assets

Investments

Hyundai

$7,163

$2,027

Daewoo

$6,084

$1,969

Samsung

$5,973

$1,168

Lucky-Goldstar

$5,060

$1,308

Sunkyong

$2,836

$1,153

Ssangyong

$2,658

$545

Lotte

$2,157

$294

Kia

$1,927

$246

Hanhwa

$1,134

$485

Hanjin

$1,064

$319

The Fair Trade Commission also computed percentage of “family-owned equity” — held by major shareholders, family, and subsidiaries — in the chaebol A comparison of 1993 and 1994 figures shows this percentage increasing in Hyundai while that in most other groups fell somewhat.

Group Family-owned Equity:

1993

1994

Hyundai

57.8%

61.3%

Daewoo

46.9%

42.4%

Samsung

52.9%

48.9%

Lucky-Goldstar

38.8%

37.7%

Sunkyong

48.6%

50.9%

Ssangyong

36.7%

33.8%

Lotte

23.2%

23.8%

Kia

21.4%

22.7%

Hanhwa

36.8%

33.8%

Hanjin

46.6%

43.9%

Selected Bibliography

Note on Seoul's English-language press

A number of magazines, published in English in Seoul, provided data, interviews, background information and insights. Among them: Business Korea, Business Times, Korea Business World, Korea Economic Report, Korea Post, and Trade Korea. Industrial and commercial associations as well as private companies also publish English-language magazines, journals, reports and bulletins, including the Hyundai Corporation’s monthly Hyundai Newsletter.

Two English-language dailies are published in Seoul. Hankook Ilbo, a Korean-language daily, owns The Korea Times. A consortium led by the Dainong textile group purchased a 60% interest in The Korea Herald from the government in 1989. The Korean Foreign Trade Association, a government front, owns 20%.

Hankook Kyongje Shinmun, “The Korea Economic Daily,” publishes The Korea Economic Weekly in English. The Federation of Korean Industries owns about 70% of the company that publishes the newspapers. Hyundai interests own approximately 30%.

Yonhap, Korea’s national news agency, disseminates news and features daily in English as well as Korean. Yonhap is owned jointly by Korean newspapers and broadcasting stations. It is viewed as “semi-official,” however, since the government’s Korean Broadcasting System owns about 40% of equity.

English-language publications

Amsden, Alice H., Asia’s Next Giant: South Korea and Late Industrialization, Oxford University Press, New York, 1989.

Amsden, Alice H., “The South Korean Economy: Is Business-Led Growth Working?” in Korea Briefing, 1992, Donald N.Clark, editor, Westview, Boulder, 1992.

Anderson, Douglas D., Cho DongSung and Pope, Susan, Hyundai Heavy Industries and the Shipbuilding Industry, Case Study 0–385–212, Harvard Business School, 1984.

Asia-Pacific Infoserv, compiler, publisher, Korea Company Handbook: Investment Guide, biannual, Seoul.

Bello, Walden, and Rosenfeld, Stephanie, Dragons in Distress: Asia’s Miracle Economies in Crisis, The Institute for Food and Development Policy, San Francisco, 1990.

Business Korea, Business Korea Yearbook on the Korean Economy and Business, annual, Seoul.

Caiden, Gerald E., Kim BunWoong, editors, A Dragon’s Progress: Development Administration in Korea, Kumarian Press, West Hartford, 1991.

Cho LeeJay and Kim YoonHyung, editors, Economic Development in the Republic of Korea: A Policy Perspective, East-West Center, Honolulu, 1991.

Choi HoChin, The Economic History of Korea: From the Earliest Times to 1945, Sekyung Sa, Seoul, 1971.

Christian Institute for the Study of Justice and Development, Lost Victory: An Overview of the Korea People’s Struggle for Democracy in 1987, Minjung Sa, Seoul, 1988.

Chung JuYung, “Enterprises Grow thru Rational Management & Self-Effort,” Korean Business Review; Federation of Korean Industries, September 1986.

Chung JuYung, “My Conviction: Clean Government,” National Press Club, Washington, official English translation, August 31, 1992.

Chung JuYung, “Presidential Candidate Nominee Speech,” official English translation, May 15, 1992.

Chung Ju Yung, Written response to author’s questionnaire, May 26, 1992.

Chung MongJoon, “Status of the Korean Shipbuilding Industry,” presented at the International Forum On Industrial Planning And Trade Policies, 1982, in Seoul; Hyundai Heavy Industries, Ulsan, 1984.

Chung SeYung, “Reflections on Korea’s Business Environment,” Korean Business Review, Federation of Korean Industries, August 1992.

Chung SeYung, “The Prospect and Task of Korean Automobile Industry,” The Sixth International Pacific Conference on Automotive Engineering, October 28–November 1, Seoul, Korea Society of Automotive Engineers, Seoul, 1991.

Clark, Donald N., editor, Korea Briefing, 1992, published in cooperation with the Asia Society, Westview, Boulder, 1992.

Cole, David C., and Park YungChul, Financial Development in Korea 1945–1978, Studies in the Modernization of The Republic of Korea: 1945–1975, Council on East Asian Studies, Harvard University, 1983.

Commission of Inquiry into the Facts of Allegations of Conflict of Interest Concerning the Honorable Sinclair M. Stevens, “The Allegations Relating to Hyundai,” Minister of Supply and Services, Ottawa, 1987.

Cumings, Bruce, The Origins of the Korean War: Liberation and the Emergence of Separate Regimes 1945–1947, Princeton University Press, 1981.

De Mente Boye, Korean Etiquette and Ethics in Business, NTC Business Books, Lincolnwood, Illinois, 1988.

Elegant, Robert, Pacific Destiny: Inside Asia Today, Hamish Hamilton, London, 1990, Headline Books, London, 1991.

Federation of Korean Industries, Korea’s Economic Policies (1945–1985), Federation of Korean Industries, Seoul, 1987.

Gayn, Mark, Japan Diary, William Sloane Associates, New York, 1948.

Gibney, Frank, Korea’s Quiet Revolution: From Garrison State to Democracy, Walker, New York, 1993.

Goldrick, Sean, Korea: A review of its history and politics, of its economy, of its stock market, and of its main companies, Hoare Govett, Seoul, December, 1986.

Halberstam, David, The Reckoning, William Morrow, New York, 1986.

Hamilton, Clive, Capitalist Industrialization in Korea, Westview, Boulder, 1986.

Han WooKeun, The History of Korea, translated by Lee KyungShik, edited by Grafton K.Mintz, Eul-Yoo, Seoul, 1970.

Henderson, Gregory, Korea: The Politics of the Vortex, Harvard University Press, Cambridge, 1968.

Hyundai group, Corporate Culture Office, Chung Ju Yung: His Life and Success, unpublished, Seoul, 1989.

Hyundai group, Planning Department, Orientation Course for New Recruits, mimeographed, official English translation, Hyundai group, Corporate Culture Office, Seou, 1989.

HongWontack and Krueger, Anne O., editors, Trade and Development in Korea, Korea Development Institute, Seoul, 1975.

Innace, Joseph J., and Dress, Abby, Igniting Steel: Korea’s POSCO Lights the Way, Global Village Press, Huntington, N.Y., 1992.

International Cultural Foundation, Economic Life in Korea, Chun Shin Yong, general editor, Si-sa-yong-o-sa, Seoul, 1982.

Jang SongHyon, The Key to Successful Business in Korea, Yong Ahn Publishing Co., Seoul, 1988.

Joe Wanne J., Traditional Korea: A Cultural History, Chungang University Press, Seoul, 1972.

Jones, Leroy P., and SaKongIl, Government, Business, and Entrepreneurship in Economic Development: The Korean Case, Studies in the Modernization of The Republic of Korea: 1945–1975, Council on East Asian Studies, Harvard University, 1980.

Kang ChangWon, Choe DongSoo, editors, Zaebols in Korea 1989, Bankers Trust Securities Research, Korea Investors Service, Seoul, 1990.

Kang T.W., Is Korea the Next Japan: Understanding the Structure, Strategy, and Tactics of America’s Next Competitor, The Free Press, Macmillan, New York, 1989.

Kearney, Robert P., The Warrior Worker: The History and Challenge of South Korea’s Economic Miracle, Henry Holt, New York, 1991.

Kee WooSik, “Private Entrepreneurs (Chaebol) and Industrial Growth in Korea,” Lucky Goldstar Economic Research Institute, 1988.

Kim BunWoong; Bell, David S.Jr.; Lee ChongBum, editors, Administrative Dynamics and Development: The Korean Experience, Kyobo Publishing, Seoul, 1985.

Kim ByongKuk, Kim Woo Choong: Schumpeterian Entrepreneur, Bob Mun Sa, Seoul, 1988.

Kim KwangSuk and Roemer, Michael, Growth and Structural Transformation, Studies in the Modernization of The Republic of Korea: 1945–1975, Council on East Asian Studies, Harvard University, 1981.

Kim WooChoong, Every Street Is Paved With Gold, introduction by LouisKraar, William Morrow, New York, 1992.

