Changes by Competition
The Evolution of the South Korean Developmental State
HYEONG-KI KWON
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Preface
As I remember, it was in 2009 when I visited the International Center for Business and Politics (ICBP) in Copenhagen, Denmark that I began to take a look at Korea as my research subject, although Korea is my home country. Until then I had explored advanced democracies, including Germany, the United States, Ireland, and Nordic countries, doing field research for my dissertation and subsequent studies. I never forget the ICBP’s sincere hospitality during my two visits. But most impressive was Professor Peer Hull Kristensen’s gentle smile and his thought-provoking question: “Why are you wandering around these European countries, far away from your home country Korea?” At that time, I could not reply immediately and avoided giving him an answer. However, what I avoided was not just an answer to Professor Kristensen, but more importantly, to myself. I wanted to avoid studying deeply the politics of my home country because Korea was divided into different political and ideological opinions. People I felt deeply attached to fought each other, forcing me to take one side or the other. I refused to take a side in such conflicts after studying abroad. However, I changed my mind about studying Korea, not only because my foreign acquaintances had continuously asked me about my home country—for academics and policy-makers, Korea is an important test case for theoretical debates on economic development and democratization; but also, I knew that avoidance is not the best way to deal with the conflicts.
Conflicts in Korea are not tapering. On the contrary, they continue to amplify to the current day. People who lean toward democracy tend to disregard Korea’s successful economic development which almost all emerging nations try to emulate, whereas people who emphasize Korea’s successful economic growth tend to
underestimate democracy, sometimes admitting authoritarianism for economic growth at the expense of democracy. While studying the prevalent theories on political economy, I discovered that the exclusive ideas of democracy versus economic development are not ordinary Koreans’ responsibility, but are based on academic theories. In particular, developmental state (DS) theories, which gained significant ascendancy in accounting for East Asian economic developments, hold that for successful economic development, the state should be unitary, cohesive, and unaffected by social forces—authoritarianism strong enough to direct private actors with their unitary rationality. However, through exploring the stories of successful economic development, I observed that in contrast to the DS theories, successful developmental states, including Korea, Japan, Taiwan, and China, are neither unitary nor cohesive, but fragmented and full of rivalry and conflicts, particularly among policy-making elites. Even the Park Chung Hee regime, regarded as an archetype of the DS cohesive state, was full of rivalry and conflicts among economic ministries, including the Economic Planning Board (EPB), the Ministry of Finance (MoF), and the Ministry of Commerce and Industry (MCI). Furthermore, I found that competition and conflicts among elites are not always bad for economic development, as shall be examined in this book. On the contrary, collective deliberation and pragmatic experiments through rivalry and competition among elites can significantly contribute to economic development through flexible institutional adaptability in response to new challenges resulting from ever-changing contexts of domestic and international political economy Elite competition in the fragmented and decentralized structure can elicit diverse local knowledges and enable innovation in policy and institutions. Innovation and creative ideas come into being not in unitary and conflict-free minds, but in minds full of conflict with diverse perspectives. However, competition and conflicts should be properly resolved and coordinated, whether through vertical hierarchy or by horizontal adjustments and building common norms; otherwise they result in disarray or stalemate. I found that democracy or collective deliberation is not contradictory to economic development; on the contrary, more democracy may be needed for
sustainable development; but, more democracy for sustainable development needs more coordination.
Pursuing this study has been a long but thankfully not lonely journey. Without the help of numerous people, I could not have finished this book. First and foremost, I would like to express my deepest appreciation to my academic mentors, Professor Gary Herrigel at University of Chicago, who guided me though the murky process of this project, and Professor Su-Ik Hwang and Professor Myung Chey at Seoul National University (SNU), who taught me how to study and provided tremendous encouragement and soul-caring advice. I also thank Professor Gerald Berk and Professor Tuong Vu at University of Oregon, who gave me insightful advice as well as heart-warming hospitality and office space during my stay (2018–19) in Eugene, Oregon, where I wrote the draft of this book. I also thank Professor Glenn Morgan who gave me helpful advice. I am grateful for my academic mentors and gifted colleagues in the Department of Political Science and International Relations, SNU, who provided priceless encouragement.
