A comparative analysis of the impact of the 1997 Asian crisis and the contemporary global economic crisis on the Korean political economy

Abstract

The 1997 Asian crisis created a political space for neo-liberal reformers within the Korean state to advance a set of policies that had previously been frustrated. This agenda is widely seen to have stalled following an initial burst of neo-liberal reform in the post-crisis period. Several scholars have argued that a partial reconstruction of an economy dominated by a closed nexus between the state and leading domestic firms is taking place in contemporary Korea. Compared to the 1997 crisis the macroeconomic impact of the contemporary crisis on Korea has been limited. However, Korea initiated the largest fiscal stimulus (in relation to GDP) in the Organisation for Economic Co-operation and Development. In terms of the policy environment the impact of the contemporary crisis has been considerable. This paper argues that key aspects of the Korean state's response to the crisis represent a selective limited retreat from neo-liberalism, the significance of which should not be overstated.

Keywords:

• Korea
• crisis
• neo-liberalism
• developmental state

Notes

These figures were ascertained from http://data.worldbank.org/indicator/NE.CON.GOVT.ZS.

These figures were ascertained from http://global.kita.net (free login required).

These figures were ascertained from ‘http://www.tradingeconomics.com’.

These figures were ascertained from ‘http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS’.

These figures were ascertained from ‘http://www.tradingeconomics.com’.

Neo-liberalism reform here, and throughout, is defined less in terms of convergence with the abstract ideas embodied in the work of neo-classical or Austrian economics than with increasing conformity with the principles of governance established by major international institutions (OECD, IMF and World Bank) since the 1980s.

See the Korean Ministry of Labour's website for statistics regarding firm size and employee age/educational profiles statistics (http://www.kli.re.kr/kli_ehome/work/vew.ehome-200004;jsessionid=11198CFAC1ADC7D509156911C1A73AD2?pageNo=&condition=&keyword=&rowNum=&year=&firstClass=&seq=287).

The Hana group has been granted permission to buy Korea's fifth largest bank Korean Exchange Bank. The statistics on foreign ownership are taken from the banks websites addresses supplied below (http://www.keb.co.kr/IBS/multi_lang/ncompany/eng/KBI1230P.jsp http://www.kbfng.com/Eng/Stock/Finance/index.jsp http://www.hanafn.com/eng/ir/report/annualReport/annualReportDetail.do http://www.shinhangroup.com/invest/en/en_stock/en_share_01.html). The statistics on bank size are taken from the banker database (http://www.bankerdatebase.com).

While restrictions on bank ownership may at first glance appear antithetical to neo-liberalism these regulations have been strongly supported, within the Korean context, by the IMF (2006) as necessary to allow market disciplines to function – to prevent banks becoming captive sources of finance for the chaebol. A constraint on the capacity of the state to relax rules on bank ownership is imposed by the electorates' distrust of the chaebol.

A list of the FTAs Korea is a signatory to can be found at the Ministry of Foreign Affairs and Trade's website (http://www.mofat.go.kr).

These figures were ascertained from ‘http://www.tradingeconomics.com’.

On certain key issues (privatisation, labour market reform) there is no contradiction between supporting the agenda of major domestic firms and neo-liberalism.

Additional information

Notes on contributors

Iain Pirie

Iain Pirie is an Associate Professor in the Department of Politics and International Studies at the University of Warwick, UK. His primary research interests lie in the political economy of South Korea and the politics of economic crises. In 2008 he published The Korean Developmental State: From Dirigisme to Neo-Liberalism (Routledge). In the last two years he has published articles on South Korea in Pacific Review, on representations of economic crisis in the UK in British Politics and on the political economy of bulimia in New Political Economy.