Kim Young-Sam and The New Korea, interviews and discussions with experts; no individual author or editor cited; contents reviewed by the Institute for American Korean Affairs; Bonus Books, Chicago, 1992.

Kleinman, Philip, The Saatchi and Saatchi Story, George Weidenfeld and Nicolson, London, 1987.

Korea Development Bank, research department, Industry in Korea 1988, Korea Development Bank, 1988.

Korea Development Securities, Korean Conglomerates, Korea Development Securities Co., Ltd., a wholly-owned subsidiary of The Korea Development Bank, Seoul, January 1993.

Korea Investors Service, compiler, publisher, Investment Guide to Korean Stock Market, biannual, Seoul.

Krisher, Bernard, “Chairman Chung Ju Yung,” transcript of interview, United People’s Party, Bureau of International Relations, Seoul, 1992.

Krueger, Anne O., The Developmental Role of the Foreign Sector and Aid, Studies in the Modernization of The Republic of Korea: 1945–1975, Council on East Asian Studies, Harvard University, 1982.

Lee KiBaik, A New History of Korea, translated by Edward W.Wagner with Edward J.Shultz, Ilchokak, Seoul, 1984.

Lee KyuUck, editor, Industrial Development Policies and Issues, Korea Development Institute, Seoul, 1986.

Lee YoungKi, “Conglomeration and Business Concentration: The Korean Case,” conference paper, Industrial Policies of the Republic of Korea and the Republic of China, Korea Development Institute, 1985.

Lew SeokJin, Bringing Capital Back In: A Case Study of the South Korean Automobile Industrialization, doctoral dissertation, unpublished, Yale University, New Haven, November 1992.

Lim GillChin, editor, Korea Development into the 21st Century: Economic, Political and Spatial Transformation, Consortium on Development Studies, Myung Bo, Seoul, 1988.

Lowry, Tom, The South Korean Motor Car Industry: a Rerun of Japan? Automotive Special Report No. 9, Economist Intelligence Unit, London, 1988.

Macdonald, Donald Stone, The Koreans: Contemporary Politics and Society, second edition, Westview, Boulder, 1990.

McKenzie, F.A., The Tragedy of Korea, London, 1908, reprint, foreword by Hong Yi Sup, Yonsei University Press, Seoul, 1989.

Nahm, Andrew C., Korea: Tradition and Transformation, Hollym, Seoul, 1988.

Park ChongSup, editor, Chaebol in Transition: Hyundai Group, Ernst and Young, Seoul, 1992.

Park ChungHee, Our Nation’s Path: Ideology of Social Reconstruction, Dong-A, Seoul, 1962; revised edition, Hollym, Seoul, 1970.

Park ChungHee, The Country, the Revolution and I, translated by LeonSinders, Hollym, Seoul, 1963.

Paek SiJong, “A Wickedest Dirty Old Man,” (excerpt from Money Emperor), The Korea Post, June 1989, pp. 19–23.

Park ChongKee, editor, Macroeconomic and Industrial Development in Korea, Korea Development Institute, Seoul, 1980.

Porter, Michael E., The Competitive Advantage of Nations, The Free Press, Macmillan, New York, 1990.

RheeChongik, Korea: The Turbulent Decade, Nanam Publications, Seoul, 1989.

SaKong IL, The Evolution of Korean Economy: A Historical Perspective, Korea Development Institute, International Forum on Structural Adjustment and Stabilization Policy, Seoul, April 12–19, 1988.

SaKong IL, Korea in the World Economy, Institute for International Economics, Washington, D.C., 1993.

SaKong IL, editor, Essays on Korea’s Fifth Five-Year Plan: Vol. I, Macroeconomic Policy and Industrial Development Issues; Vol. II, Human Resources and Social Development Issues, Korea Development Institute, Seoul, 1987.

Sanford, Dan C., preface by Donald N.Clark, foreword by Moon Soo Eon, South Korea and the Socialist Countries: The Politics of Trade, St. Martin’s Press, New York, 1990.

S.G.Warburg Securities, “What is a Chaebol?” Seoul, 1992.

Shapiro, Michael, The Shadow in the Sun: A Korean Year of Love and Sorrow, introduction by SusanChira, Atlantic Monthly Press, Boston, 1990.

Shim Ui Sup, editor, Korean Construction in the Middle East, Bob Mun Sa, Seoul, 1984.

Shin In Sup, Advertising in Korea, Si-sa-yong-o-sa, Seoul, 1989.

Sohn HakKyu, Authoritarianism and Opposition in South Korea, Routledge, London, 1989.

Song ByungNak, The Rise of the Korean Economy, Oxford University Press, Hong Kong, 1990.

Steers, Richard M., Shin YooKeun, Ungson Gerardo R., The Chaebol: Koreas New Industrial Might, Harper & Row, New York, 1989.

Steinberg, David I., The Republic of Korea: Economic Transformation and Social Change, Westview, Boulder, 1988.

Steinberg, David I., “South Korea’s Economy: History and Prospects,” background report, Asia Society, New York, August, 1988.

ToyoKeizai, “Republic of Korea,” (data provided by Daewoo Securities), Asian Company Handbook, Toyo Keizai, Tokyo, 1992.

Ulsan Chamber of Commerce, Commerce and Industry in Ulsan, in English and Korean, Ulsan, 1988.

Ulsan municipal government, Industrial Korea/Ulsan, Ulsan, 1986.

United People’s Party, Bureau of International Relations, Chung Ju Yung: A New Vision to Revive the Korean Economy, Seoul, 1992.

United People’s Party, An Episode: The Birth of Hyundai Heavy Industries, Co., Ltd., pamphlet published on the occasion of Margaret Thatcher’s visit to Seoul and Ulsan, September 1992, Seoul, 1992.

United People’s Party, United People’s Party: Inaugural Declaration, Resolution, Platform, Basic Policies, Constitution, Seoul, 1992.

Vogel, Ezra F., The Four Little Dragons: The Spread of Industrialization in East Asia, Harvard University Press, Cambridge, 1991.

Winchester, Simon, Korea: A Walk Through the Land of Miracles, Prentice Hall, New York, 1988.

Whitmore, Earle, History of the United States Army Engineer District Far East: 1957–1975, U.S. Army Corps of Engineers, Far East District, Seoul, 1976.

W.I.Carr Overseas Limited, “Hyundai,” Seoul, 1988.

Korean-language publications, Seoul

The cited title, ususally the translated English title, is here given first.

ChaeJong In, editor, [‘Who Says I Can’t Become President?’ — Chung Ju Yung] ‘Narahgo Daetongryung Daegi Mahllan Bop Inna’— Chung Ju Yung, cartoons by KimSung Hwan and Lee HongWoo, Dongin Munhwa Sa, 1992.

Children’s Hankook Ilbo, editors, [Giant Running Around the Globe: The Story of Honorary Chairman of Hyundai Group Chung Ju Yung] Jiguchoneul Nubeeneun Goin: Hyundai Gump Chung Ju Yung Myungye Hoejang Eyagi, illustrations by Yang HuYung, Children’s Hankook Ilbo, 1991.

Cho DongSung, [Study on Chaebol] Chaebol Youngu, Meil Kyungje, 1991.

Chun BumSung, [Chung Ju Yung: Real Enterprise Story, Secret Story of the Founding of Hyundai] Chung Ju Yung: Silrok Kiup Sosul, Hyundai Changup Bihwa, Seo Moon Dang Sa, 1984.

Chung JuYung, [Age of Success] Sungkong Sidae (translated from Japanese, The Pony Runs), Kukje Munhwa Sa, 1989.

Chung JuYung, [My Determination for ‘Clean Polities’] Naeui ‘Kkaekeuthan Jungchi Shinneum, pamphlet, Tongil Kukmindang, 1992.

Chung JuYung, [Speeches by Chung Ju Yung: In the Morning with a Beating Heart] Chung Ju Yung: EeAhchimedo Suhlemul Anko, Sam Seong Sa, 1987.

Chung JuYung, [For the World With Hope and Enthusiasm] Heuimangkwa Hoahlgichan Sesangeul, pamphlet, Tongil Kukmindang, 1992.

Chung Ju Yung, [Ordeals But No Failures: My Life, My Ideal] Siryuneun Ituhdo Silpaeneun Upda: Naeui Salm, Naeui Eesang, autobiography, Hyundai Munhwa Shinmun Sa, 1991. (This English title is that preferred by Chung and the United People’s Party. Literally, the Korean title means, “There Might Be Hardships But No Failure.”)

Chung JuYung, [Why I Have Decided to Enter Politics] Naneun Oae Junggae e Jinchulhage Daeutneunka, pamphlet, Tongil Kukmindang, 1992.

Chung MongJoon, [Ethics of Corporate Administration] Giup Kyungyoung Ieneum, Technology College of Ulsan University, Ulsan, 1984.

Chung MongJoon, [For New Politics] Sae Jungchileul Weehayeuh, Sangshin, 1990.

Gi HaeByun, [“The 6th Republic, Really Pulling the Sword Against the Chaebol”] “Yuk Kong, Kwayon Chaebolei Kal Whidulunna,” Chugan Chosun [Weekly Chosun], October 20, 1991.

