The Political Economy of Korea

Transition, Transformation and Turnaround

J. Uttam

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137451248
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

Korea's twin transitions – agrarian to industrial and industrial to post-industrial – transformed the country's political economy. Moving away from the traditional focus on aspects such as market, culture, and colonialism, the author argues that Korea's 'second state' was revitalized through the 'people's movement' and 'citizens movement'.

Part I

Transition in Perspective

1

Perspectives, Arguments and the Structure

1.1 Introduction

A classic case of historical economic backwardness, the Korean peninsula faced external subjugation and internal stagnation for most of the second millennium. Invasions by the Khitans (10th and 11th century), Mongols (1231–59), Manchus (1627–36) and Japanese (1592–98) made Korea (hereafter refers to Korea prior to division as well as to South Korea, or the Republic of Korea) seek refuge in the Chinese ‘tributary system.’ However, the nineteenth-century rise of industrialism in Europe and the relative decline in China’s power brought intense Western imperialist pressure on Korea to force open its ports for international trade and commerce. General Sherman incident in 1876, Korean-American War of 1871 and Japanese raids to Busan in 1876 created hostility between Koreans and foreigners. These bitter historical experiences with outside powers caused Korea to harbor deep-seated distrust toward foreigners, culminating in an explicit policy of self-isolation, earning it the designation, ‘Hermit Kingdom.’¹ The far-reaching external changes unfolding at the turn of the 20th century brought enormous pressure on Korea to adapt to new demands from the competing foreign interests. Unprepared to react effectively, Korea (under the Chinese tributary system, Sadae Chui) showed unwillingness to adjust to the structurally changed situation around the peninsula and, consequently, became the victim of colonialism, World War II and a subsequent painful national division. These pressures for Korea to change stimulated mass protests, sporadic rebellions and a sustained people’s resistance, finally culminating in what scholars have termed a ‘second state’ that effectively constrained the options of Korea’s ruling elite. In the 1950s, the sudden rise in public expectations due to egalitarian push emanating from North Korean initiative to redistribute land led to aggressive posturing of societal forces in the South compelling the United States accepting comprehensive land reforms. The redistribution of land contributed to the creation of a vital ‘level playing field’ that effectively dismantled Korea’s centuries-old traditional Yangban-dominated socioeconomic system.² In a short span of time, the Yangban-centered traditional agrarian aristocracy gave way to the Chaebol-dominated modern industrial bourgeoisie. Surprisingly, a country considered by many as a developmental ‘basket case,’ began in the 1960s to demonstrate double-digit economic growth.³

The creation of a new industrial bourgeoisie began under the authoritarian rule (1961–79) of General Park Chung-Hee, whose single-minded pursuit of economic growth brought tangible results. Within a single generation, an industrial awakening – led by mass-production, spearheaded by family-owned large capitalist firm ‘Chaebol’, and guided by a powerful ‘developmental state’ – transformed Korea from a poor agrarian economy to a prosperous industrial giant.⁴ Scholars talked about Korea’s remarkable transformation, using descriptions such as ‘Miracle on Han River,’ ‘Asia’s Next Giant’ and ‘Han Unbound,’ symbolizing the nation’s arrival on the international stage.⁵ The sudden demise of the Soviet Union’s military threat and the consequent end of Cold-War-era politics embolden international political–economic forces to clearly articulate their interest in Korea.

In this starkly changed situation, the ‘Miracle on Han River’ underwent a crippling financial crisis in 1997. The literature examining this financial debacle highlighted external shock leading to macroeconomic imbalances that, according to many, created a ‘systemic crisis.’⁶ Korea responded to this crisis by initiating a widespread restructuring of state–society relations, involving reforms in such areas as state, society, finance and industry. With International Monetary Fund (IMF) conditionalities aimed at enforcing deregulation, and the nation’s political desire to reform demonstrated by the democratic leadership under President Kim Dae-Jung, Korea restructured its political economy with reasonable success, leading to a sharp economic recovery in the late 1990s, though with associated costs.⁷

