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Strawman Theories

As is well known, classical economists were mistaken in practically everything they could be, clearly seeing only certain specific points (the inhuman and monstrous slave exploitation of workers, like Marx, or the undoubted benefit of free trade for England in the late 18th century, like Smith) while remaining deaf and blind to everything else. Since their theories were built entirely on a foundation that they considered monolithic, basic, and eternal, but which reflected only an extremely narrow view of the world, then, like flux—as Kozma Prutkov put it—their completeness was one-sided. Smith completely failed to notice the economic practices of primitive peoples (which were repeatedly described) contemporary to him and entirely divergent from his fantastic hypothesis about the origin of money; nor did he notice that his beloved free trade worked extremely one-sidedly: first, the British achieved colossal industrial growth through the harshest protectionism, and only then did they begin to impose a similarly one-sided free trade on all other countries by force of arms, working extremely selectively (“buy what is most profitable for us to produce and hawk to you, and if you don’t want to—we’re already sailing to bomb you”). It is no surprise that, in the end, a generation of standard “strawman Marxists” grew up on Marx, mindlessly repeating his takes even when they had largely lost their meaning, and to oppose them, a generation of similar “strawman libertarians” like Mises, Hayek, and their heirs grew up, repeating like parrots the maxims of Adam Smith, which were false even during his lifetime.

The basis of their theses, their Lord and God, their axiom and theorem, became Mr. Free Market. In the simplest way (yes, we will not overcomplicate beyond what is necessary, since our task is to describe the naive, even slightly caricatured understanding of the problem characteristic of the “strawman libertarian”), this idea is formulated as follows: there are no forms of economic activity more optimal and leading to superior development than the Free Market; there are no forms of economic activity that yield a worse result than state intervention in the Free Market. The proof? The “strawman Marxists” from the USSR provided it for us, as did the brilliant capitalists of the USA, Japan, South Korea, Taiwan, and other developed countries. Over 70 years, the Sovoks tore their own economy apart with Gosplan, which proved unable to arrange the regular production of toilet paper, while all these American and Asian tigers, thanks to the Free Market and capitalism, arranged the production of mainframes and smartphones during the same time. Checkmate, commies!

It is quite difficult to argue with the fact that the Soviets failed everything that could be failed, including their own empire, just as it is difficult to argue that first Britain, then the USA, then Western Europe, then the non-communist Asians (like Taiwan, South Korea, Malaysia, and other Philippines), and finally the communist Asians (those among them who, like the PRC and Vietnam, wisely rejected communism in practice and left it only in slogans) achieved an incredible economic growth surpassing any forecasts. But was it really all like that? Again, no one will doubt the failure of the USSR just by looking at a globe, but thanks to what did the increasingly successful regions consistently rise? In reality, there was never any scent of a Free Market there. This story can be divided into many stages. British protectionism and the British state Royal Navy, which for two centuries served as an opener for those markets that the English needed to open and a shield for those that needed to be closed; Silicon Valley, which emerged as a state association of large military contractors and exists largely in that same status to this day; the American monopoly sharks, Theodore Vail, Thomas Watson Sr., and others, who built giant vertically integrated state corporations; in fact, all American industry and R&D of the Cold War, which were merely an appendage of the state military-industrial complex; the Japanese zaibatsu, which smoothly flowed into keiretsu, supported by as many as two governments—their own and the American one (and collapsed after losing one leg—the one growing from the USA); Taiwan, which from start to finish was a military protectorate and practically a techno-colony of America; modern AI monsters from Anthropic to Palantir, bogged down like in tar in military contracts, etc., etc.

Each of these chapters is instructive in its own way, and perhaps someday I will tell them all, exposing the scale of the greatest construction of state corporate socialism in history, which, unlike the pathetic and laughable Soviet project, was done by real pros and therefore succeeded. Today I will touch upon only one country (albeit in detail), about which the average person has roughly as much detailed information as about any other distant Asians—South Korea. Just the other day, its SK Hynix became the most expensive company in the country (until then, the leadership had been held for 26 consecutive years, naturally, by Samsung) and simultaneously crossed the trillion-dollar capitalization mark. The mentioned Samsung joined the trillionaires’ club a month ago; among the companies that reached the coveted $10¹² valuation, only three are Asian: Taiwanese TSMC and South Korean Samsung and SK Hynix. Moreover, the Korean sweet couple controls 60% of the global RAM market and more than 80% of the global market for high-performance RAM of the HBM (High Bandwidth Memory) type, invented, actually, by Hynix in half with AMD. This is the only surviving world standard of 3D RAM packaging suitable for AI accelerators in a fierce struggle. The funny thing is that its alternative—the HMC (Hybrid Memory Cube) architecture, created… by the same Koreans, only from Samsung, officially died back in 2018, despite the fact that as many as five top American corporations desperately tried to develop it: Micron Technology, Hewlett-Packard, Microsoft, Altera, Xilinx, and the international ARM consortium. Another alternative, promoted by the seemingly omnipotent Intel (half with the same Micron Technology, who basically lost practically the entire global memory market to the Asians, occupying about 15% in the end)—MCDRAM (Multi-Channel DRAM) for Intel Xeon Phi superprocessors—died along with Xeon Phi at the beginning of the same 2018, while SK Hynix prospers and intends to continue. And the most interesting part—there is as much free market in South Korean companies as there is in Kim Jong Un. It’s just that socialism comes in different varieties, as does Gosplan, and that is what we will talk about.

The Rise of the Japanese Sun

To understand Korea, first we will have to slightly understand their patron for half a century—namely, the Japanese Empire, so in the end, we get two for the price of one: we will also have to talk about the zaibatsu, their evolution, and their methods of doing business. Generally, Japan is a true diamond for anyone studying the birth and death of states and their power. In 1869, the Boshin War ended; the emperor insisted that the country must break with stale traditionalism and enter the 20th century as a power that, from a technological point of view, was not inferior to Europe and the USA. Until that time, 90% of the inhabitants of the Japanese islands did not stand out in any particular way against other Asians, from Indians to Chinese. Agrarian, technologically backward, possessing a very specific mentality and peculiarities of thinking not most suitable for innovation, they had lived like this for, say, a thousand years and had literally just discovered that the matchlock arquebus, as it turns out, is no longer the most diabolically destructive weapon in history. The British, who were heavily engaged in the industrial development of Asia, noted that at that period, in their view, the Japanese were no different from the Chinese: they wrote of their laziness and extreme lack of discipline, even stupidity, which prevented them from effectively using even machines such as the weaving loom (at that time, the productivity of one weaving loom in the hands of an Indian was approximately 1/6 the productivity of a typical British worker with the same loom; the Chinese were even worse, and the Japanese were on the level of the Chinese). Naturally, this fueled chauvinistic notions that the yellow race is fundamentally defective and incapable of any innovation.

However, in 1895, the Japanese showed China who the second-rate Asian was here; in 1905, they brutally beat the overly conceited, huge Russian Empire; and on August 21, 1917, a report from Counter-Admiral George Ballard, who commanded naval forces in Malta, to the Admiralty ended as follows:

French standards of efficiency are lower than British, however, Italian standards are even lower. With the Japanese, things are different. Admiral Sato’s destroyers are kept in perfectly working order and spend as much time at sea as our ships. It is significantly more than that of French and Italian ships of any class. Moreover, the Japanese are completely independent in matters of command and supply, whereas the French will do nothing independently if this work can be shifted to others. The efficiency of the Japanese allows their ships to spend more time at sea than any other British ally, which increases the effect of the presence of Japanese ships in the Mediterranean Sea.

The Japanese were not just the only ones in Asia able to build an effective military machine—they built it at such a level that they surpassed the white Europeans and shocked the British once again, and they did this in literally 40 years. History had never known such a leap of civilization: in 1870, Japan was no different from the monstrously stagnating China (which remained so for the next hundred years!), and in 1918, Japanese diplomats arrived in Europe on ships superior in quality to French, German, and Italian ones, and sat in Versailles, deciding the fates of the world on equal terms with the great powers. Even more surprising is that by the 1930s, they had leveled up so much that they were able to threaten US hegemony in the Pacific and, although they lost in the end, they delivered as many troubles to the Yankees as no other enemy had in their entire history.

Asia, meanwhile, is a territory of clans, and this manifests itself on an incredible scale, inaccessible to the understanding of the white man. Asian clans are not just a family or a village of highlanders; they are tens and hundreds of thousands of people who significantly distinguish themselves from the rest of the population and maintain their internal autonomy for millennia, effectively states within a state. The textbook Japanese departmental squabbles between the Imperial Army and the Imperial Navy, notoriously known from the Interbellum and WWII, had no precedents in world history. The army and navy were absolutely independent organizations, each having its own everything: from aircraft models to infantry, and they feuded in a way that would make the Germans and French envious. It came down to mutual assassination attempts and outright murders of government officials who supported the enemy faction; even Admiral Yamamoto Isoroku preferred to live aboard his battleship not so much out of love for the sea, but due to serious fears for his life. This mess, which cost Japan the victory in the war and was incomparable to any factional squabbles in any country, stemmed exclusively from Asian clanism.

