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About this book

This book analyzes the transformation of Korean political economy since the 1990s. In the wake of the Asian financial crisis of 1997, the political economy of South Korea has evolved around two diametrically opposed features: convergence into the Anglo-American model and the state-led strategic restructuring of industries. To unravel the peculiar nature of the political economy in Korea, the authors first identify major factors that contributed to the dual dynamics of change and continuity in Korea: external pressures, ideological shift in political leadership, and the pivotal role of the Korean government. Next, they examine the way in which these factors interacted with each other to reshape the evolutionary path of the Korean political economy. Using several case studies, the authors take us through the stages of this transformation, from the reform of the chaebols to the industrial restructuring of the auto, IT, and aerospace industries to the rise of South Korea’s Free Trade Agreements (FTA) initiative. In explaining the role that the dual dynamics of change and continuity play in modern Korean political economy, this book makes an important contribution to the existing literature and will be of interest to scholars and policy-makers concerned with development in Korea and the Asia-Pacific.​

Table of Contents

Frontmatter

Chapter 1. Introduction: Change and Continuity in Institutional Transformation in Korea

The political economy in South Korea (hereafter Korea) has dramatically transformed since the Asian financial crisis in 1997. Interestingly, since the crisis, the political economy of Korea has displayed two diametrically opposed features (Park 2015). One the one hand, the institutional foundations that spearheaded high economic growth until the 1980s eroded in the face of the forces of globalization ushered in by the crisis (Pirie 2006, 2012; Moon and Chung 2014). It seems that under the exponentially increasing complexity of the world economy, the Korean government is no longer able to provide a strategic guidance for the national economy, rapidly converging into the Anglo-American model of political economy. The track record of liberalization measures such as financial liberalization, corporate governance reform, and labor reform suggests that the empirical basis of these arguments is robust.
Seungjoo Lee, Sang-young Rhyu

Chapter 2. Policy Ideas and Interest Alignment in the Process of Institutional Change in Chaebol Reform

Reform is multi-faceted. Looking back on the history of South Korea’s political economy, South Korean society has displayed diverse patterns of economic reform in terms of goals, contents, means, and processes. Winners and losers have different notions of reform based on what potential benefit they can get from institutional change. Different stakeholders and actors may assume and pursue different goals, interests, ideas, and patterns of reform throughout the whole process of institutional change. Only fact we can agree on is that all reforms, for better or worse, take the form of institutional change. How can we identify the mechanism or politics, which often remain vague and mysterious, of institutional change? To answer these puzzles, we need to elaborate on institutional analysis by tracing the detailed process and examining how related variables interact on a specific issue in a critical period. Decoding the mechanism of institutional change has been one of the main research tasks in neo-institutional political economy. Diverse paths of institutional change can reflects the nature of real politics that define the internal workings of state behavior.
Seungjoo Lee, Sang-young Rhyu

Chapter 3. Privatization and a Lingering Developmental State: Case Studies of POSCO, KT, and Korea Development Bank

South Korea has been classified as a typical developmental state. Centralized policymaking, vertical government-business relations, bureaucratic intervention and various industrial policies were the core of the South Korean economic development model at least until the 1997 Asian financial crisis. After the crisis, South Korea carried out a broad-scale economic reform following pressure from both inside and outside. South Korea carried out full-scale institutional reform in major areas including chaebols, public sector, labor, and finance. Such a series of thorough institutional reform played a positive role in helping South Korea overcome an economic crisis in a short period. It has also brought about massive change in the South Korean-type developmental state model which continued on from the 1960s. The developmental state was brought to an end in South Korea. In addition, there are views that a new post-developmental state, which moves following market principles, international standards, and transparent economic institutions, is emerging.
Seungjoo Lee, Sang-young Rhyu

Chapter 4. Between Legalization and Democracy: A Transitional Irony of Informal Network

In October 2007, a whistleblower from Samsung shocked South Korea. He claimed that Samsung disbursed so-called “teokgap (rice-cake expenses)” from illegal slush funds and bought off people with influence over policy making and enforcement, such as prosecutors, economic bureaucrats, academics, journalists, and politicians. They were, according to him, the network and the lobbying channel that protected Samsung. Large parts of the claim later turned out to be true. Although Korean society is known to be a network society of school ties, regional ties, family ties and kinship, this incident revealed a network that is unable to be explained using the social and cultural terms that previously explained Korea’s network society. This incident, moreover, reignited both theoretical and practical debates on informal networks and the government-business relationship of Korea as it surfaced the fait accompli rumors regarding these practices of large corporations.
Seungjoo Lee, Sang-young Rhyu

Chapter 5. The Dual Dynamics of the IT Industry Transformation

Since the late 1990s, the development of the information and telecommunication (IT) Korean industry has been often cited as a case showing the Korean economy’s adaptive capacity under the rapidly shifting domestic and international environments. In particular, the autonomous development of the Time Division Exchange (TDX) and the commercialization of the Code Division Multiple Access (CDMA) are touted as an example of the successful execution of Korea’s catch-up strategy in the IT industry. The IT industry also became a locomotive reviving the Korean economy in the aftermath of the financial crisis of 1997. In 1996, the industrial output of the IT industry was 5729 billion won, accounting for 11.9% of the Korean GDP. Within the entire IT industry, the ICT equipment production was dominant with a total output of 3.68 trillion won, while other telecommunication service, broadcasting service, and software took 1.17 trillion won, 299 billion won, and 259 billion won, respectively.
Seungjoo Lee, Sang-young Rhyu

Chapter 6. Restructuring and Continuity in the Aircraft Industry

Until 1960s, Korea primarily concentrated on improving the maintenance capability of military aircrafts, starting with the overhaul maintenance of the L-19 reconnaissance aircraft in 1955 (Korean Association of Aircraft Industry 2015). The Korean aircraft industry entered a new stage in the mid-1970s when it first began to seek coproduction. In the early 1970s, facing increasing security threat from North Korea, the Park government started internal discussions to examine the feasibility of indigenous development of aircrafts to improve self-reliant defense capability. The Park government carried out the modernization program of aircrafts in accordance with the “First Force Improvement Plan” to replace obsolescent F-5A and F-86. The Park Chung Hee government sought the coproduction of the “First F-X project” in order to modernize the defense capability of the Korean Air Force. While proceeding to acquire F-16, the Park government cautiously probed the possibility of coproduction. While the Park government attempted to coproduce both F-16 and F-5E/F, it could run the coproduction project of F-5E/F because the Jimmy Carter administration attempted to control arms transfer (Nolan 1986: 30-31). Although the Park government’s attempt was half-successful, it reflected the Korean government’s long-term goal of enhancing indigenous capability of the defense-related industries (Um 2016).
Seungjoo Lee, Sang-young Rhyu

Chapter 7. Dynamics of Policy Shift and Path Dependence in Foreign Economic Policy: Between Strategic Choices and Domestic Constraints

Since the late 1990s, East Asian countries have actively pursued free trade agreements (FTAs). While it was a reaction to the rapid proliferation of FTAs in other regions, it was also East Asian countries’ attempt to transform deepened economic integration among East Asian countries into more institutionalized arrangements (Aggarwal and Koo 2007; Pempel 2006). Korea was not an exception to this trend. As of July 2017, Korea has 15 FTA deals with 45 countries in effect, concluded an FTA with Central America, and negotiating four FTAs including the Korea-China-Japan FTA and Regional Comprehensive Economic Partnership (RCEP) (http://​fta.​go.​kr/​main/​situation/​kfta/​ov/​).
Seungjoo Lee, Sang-young Rhyu
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