Korea’s high drama, with its remarkable post-Korean War economic miracle, then the sudden financial meltdown in 1997 and a quick rebound in 1999, has been credited to its distinct political economy, which effectively accomplished twin notable transitions in succession. First, in the post-Korean War period, the nation went through a massive transition from an agrarian to an industrial era. During this transition, Korea dismantled a centuries-old socioeconomic and political order based on the ‘suppression of productive forces’ by the parasitical aristocratic Yangban class. On the ruins of the Yangban system, Korea successfully facilitated ‘promotion of productive forces’ led by the Chaebol and its mass-producing industrial system. Second, in the post-1997 financial crisis phase, Korea was successful in making the transition from the industrial to the post-industrial era by reforming and restructuring the industrial bourgeoisie, led by the Chaebol, and its creator, the interventionist ‘developmental state.’

In order to accommodate these twin transitions, Korea twice needed to transform the very core of its political economy by constricting the dark side of its own agrarian aristocracy and industrial bourgeoisie: the first time by instituting comprehensive land reforms to effectively demolish a highly privileged agrarian aristocracy, and the second time by reforming and restructuring Korea’s family-owned large business conglomerates into professionally managed, core-competent firms. In both instances, ‘external variables’ were carefully used as catalysts to promote the indigenous demand for political–economic change. During the first transition, it was the U.S. Occupation Administration that implemented land-reform measures; however, pressure to reform landholdings in Korea was mobilized by the common people through a powerful grassroots movement led by increasingly popular left-leaning ‘people’s committees.’⁸ Similarly, in the second transition it was IMF-dictated conditionalities for signing the $57 billion ‘rescue package’ that made Korea go through a painful process of reform and restructuring. However, demand for recasting the Korean developmental paradigm, largely tilted towards the highly diversified Chaebol, was articulated by the political forces of democratic consolidation, civil society and its institutions such as non-governmental organizations (NGOs), progressive scholars, a vibrant student community and highly mobilized labor force.⁹

Korea’s success in both transitions rests primarily on the sacrifice rendered by numerous protests, reform and resistance movements seeking an equitable political economy. The crucial impact of these social movements enabled Korea to substantially broaden the social base of its economic activities. The arrival of a socially embedded economic organization provided dynamism to Korean economy. The quick rebound after the 1997 financial meltdown was due to this enlarged social base of the Korean economy being adequately represented by mass-production industries employing abundant labor. This enlarged social base enabled Korea to, on the one hand, compete in the high-tech sectors with advanced industrialized economies such as the United States, Japan and Germany, and on the other, Korea retained competitiveness with low-tech mass-production vis-à-vis the developing labor-surplus economies of China, Southeast Asia and so forth. Indeed, Korea has been among the few countries that successfully moved beyond the challenges imposed by persistent agrarian underdevelopment and low value-added mass-production. Confronting various odds in the process of transition, Korea successfully rebalanced mass-production with high-tech manufacturing coupled with emerging knowledge-intensive service industries. Korea worked hard to enhance the economics of ‘soft power’ by promoting the cultural industry, symbolized in the ongoing Hallyu or Korean cultural wave. There seems to be a consensus emerging among scholars that Korea has been able to revitalize and transform its political economy and in the process secure it’s rightful place in the evolving ‘post-industrial society.’