The Meiji Restoration was supported by five powerful domains: the principalities of Saga (also Hizen), Tosa, Choshu, Hiroshima, and Satsuma. They all called themselves Ishin Shishi—”noble people”—and supported the emperor and nationalism under the slogan Sonno Joi: “Revere the Emperor, Expel the [Western] Barbarians!”. Already from this slogan follows a certain contradiction in their philosophy, or rather, the standard difference between the ideology used to feed the broad masses and the ideology for internal use. The Shogunate was cleverly accused of having supported the West during the forced opening of Japan for trade via Commodore Perry’s guns and the conclusion of the unequal Treaty of Kanagawa, westernization, disregard for racial customs and culture, and all sorts of humiliations. At the same time, the emperor himself and at least two of the five domains—Hiroshima and Satsuma—supported westernization themselves with all their might, as well as the closest relations with the West, as they wanted to traverse the Western path of progress, which took centuries, in a few decades. For the sake of this, one could tolerate a small amount of humiliation (which mainly consisted of the fact that foreigners for some reason did not consider the Japanese descendants of gods and did not tolerate being treated like animals). After the victory of the Restoration, by the way, the inconvenient motto was immediately replaced by Fukoku Kyohei: “Rich Country, Strong Army”.

Naturally, many people participated in the war between the Shogunate and the emperor—the Northern Alliance, opponents of Meiji, consisted of as many as 31 principalities, but most of them were small and globally influenced nothing. It is no surprise that after the victory, the clans from the South formed the new government and entered parliament. It is also no surprise that after the victory, contradictions between ultra-nationalists and technocrats sharpened again, only now the ruling clans themselves split. The greatest role was played by Satsuma and Choshu, from which eight of the nine so-called genro (elders), unofficial advisors to the emperor possessing colossal power and becoming, in essence, a new collective shogun, were recruited. A regime was formed that had no analogues in history and was later called hanbatsu (literally “clan cliques”)—the Meiji oligarcharchy. Saga and Satsuma conventionally belonged to the technocrats, Choshu and Tosa to the nationalists, although over time this division blurred slightly and representatives of both directions could be found in every clan.

However, the birth was still extremely important always. Power in the Imperial Japanese Navy belonged entirely to Satsuma—traditional Japanese seafarers and pirates, from among whom, among others, the great Admiral Togo originated. No person could become a naval officer +- above lieutenant without being blood-related to Satsuma. The already mentioned families of Togo and Yamamoto, as well as Fleet Admiral Saigo Tsugumichi, belonged to Satsuma. The Imperial Japanese Army was headed by the Choshu clan; its prominent representatives became Baron Nogi Maresuke, General Kodama Gentaro, Field Marshal Yamagata Aritomo, and Prince Katsura Taro, the 6th Prime Minister of Japan. Before WWI, exceptions occasionally occurred in favor of the army; for instance, during the Russo-Japanese War, the commander-in-chief of the Manchurian Army was Marshal and Prince Oyama Iwao from the Satsuma clan, and the commanders of the First and Fourth armies were Kuroki Tamemoto and Nozu Michitsura, also from Satsuma, but by the Interbellum the division was rigidly fixed. One went into the navy only from the IJN Naval Academy in Etajima, created on the model of the Royal Naval College in Greenwich, and into the army—only from the IJA Army War College in Tokyo, created on the model of the Prussian Military Academy.

The division affected not only the army and navy; for example, key posts in the Japanese police were occupied by the Satsuma clan: from 1874 to 1901, of 14 chief and general inspectors, 12 belonged to Satsuma and 2 to the Tosa clan. In fact, one of the reasons for the creation of the military police was Tosa’s desire to limit Satsuma’s power in the capital’s police; in the end, an entire parallel department was created. Thus arose the so-called gunbatsu (“military factions”). The navy and army could not agree with each other on anything, the emperor as an arbitrator was so-so, and they collectively spat on the civilian government. Thus, the Japanese managed to completely sleep through the concept of the intercontinental bomber, simply because its main creator, Chikuhei Nakajima, a leading Japanese engineer and businessman who as early as 1917 created the first aircraft company in the country, the Japanese Aeronautical Research Institute, was not Satsuma or Choshu and did not enjoy the support of either the army or the navy. He was born in Gunma Prefecture, Kozuke Province, into the family of an ordinary farmer. Because of this, he fundamentally could not go to either Etajima or Tokyo; he graduated only from the neutral Imperial Naval Engineering Academy in Yokosuka and only reached the rank of naval lieutenant. Since he did not belong by birth to either the army clans or the naval ones, he was not even paid attention to. Nakajima vainly tried to promote a third branch of service—the Air Force, but, naturally, nothing came of it (although he did produce planes separately for the navy and army, for example, the naval carrier torpedo bomber Nakajima B5N Kate or the army fighters Nakajima Ki-43 Hayabusa and Nakajima Ki-84 Hayate).

Clans even influenced how, from a conceptual point of view, Japan intended to fight and with whom. The naval ones were extroverts, recognizing Western technological values and communicating closely with colleagues from Britain, the USA, and Germany. Furthermore, their expansion was directed primarily to the East, into Asian colonies, to seize oil, iron, and other industrial resources. In themselves, they were far fewer cannibals than the Imperial Army; not coincidentally, after the war, only three vice-admirals were hanged (and that for the executions of several dozen US and British prisoners of war, not for more terrible sins). The navy saw England and the USA as its main opponents. They recruited from large cities, preferring people of a liberal and intellectual mindset. Moreover, the IJN was numerically small and a very elite service that recruited recruits (especially officers) from the higher layers of society. Naturally, there were exceptions, for example, Vice-Admiral (posthumously) Sanji Iwabuchi (who, characteristically, hailed from Honshu, not Kyushu), a maniac who refused to surrender to the Yankees in Manila in 1945 and resisted them to the end with 16,000 sailors and marines. In the process, troops on his order destroyed about 100,000 civilians and died almost in their entirety, and the psychopath himself blew himself up with a grenade at the end of the American assault, but such exceptions were rare.

The ideology of the army clans and, accordingly, the Imperial Army was radical esoteric fascism: belief in the greatness of spirit, not the greatness of machines, contempt for the West, progress, economics, and technology. Most typical army officers were crazy fanatics, hailing from the lower and least educated strata, predominantly the rural population, subjected to harsh indoctrination and ready, for the sake of the greatness of the race, to plunge a knife into the stomach of an enemy, a friend, or even their own. Their natural enemies were China and the USSR, and their gazes were turned to the West. Many of the junior army ranks hailed from the smaller clans of the Boshin War who supported the shogunate. The IJA was very numerous and (especially the Kwantung Army in Manchuria, famous for unthinkable atrocities against the population) accepted recruits from the lower layers of society and even from the criminal world. Most of the top army leadership after Japan’s capitulation committed suicide or were hanged (six generals, including the prime minister) for their monstrous crimes.

Cliques and Clans

The situation was exactly the same in Japanese industry. Korea’s most significant acquisition in terms of management was the concept of zaibatsu (literally “clique of rich men,” in Korean “chaebol”). A zaibatsu is a specifically Asian form of doing business—a mega-corporation built around a bank belonging to a specific clan and controlling almost unlimited resources (and, naturally, enjoying full state support). The Japanese are people of order and organization, and since the Meiji era, when the Western concept of business first penetrated their society, they decided that even competition and corporate wars should be organized properly. As a result, almost the entire country’s industry was concentrated around four great clans: Mitsubishi, Mitsui, Sumitomo, and Yasuda, which dealt with absolutely everything: from the construction of the IJN Yamato super-battleship to the production of washing machines and methamphetamine for soldierly alertness. After WWII, by the way, this concept didn’t change much, except that the Yasuda clan was destroyed by the Americans, and the name of the principle was changed to keiretsu (literally “hierarchy”).