In making this study, I visited numerous people for interviews, including government officials, managers in large and small firms, and trade association and union leaders, from early 2010 to 2018. Though they were complete strangers to me, they graciously provided time for my interviews. My deepest appreciation goes to all of them. In the course of preparing this book, I also have many debts of thanks to my graduate students, including Kyung Mi Kim, Hyun Lee, Yunsoo Lee, Hee-Jung Sohn, Seungmi Kim, Jiyeong Jeon, and Sun-min Jeon, who helped me tremendously to transcribe interviews and find newspaper sources and data. I also thank Adam Swallow at Oxford University Press, who gave me the opportunity to publish this book, as well as anonymous reviewers who helped improve the manuscript.
For this study, I relied on the financial support from two institutes, the National Research Foundation of Korea (NRF) and College of Social Sciences at SNU. This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2016S1A5A2A01023345). Thanks to this support I conducted field and literature research in 2016–19. In
addition, this work was supported by “Overseas Training Expenses for Humanities and Social Sciences” through Seoul National University (SNU). With this funding, I could focus on writing the manuscript during my sabbatical (2018–19) in Eugene, Oregon. This financial support was invaluable to my research.
Last but not least, I would like to thank my family members for their endless sacrifice, love, and encouragement. My brothers OhSung and Oh-Soo, and my lovely sister Jung-Hee deserve my deepest appreciation. My mother-in-law Woojo Park also deserves my deepest appreciation from the bottom of my heart. I owe special thanks to my wife June-Hee Choi, who always stands by me with wordless love and sacrifice, without which I could not finish this project. I cannot forget to give special thanks to my son Woohyeok, who has made the most important contribution—bringing happiness to this project, as well as to my life. In particular, his time with me in Eugene gave me great joy. I dedicate this book to my parents, TaekYong Kwon and Youngja Ko, who taught me how to live a meaningful life by their own example.
Table of Contents
List of Figures
List of Tables
Introduction to the Evolution of the South Korean Developmental State
Locating Korea from a Comparative Perspective
Locating Korea Historically
The Classical Developmental State in Korea
Transition I: Liberalization in the Chun Doo-hwan Administration
Transition II: The Roh and Kim Administrations
Asian Financial Crisis and Transformation of Korean Capitalism
Continuation of Developmentalism across Administrations
Generalization through Comparison
Bibliography Index
List of Figures
Trends of Productivity and Employment in US and Korea Automobile Industry
Country Comparison of High-Technology Trade Balance, 2000–15
Trends of Percentile Ranks of GDP Per Capita
R&D Expenditure Trend of Advanced Countries (% of GDP)
Comparison of Economic Development Shares in Total Government R&D Expenditure
The Number of Korean Suppliers who Coglobalized with Hyundai and Kia
List of Tables
Automobile Corporations’ Overseas Production in 2012
Changes of Contributors to Economic Growth in Korea
External Financing by Korean Manufacturing SMEs
Establishments of Affiliate Institutes for Policy and Technology Research
Restructuring Results of the Top Four Conglomerates in Korea
Economic Wealth Concentration of 50 Largest Corporations
Introduction to the Evolution of the South Korean Developmental State
South Korea (hereafter Korea) has successfully changed its economy, from very poor and agricultural to highly advanced and industrialized, over the last half century. As its per-capita gross national income grew dramatically from only $79 in 1960 to $31,000 in 2018, it has attracted the attention of policymakers as well as political economists. However, scholars differ in accounting for why Korea was able to achieve such sustained economic success from the 1960s to the 2010s. Neoliberals and neoclassical economists emphasize the advantages of the free market, while developmental statists underline the state’s interventionist role and its institutional conditions, such as a unitary and cohesive bureaucracy, which enable the state to direct private firms with its developmental policy. Focusing on the role of the state, the statists and neoliberals differ in whether the Korean model of economic development is marketconforming or market-distorting.1 In the first round of debate of the 1990s, developmental state theory gained ascendancy, but after the Asian financial crisis of 1997 the neoliberal account became more prevalent. Actually, Korea has significantly changed its economic system by liberalizing its finance and globalizing its industries, allowing its successful change to a highly innovative and knowledgebased economy.