Gong ByongHo, [Choice of Growth Strategy in Large Companies] Daegiup Gipdaneui Seuntaik, Korean Economic Research Institute, 1992.

Hyundai group, Public Relations Office, [Twenty Five-Year History of Hyundai Construction] Hyundai Kunsul Iship Ohnyun Sa, Hyundai group, Public Relations Office, Seoul, 1974.

Hyundai Motor Company, [History of Hyundai Motor] Hyundai Jadongcha Sa, Hyundai Motor Company, Seoul, 1987 (the first 20 years); revised edition, 1992 (the first 25 years).

Hyundai Munhwa ShinmunSa, editors, [Giant Chung Ju Yung: Ordeals But No Failures] Goin Chung Ju Yung: Siryuneun Ituhdo Silpaeneun Upda (subtitle the same as title of Chung’s autobiography), comic book, Hyundai Munhwa Shinmun Sa, 1992.

Kim DongGil, [”Expecting aDetermined, Open Election from President Roh”] Roh Daetongryungeui Gongmyungsungoh Kyuldan Kidaehae, Yeosung Journal [Women’s Journal], August 1992, pp. 42–45.

Kim SangIk, Kim BangHui, [“The Richest Man Is Chung Ju Yung”] “Chaego Bujaneun Chung Ju Yung Ssi,” Sisa Journal October 17, 1991, pp. 10–15.

Kwon YongMok, [“History of the Labor Movement at Hyundai”] “Hyundai Nodong Undong Sa,” Sae Byuk [Dawn], Seok Top, in three parts, May 15, July 25, October 20, 1988.

Lee ChulSu, [Miracle on the Taehwa River] Taehwa Kangeui Gijuk, Sun Lin Chul Pan Sa, 1989.

Lee WonSu, [Chung Ju Yung: Who Is He?] Chung Ju Yung: Geu Neun Nu Gu In Ka? Ja Yu Moon Hak Sa, 1988.

Oh KyoJin, [People Going to the Top] Jungsangeul Kaneun Saramdeul, Chosun Ilbo Sa, 1987.

Paek SiJong, [Money Emperor] Don Hwangjae, Shil Chun Moon Hak Sa, 1989.

Seo KyungSuk, Korean Christian Society Problem Research Institute, [The Present Facts and Labor Movement in Taegu-Ulsan] Taegu-Ulsan Kiup Shiltaewa Nodong Undong, Minjung Sa, 1988.

Seo MyungSook, [“Hyundai and Kukmindang: Politics and Economy Together in One Campaign”] “Hyundai wa Kukmingdang: Chung Kyung Ilche Daesun Undong,” Sisa Journal, November 19, 1992, pp. 14–19.

Seoul KyungjaeShinmun, editors, [Chaebol and Home] Chaebol Kwa Gahboel, Jieshick Sanop Sa, Seoul, 1991.

Shin BongSeung, [“King Chaebol Who Came to the Hearing — Chung Ju Yung”] “Dae Chaebol Chungmunhoe Kada — Chung Ju Yung,” Jik Jang In [Working Man], December 1988.

Yoo HoGil, [“Prince of Hyundai Who Looks Exactly Like His Father: Would Chung Mong Ku Become the Head of the Group?”] “Ahbuhji Sok Paedalmun Hyundai Hwangtaeja: Chung Mong Ku Hweijang Gurup Chongsu Orulka?” Maekyung Kyungjae [Maekyung Business Week], April 15, 1992, pp. 32–35.

Japanese-language publications, Tokyo

Chung Ju Yung, [The Pony Runs] Pony Ga Hashiru, Kobunsha, 1987.

TakaoEiji, [The Day Korean Cars Kick Out Japanese Cars] Kankokusha Ga Nihonsha 0 Kuchiku Sum Hi, Tokuma Shoten, 1988.

Acknowledgements

Key to understanding any Korean chaebol is a perception of the founder and his heirs. Chung Ju Yung, Hyundai founder, granted me two interviews, at Hyundai headquarters on June 30, 1989, and at United People’s Party headquarters on June 12, 1992. Among Chung’s four surviving brothers, only Chung Se Yung, his successor as group chairman, received me. He granted me three interviews, on April 11, 1988, over lunch in the Metropolitan Club at the Lotte Hotel in Seoul; on August 25, 1989, at group headquarters, and on July 8, 1992, again at the Metropolitan Club.

Among the founder’s six surviving sons, the three youngest agreed to talk to me. Sixth son Chung Mong Joon, party aide to his father, spoke to me on a number of occasions, seeing me several times in his office at UPP headquarters and twice inviting me to join him in Ulsan, his political base. The two youngest, Chung Mong Yun and Chung Mong Il, as well as a nephew, Chung Mong Hyuck, gave me one interview each. (The Chinese character for “mong,” the first of the given names for all Chung’s sons and nephews, means “dream,” while that for “yung,” the second of the given names for Chung and all his brothers, means “forever.”)

Chung Ju Yung’s entry into national politics at the beginning of 1992 opened new contacts among the several hundred people hired from the Hyundai group to serve his United People’s Party. One of the most helpful was Chung’s long-time chief aide, Lee Byung Kyu, whom I had first met with his boss on a plane to Moscow in 1990. Lee briefed me many times at UPP headquarters before going into hiding along with an assistant, Chong Hee Chan, after the presidential election on December 18, 1992. Chung’s secretary, Lee Dong Ho, and other assistants, Kim In Jae, Kim Kyung Bae and Kim Won Suk, were also helpful, as were Chung Mong Joon’s secretary, Song Kang Ho, and assistant, Kim Sang Jin.

The press office of the UPP was less cordial. Spokesmen Pyon Jong Il and Cho Sun Hwan, national assemblymen, made clear I was not welcome there. Lee Jae Ho, political reporter of Dong-A Ilbo, told me the press room was the exclusive preserve of Koreans. Yang Bong Jin, plucked from Hyundai Investment Management to deal with the foreign press, refused to “accredit” me with Chung’s campaign, saying I was “a freelancer,” but could not prevent me from covering rallies and other party events. Choi Woo Chan, director of the UPP’s international relations bureau, and Lee Young Kyu, an assistant spokesman, briefed me. Choe Sang Hun of The Korea Herald provided news and tips. Kee Woo Tak, former manager of the Korea Press Center and a district leader in Pusan, gave a grass-roots view. Kim Dong Gil and Pong Doo Wan, among party leaders, and Lee Chin Ho, Chung’s campaign security chief and president of Hyundai Aluminum, also talked to me.

With Hyundai in Seoul, Park Il Kwon, public relations manager, arranged interviews and escorted me to factories in Ulsan in late 1988. Dr. Chung Hoon Mok, chairman of Hyundai Engineering and Construction, twice received me. Chon Kap Won described adventures in the Middle East. Others whom I interviewed with Hyundai companies in Seoul: Chung Jang Hyun, president (later national assemblyman), and Kim I.Y., executive vice president, Oh J.Y., Hong K.R and Park Hye Kyung of Keumkang Development; Choo Kang Soo, senior vice president, Han Dong Soo, vice president, Kang “Chris” C.S., Kim Jung Won, Hwang Youp Young, Park Haeung Gyu, Huh Hwan H., Lee K.H., and Song Young Gyu of the Hyundai Corporation; Kim Yoon Kyu, senior vice president, Kim Dae Yoon, managing director, Yoon Jong Sam, director, and Huh Yul, Kim Sang Kil, Kim Dae Shik, Chung Kyoo Chul, Cho Young Sun and Ryu Mahn Nyun, all with Hyundai Engineering and Construction; Ha Oh Chung, executive vice president, Rim Taig Lee, vice president, Suh Soo Hyun, Im Chang Woo with Hyundai Engineering; Park S.B., Kim Y.S. with Hyundai Petrochemical; Hong Il Hae, president, Kim “Sam” Yong Soo, executive vice president, and Shin “Casey” Kyung Chul of Diamond Advertising; and Chung Soon Won, fellow at the Hyundai Research Institute. At group headquarters, Kim Sang Nyun, Lee Kwang Suk, Song Jee Hun, Min Won Ki and Kim Chong Soo provided details available to the press and the public. At the Hyundai Managerial Development Institute in Mabookri, escorted by Park Il Kwon, I met Doh Young Hoi, Choi K.S., Jin C. and Park C.K.

Much of my research focused on Ulsan, home of Hyundai Heavy Industries and Hyundai Motor Company, among others. Ahn Gyo Gil and Jeon Chang Hee arranged interviews and tours around the huge HHI facility. Among HHI executives whom I saw were Choi Soo Il, president; Ahn Choong Seung, executive vice president, Lee Jung Nam, executive vice president; Choi K.S. and Shim Young Soo, senior vice presidents; Hwang Sung Hyuk, senior vice president; Chae K.S., vice president; Goo M.H., Yoon Man Joon, Lee “Max” M.H., Rhee Man Key, Seo M.H., Suh Tae Hwan and Cho Tae Yearn, HHI director in the United States. Kwon O.K., executive director, Hyundai Educational Foundation, escorted me on one visit. T.H. “Pete” Meadows and Moon Dong Soo gave their views on the Exxon jacket project. I also interviewed Park Yung Wook, former president of Hyundai Heavy Industries, in Seoul.