A good keiretsu combines practically everything: from resource extraction departments (like oil) to departments producing all sorts of wide-profile goods (literally from home computers to warships), and also includes investment departments, real estate departments (yes, for example, they also build houses), banking structures, and so on. A keiretsu is a state within a state, competing only with other Godzilla-like giants. As a rule, they are still grouped around some powerful bank and, unlike the pre-war zaibatsu, are more flexible structures consisting of many closely interconnected companies (zaibatsu, on the other hand, were controlled by one family, in the traditions of feudal management). For example, Mitsubishi is built around the similarly named Mitsubishi UFJ Bank and includes more than 20 divisions, from shipping (Nippon Yusen) and real estate agencies (Mitsubishi Estate) to food production (Kirin Holdings), glass (Asahi Glass) and paper (Mitsubishi Paper Mills Ltd.), the chemical industry (Nippon Synthetic Chemical Industries), heavy machinery (Mitsubishi Heavy Industries), oil extraction (Nippon Oil), nuclear energy (Mitsubishi Nuclear Fuel) and electronics (Nikon, Mitsubishi Electric). At the same time, Japanese giants were never inclined to feud with one another; on the contrary, they often mutually invested in each other’s shares, saving their enmity for the Western barbarians. This policy even received the ironic name Japan Inc.—the entire country was one giant fractal-like corporation.

Naturally, a clenched fist hits harder than an open palm, and traditional Western companies (even those as huge and integrated as IBM) found it extremely difficult to withstand the Japanese monsters. Another feature was that state officials stood behind every keiretsu—each mega-corporation had its own faction in government, with a level of interconnectedness incomparable to any lobbyists in the USA, ensuring it a most-favored-nation regime. It is obvious that all of them without exception also had lower-level connections, including with the yakuza (which, due to the Japanese mentality, is not something repulsive). Japanese corporate culture provides for unconditional obedience, lifelong employment, inhuman voluntary overtime, and relies heavily on the concepts of saving face and honor, which led to the fact that everyone who entered a keiretsu became a tiny cog in a huge, well-coordinated mechanism. At the same time, the perks were also significant: honor and respect in society, a consistently high salary, and full protection from dismissal. Getting into a keiretsu is very difficult; traditionally, only graduates of the thirty best Japanese universities have a chance, after passing an incredibly brutal competitive selection, but getting kicked out afterward is practically impossible (unless as a result of some extreme ethical scandal). A keiretsu is a family, and family is for life. Accordingly, all employees are expected to treat the problems of the keiretsu as problems in their own family, and for the Japanese, this actually worked.

The initial investments into every single keiretsu were poured in by the state, and in a rather cunning way. Historically, it so happened that the postal service in Japan provided banking services to the population. Due to legislative restrictions, the Japanese had no other options, and they brought all their spare pennies to the post offices. For a long time, there was no state pension system in Japan, and corporate pensions were meager, so the Japanese strove with all their might to increase the level of private savings. As a result, their standard of living was not very high (cramped apartments, ordinary furniture, often a lack of heating), but solid sums accumulated in their accounts. The post office paid depositors meager interest, so it could freely dispose of the huge volume of money withdrawn from the entire country. As we remember, the post office is the state, and the state is the keiretsu with its internal banks. As soon as the USA finally let Japan go into free economic sailing in the 1970s, the state began, as if possessed, to invest this collected money into corporate banks at similarly ultra-low interest rates. Capital was nowhere as cheap as in Japan in 1975/85. While American companies in the 1970s took loans at interest rates expressed in double digits, their Japanese colleagues received loans for only a fraction of such sums, which made them incredibly efficient and allowed them to pour billions into the most advanced developments in the world, without worrying much about their immediate payback.

An additional bonus was that Japan, by the will of the USA, was forever free from the scourge of the developed countries’ Cold War—the total dominance of the military-industrial complex. The Yankies, the English, the French, and the USSR poured unimaginable amounts of money into weapons, reaching up to 15% of GDP. Japan, however, was forbidden by the Constitution from having advanced offensive weapons and a developed army in general (and from participating in the arms race); their security guarantor was the American military bases in the country. In the end, all the incredible dough that the Americans and Soviets flushed into nothingness—either into tens of thousands of tanks and hundreds of nuclear warheads, or into psycho-technical military projects like the North American XB-70 Valkyrie or the “Duga” over-the-horizon radar—the Japanese poured into the development of civilian technologies (similarly, by the way, the FRG did, although their ban on an army was slightly softer). Furthermore, although the Japanese lived through occupation, they were no fools and tried to maintain the closest possible relations with the USA, especially commercial ones (although they didn’t exactly have much of a choice, given the military bases on the territory of the country). At the same time, the Americans themselves passionately desired cooperation—they needed a loyal and reliable bridgehead in the East that would guaranteed not turn to communism and would help oppose the PRC, the USSR, North Korea, and the rapidly reddening Vietnam, Laos, Cambodia—basically all of Indochina.

In order to ensure that Japan (which was the most technologically developed and strong country of the region at that time) didn’t suddenly decide to turn its face toward the Soviets, the Yankies were ready to treat their former sworn enemy with maximum kindness and politeness and swamp them with any technologies of their choice for free. The left-wing movement in post-war Japan was, moreover, extremely strong—Japanese communists, for obvious reasons, hated both their own right-wing militarists, who had dragged them into a war that ended in a nightmare defeat, and the American capitalist occupiers, and they argued among themselves about only one thing—whether to choose Maoism or a more moderate Soviet socialism. Both options scared the Yankies equally, and to neutralize them, Japan had to be raised from the ruins in the shortest possible time, fed, clothed, dusted off, and introduced into a decent, i.e., Western-capitalist, society. Trade publications, such as Electronics magazine, from which one might expect them to side with American companies, instead noted: “If Japan cannot enter into healthy trade relations with the Western Hemisphere and Europe, it will seek economic support elsewhere, for example in communist China or the Soviet Union”.

“The Japanese people with their history will not be satisfied with the production of transistor radios,” echoed President Nixon. Out of fear that Japan would turn red, the Americans turned a blind eye to practically everything it did: strict restriction of American competition and protectionism in internal markets, ruthless dumping by lowering the exchange rate of the yen to sell cheaper, the invasion of Southeast Asia (factories of NEC, Fujitsu, and others were opened everywhere, from Hong Kong to Indonesia, across the street from the Americans) and, most importantly, the Americans transferred a bunch of patents to them almost for free and turned a blind eye to their free use. At the same time, within the US market, American companies themselves were ready to literally tear each other apart at the slightest hint that a competitor had made something similar to their product; they treated Europeans even worse. With the Japanese, everything was completely different; the most famous example is the purchase of the patent for manufacturing nylon by the Toyo Rayon company, part of the Mitsui keiretsu, from the American chemical concern DuPont. It took American scientists more than ten years and $25 million to develop the polymer material from which beautiful, thin, and strong women’s tights, toothbrush bristles, sportswear fabric, parachutes, and many other things could be produced. The Japanese paid $7.5 million for the patent and received revenue from the sale of the new material in the amount of almost $100 million. As a result, by 1985, the Japanese had captured more than 50% of the global car market (and 24% of the American one), and it was the same in any field: from refrigerators to mainframes. In the field of microelectronics, MITI (Ministry of International Trade and Industry) harshly twisted the Yankies’ arms, demanding that technological chains be transferred from them to Japan, while American chip manufacturers themselves could not get in.

Fairchild and TI tried to establish production in Japan as early as the beginning of the 60s, but ran into stiff resistance. In 1962, MITI forbade Fairchild from investing in a factory already purchased in Japan, and the inexperienced Robert Noyce (one of the primary fathers of the integrated circuit) tried to enter the Japanese market through the NEC corporation. In 1963, the management of NEC, allegedly acting under pressure from the Japanese government, obtained exceptionally favorable licensing terms from Fairchild, which subsequently closed off Fairchild’s ability to trade independently on the Japanese market. Only after the deal was closed did Noyce learn that the president of NEC also chaired the MITI committee that had been blocking Fairchild’s deals. TI tried to establish production in Japan in 1963, already having a negative experience negotiating with NEC and Sony. For two years, MITI refused to give a definite answer to TI’s application (while simultaneously stealing their microchips and releasing them locally without a license), and in 1965, the USA struck back, threatening the Japanese with an embargo on the import of electronic equipment that violated TI’s patents, and started by banning Sony and Sharp. MITI realized the threat and began thinking about how to lead the white barbarians in. In the end, they cooked up a multi-step scheme: they insisted on the termination of a deal already being planned between TI and Mitsubishi (the owner of Sharp) and convinced Akio Morita (the founder of Sony) to make a deal with TI “in the interests of the future of Japanese industry.” The agreement was extremely unfavorable for TI, and for almost twenty years, Japanese companies produced cloned microchips without paying licensing royalties.