What is the Korean model of economic development that accounts for its sustained and high economic growth over
approximately 50 years? Is such long-term sustained growth due to the neoliberal free market or the state’s institutional conditions, such as bureaucrats’ competency and cohesiveness of the state? The significant changes in Korean capitalism over the last 50 years raise questions concerning the relevancy of existing development theories, whether neoliberals’ universal relevancy of the free market or the statist accounts based on institutional conditions. Rather than offering neoliberal celebrations of free market and the statist emphasis on the stringent Weberian state, this book focuses on the flexible adaptability of Korean state-led capitalism, with which it has adjusted its methods and strategies of development through competition among elites inside and outside the state, as new challenges, never met with an apparent solution, have continuously emerged.
Meanwhile, in order to corroborate their theories, neoliberals and the statists examine competitively and contest the extent to which the Korean economic system has changed. Can we say that it has transformed into a neoliberal free market system? Not only neoliberals and Marxist globalists, but even long-time developmental theorists including Chang and Shin hold that Korea has changed to a neoliberal free market since the late 1990s.2 However, recent empirical studies, including my own, reveal that unlike the liberal and neutral state, the Korean state still plays an active role in coordinating its economy for industrial competitiveness, although it gave up its traditional interventionist methods and policy instruments of the 1970s.3 In addition, the state and large corporations called chaebols continue to form the dominant coalition, excluding labor, in the institutional changes of labor markets and corporate governance as well as in development strategies (Jo 2016; Morgan and Kubo 2016: 68, 85; Whitley 2016: 36).
How can we understand Korea’s continuance of state-led capitalism despite significant changes in methods and policy instruments? Many institutionalists and developmental theorists emphasize resistance to changes in path dependence, such as institutional stickiness (Stubbs 2009; Fields 2014) or institutional adherence to historical legacy (Dent 2003; Hundt 2009) or continuance of a taken-for-granted “developmental mindset” (Moon
2016; Thurbon 2016). In order to criticize market-driven convergence and emphasize the continuity of the existing pattern, they tend to underestimate or disregard the significant changes. However, Korea has significantly changed its traditional developmental state policy by liberalizing its finance and giving up control of market entry and direct subsidy in the course of liberalization and globalization in the 1990s and 2000s.
In order to understand continuity in the course of change, this book emphasizes that the continuity of state-led capitalism could be possible, not by resistance to change nor self-reinforcement of existing practices, but by innovative changes and adaptation to external challenges, such as global competition and foreign pressure of liberal trade and finance, as we shall explore in detail. Continuity does not exclude changes; rather, it can happen by changes.
In order to better account for these dynamic changes and continuity, this book brings back politics among key actors. Unlike the institutionalist scenario, actors are not unilaterally constrained by institutions. Instead, facing new challenges, including economic crisis and competitors’ challenges, key actors reinterpret the meaning of institutions and their existing practices in the course of political interaction. The meaning of challenges is not always apparent, but problems and solutions are always contested among actors’ interpretations.
Additionally, to better understand the continuity of state-led capitalism in the course of dynamic politics, this book emphasizes economic elites’ competition for legitimate authority or influence. The Korean state is not a unitary actor, but consists of economic elites— for example, the Economic Planning Board (EPB), the Ministry of Finance (MoF), the Ministry of Industry (MoI), and the Ministry of Information and Communications (MIC)4—each with different perspectives. This situation sharply contrasts with the existing developmental state (DS) theory, which emphasizes state cohesiveness and a single rationality as institutional conditions of the developmental state (Evans et al. 1985; Wade 1990; Evans 1995; Chibber 2002, 2003; Haggard 2018: 3; 1990: 43–45). The DS literature holds that the reason for East-Asian states’ economic success, in contrast to the failure of India and Latin American states,
is due to the stringent Weberian state, cohesive and strong enough to discipline and direct private businesses with a single rationality. However, even at the height of the classical developmental state in the Park Chung Hee era, the Korean state was divided into rival ministries competing for legitimate authority with different strategies. We will explore how EPB emphasized large capital investment, whereas MoI focused on industrial linkages and backward integration to build national industries in the Park Chung Hee era.
