This book analyzes, from a historical comparative perspective, the Korean economic development model, the extent to which it has changed from its classical model, and what constitutes its changes and continuity.
The Korean economy has been studied by policymakers as well as political economists around the world. Interest in the Korean economic model started in the 1980s when the success of the Japanese economy was receiving global attention, followed by the emerging economies of East Asia, with their unique method of state-led development. The reason for continued interest in the Korean economy is that in contrast to Japan, which experienced a long-term economic decline known as the ālost decadeā or āthe lost 20 years,ā the Korean economy has recovered quickly from the severe economic crisis in 1997 and shown steady economic growth in the process of globalization. In fact, since the start of industrialization in the 1960s, Korea has experienced continued rapid growth compared to both developed and emerging economies. The Korean economic model has also maintained its characteristics of state-led capitalism despite significant changes in its global integration, revealing a diverse pattern of capitalism, unlike neoliberal patterns of convergence in the era of globalization. In practical terms, the Korean economic model has been of great interest to policymakers in developing countries such as China and other late developing countries in Asia and Africa (Kim 2006; Bobo and Sintim-Aboagye 2012; Interview with former President Roh Moo-hyunās economic advisor, April 19, 2013). As recent Korean governments have tried to export the Korean development model in order to cooperate with developing countries, defining the model has become an important issue within and beyond Korea.
Nonetheless, what the genuine Korean development model is, how it could transform a devastatingly poor country to a developed country, and how it could continuously grow from initial industrialization in the 1960s until the 2010s all remain controversial issues. The neoliberal perspective attributes Korean economic success to market-adaptive policies, while the developmental state theory argues that Koreaās notable economic growth was due to state-led capitalism (World Bank 1993; Krueger 1980; Amsden 1989; Woo 1991; Haggard 1990). Until the mid-1990s, the developmental state theory had been more persuasive, because Koreaās market-adaptive, export-oriented policies and temporary interest rate liberalization measuresākey evidence of market liberalismāhad been coordinated by the Korean governmentās highly selective strategies.
However, the debate on the Korean development model significantly changed following the 1997 Asian financial crisis, when the neoliberal view gained ascendancy. The dominant view is that in overcoming the 1997 crisis, the Korean political economic model shifted to neoliberal market capitalism. The traditional developmental state now became an obstacle to, rather than the cause for, rapid growth (Kang 2002; Kirk 2000; Jayasuriya 2000; Noland and Pack 2003; Pirie 2005; Yoon 2009; Ji 2009; Hall 2003; Kim 1999; Minns 2001). Even developmental theorists tend to believe that since 1997, Korea has shifted to a neoliberal regulatory state (Lee et al. 2002; Shin and Chang 2003).
If this is so, should the continuing growth of the Korean economy be understood as based on state-led capitalism before 1997 and on the free-market system after 1997? How should the Korean capitalism model be defined? To what extent has the Korean development model changed since 1997? What constitutes the changes? Does it converge toward an Anglo-Saxon free-market economy, or can it be still classified as a variant of developmentalism? What explains the cause and mechanism of change?
Based on in-depth field research and historically tracing its changes, this study suggests that since 1997 the state has played an important role in the Korean economic system; the ongoing growth of the Korean economy in the 2000s can be understood by state-led capitalism rather than by a neoliberal free-market system. Existing studies on the causes for Koreaās economic success reveal many limitations. First, neoliberal approaches have difficulty in understanding the characteristics of the Korean development model from a comparative perspective. Neoliberals hold that Koreaās economic success resulted from an open and free-market system, disregarding the stateās role in upgrading its national industrial system (World Bank 1993; Krueger 1980). However, the shift in the 1960s from an import substitution to an export-oriented strategy, and the transition from labor-intensive light industries to capital-intensive heavy chemical industries in the 1970s, cannot be explained except by the strategic intervention of the Korean state. Even after 1997, the Korean state played a pivotal role in transforming its industrial system to a more knowledge-intensive and high value-added system in the 2000s. These were not voluntary changes by private large corporations in the free market. Furthermore, Koreaās strategic intervention and coordination policies reveal an intentional and ongoing pattern of developmentalism with mid- and long-term prospects for economic and industrial competitiveness.
On the other hand, many studies based on the developmental state theory have limitations in understanding the changes in Koreaās economic and industrial systems in the 2000s by conflating certain elements of the classical authoritarian developmental state as an ideal type of developmental state in general. They argue for the demise of the Korean developmental state in the 2000s by exclusively drawing on elements of the 1970s, such as direct state control of banks and credit distribution and the existence of a pilot agency like the Economic Planning Board (EPB). For instance, although Lee et al. (2002), Shin and Chang (2003), and Kim (2014) categorized the pre-1997 Korean economic system as a developmental state, they held that the system has dissolved or converged toward a neoliberal regulatory state since 1997. Yet from a comparative perspective, it is difficult to identify the Korean capitalist model as an Anglo-Saxon-style neoliberal system in which the state is a neutral regulator rather than a strategic actor in upgrading industrial competitiveness. As we will examine in Chap. 5, the Korean state still plays an important role in upgrading the national industrial structure with changed strategies and methods of industrial policy.
This study explores three main questions concerning the Korean economic development model. First, what are its typical characteristics? Second, to what extent has the model changed in the 2000s? Finally, why and how has this model evolved?
This study argues that despite significant changes in policies and instruments, the Korean political economy is still a variant of state-led capitalism if we consider it from a comparative perspective of structural state-business and interfirm relations, rather than focusing on elements of context-specific policies and instruments, particularly in the 1970s authoritarian developmental era. Typical elements of the traditional developmental state in the era of Park Chung-hee, such as state control over banks and direct control of credit distributionādeemed symbolic of the developmental state by institutional theoristsāwere appropriate to build national industrial champions that could compete internationally through economies of scale and cheap prices. However, mobilizing and funneling massive capital to a few large corporations in strategic industries proved ineffective as the Korean state aimed to build a knowledge-intense and innovation-oriented economic system. Traditional methods of excluding small- and medium-sized enterprises (SMEs) while favoring chaebols, or large industrial conglomerates controlled by an owner or family, became obstacles to developing innovative industrial ecosystems that allow competent SMEs to collaborate with large assemblers.
Policies and instruments for Korean developmentalism have significantly changed due to the success of existing developmental policies. As the domestic economy grew and international competition changed, Korea had to change its developmental strategies from traditional input-driven growth centered on large corporationsā economies of scale to innovation-driven growth centered on components and materials companies. Since 1997, Koreaās industrial policies have fostered technology-intensive and high value-added industries through synergistic cooperation among SMEs, large firms, and public research institutes. Consequently, key policy instruments have also shifted, from massive capital inputs to research and development (R&D) support and building innovative industrial ecosystems. This is the Korean stateās initiative, no...