The Scourge of Imperfection

As the cherry on top, from the mid-1970s, the Americans themselves, on the contrary, allowed Japan to unpeg the yen from the dollar and opened for them the greatest treasure—the bottomless American market. In the 1960s, dubbed the “diamond” years, Japan had already completed its post-war recovery and restructuring, gathered all its strength, and was ready for a leap. A feature of Japanese capitalism was that the initial investments for keiretsu were received not through IPOs, as in the West (which imposed strict requirements on companies regarding efficiency and reporting), but through loans from banks (at a minimum interest rate), which, in turn, were funded by the state (also at a minimum interest rate, from the postal savings of citizens). A real market did not exist. Money was not saved, and the main criterion for lending was relationships. As a result, many non-repayable loans were issued in the country, and the Japanese were not particularly bothered by this—everyone took everyone’s word for it, because of honor and face. Even if someone defaulted on a loan—you can’t shame a respected person and point it out in public, or they might commit seppuku. Instead, let’s let them re-borrow; they promised, so they’ll definitely pay it back. One day. Additionally, many Japanese corporations practiced an invention known as “zaitech,” in which speculative profit and capital gains were reflected as income in corporate financial reporting, which allowed firms to borrow at a low interest rate. The companies’ profit was artificial, but their stock quotes rose.

The boards of directors of the keiretsu consisted of the same bankers who gave them money and the officials who gave money to the bankers. Loans were recorded as profits, shares showed incredible growth, and nobody worried much about real profit—there is the bottomless American market, it will swallow anything, and it will be that way for eternity; we’ll still have time to polish the product to perfection. Many of the best Japanese developments in audio, video technology, and computers required investments in the billions, yet in the end were produced in tiny quantities and didn’t even pay back the development costs, let alone a profit. Take, for instance, entire families of acoustic systems from various brands—Pioneer, Onkyo, Coral, Technics, Yamaha, Sansui, Hitachi, Sony, Kenwood, Diatone: square honeycomb diffusers, boron and beryllium, complex 3D-spaced emitters—and all this was slowly calculated for years on mainframes, modeled by physicist-scientists in their own laboratories, tested in anechoic chambers, and entire new production lines with tech processes unmatched in the world were built for this. In the end, it took first place at all technical achievement exhibitions, Japan stood in last place in terms of return on equity among developed countries—and everyone was perfectly happy with everything! At the same time, Matsushita Electric Industrial Co. Ltd. alone (the electronics division of the Matsushita keiretsu, the one that produced the Panasonic and Technics brands) employed 103,000 employees by the end of 1976, owned 126 factories and plants on Japanese territory, 15 laboratories where 8,500 engineers and scientists worked, holding a total of 44,000 patents.

Despite this, the country steadily demonstrated high rates of economic growth. This was explained by the structure of its economy, since the Japanese developed through exports. The internal market was negligible—only a few thousand people out of the country’s multi-million population could afford speakers with beryllium diffusers, and even they were in no hurry to do so. This was due to Japanese modesty cultivated over centuries (akin to the famous Scandinavian modesty) and a worldview opposite to the American one: displaying one’s wealth was considered the height of shamelessness in an extremely ritualized Japanese society. Ordinary people, not concerned with such problems, simply could not afford this feast of technology. For example, a top set of Technics audio components: SB-10000 speakers, SE-10000 amplifier, SU-10000 preamplifier, SL-1000 vinyl, RS-1800 reel-to-reel tape recorder and SH-9090 equalizer—at the end of the 1970s, would have cost more than 3 million yen—the price of a luxury car (but it should be noted that it was still many times cheaper and several times higher quality than modern artisanal “Hi-End” for hundreds of thousands of dollars with capacitors made of virgin snot charged with the power of the Moon, arrows on cables, and other techno-schizophrenia for scamming suckers).

Moreover, the Japanese diligently saved money for old age; Japan held first place in the world for the amount of personal savings for a long time, and any classic economist, seeing this, would clutch their head—for a country to develop steadily, money must circulate, not lie around. However, it did circulate, just rather sluggishly—the government spent 99% of these savings on R&D, but, as we already said, the return there was minimal. The research, however, bore fruit—Japan rightfully became the mother of most technologies without which it is impossible to imagine our time. Provided that the Japanese didn’t need to invent anything from scratch, but only needed to improve what existed, their minds worked phenomenally. The first portable player in the world (Sony Walkman, 1979), the first video cassettes (VHS, 1976); audio cassettes were created by Philips, but it was the Japanese who by 1980 brought cassette decks to absolute perfection; they, along with Philips, created the CD standard in 1980. The Japanese are also responsible for the appearance of high-speed railways, capsule hotels (invented in 1979 as the ultimate form of a crash pad, so that employees staying late at work wouldn’t spend extra hours traveling home and back), instant noodles, Li-Ion batteries, EEPROM, flash memory, digital cameras (as always, invented in 1975 by Eastman Kodak, but the first consumer one was released by Fuji in 1988, and the first matrices suitable for video cameras were created by the Japanese Olympus in 1985) and many, many other things. Because of a thirst for entertainment, karaoke appeared in Japan, and because of draconian gun laws, airsoft was invented there in the 1970s. In 1983, Sumitomo Corporation created the neodymium magnet (without which nothing today goes by—from cars to headphones), and one could talk about Japanese microelectronics for hours.

Japanese mainframes were architecturally clones of the IBM S\360 (and later following models), just like the Soviet ES EVM, but they were developed in a couple of years, not 15, and were incredibly improved in the process. As a result, they became 1.5 times more powerful, consumed 2 times less energy, used simple air cooling instead of bulky water cooling, took up less space, and cost less. In 1980–1990, Japanese computers repeatedly became the most powerful in the world in all categories: from supercomputers to mini-systems. At the same time, Japanese business management methods, which turn people into bio-robots, were incredibly advanced, including the legendary Toyota Production System (for which, by the way, the Japanese company DENSO Corporation invented the QR code in 1992). Successes in industrial robotics also became legends—Japanese assembly shops had been practically deserted since the 1970s. About the cars and motorcycles that literally crushed the remains of the American auto industry into a pancake, one could also talk for a very, very long time. The Lexus LS 400, introduced in 1989, humiliated even the legendary “boar” Mercedes-Benz W140, which appeared two years later; American heavy luxury, by comparison, looked as if it had been riveted together by drunken orcs.

Naturally, as befits the mega-corporations of the 1960s, the keiretsu (and the chaebols after them) were colossal conglomerates, states within a state, effectively self-sufficient in terms of conducting business; they had everything of their own: starting from internal banks and ending with architectural bureaus and construction companies that could erect an entire city or a new factory. This trend persisted even when, in the late 1980s, companies in the West were feverishly being carved up, shedding ballast, or reorganizing. For example, the famous Technics SL-P10 CD player was released in January 1983 (one of the first ten CD players on the market) and consisted 100% of parts of Matsushita Corp.’s own design (including the microprocessor and all types of integrated circuits!), 99% of which were manufactured within the corporation itself. By modern standards, this is complete madness. For the Japanese and Koreans of the 1980s, it was the norm of responsible, serious business.

Outside of Japan, Matsushita Electric had 26 trade representative offices and 29 plants, predominantly in the USA. In the territory of America, by the way, at the end of the 1970s, it held 2nd place in sales, trailing only the American mega-corporation RCA. In other areas, everything was also going swimmingly—for example, by 1987, Japanese cars occupied 34% of the American market. The famous American video game industry crisis of 1983–1985 (also known as the “Atari shock”) helped further strengthen faith in the Japanese miracle. Industry profits, which had reached peak values of $3.2 billion in 1983, fell to approximately $100 million in 1985. The Japanese took advantage of this: Sega and Nintendo invaded the American market with their consoles and captured it almost 100%. By 1989, the home computer game market in the USA reached $5 billion, and Nintendo controlled the majority: the company sold over 35 million units in the USA, far surpassing the sales of other game consoles and personal computers.

Korea Rises from Its Knees

For Japan, as we know, it all ended sadly, not so much because of specific management methods, but because in the late 1980s the USA stopped needing such a powerful bridgehead against Soviet communism in the East; meanwhile, they had stopped needing a powerful bridgehead against Chinese communism since the mid-1970s: Mao’s death, Nixon’s trip to the USA, and the general detente in relations (and there were still almost 50 years left before the Trumpian inflammation). Moreover, the Americans, horrified by the monster they had created in Japan, began generously pouring billions in patents and technologies into all the Asians who could help them defeat the Godzilla that was about to completely devour the remnants of American corporations, from IBM to Intel.

Thus, they raised Taiwan from its knees first, then mainland China, and this is where South Korea enters the stage. It masterfully adopted the Japanese experience (including taking note of the ultimate sad fate of the keiretsu), modernized it, and rolled into the 21st century on it. The foundation, as usual, was state control and a planned economy. Since 1910, Korea had been occupied by Japan, but unlike in China, the Japanese considered Koreans merely sub-humans rather than animals, and therefore did not kill them left and right, but sincerely tried to pull them up to correspond to the superior imperial culture. As a result, although life there was no piece of cake, over 35 years of colonization the Japanese carried out industrialization, built infrastructure and factories, and overall, more or less dragged Chosun into the 20th century. Korean chaebols were organized on a similar principle as early as the 1930s; of these, we are naturally interested first and foremost in Samsung and SK Hynix.