In addition, this book emphasizes the institutional adaptability through elite competition for such sustained economic growth, not only in Korea, but also in other East Asian states as shall be examined in the final chapter of this book. The reason for Korea’s sustained economic success over a long period of time is due not to the institutional elements of a stringent Weberian state, but to the Korean state’s flexible and effective adaptation to newly emerging challenges over a long span of time. Korea is deeply immersed in developmental logic, but its strategies and methods have continuously changed in response to new challenges. Korean developmentalism is not given as an apparent single rationality, but has been rearticulated and rearranged through competition among elites.
In order to better account for the endogenous changes, this book also focuses on the competition among elites. Competition among economic elites for legitimate authority incurs innovations in institutions and policies, whose effectiveness enabled the continuity of state-led capitalism. For example, as shall be examined later, the Korean developmental state of the 1960s changed to an extreme version of its developmentalism in the 1970s through competition between EPB and MoI. To preserve their existing influence, key actors should be innovative in response to competitors and external challenges. Similarly, the Korean state could continue its developmentalism, not by resisting changes nor by sticking to the existing pattern, but by changing its developmental strategies and methods through competition among elite organizations.
In order to trace the dynamic evolution of Korean state-led capitalism, this book relies on intensive and extensive personal interviews with Korean government officials, as well as key people in
lead firms, suppliers, and trade associations in the Korean automobile and electronics industries. Interviews for the preliminary study were conducted from May 2010 to March 2011, and from April 2013 to June 2018 for the main field research. The 81 personal interviews include 34 respondents in government and governmentaffiliated research organizations, 27 in private companies, and 20 in trade and labor associations. To trace the processes of competition among key actors, I also examined not only memoirs of bureaucrats and economic leaders but also Korean monthly journals and newspapers. I also use extensive quantitative Korea Exim Bank data and various data collected by international organizations, including OECD.
We begin now with a critical review of the existing debate on Korean capitalism, and elaborate the theoretical alternative. In the empirical Chapters 2 and 3, I explore to what extent Korean capitalism has evolved to date, and how we can locate current Korean capitalism from a comparative perspective as well as historically. In Chapters 4 through 8, I trace the historical evolution of the Korean developmental state, focusing on competition among elites inside and outside the state. Chapter 4 examines the classical version of developmental state in the Park Chung Hee era; Chapter 5 explores the transformation in Korean capitalism in the late 1970s and 1980s. Chapter 6 addresses the transition period of the Roh Tae-woo (1988–92) and Kim Young-sam (1993–7) administrations. Chapter 7 examines the Kim Dae-jung (1998–2002) government’s developmentalism in the aftereffects of the Asian financial crisis. And Chapter 8 explores the Roh Moo-hyun (2003–07) government, and the Lee Myung-bak (2008–12), Park Geun-hye (2013–17), and Moon Jae-In (2017–present) governments. Chapter 9 extends the theoretical implications of the Korean experience into other East Asian DS and emerging countries.
Critical Review on Literature and Theoretical Alternative
Due to its long period of successful economic growth, Korea has offered an attractive case for competing developmental theories, including neoclassical economics and the developmental state theory. The tide of theoretical competition has seen ups and downs through the 1980s to 2000s. In accounting for why Korea achieved economic success, neoclassical economic approaches gained ascendancy initially in the 1970s and 1980s.5 However, in the late 1980s and first half of the 1990s, developmental state (DS) theories proved more persuasive, mostly based on their empirical studies of the heyday 1970s. But since the late 1990s, particularly with the Asian financial crisis of 1997, the neoliberal view has prevailed, based on the universal relevancy of the free market. Not only Korea but also many countries reform under the pressure of globalization, particularly with the neoliberal reforms as a condition of the IMF bailout. In recent debates on Korean capitalism, even many developmental state theorists, including Ha-Joon Chang and Peter Evans (2005), have admitted that the Korean developmental state met its demise and turned to neoliberalism. This section explores recent prevalent theories regarding whether Korea has changed to a neoliberal free market system or continues its state-led capitalism. When evaluating whether a state remains a developmental state (DS) or comes to its demise, most scholars tend to focus on the institutional elements of DS capability which DS theorists emphasize differentiates DS from the liberal state. In contrast to neoclassical economists who emphasize free market policies as the cause of East Asian economic success, including open trade and limited state intervention, DS theorists emphasize the strong state’s institutional capabilities, such as meritocracy and the cohesiveness and rationality of bureaucracy, which enable the state not only to extract, mobilize, and target resources to a particular purpose, but also to sanction private firms for not making productive use of state resources.6 For example, in accounting for why Japan, Korea, and Taiwan could succeed in economic development while Latin American countries and India failed, the DS theorists emphasize the state’s institutional capability to impose its development policy on business (Evans 1995; Kohli 2005). Amsden (1989, 2001) suggests reciprocity as a control mechanism to impose discipline on economic
behavior: “In Korea, Japan, and Taiwan the state has exercised discipline over subsidy recipients. In exchange for subsidies, the state imposed performance standards on private firms. Subsidies have not been giveaways, but instead have been dispensed on the principle of reciprocity” (1989: 8). For DS institutional capacities to impose a control mechanism, DS theorists emphasize bureaucrats’ competency, relative autonomy from social groups, and cohesiveness of the state.
