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Succession intrigue is all the rage in Korea. Events on the northern half of the peninsula are getting most of the headlines. There, the enfeebled Kim Jong-il is thought to be readying his son, Kim Jong-un, to take over. He would be the third of the Kim dynasty to rule North Korea.

Hereditary-succession moves to a third generation bear watching in the south, too. These involve family conglomerates Samsung and Hyundai and say a great deal about the outlook for the world’s 15th biggest economy.

South Korea had a good global crisis. Talk of it going the way of Iceland was always silly and quickly gave way to kudos from investors. South Korea is growing about 6 percent year-on-year compared with 0.1 percent in the United States.

Names like Samsung Electronics and Hyundai Motor helped South Korea avoid the global rout. While General Motors, Toyota and Sony had a rough 2009, South Korean car manufacturers and electronics outfits increased market share. It’s a far cry from 1997. Back then, the unwieldy, over-indebted and non-transparent ways of South Korea’s family owned conglomerates, or “chaebol,” left the nation vulnerable to financial chaos in Thailand and Indonesia. The next decade was spent reining in the chaebol.

The process seemed to come full circle on March 24, when Lee Kun-hee, South Korea’s richest tycoon, returned as chairman of Samsung. Criminal charges of tax evasion led him to resign in April 2008. A pardon by South Korean President Lee Myung-bak — a former Hyundai Group executive — in December paved the way for Lee to return to the world’s second-largest chipmaker.

Many sense something very personal at play. It couldn’t have escaped Lee that the company his father created was thriving without him, undermining the rationale for his son, Lee Jae-yong, to take over. Lee’s return virtually ensures hereditary succession.

Does the younger Lee have the stuff to take Samsung to the next level? No one knows. Yet it’s getting distasteful for publicly traded companies to pass leadership from father to son and to son again. Why aren’t shareholders and directors speaking out? Investors are better served when jobs are based on merit, not birthright.

Hyundai chairman Chung Mong-koo is expected to turn the keys over to son Chung Eui-sun. On March 12, the junior Chung was appointed to the board of South Korea’s largest motor-vehicle manufacturer. It would be another third-generation scenario.

It’s not unique in Asia to keep companies in the family. In his 2007 book, “Asian Godfathers,” Joe Studwell showed that the phenomenon suffocates entrepreneurship. Asia needs more start-ups that create new jobs, not behemoths protecting their turf. South Korea is no exception.

Samsung has moved impressively up the innovation ladder. It scored the information-age trifecta: cool design, cutting-edge technology and good value. The problem is the overwhelming dominance of Samsung and other chaebol.

The extent to which the chaebol are above the law is troubling and turns off overseas investors. It’s not as if Lee saw the inside of a jail cell. Lee was also pardoned in the 1990s after he was convicted of bribing two former presidents. Hyundai’s Chung, by the way, received his own presidential pardon in 2008 along with two other chaebol executives — one at SK Energy, one at Hanwha Group.

For all the growth they produce, the chaebol tower over the economy like modern-day overlords. At a time when South Korea should be empowering scrappy start-ups that launch new industries, it’s looking after its giants.

The official battle cry in Seoul these days is “Dynamic Korea.” The $929 billion economy would be even more dynamic if the chaebol didn’t hog up so much of the innovative oxygen.

South Korea is at a distinct disadvantage in the age of the iPhone. Apple’s iPhone and Research In Motion’s BlackBerry crept up on Samsung. Playing catch-up in the thriving smart-phone space isn’t where it wanted to find itself in 2010. And Apple, which last year got the go-ahead to sell iPhones in South Korea, is doing brisk business there. The iPad is next.

It’s about more than hardware. The iPhone’s success is partly a function of its 150,000 applications, many of them created by outsiders. It’s not clear Korea Inc. is open or nimble enough to compete. It tends to rely on a tight-knit group of suppliers and consultants. That corporate structure is antithetical to where technology is heading. The all-in-the-family model doesn’t jibe with the 2010s.

William Pesek is a Bloomberg columnist.