Samsung emerged back in 1938, when Lee Byung-chul from a clan of wealthy landowners in Uiryeong County founded the trading company Samsung Sanghoe to sell dried fish and noodles. The company prospered both under the Japanese and after them, and in 1947, Lee moved its head office to Seoul, simultaneously befriending (thanks to unstoppable corruption) the half-witted dictator Syngman Rhee. An American puppet, during his years of rule he managed to kill more people than Kim Il Sung and drove the country into even greater poverty, and he demanded more worship than the first of the Kims. He ruled the South (sitting on American bayonets) for 12 years; toward the end, he practically declared himself a god, destroyed hundreds of thousands of people in bloody purges, dreamed of fighting the North until the last Korean, and almost derailed peace negotiations (it is precisely thanks to him that an official treaty ending the war between the countries has still not been signed). At the age of 84, he received another 100% of the votes in the election (and was the only candidate there), after which the army finally got fed up with the old senile man, and the generals staged a coup. As a result of the brief showdowns, the second adequate Asian dictator, Park Chung-hee, came to power in 1961, firmly determined to turn Korea into a prosperous power. Naturally, it didn’t happen without repressions and executions, but before his assassination in 1979, he managed to fulfill and over-fulfill his program. Before Park, the only and main export items of South Korea were fish and… wigs made of human hair. After Park—half of the world’s electronics, the lion’s share of cosmetics (as well as medicines and chemical industry products in general), shipbuilding, cars, and much more.

Lee Byung-chul took an extremely active part in all these events, being the wealthiest Korean oligarch. As a businessman, he made it during the Second World War by exploiting workers who lived in the basement floors of his factories, sold their products to the Japanese, was a fierce opponent of trade unions, and stated that they would appear in his company only over his dead body. He was a passionate Japanophile, married a Japanese woman, named his company Samsung (“Three Stars”) by analogy with the Japanese Mitsubishi (“Three Diamonds”), and was the favorite and friend of Syngman Rhee, becoming the richest man in the country during his monstrously corrupt reign. When the Korean War began, he founded the Cheil Jedang sugar factory and sold rice wine to American soldiers. In 1954, Lee decided to diversify further and opened the Cheil Mojik factory—at the time the largest wool products plant in the country. In general, in South Korea in the 1950s, existing industry mainly produced consumer goods, and the main ones were the so-called “three whites”—wheat flour, sugar, and cotton. Some enterprises producing the “three whites” (including Samsung), receiving a special preferential regime from the government, turned into chaebols supplying their goods to the government and were handed out as feeding grounds for the emerging Korean oligarchs, who were effectively independent of the state, closely linked to corrupt government officials, and did not pay taxes. From these, the most famous Korean giants subsequently grew.

In 1960, by GDP per capita ($80), Korea was roughly at the level of Nigeria (for comparison—in Cuba in the same year, with no less dictatorship and corruption, where the only income was rum and cigars, it was about $4000!). There was not a single multi-story residential building in the country, in Seoul only a quarter of all houses were provided with sewage, 82% of the rural population and 39% of the urban population (even in the capital) lived without electricity, and even where it was, it was often not supplied around the clock. Ox-carts were the primary transport until the very end of the 1960s. This, however, did not hinder corruption. By 1953, the total number of officials in South Korea exceeded 300 thousand people—more than three times what the Japanese required in 1938 to govern all of Korea (only 95,385 officials), yet at the same time, not a single serious administrative task had been completed.

Only two out of 129 ministers were not caught in corruption, one of whom had too short a work history and simply hadn’t had time to get geared up yet. On the other hand, under Syngman Rhee, the mayor of Seoul was kicked back 10 to 30% of the total amount of every municipal contract. Given the destructive nature of the Korean War for both the South and the North, it is not surprising that Syngman Rhee was eventually overthrown; it is surprising that only in 1961. Lee Byung-chul was in Japan at the time and wisely decided not to return to Korea, as General Park shot the hell out of most of the corrupt individuals who profited from their friendship with Syngman Rhee. However, Lee’s talents in trade were great, the renewed Korea needed such people, and Park was neither a fool nor a fanatic. In the end, they concluded a mutually beneficial agreement—Lee’s sins were forgiven, and he remained the head of the clan, but Samsung diligently executed the state plan and obeyed all of Park’s directives on economic development. Seven years were spent developing a new strategy, and in 1969, Lee’s company merged with the Japanese SANYO, giving birth to Samsung-Sanyo Electric—the future great Samsung Electronics. In those years, the company was perceived as a shabby manufacturer of home appliances. For example, the Korean professor of economics and management Chang Sai Jin wrote in his 2008 book “Sony vs. Samsung” that a Samsung hair dryer from the late 1970s was so hideous in appearance and so poorly constructed that it literally fell apart in your hands if you grabbed it by the nozzle instead of the handle, but soon everything changed.

With LG Electronics Inc., everything happened no less interestingly. Its director was the ambitious Koo In-hwoi, who also didn’t just drop from the ceiling, but was a 14th-generation descendant of a side branch of the 16th wan of the Chosun state, Injo. It is not hard to see that, with rare exceptions, it is far from simple peasants who achieve success. Having engaged in trade before the war, in 1941 he successfully invested money in the Korean government-in-exile (which sat in Shanghai), which led to a profit 4 years later when the Japanese were kicked out. Thanks to connections, Koo became the first entrepreneur in Korea to receive a license and support from the US Army. He made good money on the import of a valuable resource in the devastated country—charcoal for heating homes and cooking food. From trading various household goods, it was only one step to production, and in 1947, Koo began manufacturing cosmetics, founding Lak Hui Chemical. Their face cream called Lucky sold well despite the price, but there were problems with the packaging. Koo solved them radically, opening the first Korean plastics plant in 1952. In addition to packaging for its own goods, he produced household trifles, like combs—seemingly nonsense, but for a destitute, backward country, even this was a miracle. The product sold well, and Koo grew richer by the day. Just two months after the first sales, he had to install additional production lines to satisfy the demand for combs and add toothbrushes and plastic basins to them. Thus, in 1953, Lak Hui Industrial Co. Ltd. was born. A year later, the government began to assemble the first canonical chaebols, and Koo found himself in the right place, merging the factories into the Gold Star holding, created to provide the nation with domestically produced home appliances.

Almost immediately, they sold themselves halfway to the Japanese from Hitachi (no matter how much hatred for the vile occupiers was fostered among the common folk, Korean industry was friends with, is friends with, and will always be friends with the Japanese, because money doesn’t smell) and gained access to basic audio and video technologies. Already in 1959, the first Korean radio receivers appeared for sale on the domestic market (and transistor ones at that, thanks to the Japanese; the USSR, for example, was listening to tube radiolas at the same time), in 1960 the first Korean fan appeared, and in 1965—a refrigerator. Naturally, a full production cycle required close integration within a single corporation of the most diverse directions—from the chemical industry (in the person of Lak Hui Chemical) to steelmaking. Fortunately, the state not only did not hinder the creation of cartels but literally pushed all significant Korean firms toward it. Business is booming; in 1966, the first 100% Korean LG television appeared (Samsung began producing black-and-white televisions three years later, in 1969), and in 1969—a washing machine. The funny thing is that the company did not lose its roots, and in parallel, its chemical division produced the first toothpaste in Korea, Lucky Sodo, soap, and synthetic washing powder. In 1969, Koo died, but his business lives on: the network of subsidiary companies merged under the brand Lucky Gold Star—LG, which in 1970 released the first color television in Korea.

In parallel and in roughly the same way, other businesses grew. Before and during the war, Doosan Group was born (originally a 1933 brewery, turning into a huge construction and heavy industry concern), SsangYong Group (1939, originally a cement plant—in the future a huge holding), Kia Motors (1944, originally bicycles), Hanjin Group (1945, originally sea and air transport), Kumho Asiana Group (1946, originally buses), Hyundai Group (1947, originally just an auto repair shop, grown into a colossal corporation in 35 years), and Lotte Group (1948, which started with the production of chewing gum using American technology and ended up with hotels and construction). For the new war, Hanwha Group was created in 1952 (originally Korea Explosives Co., producing TNT and RDX, currently dealing with finance and the chemical industry).