In particular, many DS theorists emphasize the internal cohesiveness of the developmental state to promote developmental policy. Chibber (2002, 2003) succinctly notes: “In order to promote development, states need to be able to act as corporate entities with broadly collective goals, rather than the sum of the individual strategies of their functionaries. So one way to make states ‘developmental’ is to enhance their capacity, and the means to do that is through securing their internal cohesiveness” (2002: 952). Haggard (1990, 2015, 2018) also points out “the cohesiveness and centralization of decision making” as a key element of the DS. For internal cohesion or coherence of bureaucracy, many DS theorists emphasize the Weberian bureaucracy features, including clearly specified rules and career promotion (Wade 1990; Evans 1995: 12–14; Evans and Rauch 1999), whereas Chibber suggests a powerful nodal agency, like the EPB in Korea, and its hierarchical power (Chibber 2002: 952, 957–959).
Thus for DS theorists, intrabureaucratic conflicts are a sign of the DS demise (Haggard 1990: 45; Lim 2009: 91; Wade 2010: 158; Yeung 2017: 88–89). For example, Yeung (2017) points to the abolishment of the Korean pilot agency Economic Planning Board (EPB) and fragmentation as evidence of the Korean DS demise, saying that “[this] decentralization and fragmentation of the key pilot agency in turn made it even harder for the state to coordinate industrial policy in the face of mammoth chaebol in the domestic market” (Yeung 2017: 88). Wade (2010: 158) also emphasizes that “Democratization in Korea had the effect of fragmenting the state” and thus the Korean state lost its effectiveness in developmentalism.
Both the DS theorists and DS demise theorists now focus on the existence, or disappearance, of the institutional elements of state
capability to extract and strategically distribute resources and impose its developmental will on subsidy recipients, such as state control over finance and the disappearance of the nodal agency like the Korean EPB, and intrabureaucratic conflicts. Initially, the DS demise theorists emphasized democratization in the developmental states which removed authoritarian state power. By assuming that the developmental state is an authoritarian strong state which extracts and distributes national resources strategically, autonomous from social pressure, the DS demise theorists hold that democratization dissolves authoritarianism, enfeebling the state’s institutional capability, and thus, engenders the demise of the DS.7 In addition, DS demise theorists emphasize that domestic changes toward democratization and liberalization contribute to the “greater fragmentation of the developmental state and its elite bureaucracy” (Yeung 2016: 189). However, state-led capitalism is not necessarily authoritarianism, as seen in Japan and France. Similarly, democratization, the rise of social demands, and intrabureaucratic conflicts in Korea have raised some challenges, but not decisively prevented the state from pursuing industrial development.
More importantly, intrabureaucratic rivalry has encouraged industry-related ministries to pursue new industrial policies competitively, as we will examine later. In a stark contrast to the prevalent belief that intrabureaucratic competition or rivalry is the demise of DS, this book emphasizes the effectiveness of elite competition for economic developmentalism. This book holds that intrabureaucratic or elite competition within and outside the state can significantly contribute to the sustained economic development through its effective adaptability in response to newly emerging challenges, rather than causing the demise of state-led developmentalism. Without innovative changes in institutions and policies, Korea’s classical state-led developmentalism might have failed in achieving such sustained economic success in the contexts of the complexity of domestic economy and the changed global economy. Korea could succeed in economic development through effective changes in institutions and policies, which have resulted from elite competition. As shall be examined in the final chapter, the effectiveness of the institutional adaptability for sustained economic
development can be extended to other East Asian countries, including Japan, Taiwan, and China.
