Social injustice and economic dynamism in contemporary Korea

Abstract

This article examines the processes of labor market restructuring and welfare reform in South Korea since the 1997/98 crisis, arguing that the Korean state-capital complex has succeeded in effecting a substantial redistribution of income from labor to capital. This redistribution of income has played a critical role in enhancing Korea's international competitiveness and in facilitating a return to sustained growth. The principal mechanisms through which this redistribution has been achieved are the intensified exploitation of weaker sections of the proletariat and the reduction of the traditionally more protected organized sections of the workforce in major firms. At the same time, the state has strengthened welfare safety nets and sought to place concerns about structural competitiveness at the heart of the welfare regime through the promotion of vocational training. What has been most striking about the process of welfare reform, however, has been the capacity of the state to limit the growth of welfare expenditures/provision whilst simultaneously creating massive new labor market insecurities. As a result of the success of the Korean state in restructuring labor markets in order to effect a redistribution of income from weaker sections of the proletariat to capital and limiting the growth of social spending we have witnessed a marked increase in inequality since 1997. Korea's apparent success in transforming itself into a competitive, dynamic neoliberal economy must, therefore, be understood as being symbiotically linked to the intensification of inequality.

Acknowledgment

The author is grateful to the editors and two anonymous CAS referees for their insightful comments and suggestions.

Notes

1. Organization for Economic Co-operation and Development (OECD) 1999, 140; Park 1999.

2. You and Lee 1999; Kim and Moon 2000, 54–75; Lee and Lee 2000, 57–84; Yoon in Chu and Hill 2001, 233–52.

3. This figure was ascertained though an email request to the Korean National Statistics Office. Given a perfectly equal distribution of income the Gini coefficient would be zero. In a situation where one person monopolized all income the Gini coefficient would be one.

4. Lee and Lee 2000, 78; English JoongAng Ilbo 2002.

5. OECD 2004b, 90.

6. Hoa 2000b, 1–6; Lee and Lee 2000.

7. The essays in Mishra et al. 2004 are guilty of this to varying degrees. See also Kwon 2003, 69–83; and Lee 2004: 291–99.

8. International Monetary Fund (IMF) 2004, 33–49; OECD 2004b, 79–104; You et al. 2004.

9. Ibid.; Kang 2000; Jeong 2003; Hur 2004.

10. We use the term neoliberal to denote labor market restructuring programs that were organized around three central concerns/objectives. The first objective is to engineer a substantial redistribution of income from labor to capital. The second key feature is a focus on enhancing labor “flexibility” by exposing increasing sections of the working class more fully to market disciplines. This is achieved by removing barriers that prevent firms from dismissing workers and promoting/facilitating the greater use of fixed-term contracts. In other words, the project seeks to more fully commodify labor. Finally, neoliberal labor market restructuring forms an integral part of a wider project to actively promote the integration of the national economy into a rapidly integrating global economy. As such concerns about creating an attractive site for foreign investment and facilitating the reorganization of domestic capital to allow it to compete in a more open economy guide the process of labor market restructuring. These features clearly distinguish neoliberal restructuring from any form of “progressive” competitiveness strategy (which would seek to protect vulnerable sections of the working class from the negative impact of commodification) or a more traditional relatively autocentric Keynesian Fordist project.

11. Gamble 1994.

12. One of a few scholars to seriously examine why the growth of welfare spending has been so limited in post-crisis Korea is Kong Tat Yan. However, Kong's recent work is quite tightly focused on the emergence and demise of tripartite dialogue in Korea. Although aware of the deep structural changes that have taken place in Korean labor markets and in the welfare regime, Kong does not make these changes the primary focus of his work. While the analysis developed here is broadly commensurate with Kong's, the focus of this article is fundamentally different. See Kong 2004, 19–42.

13. For a distinctive analysis of the ontology of the Korean crisis, see Pirie 2006, 49–71.

14. Hahm 2003, 94.

15. The Korean economy grew by 7.1 percent in 1996. OECD 1998, 22.

16. Kim and Moon 2004. In Kim, Samuel S. 2004, 65.

17. Koo 2001, 207; You et al. 2004, 32.

18. This figure was ascertained though an email request to the Korean National Statistics Office.

19. Bank of Korea 2004.

20. The pressure to create an attractive environment for mobile capital is intensified by the existence of a practically limitless ultra-cheap, exploitable proletariat in China.