After the war, the suspiciously familiar to us SK Group (1954—textiles, later petrochemicals and energy), Kolon Group (1954—nylon, then the chemical industry), and Hyosung Group (1957—also textiles, then heavy industry) emerged. As you can see, under Park, this huge potential was only concentrated and honed; it had originated even before the war. Under him, only one chaebol emerged from scratch: Daewoo Group (1967, originally also textile, then everything under the sun, from automatic shotguns to supertankers). Seeing such bounty, American investors also hurried into the country as early as the 1950s, beginning to open the first plants in Korea. In 1955, General Electric arrived and began assembling refrigerators and televisions, and Western Electric—telecommunications equipment. In the following year, Kodak and RCA arrived, in 1957—Toshiba, Arvin Industries, and NEC, in 1958—SANYO, Aiwa, and Motorola, in 1959—Sony, Zenith Electronics, Fujitsu, Matsushita Electric, Yamaha, Philips, and Hitachi, and in 1960—Philips. Rohm Semiconductor stands apart as the first to establish semiconductor production in Korea. Throughout the 1960s, similar to Hong Kong and Taiwan, increasingly complex assembly moved to Korea, and microelectronic and computer plants of Sanyo Electric and Westinghouse (1965), IBM (1967), Canon (1968), Sharp, BASF, and Nippon Electric (1969) opened.

General Park, besides the prophylactic shootings of the most corrupt bastards remaining after Syngman Rhee, was seriously concerned with turning South Korea into an industrial giant, but the work ahead was simply colossal. To start with, he had to choose the clans he could rely on, and Chung, Koo, Lee, and Choi were chosen as such. The Chung clan ran Hyundai Group, Choi—SK Group, and you are already aware of Koo with Gold Star and Lee with Samsung Sanghoe. These four clans received (where required) maximum absolution of sins from cooperating with the Japanese, a regime of maximum favor from the state, unlimited interest-free loans, and help with access to Western markets and technologies. What was required of them in return? Nothing special. A standard State Plan. Success criteria were formulated for each main chaebol: how much, of what, and how they should produce, in what timeframe, and what they should give to the population of their native Korea. Those who succeeded were awaited a continuation of all conceivable preferences, while those who failed would have been sent to Syngman Rhee’s corrupt officials. Luckily, Asians know their business thoroughly; none of the clan heads despaired, but on the contrary, saw colossal potential for work. Everyone rolled up their sleeves, and the plan took off.

The “Memory” Society

At this point, we will conclude the general rambling historical excursions and return to what we actually started with—to memory. Memory for Koreans began in 1983, when the already quite ancient Lee Byung-chul (he died only four years later), founder of Samsung, made a daring statement in Tokyo that Korea was entering the RAM market. This was not just a slap, but a natural spit in the face of the Japanese on their own land and in their strongest area: by the beginning of the 1980s, Toshiba, Hitachi, and NEC held the entire global memory market, beating out even Intel. When the former seller of dried fish and noodles declared that Japan’s monopolies had come to an end, people didn’t know whether to cry from laughter or just laugh. Meanwhile, the Koreans did have chances, of course, but very small ones. Only in 1980 did Samsung set up production of at least some high-tech—the first Korean switches for automatic telephone exchanges, and a couple of years later phones with faxes were added, and then, suddenly, memory! However, in terms of construction, RAM is far less complex than processors; it does not require hundreds of hours of sophisticated design. In essence, it is billions of identical cells that simply need to be baked without defects, and that’s it. It sounds simple, but in those years, the champions in the absence of defects were precisely the Japanese. Lee declared that the Koreans would do it better and cheaper.

The mid-1980s was the golden age of all conceivable processor architectures and all conceivable types of RAM. Samsung burst into this feast of life with both feet, releasing the first DRAM chip in 1984 immediately after the loud statements. The Japanese had a head start of almost 10 years: as early as 1976, the omnipotent MITI founded the VLSI project (Very Large Scale Integration). The state combined the resources of five keiretsu: Toshiba, Mitsubishi, Hitachi, Fujitsu, and NEC. Together they developed advanced lithography and quality control technologies, investing about 70 billion yen. As soon as the market switched to 64 Kbit chips in the early 1980s, Hewlett-Packard published a shocking internal report: Japanese DRAM memory chips from NEC and Toshiba showed a 6 times lower defect rate than chips from the best American suppliers. Japanese automation and quality culture beat Silicon Valley hands down. By 1982, Japan controlled 75% of the DRAM market on the planet; American hardware corporations began to incur huge losses. It seemed that the march of the Asians was unstoppable, but in 1984, The Computer Industry Slump—the “Great Computer Hangover”—began (perhaps the same awaits us with AI).

In the sector of cheap home computers (Commodore, Texas Instruments, Atari, Sinclair), a brutal war for survival began. Commodore owned its own chip production (from MOS Technology) and could lower prices on its legendary Commodore 64 to indecent minimums. To compete, Texas Instruments and Atari were forced to sell their computers (TI-99/4A and Atari 400) below cost. Consequently, in 1983–1984, the home PC market collapsed: Texas Instruments recorded colossal losses and left the market, Atari was sold for a song, and prices for finished computers plummeted several times. In the business segment, the situation was no better. After the release of the IBM PC, dozens of companies rushed to make its clones (Compaq, Leading Edge, Kaypro, plus hundreds of small startups), and all these manufacturers fought for the same 10–15% of the market. At the same time, the beginning of the 1980s was the first time when Silicon Valley diversified in some way and partially detached itself from the Pentagon. For the first time, venture capitalists began to play a noticeable role and simply flood with money any startup with the word “computer” in its name. As a result, by 1984, factories of various firms cumulatively produced far more computers than people were physically ready to buy. The market became instantly oversaturated.

When the PC boom began in 1982–1983, computer manufacturers grew terrified that they wouldn’t have enough components. To hedge their bets, they began placing double and triple orders for memory chips with different suppliers—both in the US and in Japan. Looking at the massive order charts, Intel, Micron, and the Japanese decided that demand would grow forever and began mass-constructing new memory fabrication plants (the Japanese were particularly zealous in this regard). As soon as retail computer sales slowed down in 1984, PC manufacturers discovered that their warehouses were stuffed with unsold finished machines and instantly canceled all their future orders for memory chips. The so-called “six-month silence” ensued: computer manufacturers stopped buying microchips altogether. They had memory stocks in their warehouses to last a year. At that very moment, in late 1984, the new Japanese factories, built for the “eternal boom,” reached full capacity.

The market was flooded with millions of new 64 Kbit and even 256 Kbit DRAM chips that turned out to be completely unwanted. The Japanese conglomerates, possessing a huge financial cushion from their parent corporations, decided not to stop the plants, but to sell the chips for a pittance. The price of a 256K DRAM chip plummeted from $8.95 in January 1985 to $2.95 by September of the same year. The keiretsu, backed by government contracts, continued to invest in giga-fabs and sell chips below cost; the Americans couldn’t hack it, and Intel was knocked out of the memory market forever (although it was originally founded in 1971 as a manufacturer of SRAM chips, then DRAM, and had no intention of getting into microprocessors, which weren’t even in the works back then). Mostek and AMD left the memory market following them. Micron was already one foot in the grave and ready to kick the bucket entirely; only IBM barely held on by shifting money from its left pocket to its right, producing chips for itself in a closed loop.

In June 1986, the Semiconductor Industry Association (SIA) of the USA couldn’t take it anymore and ran to complain to daddy. They filed an official complaint with the US government under Section 301 of the Trade Act, accusing Japan of unfair trade practices, after which Reagan unleashed (long before Trump) the heavy economic artillery. Under US pressure, the G7 countries remembered the precepts of 18th-century British mercantilists and agreed to raise the value of the Japanese yen against the dollar and other currencies to make Japanese exports more expensive, while simultaneously stimulating imports into Japan to deal with its protectionist economy and constant trade surplus. The so-called “Plaza Accord” was signed, and over the next two years, the value of the Japanese currency doubled, jumping from 240 to 120 yen per dollar. At that same time, in September 1986, the US forced Japan to sign a predatory 5-year treaty: the U.S.-Japan Semiconductor Agreement. The US Department of Commerce began establishing a “fair market price” for Japanese chips, effectively jacking up their prices to American levels. The alternative? A total closure of the US market (the largest and richest on the planet at the time) to all Japanese goods, from game consoles to motorcycles. Japan was forced to guarantee that American chips would occupy at least 20% of their domestic market by 1991.

Because of this, Japan fell into a deadly double trap. First, due to the Plaza Accord, the yen became a leading global currency, and Japanese businesses discovered that it now possessed enormous purchasing power abroad. At the same time, the Bank of Japan lowered interest rates to a post-war record, making loans more accessible than ever before. Investors poured borrowed money into real estate and stock markets, driving prices up, and also borrowed money against newly valued assets to buy even more. Emboldened by inflated assets and a strong yen, nine out of the ten largest banks in the world now became Japanese. Tokyo became the largest stock exchange in the world, and Osaka pushed London down to fourth place.