Also in Ulsan, I interviewed Kang H.B., vice president, Suh J.Y, Lee K.J. and Lee Sung Woo at Hyundai Mipo Dockyard; Cho B.P., senior vice president, Baek K.W., Ahn W.M., Jang Y.K., Song J.H. and Cho N.H. at Hyundai Precision; Jung D.Y., Kang K.G., Kim K.H., Kim T.S. and Lee D.Y. at Hyundai Electrical Engineering; Lee K.N., senior vice president, Lee Hyun Geoul, Lee S.H. and Lim J.D. at Hyundai Pipe; Oh C.S., Kim Tae In, and Cho Sung Chul at Hyundai Robot; Kim Y.H., executive vice president, Woo Hyun Sang, Woo Lim Choi at Hyundai Steel Tower; Yoon Yeo Kyung, Hahn Yong Tae at Hyundai Wood; Kim Y.H. at Korea Industrial Motor; and Jung J.K., Lee W.W., Lee W.S. and Kim K.H. at Hyundai Engine and Machinery.

In California, executives of Hyundai Motor America granted me interviews in late 1988, 1989, 1990 and 1992. William Wolf, Ted Kade and Debbie Douglas, HMA spokespeople, introduced me to key figures in that operation. Among them: Max Jamiesson, Greg Warner, Rod Hayden, William Hamilton, Lee Sawyer, C.B. Campbell and John Lemster. Among Koreans whom I met at HMA were President Baik Hyo Whi and his successor, Chung Dal Ok, as well as Lew Jae Ik. Former HMA employees whom I saw included Julian Morgan, Richard Caille and Ed Gormley, and I met Willie Hopkins, advertising impresario, in Los Angeles. At the Hyundai Motor assembly plant in Bromont, Quebec Province, Canada, in early 1989 I saw Lee Seung Bok, executive vice president in charge of the plant; Lee Young Joon, production vice president; Norman Rheault, Rene Larocque, Kenneth Singer, Gilles Poitras and Cho Bong Gwan. Henry Aubin of The Montreal Gazette gave background on the operation.

With Hyundai Motor in Korea, I interviewed Chon Sung Won, president; Chang Nak Yong, vice president; Lim C.W. and Park B.J., vice presidents; Lee Soo Il, managing director; Lee Chung Goo, executive managing director in charge of engineers, Rha Kwang Hern, and Jang S.S., among others. I spoke at length with the British engineer George Turnbull and William Hartigan, former Ford executive for the region. Ma Dong Il, director of public relations, and Kim “John” Woon Gill and Suh H.B. of the HMC protocol office briefed me at the plant complex in Ulsan while Choi Han Yung, Shin Ki Hyuk, Jhung Yung Chul and Lee Sang Kap in Seoul answered factual, statistical questions. I also met Yukio Yoshida, a link between Mitsubishi Motor and HMC, in Tokyo.

At Hyundai Electronics America in San Jose, Edward Thomas, president of information systems division, and Manuel Chavez and Charles Jones, vice presidents, and Thai Tran, manufacturing manager, talked to me in the fall of 1992. On a previous visit, I met Park Chong Sup, then HEA chief executive officer, later an observer of chaebol for Ernst and Young. Former HEA employees who talked to me: Bae “Michael” Myung Seung, Stanley Graham, Lee Yong, Andrew Procassini, Yang Hoon, Nam “John” Chong Woo. At the Hyundai Electronics factory in Ichon, I interviewed Kim Dong Sik, executive vice president; Park Kwang Oh, Cho Kyu Chung, Lee Dai Hoon, Lee Sung Hee, Seo K.S., Bang Min Ho, Lee S.H., Han Chang Seock and Ryu Hai Suk. While in Ichon I also interviewed Chi Joo Hyun, president, Baik Yung Moon, Lee K.C., Lee Jong Kook, Lee Seung Woon and Choi Kee Young with Hyundai Elevator. In Seoul, Paek In woo, Seo Song Jin, Bang Min Ho and Lee Sang Sop gave statistical material on Hyundai Electronics.

At Englewood Cliffs, New Jersey, American headquarters for the Hyundai Corporation, I interviewed Kim Yung Duc, president, Hyundai Corporation USA, about his experiences in the Middle East and elsewhere. Also in the United States, I saw Chung B.K., president, and Choi J.W. and Alex Y. Tejada, Hyundai Merchant Marine (America); and Kim Ho Yung, Hyundai America.

In addition, I received much help outside the Hyundai group. Chang Sung Hee of Reuters proffered friendship and cultural insights along with the hospitality of her home and interpreting and translation assistance. Kim Young Tae, while at Hankook University, translated books and articles. Journalist Bruce Cheesman regaled me with perceptions on Korean life. Sam Jameson of the Los Angeles Times offered encouragement as well as his interview with Chung Ju Yung. Bill Sunderlund of the San Jose Mercury-News introduced me to the resources of his paper. The San Jose Public Library offered special material on the electronics industry in Silicon Valley. Suh Sang Myun of Korea Overseas Information Service answered factual questions. Mitsuya Goto, formerly with Nissan, talked to me about the car industry in Korea and Japan. Robert and Helen Ives gave generous support in Washington. Mervin Block’s custom clipping service apprised me of Hyundai coverage in the United States. John R. Burton, who hated deadlines, clung to the manuscript in between seances in his salon, which he donated to me for a month in 1992. Pyon Chong Sop of The Sisa Journal added political background. Kim Suk Joon, president of Ssangyong Construction, gave a rival view. Yang Key Pek, head of the Korean section of the Library of Congress’s Asia division, made his resources available to me.

Lee Bu Young, radical leader, later assemblyman, spoke to me three times. Lee “Danny” Kie Hong and Shin Sang Kap provided background at Korea Business World. SaKong Il talked to me at length after stepping down as finance minister. Chang Seung Woo, director-general, briefed me at the Economic Planning Board. Cho Lee Jay of the East-West Center in Honolulu led 120 businessmen and journalists, myself included, to Pyongyang and the Tumen River industrial area in April 1992. Kim Duk Choong, Sogang University and Daewoo, saw me both in Seoul and on the North Korean trip; Choe Dong Soo of Korea Investors Service showed me his analysis. Lee Kyu Uck, Lee Young Ki, Nam Sang Woo, and Chung Chin Seung of the Korea Development Institute gave perspective. Cho Dong Sung received me at Seoul National University and Lee Kyung Tae at the Korea Institute of Economics and Technology. Chung Yeon Sook at the Westin Chosun Hotel permitted me to use computers and other facilities. I also met Koo Boo Young, secretary to the president, and Park Shin Il, minister counselor, Yang Kil Yun, Park Jung Ho, Kim He Beom and Lee In Jae of the Korean embassy in Washington.

Many non-Hyundai people assisted in Ulsan. Shim “George” Min Su and Kim Seong Wook interpreted during labor strife in June 1990 and August 1994 respectively. Park Yung Ju of Kyongsang Ilbo, then Ulsan’s only daily paper, described the scene. Lee Chul Su and Ha Kab Jong offered local color and insights. Lee Sang Joo, president of Ulsan University, a Hyundai institution, talked about social problems. Paul Gordon, David Gregg, Don Madeley, Malcolm Hedley, Peter Hansen, Femley Osbome and Jack Kamont saw me at the foreigners’ compound. I interviewed Charles Ayres, David Duet, Alvin Meyersahm and Tony Robinson in the Diamond Hotel.

Union experts and workers talked to me about labor issues. Outside the Hyundai group, I saw Harry Kamberis, Noh Jin Kwi, Kang In Koo, Kim Bong Suk and Phee Jung Sun, among others. Inside the group, Suh Jung Eui, organizer at Hyundai Engineering and Construction, recounted his kidnapping. In Ulsan I met Park Sang Chul, education manager of the HMC labor union; Lee Kab Yong, Lee Won Gon, HHI union presidents, and Han Yong Kwan, Jung Myong Jin and Sung Bek Kwang, union leaders at Hyundai Engine and Machinery. Among others whom I interviewed: Park Chul Mo, Kwon Chung Il, Suh Yung Taek, Ju Sang Myong, Shin In Kyun, Lee Suu Won, Lee Dong Suu, Chang Seok Gyo, Park Chong Hee and Chung Shi Son. Others with the organization of dismissed Hyundai workers and that of Hyundai unions helped immeasurably.