These twin transitions – agrarian to industrial and industrial to post-industrial – have acquired more credibility given Korea’s historically ‘compromised autonomy’ suppressed under overpowering pressure from foreign powers such as China, Japan and the United States. During the centuries of Chinese supremacy over the Korean peninsula, Yi-Joseon state in Korea, which appeared to control a powerful, centrally organized bureaucracy, was a relatively weak and penetrated state. It was the Yangban aristocracy, not the Korean king who dominated the central state bureaucracy. State operated only as a revenue-raising institution for the elite, rather than as a source of power for the king.¹⁰ Landlords had real ownership, and the king was only responsible for revenue collection, not its management, which made both sides contend over the collected surplus; however, neither side had a clear interest in pursuing greater wealth through investment and innovation.¹¹ The Yangban aristocracy exercised an extraordinary degree of influence over state and society. Under the weak state system, this aristocracy had overpowering influence over state and society. Unlike Japan, which initiated the dismantling of feudalism by the comprehensive Meiji Reforms in 1868, the Korean state remained influenced by a neo-Confucian governing ideology and its potent instrument – the scholar-official class – which created an ‘agrarian trap’ of poverty, underproductivity and a lack of entrepreneurial initiatives. Operating under the shadow of Chinese hegemony, Joseon state compromised its policy autonomy and was unable to break away from the bureaucratic-aristocratic structures to jump-start economic modernization.

At the turn of 20th century, the relative decline of China and the remarkable rise of Japan turned Korea into a venue for a power contest between these rival foreigners. Industrialized and militarized Japan finally annexed the Korean peninsula in 1910. During the brief but harsh Japanese colonial rule, the Korean state system was overwhelmed by imperial policies aimed at assimilating Korea into the imaginary world of ‘Greater Japan.’ However, the arrival of colonial rule did not result in a fundamental realignment of political–economic forces; rather, imperial interests found convergence with Korea’s old political economy, centered on the aristocratic Yangban class.

The sudden end of World War II and consequent surrender of the Japanese military paved the way for the arrival of new hegemonic powers in the Korean peninsula – the United States and the Union of Soviet Socialist Republics (USSR) – which sparked a dangerous ideological confrontation. Both powers hurriedly acted to defend their ideological commitments. The USSR, along with critical support from the People’s Republic of China (PRC), actively promoted a people’s movement that was highly concentrated in the northern part of the peninsula (currently North Korea, which hereafter refers to the Democratic People’s Republic of Korea) and initiated comprehensive, far-reaching land reforms, whereas the United States quickly acted to safeguard the interests of the agrarian aristocracy in the Southern part of the peninsula. But the centuries-old wish of the Korean people to own a piece of land created internal clamoring in the form of a people’s movement for land reform. Having a clear understanding of the rising global challenge posed by expansionist communist ideology, the United States decided to provide unequivocal support to initiate land reform as a ‘counter-measure’ to combat the egalitarian appeal of Communism. A pan-Korean left movement mobilized common people to demand nothing less than thorough land reform and a political economy based on economic justice. Here, it is important to give due credit to the United States which, despite its hegemonic reach in the peninsula, accepted land reform to deter the Korean people from falling into Communism. Again, in the late 1990s, when Korea’s industrial bourgeoisie became too dominant and started to monopolize the system to serve its own narrow self-interests, the United States through the International Monetary Fund (IMF) articulated a restructuring of Korea’s industrial conglomerates. However, U.S. support for recasting the Korean Chaebol came to promote the interests of international capital, not the interests of the crisis-ridden Korean industries. Sensing the popular wish to reorganize the concentration of wealth, the government in Korea acted swiftly to restructure Chaebols by forcing them to concentrate on their core businesses, with more balanced debt–equity ratios, and discouraged owner’s families from relinquishing managerial controls over their businesses.

In sum, both transitions mark points of departure in the Korean political–economic order. It was the assertion of social forces that helped Korea to build ‘incremental pressure’ that finally led to ‘punctuating the equilibrium’¹² (disrupting the equilibrium) and twice transforming the agrarian and industrial systems: the first time it was the grassroots left movement, which mobilized public opinion against the Yangban-centered agrarian aristocracy, and in the second instance it was civil society and its NGOs, students, labor and progressive polity that agitated against the Chaebol-dominated industrial bourgeoisie. These twin transitions clearly widened the social base of the Korean economy by empowering marginalized sections in the society. Indeed, Korea’s long history of social mobilization through various grassroots people’s movements, and later a civil-society-led ‘citizens’ movement,’ provided impetus to fundamental socioeconomic and political change; nevertheless, in both instances foreign agency was carefully used to pull through a painful structural reordering of the system.

