Asian Financial Crisis and Transformation of Korean Capitalism

This chapter examines how the Korean state could continue its state-led developmentalism even when state interventionism was pointed out as a main culprit for the economic crisis of 1997. The 1997 Asian financial crisis prompted serious reflection upon the problems of Korea’s input-oriented developmentalism, as well as the ineffectiveness of state intervention. However, to solve the economic crisis of 1997, Korea did not abandon state-led developmentalism, but developed another version of state-led developmentalism, emphasizing the promotion of strategic hi-tech venture firms and SME parts industries. This chapter first examines the competing diagnoses and solutions to the economic crisis of 1997, and then explores how, through politics between the state and large corporations, the existing volume-oriented expansionism changed toward a knowledge-intensive strategy. Finally, this chapter examines how competition among economic ministries, including the Ministry of Industry (MoI) and the Ministry of Information and Communications (MIC), drove the evolution of Korean industrial policy.

Introduction to the Evolution of the South Korean Developmental State

This chapter explores key questions of this book, including not only why Korea was able to achieve such sustained economic success from the 1960s to the 2010s, but also to what extent and why the Korean economy has changed. After critically reviewing prevalent theories including neoliberalism, the Global Production Networks, and the institutionalist developmental state (DS) theory, this chapter proposes a theoretical alternative by emphatically reviving the politics among diverse actors. In order to better account for endogenous changes and sustained economic success over a long period, this chapter suggests institutional adaptability and endogenous changes through elite competition.

Continuation of Developmentalism across Administrations

In the 2010s, Korea continued its state-led developmentalism, including the Special Law for Parts and Materials and the New Growth Engine Promotion policy, across ideologically different governments. Korea’s state-led developmentalism was mainly realized through competitive politics within as well as outside the state, rather than by simple repetition of a developmental mindset or old institutional legacy. By exploring the industrial politics of three administrations—Roh Moo-hyun (2003–07), Lee Myung-bak (2008–12), and Park Geun-hye (2013–17), as well as the Moon administration (2017–present)—this chapter examines how the Korean state continued its developmentalism across ideologically different administrations. This chapter first studies why the Roh Moo-hyun administration continued with state-led developmentalism, rather than pursue the economic democratization proposed by the original supporters of Roh Moo-hyun. Then, it examines how Korean state-led developmentalism continues across ideologically different governments by focusing on competition and conflicts within the state.

Transition I

Due to many problems resulting from the heavy chemical industry (HCI) drive in the 1970s, including excessive input-oriented overinvestments, heavy-handed and highly detailed state control and imbalanced development, Korean capitalism in the 1980s underwent significant changes in the direction of liberalization, including open trade, privatization of banks, reduction of policy loans, and emphasis on private initiatives in the free market. Yet these liberalization measures do not mean an entire transformation of the developmental state to a neoliberal free market system. On the contrary, they initiated the transformation of the classical developmental state (DS) to a new version of state-led developmentalism. This chapter explores first to what extent Korea capitalism in the Chun Doo-hwan administration (1980–7) changed compared with the former DS. Second, we explore why Korea continued its state-led developmentalism by focusing mainly on bureaucratic contests inside the state.

Generalization through Comparison

This final chapter examines the generalizability of our findings by considering other East Asian developmental state (DS) countries, including Japan, Taiwan, and China. Theoretical implication of this book mainly includes organizational adaptability and institutional changes through elite competition. First, this book claims that the reason why East Asian developmental states, including Japan, Korea, Taiwan, and China, could sustain economic development over quite a long period is not due to some fixed institutional elements such as centralized, cohesive, and strong states. Contrary to the DS literature, elite competition can be beneficial to economic success through collective deliberation and flexible adaptation if they are properly coordinated into collaboration for shared goals like economic development and national competitiveness. In addition, this book concludes that unlike the institutionalist DS literature, this book emphasizes changes by competition to better account for endogenous changes.

Transition II

The reforms initiated in the late 1970s took time to materialize the detailed form of new developmentalism. Conflicts between state policymakers and large corporations slowly produced adjustments through tedious attrition in the Roh Tae-woo (1988–92) and Kim Young-sam (1993–7) administrations. Large corporations wanted input-oriented volume expansionism, while economic bureaucrats pressed to change private corporations’ strategy toward specialization in core business. This chapter examines how industrial politics between the state and the private firms, as well as within the state, evolved in the Roh and Kim administrations, and why Korea continued state-led developmentalism by contentious adjustments. First this chapter examines the industrial politics between state and business, as well as among the ministries within the state during the Roh and Kim administrations. And before exploring the transformation following the Asian financial crisis, this chapter examines the electronics industry for a micro-level analysis of Korea’s new developmentalism.

Locating Korea from a Comparative Perspective

Before historically tracing the evolution of Korean capitalism from the early 1960s, this chapter locates the current Korean capitalism from a comparative perspective. To explore the extent of change in Korean state-led capitalism and whether the developmental state remains effective under globalization, this chapter first examines what a developmental state is, compared with the Anglo-Saxon free market system and social corporatism. Criticizing the prevalent DS theorist accounts, including both conflating context-specific elements of Korean DS with state-led developmentalism in general, and too broad definition of DS based on developmental mindset, this chapter emphasizes the different modes of economic operation and governance. By exploring different patterns of reconstituting national economy in the course of national corporations’ globalization, this chapter locates the Korean developmental pattern in globalization from a comparative perspective.

Locating Korea Historically

Before examining in detail what makes for continuity and change in the evolution of Korean capitalism, this chapter provides an overview of changes and continuity in Korean capitalism, focusing first on changes in developmental strategy from input-oriented to innovation-based growth; second, changes in class alliances; and third, changes in policy instruments and governance methods. The Korean economy has rapidly grown since the 1960s. Yet this growth was not due to mobilization of cheap labor or massive capital inputs, but due to changes in developmental strategies, from highly input-oriented to high value-added and innovation-oriented growth. This transformation occurred not by voluntary actions in the free market, but by the state’s initiatives and private firms’ responses. The Korean state still plays an active role in building and upgrading national strategic industries for export-led growth.

The Classical Developmental State in Korea

This chapter explores the characteristics of the classical developmental state in Korea in the Park Chung Hee era of the 1960s and 1970s, how it was established, and how it evolved. Neoliberals emphasize the free market of the 1960s in the Park Chung Hee era. By contrast, most developmental state (DS) scholars focus on the HCI drive of the 1970s to identify the typical developmental state in Korea. However, unlike the arguments of neoliberals and DS theorists, this chapter reveals that the basic characteristics of the Korean classical developmental state, including state-guided capitalism and export-led industrialization, were already established in the 1960s, although the 1970s saw a shift to an extreme variant of developmental state. In addition, unlike historical institutionalists’ emphasis on historical legacy of Japanese colonialism, this chapter emphatically examines the political process of elite competition for the origin of Korean DS.