Second, the U.S.-Japan Semiconductor Agreement led to the export yield (the only real revenue item in the Japanese budget) falling day by day, but the market, accelerated to the limit, continued to fly uphill by inertia. This wasn’t enough for the US, and as early as April 1987, Reagan introduced 100% punitive tariffs on imports of all Japanese electronics across the board, accusing Tokyo of failing to comply with the agreement. In the same year, the US government and 14 leading technology companies created the SEMATECH consortium. The state allocated hundreds of millions of Pentagon dollars (via DARPA) to subsidize the development of American equipment for microchip production. In 1984, William Gibson wrote the famous “Neuromancer,” and in 1986 and 1988 he completed the trilogy with the novels “Count Zero” and “Mona Lisa Overdrive,” inventing classic neon-metropolis cyberpunk, in which the world is ruled not by nation-states but by powerful transnational corporations, most of which are Japanese. Already at the tail end of the bubble in 1990, the no less legendary tabletop game Cyberpunk 2020 (the basis for the current computer game Cyberpunk 2077) was released, in which the most powerful company on the planet—the Arasaka zaibatsu—wipes its feet on the remnants of the US government. However, in reality, everything turned out quite the opposite. By 1990, the overheated-to-death Japanese market, with exports completely plugged, could not hold and exploded. Japan was economically destroyed, and the “Lost Decade” began, with an impact on Japanese society that is quite comparable in severity to the ignominious 90s in Russia.

Learning from Japanese Mistakes

The Koreans absorbed the lessons harshly, watching with both eyes as their scariest competitor was destroyed by their main buyer. And yes, Korea, just like Japan, is in a vassal military dependence on the US, effectively being a protectorate, and harbors no illusions about its fate if daddy gets angry. The main task is to make a killing off daddy without pissing him off as much as the proud Japanese did. Samsung decided that a downturn was the best time for investment. There is time to build new plants and ramp up production to be on top when the next rise comes. Of course, this didn’t come easily. The Korean government, adhering to the agreement with the chaebols concluded back under Park, dutifully covered any costs. Samsung took several years to pivot, losing $2–3 billion every year. No public company could behave this way, but Samsung is not a company; it is a chaebol. Behind it stood the state plan and the state.

In 1987, Lee Byung-chul died, leaving the chaebol to his third son, Lee Kun-hee. By this time, the anti-dumping law against Japan was already in full swing, but it didn’t apply to the Koreans; the Americans didn’t see them as a threat—they were just more funny Asian monkeys. American PC manufacturers—Apple, IBM, Compaq, and others, shocked by the forced price hikes of Japanese memory—rushed to buy Korean chips, which cost significantly less. Samsung instantly received a huge influx of foreign currency revenue and a guaranteed sales market in the US. Using the financial model of the chaebols, Samsung could cover any losses of its semiconductor division with personal subsidies from the authoritarian Korean government through state banks. Thanks to the endless source of government money during downturns (1985–1986 and 1990–1991), when DRAM prices hit rock bottom, Samsung doubled its investments and built cutting-edge plants, such as the giant complex in Kiheung. Only one problem remained: Korean quality. They had to fight for it aggressively, and the Asians rolled up their sleeves again.

There wasn’t a single trick Samsung didn’t pull in the late 1980s—early 1990s to learn all the secrets of high-quality DRAM production. As early as 1983, not even owning a photolithography machine, they simply bought the bankrupt Californian company SSI outright, obtaining their 64K DRAM chip blueprints and equipment. In the 1980s, the so-called “Operation Midnight” was initiated: Samsung engineers flew to Japan every weekend. They bribed leading Japanese engineers from Toshiba and NEC, throwing them luxurious receptions and drinking bouts, and over Saturday and Sunday, they extracted technological secrets from them, returning to Seoul by Monday. Samsung opened a research center right in Silicon Valley and lured back to Korea hundreds of ethnic Koreans who had earned PhDs in the US and worked at Intel and IBM, offering them astronomical salaries.

Samsung dealt the key, fatal blow to Japanese dominance in 1989–1990 during the transition to 4M DRAM chips. At this stage, silicon cells became so small that engineers had to figure out how to make them three-dimensional, and the industry split into two camps. Toshiba and Hitachi decided to etch microscopic trenches deep into the silicon substrate. This was elegant, but insanely difficult to produce: the slightest error led to the failure of the entire chip. Samsung chose the opposite path—stacking capacitors upward in layers, like the floors of a building. This made the chip thicker, but the production process was much simpler, cheaper, and forgave minor defects. The Japanese got bogged down in technological hell trying to refine the etching method, while Samsung, thanks to the simplicity of the stack architecture, instantly achieved a very high percentage of viable dies. In 1992, a historic event occurred: Samsung officially overtook Toshiba and became the #1 DRAM manufacturer in the world.

For Lee Kun-hee, this was not enough. The agreement with the government had to be fulfilled in full—Samsung had to become the largest consumer electronics corporation in the world, producing absolutely everything from phones to microprocessors, and doing it more, cheaper, and with better quality than the Japanese. If anyone saw Korean home appliances around 1993/94 (or their cars), it becomes clear—the task was even more ambitious than setting up DRAM production. After all, chip fabrication was practically fully automated by the early 1990s; human involvement, and thus the risk of error or defect, had been almost reduced to zero. Moreover, microchip production is a binary process: either the wafer is ruined or it isn’t. All this allowed Samsung’s semiconductor division to outperform even the Japanese quite quickly. With home appliances, everything was different.

By 1993, Samsung formally felt okay. Home appliance sales were growing, but Lee Kun-hee, who possessed phenomenal strategic intuition, saw that this success was an illusion. In the assembly of home appliances, Samsung operated according to the old Asian model: “quantity over quality.” The plants pumped out millions of cheap, low-grade microwaves, televisions, and washing machines. In the domestic Korean market, protected by tariffs, these were bought. But on the shelves of stores in the US and Europe, Samsung appliances sat forlornly collecting dust in the farthest corners with huge discounts, associated with third-rate quality. Lee Kun-hee tried to talk to the directors peacefully, but they just nodded at the beautiful profit reports. In June 1993, an event occurred that finally pushed him over the edge. While on a business trip to Los Angeles, he personally stopped by an electronics store on the way and saw that Sony and Panasonic televisions were in the foreground, while Samsung products were lying on the bottom shelves, covered in dust. Shortly before this, while studying video recordings from factory cameras, Lee Kun-hee saw a moment that shocked him. A worker on the assembly line discovered that the plastic lid of a washing machine didn’t fit the slots. Instead of stopping the line and sounding the alarm, he simply took a utility knife, cut off the obstructing piece of plastic, and forced the part into the slots, sending the defect further down the belt. Lee Kun-hee flew into a wild rage. He interrupted his trip, went to Frankfurt, checked into the Kempinski Gravenbruch hotel there, and via emergency calls summoned about 200 top managers of the company from all over the world, ordering them to drop absolutely everything they were doing.

Without explaining anything, Lee simply locked the managers in a conference room, showed them the video from the assembly line, and then screamed at them for several hours so loudly that the department heads, accustomed from birth to Asian politeness, nearly had strokes. Thus, on June 7, 1993, the historic phrase rang out: “We must change. We must change the management structure. Change everything except your wives and children!”. After this, the boss explained the new rules, which completely overturned the culture of the chaebol. Asians are largely obsessed with the concept of shame, though it can be interpreted in completely different ways. In the old days, shame was swept under the rug; for example, stopping the assembly line if a defect was found was considered unacceptable in Samsung, so that the shift workers would not lose face. By personal decree, Lee granted the right to stop all production entirely to any worker who discovered any problem whatsoever. In addition, he radically changed even the working hours: instead of the standard Korean “from morning until late at night until you drop,” he introduced the “7–4” system and shifts from 7:00 to 16:00. Employees were required to spend the freed-up hours on training, sports, or self-development to “reprogram their brains.” The culmination of the battle for quality was the ritual burning of defects at the Gumi plant in 1995. Another batch of Samsung Anycall cell phones turned out to be defective: the defect rate was about 12%. Lee Kun-hee did not quietly recall them. Instead, he ordered the entire batch of 150,000 handsets worth 15 billion Korean won (about $20 million) to be collected, brought to the inner courtyard of the Gumi plant, and piled into a giant heap. Managers and workers, weeping from such shame, with white mourning bands on their foreheads and sashes reading “Quality Above All!” across their shoulders, were required to personally smash everything they had gathered with hammers and throw it into a huge bonfire. Along with the cell phones, defective faxes and desk phones burned too. Lee understood the psychology of his compatriots perfectly; what happened was such a shock that after this demonstration, the defect rate plummeted toward zero with incredible speed.