1.2 Perceptions and perspectives on the Korean political economy

This book aims to interpret and explain the political–economic process of Korea’s tumultuous journey from ‘agrarian to industrial’ and ‘industrial to the post-industrial’ era. By taking into account the prevailing arguments embedded in the ‘market,’ ‘state,’ ‘world system,’ ‘culture’ and ‘colonial’ perspectives articulated in explaining the changing dynamics of Korea’s political economy, this study intends to broaden the conceptual horizon of analysis by collecting the fragmented threads of Korea’s social logic as expressed in untold struggles, sufferings and sacrifices made by unknown Koreans. The due consideration accorded to societal forces and discontent in shaping the nature and direction of Korea’s political economy forms the basis of an alternate ‘second-state’ perspective. The twin disjunctions created by land reforms in the early 1950s and Chaebol reform in the late 1990s unleashed enough pressure to punctuate the long-held ‘agrarian equilibrium’ dominated by the Yangban aristocracy and a short-lived ‘industrial bourgeoisie’ monopolized by handful of Chaebol groups, but the story of ‘incremental changes’ brought about by numerous resentments, protests, and rebellions leading to these two major disjunctions is equally fascinating and crucial in providing a comprehensive account of transitions and transformations that changed the course of history for this peninsular nation. The process of transition and transformation in Korea is spread over a long period of policy experimentations; however, the focus of the present study revolves around these twin disjunctions and the forces leading to these path-breaking changes.

1.2.1 Market perspective

The increasing domination of neo-classical economics in the 1980s was clearly visible in the analytical rigor aimed at explaining the rise of the Korean and other East Asian economies. The key argument proposed by the advocates of the market perspective in explaining rapid economic growth in Korea stressed market-determined state intervention and placed categorical emphasis on export-oriented industrialization. The IMF, World Bank and other prominent providers of international developmental aid discussed at length the merits of the market. Scholars such as Balassa (1977), Corbo et al. (1985), Hughes et al. (1988), Krueger (1978, 1990), Lal (1983), Little et al. (1970), and Michaely et al. (1987) highlighted the failure of state intervention and argued for the market playing a key role in augmenting the process of economic growth in the region. Many of these studies analyzed the causes behind the East Asian economic transformation, including Korea’s, and concluded that market-based intermediation played a positive role in making economies grow faster.

It seems that this analysis of East Asian growth – an analysis based on a neo-classical framework – largely glossed over the rise of a highly interventionist ‘developmental state.’ A slight course correction in analysis came in by an influential World Bank study (1993) that marginally deviated from the overriding market fundamentalism and stressed ‘market-friendly’ or ‘market-conforming’ factors such as allowing greater competition through export orientation, total-factor productivity, giving a high priority to improving educational levels, the promotion of science and technology and, hence, greater economic growth. It has been pointed out that the spread of knowledge and substantial improvement in technological levels in Korea were possible due to multiple factors, such as a freer flow of labor, capital and technology. For the first time, the World Bank accepted the bigger role played by the state in the promotion of knowledge and technology, which positively contributed to Korea’s economic dynamism.

1.2.2 ‘Statist’ and ‘World System’ perspective

Some doubts started to appear regarding the singular dominance of ‘market perspective’ as Japan’s graduation to financial superpower status prompted a wide-ranging debate in an attempt to decipher the real forces and causes at work propelling Japan’s industrial might: specifically, debate concentrated on the use of a ‘selective’ or ‘strategic’ industrial policy. A neo-Weberian ‘theory of the developme...

Table of contents

• Cover
• Title
• Part I  Transition in Perspective
• Part II  Locating Twin Transitions
• Part III  First Transition: Agrarian Aristocracy and Its Discontents
• Part IV  Second Transition: Industrial Bourgeoisie and its Reconfiguration
• Part V  Transformation and Turnaround
• Notes
• Bibliography
• Index