Still more Koreans were helpful: An Jae Wook, Bae Chul Soo, Cho Byung Wook, Chu Chong Hwan, Cho Chung Ung, Chong Gu Hak, Choi Bong Sik, Choi Young Taek, Chong Koeng Ho, Chung Se Hang, Han Young Sub, Hwang Doo Yun, Hwang Kyung Ho, Jeong Hee Chan, Ji Seok Koo, Jo Hyun Ho, Kang Yong Jin, Kim Byong Kuk, Kim Chong Su, Kim Young Kwap, Kong Deok Soo, Kim Eun Sang, Kim Se Kon, Koo Suk Mo, Kim Yong Jin, Kim Young Ja, Kwak Y.K., Lee Chong Yoon, Lee Jong Gap, Lee Jong Hwan, Lee S.B., Lee Taeg Kyu, Lee Youn Ho, Lee Young Whan, Lim Sung Keun, Oh Se Jung, Park Chin Keun, Park Chong Ho, Park Choong Ho, Park Chung Hoon, Park Eun Hyung, Park Jeong Seop, Park Kwon Sang, Park Woong Ki, Park Young Ki, Shim Jae Hoon, Shim W. J., Shin Young Suk, Whang Jung Hyun, Yoo Jae Um, Yang Jeong Hwa, Yoon Tae Ho and Yoon “Jeffrey” Shukjean.

Other foreigners who helped: David Bank, Peter Bartholomew, James Booth, Michael Breen, Mark Clifford, Michael Delaney, Nicholas Draper, Doug Fewchuck, Tom Gallatin, James Gagnon, Sean Goldrick, Jeffrey Goldstein, Anthony Groag, Andrew Grossman, Phillip Grub, Robert p. Kearney, Michael King, Elizabeth Klein, Ted Kloth, George Krause, the Rev. Fred Krampert, Chris Hill, Donald Leland, George Long, Hank Mac Allster, Janet Marchant, Richard Morford, Don Oberdorfer, James Obome, Allen Patrick, Assif Shameen, Thomas Sheldon, Wilge Sommer, Peter Thom, Jay Tunney, Peter Underwood, Letitia Wells, W.A. Wenger, Carol Wagner, Caroline Young Westoit, Chuck Wilder, C.C. Willis and John Woodruff.

Leon Howell, Jackson Huddleston, Frank Gibney and Jason Morrow all read the manuscript. I am most grateful for their comments. Finally, I should extend special thanks to Michael Morrow, a colleague from Vietnam days, and to Alan Sargent of Asia 2000, who edited the manuscript, as well as to Douglas Merwin of M.E. Sharpe for his support of this project and to James Clad for his suggestions and introductions.

Index

(See also appendices for statistics, facts on Chung family members, Hyundai companies and other chaebol)

A

Accent 147, 174

Ahn Choong Seung 108, 314

Al Riyadh 89

Aluminum of Korea 298

Amsden, Alice H 59, 99, 155, 166

Anti-Trust and Fair Trading Act 11

Apkujungdong, department store 290

Appledore 97–98

Arai, Banyu 138

Asan 20, 111

Asan Foundation 286, 296, 298

Asian Wall Street Journal 89, 227, 235, 238

Ato Service 27, 69

Automobile Industry Protection Law 125

Ayres, Charles 154

B

Backer, Spielvogel and Bates 142–143, 169

Bae Myung Seung (Michael) 40, 178–181, 184–186, 190, 192

and Lee Heun Tae 180

Bahrain, shipyard constructed 81

Baik Hyo Whi 144, 148–149, 151–152, 156–163, 165, 169

Bandar Abbas, shipyard project 90, 94

Bank of Korea 323

Bank, David 236

Barclay’s Bank 98, 134

Bernton, Hal 121

Blix, Hans 114

Blue House 10, 57, 307 ; see alsoPark Chung Hee, Chun Doo Hwan, Roh Tae Woo, Rhee Syngman, Kim Young Sam

Bosch 167

Bridges, constructed 74

British Petroleum 279

Bromont , seeHMA, Bromont

Brown and Root 84

Business Week 6, 17, 90, 121

Byun Jin Woo 235

Byun Joong Suk 26, 285–286

C

Caille, Richard 142, 150–152, 162–163

Canada , seeHMA, Bromont

Carroll, Lewis 155

Cars, HMC , seeAccent, Cortina, Elantra, Excel, Granada, Grandeur, HCD-1; see also, HCD-2 ; Pony, Precis, Scoupe, Sonata, Stellar

Cars, other , seeCheval, Corona (Shinjin/Toyota), Galloper (Hyundai Precision), LeMans (Daewoo), Sephia (Kia)

Chaebol

assets 356

calls for dissolution 334

compared with zaibatsu 32, 61

and Confucianism 338–340

core company policy 277, 307, 318

crossholdings 11–12, 66, 295, 298, 300, 334

definition 10–11

encouraged by Park 61

equity 356

and keiretsu 295

real estate 300

specialization policy 215, 268–271

top 10, 11

top 30, 11, 296

Chang Byong Su 313

Chang Ho Sun 279

Chang Jung Ja 279

Chang Nak Yong 143

Chang Se Dong 273, 275

Chang Seok Gyo 242–243, 245–246, 251

Chang Seung Woo 64, 66, 82, 268, 270–271

Chang won 263, 292

Cheesman, Bruce 86, 95

Cheval 124

Chey Jong Hyun 308

Chicago Tribune 1, 155

China 7, 69, 114–115, 117, 121

cars 170

Hyundai offices 119

petrochemicals 280

Cho Hung Bank 306

Cho Sun Hwan 367

Choe Sang Hun 330

Choi Byung Yul 257

Choi Jae Dong 225

Choi Kil 242

Choi Kyu Ha 85–86, 268

Choi Soo Il 16, 108, 312, 328

Choi Woo Chan 18, 367

Chon Kap Won 81, 83

Chon Sung Won 131

Chon Yong Sup 225

Chong Hee Chan 313–314, 367

Chong Wa Dae , see Blue House

Chongryangri Station 23

rally 326

Chonminryun , see National Democratic Alliance

Chosun Ilbo 323

Chrysler 138, 161–162

Chun Bum Sung 70, 82, 86, 99

Chun Chang Soo 233

Chun Doo Hwan 10, 89, 137, 268, 339

corruption 272

economic policy 268–271

labor policy 247, 253

motor vehicle industry 268–270 ; see also Ilhae Foundation ; Lee Sun Ja (wife)

see also chaebol, specialization policy

Chun Kyung Hwan 275

Chung Dal Ok 165–166

Chung Hoon Mok 20, 35, 60, 64, 93–95, 117, 209, 225

Chung In Yung 69–70, 153, 269, 281, 296

appointed president Hyundai Construction 126

Guam 77

jailed 281

Middle East 81

Vietnam 77 ; see also Halla

Chung Jang Hyun 311, 330

Chung Ju Yung

chronology 351

arrested 1993 16

autobiographies 20–21, 28, 37, 77, 79, 99, 131, 283

birthplace , see Asan

business strategy 291

buys garage 27

campaign funds 294, 310, 325

childhood 21

China 119

and Chun Doo Hwan 268, 270–271, 315

compared with other chaebol leaders 25

compared with Perot 15, 299, 322

concubines 285–286

early jobs 25

education 22–23, 282, 284

election rallies 325

enters politics 30

family 4–6, 21–23, 277–294, 299, 352

family holdings 295, 334

family, taxes 300 ; see alsoindividual family members

father 22–23, 278

Federation of Korean Industries 10, 270, 273

Ford 131

founds HEA 179

George Washington University 284

heirs 288, 290–291

holdings 296

honorary chairman 13, 20, 337, 341

Ilhae hearings 272–274

interview with author 317–321, 367

Kim Young Sam handshake 338

Korean War 69

labor 218, 220, 240

leaves home 23

marries 26

Moscow 118

motor vehicles 269

North Korea 110–113, 319

Olympic Promotion Committee 323

and Park Chung Hee 62, 78, 80

philosophy 29, 37, 50, 78

political donations 315

political philosophy 66, 320

political platform 317–322

presidential campaign 315–335

presidential campaign, defeat 327

quits UPP 328

reorganization of Hyundai 318, 324, 331, 334

retirement, Sosan 337

and Roh Tae Woo 275, 277–278, 300, 302, 315, 317, 332

on Saudi Arabia 89

steel 154

strike, 1988–89 235, 240

tax evasion 293, 300

taxes 301–302

on US trade 320

Washington visit, 1992 319

wealth 5, 295

written response to author 67, 78, 80, 317, 319, 322

Chung Mong Hun 5, 181, 191, 211, 285, 290

holdings 296

jailed, tax evasion 304

taxes 297, 301, 304

Chung Mong Hwon 153, 170

Chung Mong Hyuck 279–280, 289, 367

Chung Mong Il 284–285, 287, 289, 291, 367

holdings 296

taxes 301

Chung Mong Joon 1, 5, 17, 22, 100–101, 108, 233, 257, 278, 291, 299, 308, 314, 330, 338, 367

holdings 296

National Assembly elections 230–231, 290

strike, 1987 221

taxes 301

Chung Mong Kook 170

Chung Mong Ku 154, 227, 289–292, 297–298, 300

chairmanships 291

as heir 293

holdings 296

M.K. group 293

taxes 301

Chung Mong Kun 5, 289–291, 297

holdings 296

taxes 301

Chung Mong Kyu 292, 300

taxes 301

Chung Mong Pil 282–283

death of 283

Chung Mong Woo 284, 290

suicide 285

Chung Mong Yun 4–5, 285, 287, 291, 298, 306, 315, 324, 367

holdings 296

Chung Sang Yung 153, 282

Chung Se Yung 1, 45–46, 48, 53, 66, 132–133, 144, 253, 258, 264–265, 270, 281, 289, 309, 315, 325, 327, 329–330, 333–334, 367

chronology 351

Alpha engine 167

appointed president HMC 126

holdings 296

on labor 226

taxes 301

Thailand 75

university studies 281

Chung Shi Son 239

Chung Shin Yung, death of 278

Chung Soon Yung 280–281, 296

Chung Suk Yung 6

Chung Yang Hoon 284, 288

Chung Yun Ok 312

Citizen’s cars 132

Communism 320

and Confucianism 35

Confucianism 7, 32–44, 49, 190, 291, 338–339

and communism 35

Korean compared with Japanese 38

Construction industry 68–80

corruption 72, 95

during Korean War 72–73

Construction projects , seeHEC, Soyang River dam, Taegu bridge, Han River bridges, Thailand highway, Seoul-Pusan expressway, Inchon harbor, Bahrain shipyard, Jubail harbor, Libya thermo-power plants, Bandar Abbas shipyard, Iraq, Kuwait road, Nuclear power station,

