The Korean Economy

From Growth to Maturity

You-il Lee, Richard Lee

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351348232
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The Korean Economy: From Growth to Maturity takes an in-depth, amalgamated look at the evolution of Korea's globalization drive from the early 2000s (Kim Dae-jung regime, 1998–2003) to the present period (Park Geun-hye, 2013–2017). The book discusses the role of foreign companies on the sustainability of Korea's economic growth, the relationship between the chaebol and the MNCs, the evolution of Korea's nation brand, and the role of the state in Korea's new economic trajectory (globalization) since the 2000s.

With data collected from fieldwork, the book provides both empirical and qualitative insights (economic, socio-cultural and political economic analysis) into the Korean political economy and would be a very useful reference to other emerging economies experiencing similar globalization paths.

1    Introduction

Why Korea?

Within approximately a single generation, South Korea,¹ the Miracle on the Han River, has transformed itself from an aid-dependent developing country following the Korean War,² to one of the richest countries in the world. From being a basket-case economy that relied on foreign aid for survival, it is now a donor country that is pulling its weight as a global citizen. Although the 1997 Asian financial crisis threatened to engulf the country’s economy, by 2016 Korea emerged as the eleventh largest economy in the world and fourth in Asia after China, Japan and India, according to The World Bank (2017).

A key driver behind this spectacular growth is Korea’s political economic policies that support the phenomenal escalation of international capital investment and globalization in Korea since the early 2000s. Following the inception of former Kim Dae-jung administration’s (1998–2003) vision of transforming the nation into a Northeast Asian business hub, Korea’s industrial development paradigm has undergone a new and radical shift in the economic and business spheres, particularly with a new market-oriented paradigm replacing the old model of a developmental state. The combination of sweeping liberalization measures and pro-foreign direct investment (FDI) institutional reforms enabled Korea to record a dramatic increase in inward FDI since the late 1990s. In 1997, the number of FDIs into Korea was less than 2,000, but by 2010 these had increased seven-fold to more than 14,000.

A salient feature that characterizes Korea’s inward FDI-led globalization process is that it was not until 1998, when the Korean National Assembly promulgated the Foreign Investment Promotion Act, that Korea embarked on a path of non-discriminatory treatment of foreign firms. Indeed, the passing of FDI-friendly legislation was an epochal achievement in view of the fact that Korea had rigidly adhered to trade protectionism and a regulation-prone investment regime until the onset of the financial crisis of 1997. However, a closer look at the evolution of the Korean political economy from its first adoption of industrial capitalism to the Kim Dae-jung regime’s (1998–2003) first attempt to move the Korean economy from a neo-mercantilist and developmental statist growth model (Korea Inc) of state-capital collusion to one more consistent with the neo-liberal formula of economic globalization embedded in pro-inward FDI policies, reveals that despite some recent efforts by the Korean government to further an economic globalization agenda, a strong and extensive tradition of the collective nature of economic nationalism (i.e. market access barriers in the form of regulations/rules against foreign businesses in Korea) mobilized by the state is still evident in Korea. In other words, Korea’s economic growth trajectory has not shifted in the course of Korea’s neo-liberal economic trajectory adopted from the late 1990s onwards. As we discuss in Chapter 3 of this book, the collective nature of economic nationalism mobilized by the state is still prevalent in Korea. Despite this radical and relatively sudden change in Korea’s economic policy towards FDI, little discussion is available in the literature and public domain on the sustainability of Korea’s economic growth, particularly from the viewpoints of the role of foreign companies, the relationship between the Chaebol and the multinational corporations (MNCs), and the role of the state in Korea’s new economic trajectory.

As Korea progresses economically, the evolution of the country’s brand image as a nation runs parallel to the development and consequences of Korea’s economic policies. While a nation’s brand image can result independently of any conscious actions by the nation or its people, more often than not, governments make concerted efforts to positively shape this image, especially in view of their international engagements. Indeed, Anholt (2008: 23, emphasis in original) has asserted that nation branding is necessarily ‘a component of national policy, never a “campaign” that is separate from planning, governance, or economic development’. For Korea, nation branding can be traced back to efforts by then leader, General Park Chung-hee, shortly following the Korean War (1950–1953), in early attempts to kick start the development of Korea into a globally competitive capitalist economy. Successive governments have continued the legacy of modernizing Korea’s brand image, including the formation of the National Image Committee during the administration of President Kim Dae-jung (1998–2003), as well as President Kim Young-Sam’s 1993 reformation policy of segyehwa (세계화), which institutionalized the link between Korea’s economic liberalization and cultural identity.

However, as successive governments gained awareness of the critical link between Korea’s nation image and its economic development, it also became clear to them that much work was still needed to promote a positive image of the nation to the world. Acknowledging that Korea is disadvantaged economically as well as in global politics because of an unfavourable nation brand image, President Lee Myeong-bak formed the Presidential Council on Nation Branding (대통령기록) in 2009 to spearhead and coordinate all nation-branding initiatives by public and private enterprises. Ostensibly, the primary goal of the Council is to raise Korea’s stature by gaining credibility and likeability on the global stage by contributing to the international community and helping Koreans become responsible global citizens. However, the government is highly cognisant of the inextricable link between the nation’s image and its economy.