21. You and Lee 1999, 18.

22. Park 1999, 9–10.

23. Ibid., 206.

24. Woo-Cumings 2001. In Stiglitz and Yusuf 2001, 360.

25. Park, Duck Jay, et al. in Park, Funkoo, et al. 2001.

26. On average, workers who took retirement received payments equivalent to seven months' wages. Ibid.

27. You et al. 2004, 32.

28. Ibid.

29. The role of trade unions in protecting core workers' material conditions will be discussed below.

30. OECD 2000a, 189.

31. Ibid.

32. KCTU (Korean Confederation of Trade Unions) 2001.

33. OECD 1999, 148.

34. Pak 1998, 309.

35. Workers employed in firms with fewer than five employees were exempt from much of the legislation preventing firms from dismissing competent permanent employees. Workers at other SMEs enjoyed the same fundamental legal rights as employees at larger enterprises. (Kim, Dong-One, et al. 2000. In Rowley and Benson 2000, 139.) Workers at other SMEs enjoyed the same fundamental legal rights as employees at larger enterprises.

36. Park, Park, and Yu. 2001.

37. Bai and Cho 1995, 135.

38. Cho 2001. In Gills and Piper 2001, 52–69.

39. Lee and Cho in Park, Funkoo, et al. 2001.

40. OECD 2003, 83.

41. According to the Korean Development Institute wages were completely stagnant between January and August 2004. While nominal wages grew by 9.3 percent in September on a year-by-year basis, due to the effects of bonus payments, wage growth fell back to 5.5 percent in October 2004. Given best estimates for inflation and productivity growth real unit labor costs declined significantly between October 2003 and October 2004. Korean Development Institute 2004.

42. Hur 2004.

43. International Monetary Fund 2004, 36.

44. Small and Medium Business Administration (SMBA) 2004, 48.

45. The figures cited in the rest of this paragraph were taken from the SMBA's website. The figures for the proportion of value added accounted for by large firms can be found at http://www.smba.go.kr/main/english/sub3/sub03_4_2_2.jsp (accessed 10 November 2004). The SMBA's website is being radically redesigned and statistics for investment cited in the text are not available from this website at the present time.

46. As we made clear in the previous section of this article Korean firms did not suddenly discover the benefits of subcontracting in 1997, and major firms gradually sought to reduce the size of their workforces over the course of the 1990s. It is equally important, however, that we do not underplay the importance of the crisis. The rate at which large firms have shed workers since the crisis is nothing short of phenomenal. In the absence of a major crisis and the new opportunities that the crisis created for capital the proportion of the total workforce employed by major firms would not have declined by half in the five years.

47. Koo 2001, 207.

48. IMF 2004, 34.

49. OECD 2004b, 89. The changes in the structure of Korean labor markets have not been gender neutral and the proportion of women employees who lack permanent contracts is over 35 percent higher than the corresponding figure for their male counterparts. IMF 2002, 30.

50. OECD 2004b, 83. The fact that Korea's leading exporters rely on relatively well-paid permanent employees may appear to contradict the argument that the intensification of exploitation of non-core workers, and the redefinition of what constitutes the core, has been key to achieving a recovery in profitability and improving international cost competitiveness. When we consider the use of subcontracting arrangements by these firms and their relationships with suppliers in both the service and the manufacturing sectors more generally, however, the importance of the intensification of the exploitation of non-core workers to international competitiveness becomes clear. While these firms may have spared their own employees from extreme “wage restraint” they have not only benefited from suppliers' capacity to impose such wage restraint but have effectively forced suppliers to drive down labor costs or go bankrupt.

51. It is difficult to discuss the wage level and conditions of non-regular workers in any depth because of the paucity of data available about such employees.

52. Korean Labor Institute 2004, 137–38.

53. Ibid. In part the existence and growth of such wage differentials may reflect the scarcity and the importance of the transferable skills that workers at large firms possess. However, no one argues that the growing wage differentials between workers at large and small firms is simply a result of the “market value” of the skills workers at large firms possess.

54. OECD 2004b.

55. A notable example of where wage restraint by core workers did improve living standards for the weaker sections of the working class is postwar Sweden (see Coates 2000). This only occurred, however, as a result of a highly complex set of corporatist arrangements that governed wage levels across different industries and sectors, arrangements that ran contrary to basic neoliberal principles concerning the need to remove labor market “rigidities” and promote wage flexibility. Furthermore, as we argue later in the article, the viability of these arrangements was critically dependent on the existence of a discrete national economy.

56. OECD 2004, 81.

57. Nor should we entirely discount the potential for the interests of certain sections of finance capital in maintaining reasonably high positive real interest rates to complicate monetary policymaking.

58. Korean Labor Institute 2004, 25.

59. Kim and Moon 2000. In Kim, Samuel S. 2000, 69.

60. It is important not to caricature contemporary neoclassical work on labor markets. Contemporary neoclassical analysis is not blind to the importance of market structures and institutions. Despite this, however, the continued commitment of neoclassical scholars to methodological individualism prevents them from developing a understanding of labor markets as sites of class conflict. See Fine 1998 for a excellent analysis of recent developments in labor market theory.

