Manifesting the embedded developmental state: the role of South Korea’s National Pension Service in managing financial crisis

Abstract

Financial liberalization has noticeably reduced the role of the state in effectively influencing the economy in post-developmental states. Yet many studies have found that the legacies of the developmental model continue to influence the policies, institutions, and socioeconomic challenges that are faced by the states that previously adopted the model. These studies, however, do not clearly identify when and how such legacies may be manifested in state behavior. This paper contributes to filling this gap in the literature by arguing that financial crises can serve as a trigger to more clearly reveal the structural evidence of the legacy in institutions that were previously established and utilized for developmental objectives. By conducting a rigorous case analysis using historical and market data on the crisis responses of South Korea’s public pension fund, this paper finds that South Korea’s developmental legacy remains passively embedded in the governance structure of the pension fund in non-crisis times but manifests during financial crises.

Keywords:

• Developmental state
• South Korea
• financial crisis
• pension funds
• path dependency
• COVID-19

Acknowledgments

We would like to thank the three anonymous reviewers and RIPE editors for their constructive criticisms and suggestions. Any remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The operating capital of the NPS occupies 88.9% of the total public pension schemes inclusive of the GEPS (4.2%), the Teachers’ Pension (6.9%), and the Military Pension Service (0.1%), (Social Security Committee 2018) and is the 3rd largest pension fund in the world by total assets (Pensions & Investments 2021).

2 See Appendix A for NPS’s impact on the Korean capital market.

Additional information

Notes on contributors

Yaechan Lee

Yaechan Lee is a PhD Candidate in Political Science at the Department of Political Science at Boston University. His work has appeared in Pacific Review and East Asia: An International Quarterly

William W. Grimes

William W. Grimes is Professor of International Relations & Political Science at the Frederick S. Pardee School of Global Studies at Boston University. He is the author of Unmaking the Japanese Miracle (Cornell University Press, 2001) and Currency and Contest in East Asia (Cornell University Press, 2009), as well as articles on Japanese and East Asian political economy, financial regulation, and financial regionalism.