One can therefore conclude that whatever dominant shape Korea’s competitiveness may take in the future to be successfully integrated into the global economy, will depend not only on the domestic industries and economic policies, but also to what extent the country will be able to portray a favourable nation brand image that can sustain, or even boost, its global competitiveness.

The focus of this book

Against this backdrop, this book takes an in-depth, amalgamated look, from both empirical and qualitative perspectives, into the evolution of the Korean political economy and its nation brand image, particularly from the early 2000s from the Kim Dae-jung (1998–2003), Roh Moo-hyun (2003–2008), Lee Myung-bak (2008–2013), Park Geun-hye (2008-May 2017) to the recently embarked Moon Jae-in administration (May 2017 onwards). During the 1970s and 1980s, Korea achieved the most spectacular economic growth among the developing countries. Yet, in the latter part of 1997, with the onset of the Asian financial crisis, Korea became the first country to receive what was then a record-breaking rescue package from the IMF to prop up its ailing economy. It was obvious that Korea’s state-led growth model, embedded in developmental leadership, faced the headwinds brought about by the unavoidable force of free market-driven globalization (IMF). These factors have resulted in the Korean government’s dramatic shift towards a neo-liberal FDI and FTA oriented international trade model (i.e. FTA and international business hub). This impressive and positive portrayal of Korea’s openness to trade and FDI in the aftermath of the financial crisis should not, however, mislead readers by disguising the fact that Korea’s reform measures have not proceeded smoothly, due to the painful and difficult decisions that must be made along the road towards conforming to global standards.

This book provides an overview of Korea’s recent economic development in a historical context and offers an analysis of the social relations (political and institutional) that have successfully driven Korea’s rapid economic growth in a relatively short period of industrialization. It offers a discourse on the evolution of Korea’s economic success through three phases. During the first phase, from the 1960s to 1997, the state enacted policies to propel trade development towards export-oriented industrialization (EOI). The neo-liberal, market-oriented focus in the second phase saw the government facilitating inflows of foreign direct investment and regional integration through free trade agreements. This phase started in the late 1990s and further expanded Korea’s trade with its international counterparts, despite setbacks caused by the Asian financial crisis in 1997. Finally, the third phase saw Korea’s journey to become a modern-day high-tech powerhouse. The book also chronicles the evolution of Korea’s nation brand image from its days as a backwater and low value-adding manufacturer to becoming a modern and industrialized nation whose exports include not only its well-known consumer electronic products but also its distinctive culture commonly known as Korean Wave or the Hanryu (한류) neologism of K-pop, K-drama and K-beauty. Finally, the book offers insights into the existence and prevalence of nationalism among Korean consumers.

As Korea looks to the next decade and beyond, the country will continue to grapple with the challenges of assuring and sustaining buoyant economic growth, consumer welfare gains and job creation by expanding trade and investment, as well as maintaining or even improving its nation brand image in the face of increasing competition globally. Moreover, there are rising threats from a resurgent Japan, Korea’s inability to compete with China on a large scale and a menacing northern neighbour. Korea wants its international standing to be commensurate with the economic success it has built since 1960s. Hence, as Korea looks to the next decade and beyond, whatever dominant shape Korea’s competitiveness and its high-tech nation brand image will take in the future will depend on the industries the country is able to develop and sustain competitively during its fourth industrial revolution in the face of global competition.

Structure of this book

In addition to this introductory Chapter 1 and the concluding Chapter 7, this book consists of three main parts with a total of six chapters. Part I (Chapter 2) is dedicated to enriching existing knowledge on the evolution of the Korean political economy from the early period of industrialization (1960s) to the period of Korea’s globalization drive spearheaded by Kim Dae-jung (1998–2003), Roh Moo-hyun (2003–2008), Lee Myung-bak (2008–2013) and Park Geun-hye (2013-May 2017) and Moon Jae-in (May 2017 to present). This part offers a detailed analysis of the changing Korean market/business environment triggered by the IMF rescue package and of socio-political and cultural aspects of the Korean business culture as well as prospects and dilemmas in the Korean economy.

Part I also details the legacy of Korea’s state-led capitalism, which is arguably very much entrenched in the Korean economy and plays a major role in deterring Korea’s new economic vision. Various economic agendas adopted from the Kim Dae-jung to the Park Geun-hye regimes during the process of globalization, whether neoliberal or neo-mercantilist, have been found to be subordinate to the goal of state building and safeguarding the interests of the state. Part I also explores whether Korea’s long-standing tradition of neo-mercantilism remains an appropriate development strategy or whether this approach has been rendered irrelevant by the wave of MNC-led neoliberal globalization since the early 2000s with particular focus on national identity and economic nationalism, mobilized and implemented by the state.