61. Permanent employees at small firms with over five employees occupy an intermediate position in the Korean labor market. On the one hand, the firms they work for are on the whole far more precariously placed than major firms and operate within relatively low–valued-added, labor-intensive sectors where the material basis for any form of incorporative relationship with labor has never existed. On the other hand, they do enjoy the same legal protections as workers at large firms and enjoy much greater security than temporary employees.

62. Kim and Moon 2000. In Kim, Samuel S. 2000, 69.

63. OECD 2000a, 63.

64. OECD 2005.

65. OECD 2000b, 62–63.

66. Ibid., 65.

67. Ibid., 72–74.

68. With respect to the question of “security,” it is important that we once again emphasize the fact that while workers at large firms are much less secure than they once were they can at least expect a high level of compensation when they are dismissed.

69. Know and O'Donnell 2001, 206–67.

70. Korean Labor Institute 2005, 138.

71. Min-hee Kim 2004.

72. OECD 2004d, 79–81. The state has also made various promises to remove some of the more onerous restrictions on union activity in its attempts to persuade unions to act “responsibly.”

73. Gamble 1994.

74. Kwon 1999.

75. Ibid.; OECD 2000b, 12.

76. OECD 2000a, 72–84; OECD 2000b, 121–43.

77. OECD 2000b, 126.

78. Ibid.

79. We may also note that Kim Dae-Jung, who was elected president in late 1997, had long been an advocate of very mild income redistribution. See Kim 1996.

80. Ibid., 99–103. All public works schemes paid more than the minimum wage, and skilled and professional workers were able to earn up to 29,000 won a day. To put this figure in context, the average wage for all unskilled workers was 25,000 won a day.

81. The point regarding the politics of legitimation is important and we shall expand upon this later.

82. OECD 2000a, 75–76.

83. OECD 2004b, 92.

84. Kwon 2003; Mishra et al. 2004; Lee 2004.

85. OECD 2004b, 92.

86. Ibid.

87. Ibid. The primary purpose of passive support programs for the unemployed is simply to provide recipients with material support. In contrast to active labor market programs, passive labor market programs do not necessarily address issues related to employability by requiring recipients to participate in training/workfare schemes in return for support.

88. Kwon 2003; Mishra et al. 2004; Lee 2004.

89. Hur 2001. In Funkoo Park et al. 2001.

90. OECD 2004b, 88.

91. Ibid.

92. Ibid.

93. Ibid.

94. OECD 2000b, 131.

95. OECD 2000a, 76. We would argue that the introduction of compulsory training makes problematic the OECD's continued categorization of the LPP program as a form of “passive support” for unemployed. If vocational training is to make available and support is only afforded to those citizens who are willing to undergo such training we could easy categorize the LPP as a form of active labor market program.

96. OECD 2004d. According to the Korean Institute for Public Finance (KIPF) the proportion of GDP devoted to public social and educational spending increased by 0.6 percent in 2002. KIPF's figures are not directly comparable with the OECD's as local government expenditure is excluded from the former. KIPF 2004.

97. OECD 2004d.

99. Jessop 1994, 263.

98. Jessop 1993, 7–39.

100. According to the Korean government's November 2005 “Economically Active Population Survey” (available at http://www.nso.go.kr/eng/releases/report_view.html7num=487) unemployment stood at 3.3 percent. Embedded social norms that place the primary responsibility for the care of those unable to work due to old age or ill-health, on the family, not the state, are also of vital importance in accounting for Korea's ability to keep official levels of welfare expenditure so low. A detailed consideration of such norms is beyond the scope of the present study. We would direct the interested reader to Goodman et al. 1998.

101. Glyn 1995, 44–45. The Swedish social democratic model was a product of a complex political and economic history that generated high levels of working class solidarity (but not necessarily militancy) and an unusually high level of toleration by the labor movement for redistribution from the most productive skilled workers to other sections of the working class. Obviously Korea's political and economic history is very different from Sweden's. See Coates 2000 for an analysis of the Swedish case.

102. OECD 2004b, 78–101. As we have already argued the major benefactor of wage restraint by unionized workers is likely to be capital not poorer workers. The references to the problems of poorer workers are, we would suggest, largely a rhetorical device in these circumstances.

103. Pirie 2005, 27–44.

104. Coates 2000b, 100–1.

105. Ibid., 96–101.

106. Kenworthy and Pontusson 2002.

107. OECD 2004a. While Norway's recent economic record is extremely impressive, the wider significance of its performance is limited due to the importance of oil revenues in fueling growth. See OECD 2004c for details.