Yanbu LPG terminal, Mipo Dockyard

Consumer Reports 155, 171

Corona 125

Cortina 126, 137

Coup, May 1961 10, 56

Crane sit-in, HHI strike 248–249

Crane, Geoff 216, 307, 310

D

Daewoo 7, 11, 25, 40, 65, 95, 115, 216, 269–270, 303

Daewoo Automotive Components 270

Daewoo Heavy Industries 293

Daewoo Motor 137, 173–174, 270

assembly 270

and GM 131, 137, 170

and Honda 270 ; see alsoGM Korea, Saehan

Daewoo Securities 316

Daewoo Shipbuilding 97, 270

Democratic Liberal Party 13, 316

elections 1992 16, 327

Democratic Liberal Party 315

Democratic Party 237, 328 ; see also Kim Dae Jung

DeTray, Jeffrey 213

Diamond Ad 169

Diamond Hotel 51, 106, 221, 229, 236, 257

Doh Young Hoi 47

Dong-A Ilbo 278, 338, 367

Duet, David 51

E

Earl and Wright 95

Economic Planning Board 59, 64, 127

established by Park 58

Eisenhower, President 71

Elantra 165–166, 168

Elections, 1992 15–18, 315–335

results 327

South Kyongsang 327

Ulsan 230

vote buying 231

Electronic and Telecommunication Research Institute, government consortium 208

Electronics industry 178–216

Elegant, Robert 286

Ernst and Young 295, 297

Excel 7, 9, 12, 137–138, 140–143, 146, 150–155, 163–164, 166, 168, 171, 174

introduced to the U.S 140

Export Promotion Council 59

Export-Import Bank 99, 134, 313

Exxon 104–105

F

Federation of Korean Industries 10, 270, 273

Federation of Korean Trade Unions 219, 321

Financial Times 328

Forbes 7

Ford 83, 126–130

Foreign Capital Promotion Act 128

Fortune 5, 7

Fortune 500 13, 299

G

Gallatin, Tom 102

Galloper 168, 292, 307

GEC Alsthom, TGV 292

General Dynamics (tanks) 292

General Motors 131, 269 ; see also GM Korea

George Washington University 283–284

Giugiaro, Giorgetto 132

GM Korea 131, 137, 170, 269 ; see alsoDaewoo, Saehan

Goldrick, Sean 12

Goldstar 216 ; see also Lucky-Goldstar

Goldstar Electron 206–208, 215–216

Gong Byong Ho 25

Gordon, Paul 52

Gormley, Ed 139

Graham, Stanley 182–188

Granada 138

Grandeur 168

Gregg, David 106

Gregg, Donald 89, 92, 207, 309, 325

Groag, Anthony 279

Grub, Phillip 24, 39, 81, 283

Guam 77

Gulf War 91

H

Ha Kab Jong 230

Halla 153, 281, 296

vehicle manufacture 170

Halla Cement 296

Han Dae Yun 107

Han River, bridges constructed, 1957 74

Han Yu Don 233

Hanil Bank 145, 313

Hanjin Heavy Industries 293

Hankook Ilbo 112, 276, 332

Hankook Pavement 284

Hartigan, William 127, 129

Hartley, William, CNN 209

Hay den, Rod 163

Hayes, Webb 95–96, 103

HCD-1, HCD-2 168

HEA (Hyundai Electronics America) 178–195, 206–216

discrimination 184, 189

founding 179

compared with HMA 182–184, 190, 192

management 188–189, 210

PC assembly 210, 216

PCs 206, 211–214

R&D 180, 182, 184, 187, 191, 194, 196–197, 201, 204, 207–208, 210, 215

R&D moved to Ichon 194

sales 212–213

workstations 180, 185, 187, 202

HEC (Hyundai Engineering and Construction) 68–80, 88, 93, 296

fined by Saudi Arabia 89

holdings 298

taxes 301

Workers’ Union 223

Hedley, Malcolm 52

HEE (Hyundai Electrical Engineering) 203–205, 334

labor 219

union formed 220

HHI (Hyundai Heavy Industries) 42, 50, 97–109, 269, 290, 296, 299, 331, 334

compared with Japanese shipbuilders 107

compared with other Korean shipbuilders 106

holdings 298

militia 218

secret fund 16, 108–109, 299, 312–314

shipyard, Ulsan 97

strike losses 238, 265

strike, 1988–89 238

strike, 1990 245–251

strike, 1994 264–265

taxes 301

union election 239–240, 245, 321

union formed 220 ; see alsooil rig construction

HMA (Hyundai Motor America) 139–175

advertising 142, 156, 169

Bromont 145–147, 162, 165, 349

Canada 166

and Chrysler 161–162

dealers 141–143, 150–151, 156, 161–162

discrimination 161

dualing 156, 162

finance 145

founded 139

polls, Consumer Reports 155, 171

polls, USA Today 171

quality control 153, 164, 166

sales 155, 166, 169, 252 ; see also HMC

HMC (Hyundai Motor Company) 7, 45, 126, 129, 131, 133–137, 282, 296, 298

Alpha engine 166–168, 174

assembly, Southeast Asia, Africa 175

Beta engine 168

exports 136, 165, 171, 174, 350

finance 134

Ford assembly 126, 138

Ford joint venture 129

founded 126

and GM, Saehan 270

Hyundai America Technical Center 168

Malaysia 175

and Mitsubishi 131, 137–138

production 126–127, 137, 146, 168, 172–173, 256, 261, 349

profits 173, 256

R&D 139

sales 174

strike losses 228, 256, 259, 263

strike, 1988–89 227, 252

strike, 1991–92 254–260

strike, 1993 262–263

Ulsan plant built 133, 135

union 254

union formed 220

wages 256, 263 ; see alsocars — Accent, Cortina, Elantra, Excel, Granada, Grandeur, HCD-1, HCD-2, Pony, Precis, Scoupe, Sonata, Stellar

Hodge, General John Reed 68

Honda 125

and Daewoo 270

Hong Du Pyo 173

Hopkins, Willie 142, 157

Hwang Sung Hyuk 234

Hyun Yung Won 191, 290

Hyundai

assets 13

compared to other chaebol 41

compared with Japanese companies 96, 149, 164, 182

core companies 277

credit blocked 302, 309, 316, 338

democratic unions formed 220–221

finance 98, 101, 145, 277, 291, 302, 309, 324, 331, 338, 341

founded 124

compared with keiretsu 295

management style 40, 42, 52, 85, 103, 149, 154, 158, 192

Orientation Course 39

ownership 295–296, 298–299

profits 348

public relations 300

R&D 329

sales 13, 346–347

Securities 25

spirit 38, 45, 47, 50, 53

steel mill, Pusan 154

strikes, 1993 261–264

taxes 14, 293, 300, 302–303, 310

Hyundai Aluminum 284, 290, 334

Hyundai America Corporation 77

Hyundai America Technical Center 168

Hyundai Auto Canada 145

Hyundai Bulletin 80

Hyundai Cement 59, 296

Hyundai City 229 ; see also Ulsan

Hyundai Commercial Transportation founded 69

Hyundai Construction 61, 70, 97, 284

begins vehicle production 126

cement production 58

founding 69 ; see also HEC

Hyundai Construction Equipment 291, 334

strike 1993 262, 264

Hyundai Corporation 296, 298, 334

Hyundai Department Store 290, 311

union formed 221

Hyundai Electrical Engineering , see HEE

Hyundai Electronics 178–216, 290, 296

DRAMs 191, 196, 206–208, 215

EPROMs 196

exports 196

finance 298

Ichon plant 193–194, 196, 210, 215

investment 180, 193, 201, 204, 215

OEM deals 214–215

PCs 197, 202, 206, 210–212, 214–215

profits 216

quality control 200

R&D 194, 202

compared with Samsung 200, 207

and Texas Instruments 191, 195–196, 206, 208 ; see also HEA ; semiconductor dumping

Hyundai Electronics America , see HEA

Hyundai Elevator 331

Hyundai Engine 204

Hyundai Engineering 296

taxes 301

Hyundai Engineering and Construction , see HEC

Hyundai Group Expelled Workers’