On the other hand, most DS demise theorists emphasize neoliberal globalization as the cause for the DS demise. First, as the Japanese economy, an archetype of the developmental state, fell into crisis in the late 1980s, the developmental state’s effectiveness fell into question (Dornbush 1998; Lindsey and Lukas 1998; Katz 2003). In addition, as Korea and neighboring developing countries fell into the Asian financial crisis of 1997, the demise thesis of the developmental state gained a clear ascendancy. Most DS demise theorists believe that following the Asian financial crisis, Korea changed from a developmental state to a neoliberal free market system.8 Not only was the financial crisis of 1997 believed to clearly signify the effects of globalization and financialization, but also that the state failure, due to overregulation, state-controlled finance, crony capitalism, and moral hazard, was a key cause for the crisis (Krugman 1994, 1998). Not only Korea but relatively crisis-free countries including Japan and Taiwan began to reform their economic systems. Korea eased regulation and opened its financial market. In order to remove state control over finance, Korea revised its laws concerning its central bank and financial supervisory system (Jayasuriya 2005). Corporate governance and labor markets were also reformed by market principles.
Neoliberals, theorists of global production networks (GPNs), and Marxist-oriented scholars now hold that developmental states in general, along with Korean state-led developmentalism, are no longer relevant under globalization. For example, scholars of global production networks (GPNs) such as Yeung (2016) hold that as GPNs grow and national corporations nurtured by the developmental state become disembedded from the state, even the most cohesive and most powerful state “could not wield sufficient power in charting new directions for economic development” (Yeung 2016: 189, 205). Neoliberals hold that developmental policies should be limited under globalization in order to optimize comparative advantages.9 Howard Pack and Kamal Saggi hold the neoliberal view that industrial policies, whether new or old, are irrelevant in the course of globalization because they hinder optimal use of the advantages of
“international supply chains” by the free market (Pack and Saggie 2006: 276). They suggest adhering to the Washington Consensus on the free market.
Marxist-oriented scholars of the Global Capitalism School agree with neoliberals and GPN theorists on the point that developmental states, as well as nation-states’ intervention in the market, are now irrelevant under globalization, although they disagree on the moral effects of a global free market. The global capitalism school, anchored around a Marxist political economy and particularly the writings of William Robinson (2004, 2014) and Jerry Harris (2009), holds that globalization marks a new epoch, as nationally-based elites are no longer the central locus of power in the world order with the rise of a transnational capitalist class. They argue that as production has globalized, so have class relations, with the rise of a transnational capitalist class whose interests are no longer tied to a single nation-state. They maintain that the nation-state itself is becoming, or already is, anachronistic.
In addition to the rise of global production networks, financial globalization and liberalization provide evidence of the developmental state’s dismantling (Pang 2000; Jayasuriya 2005; Pirie 2005, 2008, 2016; Ji, Joohyung 2011). With Korea, financial liberalization measures adopted since the 1990s undermined key elements of the traditional developmental state’s policy instruments, such as control over finance. Due to financial liberalization measures in Korea, including independence of the central bank and openness to foreign financial institutions, the Korean state could not pursue traditional developmental methods such as the highly leveraged, debt-based national champion strategy. Thus, even some developmental state theorists agree with neoliberals on the point that under globalization, Korea changed to neoliberalism during the 10year span of the Kim Dae-jung (1998–2002) and Roh Moo-hyun (2003–07) administrations following the 1997 Asian financial crisis.10 They hold that the Korean state gave up its traditional developmental policies such as economic planning, state coordination of capital investment, and protection of domestic industries, and sold out Korean incorporations to transnational capital.
With the rise of GPNs and financial liberalization, trade liberalization is also mentioned as a cause for the demise of the developmental state. Due to world trade rules, such as the WTO’s rules to constrain subsidies, the existing developmental states’ industrial policies became irrelevant. Many scholars including Jayasuriya (2005) and Pirie (2008) hold that the Korean developmental state became dismantled because its key instruments for developmentalism were hamstrung, turning the Korean state into a neoliberal regulatory state, rather than toward interventionist developmentalism (Jayasuriya 2005; Pirie 2005, 2008).