The second part of the book (Chapter 3) reviews and uncovers the current market environment in Korea from 1998 to 2018. It offers a comparative analysis of the changing nature of economic and policy agendas, Korean business culture and business environment from the Kim Dae-jung to the Park Geun-hye and the Moon regimes. In particular, this part examines the fundamental question of whether the new Korean market environment in terms of international business, has been created, shaped and sustained by the advent of Korea’s entry into the global economy as a capital importer since the early 2000s.

A key feature of Part II is the data on multinational corporations’ (MNCs) perceptions of Korea’s new economic trajectory, Korea’s capabilities to attract foreign R&D centres and the forces driving MNC investments. The data was collected from fieldwork performed in Korea over the past decade. Specifically, an analysis of in-depth interviews with 49 Korea-based MNC executives, conducted between April and September 2010 and some of revisits in 2015, was made with the aim of shedding light on the factors that have affected decisions to establish R&D centres in Korea and/or to set future investment directions. The interviewees include the CEOs of foreign investment companies (R&D-driven) and the chairmen of foreign chambers of commerce in Korea. These new insights highlight the challenges to the Korean government’s FDI-driven globalization and its newly-established vision of transforming the nation into a Northeast Asian business hub, initiated by the Kim Dae-jung administration.

Part III of this book focuses on the branding of Korea as a nation, and the impacts of the nation brand image on its culture, economy and products. Chapters 4 to 6 in this part are organized as follows. Chapter 4 discusses the development of ‘Korea’ as a brand, a concept commonly referred to as nation branding (Anholt, 2005; Dinnie, 2016). Parallel to the discussion on the development of ‘brand Korea’, Chapter 5 traces the development of post-war industrialization in Korea, and how it transformed the nation brand image of Korea from a backwater developing country to a twenty-first century economic and high-technology powerhouse. Having covered the issues of Korea’s nation brand at a macro-level in the first two chapters, Chapter 6 highlights the impacts of country-of-origin, as a dimension of Korea’s nation brand, on Korean products. The chapter also studies the behaviour of Korean consumers by relating their consumption behaviour to their nationalistic dispositions.

Finally, the concluding chapter, Chapter 7, summarizes and crystallizes the significance of the issues discussed across the earlier chapters, offers constructive recommendations on critical challenges that Korea faces today in developing and integrating itself into the international economy and provides insights into the future of ‘brand Korea’ in the next decade and beyond. It discusses policy issues as well as socio-political and cultural dilemmas that Korea faces in sustaining the country’s economic competitiveness.

Notes

1    South Korea, or more formally the Republic of Korea, is referred to as Korea throughout this book, unless otherwise specifically mentioned.

2    From 1910–1945 the Korean peninsula was part of the Japanese Empire. After its independence from Japan in 1945, the United States and the Soviet Union split the country. The ensuing Korean War (1950–1953) ended in stalemate and resulted in the country being delineated along the 38th parallel. Since then the two Koreas, The Democratic People’s Republic of Korea (North) and the Republic of Korea (South), have officially remained enemies.

Part I

The political economy of Korea

2 The evolution of the Korean political economy

Korea’s phenomenal economic success post-World War II is a well-known story. Over the past four decades, Korea has transformed itself from an agricultural nation to a high-tech powerhouse. In 2017, a rebound in business investment and the continued strength of residential investment increased output growth to 3.1 per cent. Private consumption strengthened while employment growth slowed markedly in the first quarter of 2018. The tightening of loan-to-value and debt-to-income regulation on mortgage lending has reduced the rise in residential property construction orders from a peak of 76 per cent (year-on-year) to below 2 per cent. Its economic growth in 2019 is projected to remain around 3 per cent, supported by stronger export growth and fiscal stimulus that offset the impact of tighter regulations on housing and mortgage lending, which will slow construction investment. Inflation is projected to rise toward the 2 per cent target, while the current account surplus is likely to narrow to around 4 per cent of Gross Domestic Product (GDP) (OECD, 2018).

Historically, the Korean people have lived under the authoritarian rule of government for many centuries. It is generally considered that the authoritarian regimes in Korea were quite successful (Kwon, 2010). The regimes were committed to economic development without serious predatory activities. They established proper institutions for secured property rights and market competition, and established policy-making organizations staffed with efficient officials. Economic policies met the success criteria of decisiveness, consistency, credibility and long-term orientation. The military regimes also met the criterion of encompassing interests of the general public, excluding special-interest organizations and including unions which remained repressed. In the last decades of the twentieth century, the new notions of democracy and prosperity arose to capture the national imagination and to become the primary concern of the government leadership. The idea of modernization inspired the soldiers-turned-politicians during the authoritarian phase of Korean politics in the 1970s to initiate a program of socioeconomic development through industrialization. The democratic movement launched in the early 1960s, and then by opposition leaders in the 1970s, came to fruition in Korean politics in the late 1980s. In 1987, the Korean political system made a historic transition from authori...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Preface
• Acknowledgements
• Abbreviations
• 1. Introduction
• PART I: The political economy of Korea
• PART II: Korea’s mature economy: perceptions of Korea-based MNCs
• PART III: Branding Korea
• References
• Index