The tight connection between the Lee clan and the Korean government never went away, although attempts were made repeatedly to sever it, hinting that in the 21st century, business is no longer done this way. As early as 1996, Lee was convicted of bribing President Roh Tae-woo, but was immediately pardoned by the next president, Kim Young-sam. In 2008, they tried to get to him again; it came down to searches and accusations of total bribery of prosecutors, judges, and political figures in Korea, for which a special fund existed inside Samsung. Nothing could be proven, but Lee temporarily stepped down from 2008 to 2010. Meanwhile, Samsung successfully survived the 1997 Asian crisis, when 14 of the 30 largest Korean companies closed, and the subsequent 2008 global crisis. By 2006, Samsung overtook Sony in TV sales, took 20% of the global mobile phone market (compared to 7% in 2001), and captured 67% of the global DRAM market by 2007. In 2009, Lee was again sentenced to a fine of as much as $98 million and three years’ probation, but he was immediately pardoned again by the president, this time Lee Myung-bak. The long-term government support of the chaebols paid off quite well: according to indirect data, Samsung alone eventually pumped back to the state in the form of all sorts of bribes at all levels around $8.9 billion. Old Gon-hee ran the company until 2014, when, due to health reasons, he handed over the business to his son, Lee Jae-yong. In 2017, the latter got mixed up in another corruption scandal, again buying the president, the famous Madame Park Geun-hye, after which she actually managed to get impeached. In the end, everyone was sentenced again and everyone was pardoned again. Only since 2020 has power in the corporation begun to shift from the explicit dominance of the Lee clan toward several hired professional managers. The new president Moon Jae-in, elected shortly after Park Geun-hye’s impeachment, promised during his campaign to reform the chaebols, but this remained only a statement, because acting against them means ruining the economy—something everyone in Korea understands, except for the local ultra-left Maoists and Juche fans (who try not to show themselves anywhere, because that leads to prison).

Currently, the Samsung Group includes more than 70 companies in 63 countries, employing about 500,000 people. Samsung does everything under the sun; for example, their Construction & Development division built skyscraper icons such as the Petronas Towers in Kuala Lumpur, the Burj Al Arab sail-hotel in Dubai, and the legendary Burj Khalifa there as well. Samsung Aerospace Industries manufactures the 155mm K9 Thunder self-propelled gun, which as of 2022 held 52% of the global artillery market, and the KF-16 fighter (an improved licensed version of the famous General Dynamics F-16 Fighting Falcon); they own more than 30 clothing brands; Samsung Heavy Industries launches up to 70 ships a year; Samsung Motors (which merged with Renault in 2000 into Renault Korea Co., Ltd.) manufactures cars, and so on.

Hero of the Day

Having dealt properly with Samsung, we will move, somewhat belatedly, to the hero of the day—SK Hynix. In 1983, after Lee Byung-chul’s loud announcement in Tokyo, Samsung wasn’t the only one rushing to make memory. They were immediately joined by Hyundai—the same one that is today #3 in the world for cars: only Toyota and VW Group sell more. It created a subsidiary, Hyundai Electronics. A bit later, LG launched LG Semicon. Since they were not as large as Samsung, the great Asian crisis of 1997 hit them harder, but the corporations survived, although they changed slightly. The Korean economy was in a lot of pain, and the government hinted to the chaebols that they should become more efficient. In 1999, Hyundai formally proclaimed its division into five legally independent companies, but the relatives of founder Chung Ju-yung—the Chung clan—remained in control of all of them. It also absorbed LG Semicon and, in 2001, separated the entire microelectronics industry into the Hynix corporation (from HYundai ElectroNICS). Almost immediately, Americans from Micron Technology approached Hynix and offered to buy their semiconductor business for $4 billion, but on one condition: the Americans wanted to take the assets but not the debts, and the Koreans refused such a generous offer.

The government saved the chaebol again, keeping Hynix afloat for 11 (!) years and generously pouring money into their plants and R&D, hoping that sooner or later it would all pay off. The government, surprisingly, turned out to be 100% right. With its help, Hynix held on until 2012, when it was absorbed by another chaebol—the third largest in Korea, SK Group, which specialized in clothes, oil extraction, the hotel business, and cellular communications. Thus, the SK Hynix division appeared. Chey Tae-won, the boss of SK Group, invested $3 billion in the purchase, making a decent investment. In the financial market, almost everyone considered the purchase of Hynix shares a terrible mistake; SK Holdings shares fell by 15%, but Chey was no fool. Being, among other things, the head of the largest cellular operator, he foresaw that the replacement of 3G networks with 4G was coming, which meant—a surge in orders for smartphone memory. Ironically, by the way, Chey was also tried twice for rampant corruption and sentenced twice, after which presidents personally pardoned him twice. Hynix eventually rose so high that last year it bought a large part of the Toshiba Memory division; the deal was so epic that it required the immediate approval of Korean, Japanese, American, Chinese (!) regulators (and 4 other countries). The remaining pieces of Toshiba Memory were devoured by Apple, Dell, and Kingston Technology.

Literally right after buying Hynix, they started making a killing not just on DRAM for smartphones. Back in 2008, AMD began developing so-called high-bandwidth memory—the very same HBM. Technically, there is nothing excessively innovative about it; it’s ordinary dynamic RAM, just cleverly repackaged into a massive 3D sandwich to keep the dimensions smaller, eat less power, and have increased bandwidth. Right at that time, the “Reds” were struggling to launch a new line of graphics cards, and their performance largely hit a wall with memory, and the GDDR standard was no longer enough. They didn’t have their own production capacities, so AMD turned to Hynix for help. In the end, development took a whopping seven years, and it was only in 2015 that the first HBM chips rolled off the Hynix factory in Icheon. They consisted of as many as eight layers of DRAM, stacked up and stitched together with special through-silicon vias. Speed increased several times over, size decreased several times over, and the price compared to similar ordinary RAM jumped ten-fold. The Radeon RX 300 became the fastest card of its generation, and Hynix found a gold mine. Already the following year, Samsung announced it was starting the production of HBM2.

Soon the AI race begins, Jensen Huang runs to Hynix and buys up all the memory stocks for six months ahead, demanding an increase in production. Fifteen years of investments into what seemed like nowhere are paid off in a few months. At Computex 2026 in Taipei, Huang approached the SK Hynix booth, took a marker, and wrote on a displayed HBM4E silicon wafer: “Please Make More.” Shipments of the new standard began exactly in May; HBM4E already has 12 layers, a capacity of 48 GB per chip, and a bandwidth of as much as 3.6 TB/s. In 2025, SK Hynix overtook Samsung for the first time even in ordinary DRAM, and then caught up in trillion-dollar capitalization. Memory is a critical resource for all new technologies, and the two Korean companies have a near-monopoly on it. The Japanese dropped out long ago, the yankees are struggling to hold 15–20%, the Chinese are trying to enter, and they have some success in ordinary DRAM (Changxin Memory Technologies), but in HBM they are years behind, plus they lack advanced equipment due to sanctions.

As a result, Korea became so brazen that it started dictating terms to America itself. For example, formally they are US allies and opponents of the PRC, but both Samsung and SK Hynix built large factories in China. When Biden started a sanctions war in 2022 and banned selling advanced lithography for DRAM production to the Chinese, a special exception had to be made for the factories of the Korean bros on hostile soil. Consequently, the Koreans did not repeat Japan’s mistake, twisted the Americans into a fist and hold them carefully, not letting them break away too much. At the same time, they try not to over-tighten so as not to actually hit devastating sanctions (since Trump is half-witted and fully capable of shooting himself and everyone around him in every place). Ironically, in that same May, just one day before SK Hynix hit a trillion, the American Micron also joined the club, but not just like that. The government is pulling it up with both hands, exerting monstrous effort. A special CHIPS Act was passed, factories are being built using the state budget, the US is actively leaning on Korea, forcing Samsung to build a plant in Texas and SK Hynix in Indiana.

Short but logical conclusions

So, what do we see in the dry residue? Can it be said that anything at all in this article had anything to do with the libertarian myth of the Free Market? Did even one company in the global trillionaires’ club become such without years of money injections from states, protectionism, state planning, working for the government, wild corruption, total fusion of state and corporate bureaucracy, etc., etc.? The answer is simple—no. Moreover, it is in principle impossible because if we start unpacking any corporate billionaire in a similar way, from TSMC to NVIDIA (not even counting through-and-through state outfits like Boeing, IBM, Lockheed, Intel, etc.), we will see that behind their narrow shoulders stand pyramids of state money, generously poured in by every possible means. The Free Market is a pauper’s market, which would never have allowed Japan to start work in microelectronics at all, would not have allowed Korea to build its memory empire, and in principle would not have allowed the production of anything that requires pouring $2–3 billion a year into nothingness for about 15 years just to keep the pants up and fund R&D without any guaranteed return. The USSR built a caricature of state socialism; the Koreans, Japanese, Chinese, and Americans built real socialism, they just called it something else. And the workers under this socialism don’t get much, except for suicide nets on the windows of Foxconn factories.