Association 232

Hyundai Group Federation of Trade Unions 231, 242, 260–261, 265, 321

Hyundai Heavy Industries , see HHI

Hyundai Hotel 290

Hyundai Housing 291, 296, 331

Hyundai International 269, 281, 316

sold by Chung 269

Hyundai Managerial Development Institute 46–49, 312

Hyundai Marine and Fire Insurance 154, 291, 296, 298, 334

taxes 301

Hyundai Merchant Marine 100, 108, 191, 290, 331

secret fund 304–306

taxes 304

Hyundai Mipo Dockyard 50, 52–53, 101, 298

international comparisons 52–53

and Kawasaki 101

Hyundai Motor America , see HMA

Hyundai Motor Company , see HMC

Hyundai Motor Service 124, 255, 289, 291–292, 296

profits 173

taxes 301

Hyundai Motor Works 68

Hyundai Munhwa Shinmun 323

Hyundai Oil Refinery 280, 334 ; see also Kukdong Oil

Hyundai Petrochemical 181, 279–280, 296, 299, 311

Hyundai Pipe 291, 296, 298

strike 1993 262, 264

Hyundai Precision 168, 291, 296, 311

aircraft 293

and General Dynamics (tanks) 292

and Kawasaki Industries 292

and Mitsubishi 292

strike, 1988–89 227

strike, 1993 262

strike, 1993, Changwon 263

taxes 301

TGV 292

union formed 221

Hyundai Research Institute 241

Hyundai Resources Development 119, 334

Hyundai Robot 334

Hyundai Steel Tower 296, 334

Hyundai Tiger Cement 59, 281

Hyundai Wood 120, 296, 312

I

Ilhae Foundation 272–274

Import substitution 132

Inchon harbor, construction 74

Inchon Iron and Steel 104, 283, 288, 291, 296, 298

taxes 301

Industrial Bank of Korea 269

Intel, sues Hyundai 196

International Atomic Energy Agency 113–114, 121, 319

Iran 90 ; see alsoBandar Abbas shipyard

Iran-Iraq War 90

Iraq 90–91

J

Jameson, Sam 119

Jamiesson, Max 139–143, 149, 157, 159–161, 164

Jang Sung Ho 199

Japan

keiretsu 33, 61

zaibatsu 10, 32 ; see alsoKorea, influence, occupation

Johnson, Chalmers 10

Jones, Leroy 37, 339

Ju Sang Myong 240

Jubail harbor, construction 82, 84–85, 93riots 86

K

Kamberis, Harry 73

Kamont, Jack 42–43, 105

Kang Hak Bong 50

Kang Sung Man 232

Kawasaki Heavy Industries 101

Kawasaki Industries 292

Keiretsu 33, 61, 295, 324

Keumkang 153

Keumkang Development 289, 296, 334taxes 301

Kia 125, 131, 137–138, 292

North America 173

Kim Bok Dong 324

Kim Bong Suk 321

Kim Chong In 303, 310, 317

Kim Chong Tae 307

Kim Dae Jung 13, 30, 268, 320, 327–328

election 1971 132

elections 1992 16

Kwangju revolt 15

Kim Dal Hyon, visits South Korea 116

Kim Dong Gil 14, 18, 314 327, 329

Kim Dong Sik 210

Kim Duc Choong 116

Kim Eun Sang 91

Kim Hye Young 291

Kim Il Sung 8, 35, 320, 339

Kim Jae Ik 137

Kim Jae Kyu 86, 247

Kim Jong Il 339

Kim Ju Shin 87

Kim Keun Tae 260

Kim Kwang Hoon 204

Kim Myung Ho 265

Kim Sang Man, funeral 338

Kim Sang Nyun 90

Kim Woo Choong 7, 41, 65, 95, 116–117, 269, 325

North Korea 115

Kim Young Myoung 5

Kim Young Nam 203

Kim Young Sam 16, 30, 261, 268, 294, 309, 313–315, 320, 326–330, 333–334, 339

Chung Ju Yung handshake 338

New Economy plan 338

real-name policy 334

Kim Yung Duc 92–93, 104, 337

Kim Yung Ju 71, 74, 153

Kimchi 4, 26, 85

Kincaid, Gene 213

King, Mike 73

KKBC International 291

Koch, Chris, Eastern States Hyundai Dealer

Advertising Association 161

Koerner, John 161

Kojong, King 34

Kor-AmBank 312

Korea

compared with America 46, 104, 158, 198

compared with Japan 6, 36 42, 48, 52, 102, 342

compared with Taiwan 10

division of 8

economic aid 59

economic policy 56, 191, 215, 262, 268–271, 277–278, 334

education 34, 282

electronics industry 196–205

face 149

foreign aid 82

foreign exchange 77, 82

foreign investment 128

GNP 12–13, 59, 62

hahn 27, 37, 340

Japanese influence 32–35, 43, 48, 291

Japanese occupation 7, 23, 33, 68

motor vehicle industry 124–147, 172, 268–270

Newly Industrialized Country 9

petrochemicals 279–280, 299, 311

R&D 194, 208

US trade relations 320 ; see alsosemiconductor dumping

work ethic 46, 128, 158, 190, 192

Korea Chemical 153, 282

Korea Development Bank 306, 341

Korea Development Institute 37, 60

Korea Electric Power Corporation 95

Korea Exchange Bank 302, 306, 309

Korea Fair Trade Commission 356

Korea First Bank 313

Korea Flange 153, 262

union formed 221

Korea Gas Corporation 120

Korea Heavy Industries 269

Korea Petrochemical Development

Corporation 280

Korea Petroleum Development Corporation 120

Korea Stock Exchange 193, 295–297, 299, 331

Korea University 338

Korean Central Intelligence Agency 58, 73, 86, 247 ; see also National Security Planning Agency

Korean War 8–9, 12, 69–70, 73

Koryeo Industrial Development 331

taxes 301

Kraar, Louis 7

Krause, George 70

Kubo, Tomio 138

Kukdong Oil 279–280 ; see also Hyundai Oil Refinery

Kukje 273

Kuwait, road construction 93

Kwangju revolt 15, 268

Kwon Oh Sung 51

Kwon Yong Mok 219–220, 222

Kyongju 290

Kyongsang Ilbo 242

L

Labor 218–265

attacks on workers 232–233

democratic and company unions 220

government policy 252–253, 262, 265

Hyundai strike, 1987 221–222

laws 219, 263

unionists arrested 218–219, 221–222, 231, 236–237, 242–243, 245, 248–251, 253, 260 ; see alsoindividual companies, unions, police

Lee Bu Young 236, 260, 321

Lee Byung Chul 24, 41 ; see also Samsung

Lee Byung Kyu 16, 121, 269–270, 278, 283, 299, 305–306, 309, 313–314, 316–317, 327–328, 341, 367

Lee Chin Ho 284, 326

Lee Choon Lim 88

jailed in Saudi Arabia 87

Lee Chul Soo 230

Lee Chung Goo 166–168

Lee Dai Hoon 207

Lee Heun Tae 179–182, 186, 188, 190–192, 222, 288, 311

Lee Hun Gun 257

Lee Hyung Gon 220–221, 235, 321

Lee Jae Ho 367

Lee Jung Nam 249

LeeKabYong 265

Lee Kun Hee 41, 338

Lee Kyu Uck 60

Lee Myung Bak 76, 91, 223–225, 288, 313

Lee Sang Bong 246–247

Lee Sang Bum 220

Lee Sang Hui 242, 246

Lee Se Hee 45–46, 53

Lee Seung Bok 145

Lee Soo Il 127–128

Lee Sun Ja 275

Lee Sung Hee 201, 214, 216

Lee Suu Won 231, 260

Lee Won Gon 235, 237–238, 321

Lee Won Kap 234

Lee Yang Ja 284

taxes 301

Lee Yon Hon 245

Lee Young Kyu 367

Lee Yun Sop (James) 233–234

Leland, Donald 72, 77

LeMans (car, Daewoo) 115, 270

Leyden, Peter 236

Libya, thermo-power plants constructed 88

Livanos, George 99–100

Long, George 36

Longbottom, Charles 98

Loomis Overseas Corporation 52

Los Angeles Times 119

Lotte Hotel 45, 187, 303–304, 315, 325

Lowry, Tom 125, 137

Lucky-Goldstar 11, 41, 303 ; see also Goldstar

M

Mabookri , see Hyundai Managerial Development

Institute

MacAlister, Hank 69

MacArthur, General Douglas 32

Macdonald, Donald 36, 75

Madeley, Don 52

Mando Machinery 153, 281, 296

Manguno, Joseph 235, 238

Mateja, Jim 155

Mazza, Doug 171

Meissner, Art 160

Meyersahm, Alvin 53

Middle East 81–96

Mipo Bay 50

Mipo Dockyard , see Hyundai Mipo Dockyard

Mitsubishi 97, 131, 134, 137–138

Money Emperor 271, 287

Moon Dong Soo 105

Moon Sun Myung 170

Morgan, Julian 156

Moscow 118

Mother Company , see HEC

Motor vehicle companies , seeSaenara, Shinjin, Kia, Nissan, Toei, Honda, Ford, GM Korea, Daewoo, Saehan, Toyota