However, we will examine how the Korean state did not simply retreat in facing the Asian financial crisis of 1997, but revised its existing developmental policy while disciplining large corporations and creating a new version of industrial policies, shifting from an input-oriented to a knowledge-based economy, creating venture companies and an innovative industrial ecosystem. Korea no longer uses old-style subsidies directly given to large corporations, in order to avoid violating the WTO rules. However, it uses more R&D support as a developmental policy to strategically target industrial development. As many empirical studies show, the Korean government has maintained its initiatives in technology development through agenda setting and industrial targeting.11 For example, Korea has been much more involved in setting strategic priorities and coordinating R&D programs in the ICT sector than even France (Lee and Yoo 2007: 466). Korea does not use old developmental methods, such as mobilizing massive capital and funneling it to a few large corporations exclusively, to realize economy of scale. Instead, it focuses on improving innovative capability through collaborative relations among large and small firms. Unlike the GPN theorist expectation, the Korean state focuses on building industrial commons and an industrial ecosystem at home to avoid the hollowing-out of national industries, and it upgrades its innovative capabilities, as described in Chapter 2.
In contrast to DS demise theorists, institutionalists and developmental state theorists emphasize the path dependent persistence of the developmental state. They maintain that existing developmental states including Japan, Taiwan, France, and Korea
do not converge toward a neoliberal free market system, but extend their long-established national economic models, based on the timing of industrialization, trajectories of economic development, and patterns of state intervention.12 In order to criticize the neoliberal convergence theory, they emphasize institutional constraints for continuity of different models. For example, Whitley (2016) holds that due to domestic institutional arrangements, even East Asian developmental states including Japan, Taiwan, and Korea differ in their business systems, such as ownership and control of major companies, the extent of their vertical and horizontal integration, and interfirm relations. These different national models, which arose from domestic institutions including state organizations and financial systems, continue their basic patterns despite minor changes following the dismantling of the Bretton Woods system in the 1970s (Whitley 2016: 36). The institutionalists emphasize the persistence of these different models even throughout the Asian financial crisis of 1997 and subsequent globalization. However, as Walter and Zhang (2014a: 9) observe, this literature tends to disregard or underestimate significant changes in the Asian states in order to emphasize the persistence of national patterns. Many institutionalists and developmental theorists underestimate or disregard significant changes in order to point out the continuity of different models, and find difficulty in accounting for dynamic politics. Most institutionalists emphasize the unilateral constraints of institutions, such as institutional stickiness toward changes, institutional inertia, and a taken-for-granted mindset, overlooking key actors’ active interpretation of the meaning of institutions in the political contest.13 For example, Fields (2014) emphasizes institutional stickiness toward change in accounting for why Japan, Taiwan, and Korea continue their models of developmentalism, rather than converge toward Anglo-Saxon-style neoliberalism, as follows:
In accounting for the evolution and variations between and within these three national economies [Japan, Taiwan, and Korea], the final section argues that emerging change coalitions, declining state autonomy and capacity, and a policy discourse of neo-liberalism have attenuated the DS in all three cases.
But in each instance, ‘sticky’ institutional arrangements constituting the respective DS have proven difficult to dislodge, even in the face of unprecedented economic crises, recessions, long-term structural changes, and prevailing global norms Although the collapse of Japan’s asset bubbles in the early 1990s dealt a substantial blow to the legitimacy of this DS system, the unfolding of the next two decades would demonstrate that increasing institutional dysfunction does not necessarily yield dismantling Path dependency, institutional inertia, vested interests, and no small degree of rational retention have kept Japan’s DS relatively coherent in spite of increasing calls for change and significant remodeling. Likewise … both parties [Korea and Taiwan] continued to benefit from their collaborative ties and the institutional networks binding them together.
