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Economic Performance in Post-Crisis Korea: A Critical Perspective on Neo-Liberal Restructuring

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  • Kang-Kook Lee
  • James Crotty

Abstract

This paper evaluates the neoliberal economic restructuring process implemented in Korea following the 1997 Asian financial crisis. We first argue that the austerity macroeconomic policy of late 1997 and early 1998 was the main cause of the economic collapse in 1998, and that the decision of the IMF and President Kim Dae Jung to impose a radical neoliberal transformation of financial markets and large industrial firms in the depressed conditions of 1998, though defensible on political grounds, made the failure of these reforms virtually inevitable. A detailed analysis of the macro economy, labor markets, financial markets, and nonfinancial firms in Korea in the past three and one-half years shows that neoliberal restructuring has created a vicious cycle in which a perpetually weak financial sector fails to provide the capital needed for real sector growth, investment and financial robustness, while real sector financial fragility continuously weakens financial firms. Neoliberal policies may have pushed Korea onto a low-investment, low-growth, development path, one with rising insecurity and inequality. Meanwhile, the removal of virtually all restrictions on cross-border capital flows has led to a dramatic increase in the influence of foreign capital in Korea's economy. The paper concludes by arguing that Korea should reject radical neoliberal restructuring and instead adopt reforms designed to democratize and modernize its traditional state-guided growth model.

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Bibliographic Info

Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp23.

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Date of creation: 2001
Date of revision:
Handle: RePEc:uma:periwp:wp23

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Keywords: Globalization; Korean crisis; neoliberalism; economic restructuring; Korean economic model;

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References

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  1. Joon-Ho Hahm & Frederic S. Mishkin, 2000. "Causes of the Korean Financial Crisis: Lessons for Policy," NBER Working Papers 7483, National Bureau of Economic Research, Inc.
  2. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors Before and during a Crisis," OECD Economics Department Working Papers 210, OECD Publishing.
  3. Eduardo Borensztein & Jong-Wha Lee, 1999. "Credit Allocation and Financial Crisis in Korea," IMF Working Papers 99/20, International Monetary Fund.
  4. Marie Bohatá & Martina Pechová, 1999. "Corporate governance," Politická ekonomie, University of Economics, Prague, vol. 1999(5).
  5. Kumar, R. & Debroy, B., 1999. "The Asian Crisis: an Alternative View," Papers 59, Asian Development Bank.
  6. Franklin Allen, 2001. "Financial Structure and Financial Crisis," International Review of Finance, International Review of Finance Ltd., vol. 2(1&2), pages 1-19.
  7. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
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Cited by:
  1. Kang-Kook Lee & James Crotty, 2004. "Was the IMF's Imposition of Economic Regime Change Justified? A Critique of the IMF's Economic and Political Role in Korea During and After the Crisis," Working Papers wp77, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. Kross, Karmo, 2013. "Developmental welfare capitalism in East Asia with a special emphasis on South Korea," Discourses in Social Market Economy 2013-05, OrdnungsPolitisches Portal (OPO).

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