Motor vehicle industry 124–175

government policy 125, 129, 132, 137

Munhwa Ilbo 323

N

Nakarmi, Laxmi 17

Nam Chong Woo (John) 184–188

Nam Duc Woo 82

Nam Jae Hee 265

Nampo 115

National Assembly 5, 324

elections 1992 29, 93, 230–231, 316

National Democratic Alliance 236, 260

National Press Club, Washington 322

National Security Planning Agency 13, 230, 245, 251, 273, 308, 311–312, 314, 320 ; see also Korean Central Intelligence Agency

Nepotism 153 ; see alsoChung Ju Yung, family, heirs

New York Times 210

Nihon Koei 79

Nissan 125

Nordpolitik 110–121

North Korea 35, 110–121

atomic weapons 113, 320

economy 117

free trade zone 115, 117

Nuclear power station, Korea 94–95

O

Office of Bank Supervision 2% 301–303, 308

OhHaeYong 262

Oh Jin Young 88

Oil & Natural Gas Commission of India 102

Oil rigs, construction 100, 102, 104, 106

Olazaba, Zeke 214

Ordeals But No Failures , seeChung Ju Yung, autobiography

Osborne, Fernley 52

P

Paek Si Jong 271, 287

Panda Motors 170

Panmunjom 9, 149

Park Byung Jae 173

Park Byung Ki 257

Park Chin Keun 45

Park ChongHee 247–248

Park Chong Sup 13, 182, 189, 295, 318

Park Chung Hee 8, 10, 56, 78 82, 283, 301

assassination 86, 247, 268

and Chung Ju Yung 80, 315

citizen’s cars 132

economic policy 59, 64, 129

motor vehicle industry 125

and shipbuilding 101

Yushin constitution 132

on Confucianism 35 ; see also Coup, May 1961

Park Il Kwon 1, 85

Park Koo Il 332

Park Kwang Oh 178

Park Sang Chul 254–255, 258

Park Se Yong

jailed in Saudi Arabia 87

jailed, tax evasion 304

Park Sun Ho 86

Park Sung Hak 140–141, 163

Park Yung Ju 242, 252

Park Yung Wook 241

Phee Jung Sun 222

Pohang Iron and Steel 257, 283

Poitras, Gilles 145

Police 218, 221–222, 224, 227, 230–237, 239–240, 243, 245–248, 250–252, 254–255, 257–260, 262–263, 265, 309, 311

Pollution 229

Pony 135, 137, 141

Porter, Michael 65, 97, 128, 214, 295

POSCO , see Pohang Iron and Steel

Precis 139 ; see also Excel

Procassini, Andrew 181, 189–191

Pupyong 270

Pusan 9, 69

Pyon Jong Il 367

Q

Quality Control circles 50–51, 200

R

Rhee In Je 262

Rhee Syngman 10, 125

praises Hyundai 74

Rhee Yong Man 307

RMK-BRJ 77

Robinson, Tony 106

Roh Tae Woo 10, 12, 14, 268, 275, 339

and Chung Ju Yung 300, 302

Declaration of Democracy 46, 218, 220, 252–253, 272, 316

economic policy 66, 277–278

labor policy 252

see also chaebol, core company policy

Russia 118–119 ; see also Hyundai Resources Development

Ryan, Thomas 165

RyuHaeSuk 199

S

S.G. Warburg Securities 60, 62, 277

Saddam Hussein 91

Saehan 137, 269–270 ; see also GM Korea, Daewoo

Saemaul Undong, (New Community

Movement 275

Saenara Automobile Company 125

Saesedae Foundation 275

SaKongll 11, 37, 62, 339

Samsung 11, 24, 40–41, 56, 95, 178, 199–200, 206–208, 215–216, 303, 338

truck manufacture with Nissan 170

San Jose Mercury News 189, 196

Saudi Arabia 82–83, 86–87, 89, 95

corruption 83, 87, 89

Scott Lithgow 97

Scoupe 166

Sculley, John 209

Secret funds , seeChung Ju Yung campaign funds, HHI

secret fund, Hyundai Merchant Marine

secret fund

Securities Supervisory Board 298, 310–311, 331

Seergy, Michael J 161

Sejong, King 7, 35

Semiconductor dumping 196, 206–207, 216

Seo Mun Hwa 242

Seoul National University 278, 281, 328

Seoul-Pusan expressway 15

construction 78–79

Seoul-Pusan railroad 15, 292

Sephia(Kia) 173–174

Sheldon, Tom 72

Shim Song Myun 297

Shim Young Soo 237, 239

Shin Hyun Dong 134

Shin Yung Foundation 280

ShinhanBank 313

Shinjin 125

and GM 131

Shipbuilding 97–109

government support 101 ; see also HHI

Siberia

gas pipeline 117

logging 120

petrochemical plant 118 ; see also Vladivostok

Singer, Kenneth 146

Sirit, thermo-power plants constructed 88

Sonata 145–147, 149–150, 152, 155, 161–164, 168

stickers 152

Song Jee Hun 310

Song Yun Chae 304

Sosan Bay

dike construction 96

farm 16, 337

Soyang River, dam constructed 79

Ssangyong 173

motor vehicle manufacture 172, 292

Steel mill, Pusan 154

Steinberg, David I 77

Stellar 141

Stevens, Sinclair 145

Strikes , seeindividual companies, labor

Sun Jung Eui, kidnapping 223–226

Sun Yung Taek 249

S ungwoo Group 281

Sunkyong 308

Suwon 70

Svetlaya Company 120

T

Taegu, bridge constructed 74

Taehwa River , see Ulsan

Taesan 279

Tass 111

Taxes, Hyundai group and Chung family 301 ; see alsoindividual companies, family members

Ten Thousand Apartments, Ulsan 231–232, 235–236, 243, 248

Texas Instruments 191, 195–196, 206, 208

Thailand, highway construction 75–76, 80

Thomas, Edward 210, 213

Toei 125

Tongil 170

Tongil Kukmindang , see United People’s Party

Toyota 125

Turnbull, George 133–136

Turtle ships 7, 34, 98

U

Ulsan 45, 97, 126, 133, 218–265

pollution 229

Ulsan Small Industries Association 262

Ulsan Social Action Committee 231, 247–248

Um Yong Ki 312

UN Korea Reconstruction Agency 59

Unions , seelabor, Hyundai Group Federation of Trade Unions, Federation of Korean Trade Unions, individual companies

United People’s Party 14, 16, 18, 230, 311–314, 317, 321–322, 324, 326, 328–330, 332

U.S., Korean policy 75

U.S. 8th Army 69–70

U.S. Agency for International Development 59

USA Today 171

USSR , seeRussia, Siberia, Hyundai Resources

Development

V

Vietnam War, construction 77

Vinnell, joint venture with Hyundai 61

Vladivostok 119, 121

W

Wall Street Journal 89, 341

Warner, Greg 140, 148–150, 152–153, 155, 157, 159–162, 164, 173, 252

Washington Post 320

Weekly Chosun 302

Whitmore, Earle 61, 74

Winchester, Simon 101, 149

Won, exchange rates 354–355

World Bank 12, 95, 269

Y

Yakovlev Aircraft, and Hyundai Precision 293

Yakutsk, natural gas 120

Yanbu, LPG terminal constructed 95

Yang Bong Jin 367

Yang Chung Mo 273

Yang Hoon 180, 183, 188, 190, 192

Yangban class 33, 288, 301, 324

Yeom Yoon Jeong 108, 173

Yi Soon Shin, Admiral 7

Yoido Island, election rally 325

Yoshida, Yukio 138

Yuk Young Su 99

Yukong Oil 280

Z

Zaibatsu 10, 32, 295

About the Author

Donald Kirk first covered Korea as Far East correspondent for the Chicago Tribune in the 1970s and has reported from Seoul since then for The Observer of London, USA Today and Newsday. In Asia he has covered stories ranging from the fall of Sukarno and Indonesia’s “year of living dangerously,” to Vietnam’s Tet offensive and invasion of Kampuchea, to the Tiananmen Square massacre. In the Gulf War he was the only American newspaper correspondent in Baghdad during the January 1991 U.S. bombing. He received Overseas Press Club and George Polk awards for his reporting from Indochina, which produced two books, Wider War: The Struggle for Cambodia, Thailand and Laos and Tell it to the Dead: Memories of a War. He was Edward R. Murrow fellow at the Council on Foreign Relations in New York in 1974–1975, participating in seminars on Korea and Japan.

In Korea Donald Kirk reported on the assassination of Park Chung Hee, the Kwangju revolt, labor confrontations in Ulsan, the 1987 and 1992 presidential campaigns, the North Korean nuclear crisis and the death of Kim Il Sung. He has traveled extensively in the South and visited the North in 1992, journeying by train to the northeast special trade zone and Tumen River border with Russia. He was USA Today’s only reporter at the Asian Games of 1986 and a member of the USA Today team at the 1988 Seoul Olympics. Mr. Kirk’s home is in Washington, D.C.