(Fields 2014: 48–49; emphasis added)
Institutionalists account for the continuity of state-led capitalism by institutional resistance to changes, not by creating a new version of divergence through key actors’ proactive political choices. They tend to explain the current continuity of developmental states by historical legacy or prolonging its life by repetition of the same institutions.14
Recently, DS theorists have emphasized the taken-for-granted mindset or informal norms for continuity of the developmental state.15 For example, Moon (2016) points out Confucian ethics for Korean developmental success, while Chang (2005: 27) emphasizes informal norms and policy mindset, evidenced in presidents’ policy priorities for economic success and continuity of Korean developmentalism. In particular, Thurbon’s (2016) recent study on continuity of the Korean developmental state emphasizes the persistence of a developmental mindset, despite significant changes in Korean capitalism. She argues as follows:
My explanation for this revival [of financial activism in Korea] has centered on the enduring presence of a developmental mindset among key segments of the Korean political and policy elite I have shown how this mindset involves a set of shared beliefs and understandings about the state’s primary goals (national strength via manufacturing capacity, technological autonomy, export competitiveness) and the appropriate role of the state in achieving them (strategic interventionism, including financial activism).
(Thurbon 2016: 143; emphasis added)
Thurbon argues that the persistence of developmentalism in Korea reflects an enduring developmental mindset shared by key economic elites, which has been more or less galvanized either by external challenges such as the rise of the Chinese economy, or by developmentally-minded presidents (Thurbon 2016: 90–91).
Although Thurbon’s and other ideational approaches rightly note the importance of correcting the approach of simple adherence to formal institutions and policy instruments such as state financial control as criteria of developmental state, they have difficulty in addressing how the mindset or informal norms have been (re)constituted through political contest among elites. They emphasize instead the consensus and cohesiveness among top economic policymakers, in the vein of the DS tradition (Thurbon 2016: 34, 59). However, Korean developmentalism is not a contestfree idea commonly shared by economic elites, as we shall explore later. The Korean state’s strategic interventionism has been continuously contested by economic organizations both within and outside the state. Even at the height of classical developmentalism of the Park Chung Hee era, Korean developmentalism is not the repetition of the same mindset, but contested, particularly by ministries inside the state, such as EPB, MoF, and MCI.
Meanwhile, a recent version of historical institutionalism accounts for path dependence or institutional continuity by power politics, rather than unilateral determination of institutions.16 For example, Thelen and Mahoney (2015) and Pierson (2015) rightly bring the power conception back, criticizing its underestimation or disappearance in American political science. For example, Pierson (2015) identifies three dimensions of power: open contestation, mobilization of bias, and ideational elements of power. Poweroriented institutionalists explain path dependence by a selfreinforcement process of power politics in which actors gain power to achieve authority and institutionalize it to stabilize their authority. Pierson (2015: 130) holds that “political contestation is both a battle to gain control over political authority and a struggle to use political authority to institutionalize advantage—that is, to lay the groundwork for future victories.” By utilizing current power distributions gained at a critical juncture, and further consolidating power by
institutionalization, winners expand their power over losers and reinforce their development path. Pierson names five mechanisms at work as “power begets power”: transfer of resource stocks, alteration of resource flows, sending powerful signals about the relative capabilities of the contestants, altering discourse, and inducing new investments (2015: 134–141).
The power approach of historical institutionalism rightly brings back the concept of political contest and power, criticizing behavioralists’ and institutionalists’ lack of a concept of politics. However, they too easily assume consolidation of winners’ power in a predeterministic way. Although winners gain power at a critical juncture and institutionalize it, winners must renew justification for their authority in contest with losers or new groups. Sometimes winners’ successful practices incur new challenges which threaten to undermine institutional stability. For example, the Korean developmental state nurtured large corporations’ capability by the success of its own developmentalism, which in turn undermined the state’s traditional disciplinary power. The winners’ self-reinforcing practices can undermine the stabilization of their power. And in the debate on whether to drive the development of heavy chemical industry (HCI) or not, the Blue House secretary and MCI won in Korea of the 1970s, while the EPB lost its influence. However, the winners’ self-reinforcing practices caused them to lose power due to their overinvestment in HCI in the late 1970s. By contrast, the loser EPB regained its influence because it lost in the process of the HCI drive, and thus it was free of responsibility for the HCI crisis. However, Korea did not pursue the neoliberal free market in the DS crisis of the late 1970s because MCI created new industrial policy in reaction to EPB’s liberalization. The process of political contest is not an apparent single direction of self-reinforcement, but a more complex and uncertain process by political interaction.
Theoretical Alternative
