The financial crisis and subsequent recession proved to be the beginning of the end for the Daewoo conglomerate, as it effectively collapsed under the mountain of its own bad debts, which finally amounted to more than $80 billion. Late last year, the chaebol was broken up into 12 separate businesses, one of the largest of which was Daewoo Motor.
 
This company, troubled though it was, was nonetheless one of the most respected corporate names in South Korea. But it was part of an industry whose troubles have only mounted in the past three years. The domestic market for cars has shrunk to 1.5 million, which is less than half the capacity of the domestic producers alone. The international market has also grown very slowly, and there have been major moves towards concentration because of this.
 
The shake-out has been greatest in South Korea, as many of the car makers that began the decade with grand ambitions ended it either under foreign control or swallowed by a rival. Thus, the fledgling Samsung car brand was acquired by Renault of France. Kia was consumed by Hyundai Motor, which itself has given up a 10 per cent stake to DaimlerChrysler.  Daewoo was considered for purchase by both General Motors and Ford. But in September this year, Ford dropped its $7 billion bid for the company and, allowing Ford and Fiat to come in with a much lower bid.
 
This triggered off the final crisis. The crunch, when it came, was ultimately caused by the Korean state allowing it, even encouraging it , to happen. Thus, in early November Daewoo’s creditor banks suggested a "rescue package" entailing 3,500 job cuts and other severe provisions. This was rejected by the trade unions, and as a result, on November 8, the chief creditor bank - the state-owned Korea Development Bank - cut off its supply of loans. This meant that Daewoo was forced to default on short term debts to its suppliers. As a result, it was declared bankrupt and put into court receivership.
 
All this of course means that any new rescue package will be on terms that are extremely harsh from the point of view of the company and its workers. One estimate of potential job loss is as high as 500,000 counting the impact on Daewoo’s suppliers as well. If the Ford-Fiat offer was earlier seen as too predatory, any new offer is likely to be aggressively carnivorous.
 
It is not as if the assets to be picked up are actually valueless. Daewoo Motor’s Changwon factory is supposed to be the most efficient in the world., and several other of its factories are impressive in terms of state-of-the-art technology and highly productive workers. It also still has 20 per cent of the Korean domestic market share. None of these qualities is likely to prevent these assets from being sold for less than a song, or simply thrown away and allowed to waste.
 
What is worse, is that Daewoo Motor is not alone in facing such tribulation. The fate of Hyundai Construction - one of the country’s largest employers - hangs in the balance, as it finds itself unable to meet the debt service of nearly $1 billion dollars which is due now. Once again, the tightening of screws by the public sector banks which are its creditors is the proximate cause of its woes. At the moment it is being allowed to survive simply because another collapse at this point might be too much for both political and economic stability.
 
This is ironic. The apparent resolve of a supposedly popular government to allow these crucial companies to collapse, stems from its desire to search for and keep hold of the Holy Grail of "investor confidence". But the collapse of these companies not only causes severe pain in terms of unemployment and negative multiplier effects, it also creates widespread social and political unrest in a country in which unions and social movements remain relatively strong.
 
And this, in turn, displeases investors and reduces their level of "confidence". The Seoul stock market has already lost 50 per cent of its value over the past year, making it the worst performing bourse in the world. The contradictory effects of the government’s desire to placate highly demanding international capital may explain how this can happen despite the supposed bouncy recovery of the economy.
 
In the process, the challenge to metropolitan capital that was posed by the emergence of such developing country conglomerates, has been converted in South Korea into the more familiar (if more depressing) plea for succour.