[KS] KSR 2006-01: _The Korean Economy Beyond the Crisis_; _Catch-up and Crisis in Korea_; and _Korea's New Economic Strategy in the Globalization Era_

[Stephen Epstein]

_The Korean Economy Beyond the Crisis_, by Duck-Koo Chung and Barry 
Eichengreen. Cheltenham: Edward Elgar, 2004. 372 pages. (ISBN 
1-84376-603-5), 79.95 £ (hardback), 35 £ (paperback).

_Catch-up and Crisis in Korea_, by Wontack Hong. Cheltenham: Edward 
Elgar, 2002.  166 pages. (ISBN 1-84064-917-8), 45 £.

_Korea's New Economic Strategy in the Globalization Era_, by O. Yul 
Kwon, Sung-Hee Jwa, Kyung-Tae Lee. Cheltenham: Edward Elgar, 2003. 
247 pages. (ISBN 1-84376-045-2), 65 £..

reviewed by Bernhard Seliger
Hanns Seidel Stiftung
seliger at hss.or.kr


Ten years after South Korea's accession to the OECD and nine years 
after the breakout of the financial and economic crisis in 1997, the 
question becomes inevitable whether preoccupation with the crisis 
still renders new insights and results. By now there are far too many 
books treating the broad topic of the emergence of the financial 
crisis to give an overview of all of them. Similarly, the intertwined 
causes for the crisis (external contagion, a weak domestic 
institutional framework, and a consequent build-up of firms with 
untenable financial positions) certainly have been discussed in 
depth. Earlier mono-causal theories have mostly been discarded in 
favour of a view that the origins of the Korean crisis were multiple. 
Equally, the response to the crisis in monetary, exchange rate and 
fiscal policy has been thoroughly reviewed, especially for South 
Korea and its interaction with the IMF. South Korea, after all, was 
already staging a phenomenal comeback just one year after the crisis 
period, in 1999.

	Nevertheless, the question of the impact of the crisis on 
South Korea's economic model has not yet been finally answered. This 
continued questioning can be seen not only in the still lively debate 
among economists and the consequent research output on the crisis, 
but also in the policy discussions about the lower-than-desired 
growth of the last half-decade and the response of the Korean people. 
In 2005, opinion polls revealed that Koreans' confidence in their 
economic future has fallen lower than in the year 2000, just after 
the financial and economic crisis. The scandal surrounding Seoul 
National University professor Hwang Woo-Suk and his faking of 
scientific data adds spice to this debate, since the supremacy of 
science and technology and the necessity of upgrading science as a 
way out of the crisis has been a constant -- maybe the constant 
rallying cry -- of economic policy after the crisis, beginning with 
"DJnomics" in 1998.

	In this review, I consider three recent collections of 
articles that take up again the Korean crisis and are well worth 
being read in comparison, since they offer different views on the 
problems of the Korean economy, and focus especially on the question 
of the future of Korea's economic system.

	 "The Korean Economy Beyond the Crisis" by Duck-Koo Chung and 
Barry Eichengreen, published in 2004, includes a number of important 
papers by international and Korean experts covering several aspects 
of the crisis, such as monetary and fiscal policy, social impact, 
financial and corporate restructuring, labour markets and the role of 
the United States. Two very different papers, which in my opinion 
are, respectively. the most interesting and the weakest papers of the 
collection, analyse the impact of the crisis on the Korean political 
economic system. Jaeyeol Lee in "Transparency and Social Capital," 
addresses the question of how the governance system of South Korea 
was changed by the crisis. By opposing Korean and Anglo-American 
types of governance, he simplifies the analysis, but nonetheless 
reaches interesting conclusions. Following the intercultural studies 
approach of Hofstede ("Cultures and Organizations: Software of the 
Mind") and using the data of Hofstede and Transparency International, 
he maps Korea on a three-dimensional map of individualism, power 
distance and transparency, showing that its ranking in these three 
dimensions is low not only compared to Anglo-American economies, but 
continental European and East Asian competitors. For a system in 
which leadership is based on rules, rather than personalized, 
institutionalized trust is still missing to a large degree. Its 
absence has an impact in many spheres including corruption. Lee 
concludes that "one way of characterizing post-crisis reform in Korea 
is that progress has been fastest where international involvement is 
greatest." This is an interesting statement that contrasts with much 
of the earlier debate on the failure of conditionality in IMF 
policies.

	The weakest chapter of the book immediately follows, an 
analysis of Korean political development after the crisis in terms of 
class division and class struggle.  Lim Hyun-Chin and Joon Han's 
"Social realignment, coalition change and political transformation" 
suffers from a lack of clear definitions (e.g. on the content of 
"reforms" and "reformist policies", the meaning of "conservative," 
etc.) that makes it difficult to understand their framework and its 
usefulness for the analysis of the post-crisis situation. Certainly, 
the consequences of the crisis for the distribution of wealth are 
marked, but they have to be related to growth in absolute terms 
(rising inequality in a growing economy like Korea's after 1999 is 
completely different from rising inequality in a shrinking economy 
such as Russia's in the 1990s). Their conclusion that the time for a 
"fundamental reconstruction of political power" has been missed lacks 
a clear explanation; given, however, their predilection for seeing 
the world in terms of class struggle, it might be a blessing that 
"remaking the nation" in the sense in which Lim and Han speak did not 
take place.

	 The final piece, "Reform and the risk of recurrence of 
crisis" by In June Kim, Baekin Cha and Chi-Young Song, offers a very 
interesting view on the phenomenal rebound of South Korea and its 
V-shaped recovery after the crisis.  In contrast to the mostly very 
optimistic views on the immediate effects of restructuring, the 
authors stress the role of expansionary monetary and fiscal policy, a 
favourable external environment, and the extreme depreciation of the 
won in Korea's recovery. They argue that these factors had more 
significant short-term effects than restructuring, although they 
concede that such restructuring may have an impact in the long term 
(the authors are quite sceptical about its thoroughness, however). 
The importance of short term factors in the fast recovery after the 
financial crisis not only explains the worsening macroeconomic 
performance after 2001, but also reminds us of the still ongoing 
necessity for corporate and financial reform.

	Catch-up and Crisis in Korea by Wontack Hong, published in 
2002, is an amended collection of papers by this distinguished 
professor from Seoul National University, who developed many of his 
ideas in an earlier book published in 1994 under the title Trade and 
Growth: A Korean Perspective. Those familiar with Hong's earlier 
research might therefore not learn much new from this book. This 
collection nevertheless is an interesting contribution to the ongoing 
debate on Korea's crisis, since it (re-)focuses the view on the very 
source of Korea's catch-up, namely its trade and growth. Certainly, 
there are a number of possible views on how economies grow: the 
institutional setting has been always a prime variable and, ever 
since the works of Douglass North, the development of "New 
Institutional Economics," has become more important as a field of 
economic theory. In the preface Hong offers a justification of why he 
limits himself to analysing trade and growth, and this restricted 
treatment keeps the discussion very interesting, because debate on 
the Korean crisis and its focus on international financial factors 
and internal institutional weaknesses sometimes overlooks the very 
basis of South Korea growth.

	Hong's book, following his earlier work, is mainly interested 
in the question of Korea's catch-up and its export-oriented growth. 
Only in the later chapters does he treat the crisis following the 
catch-up. While Hong says little about the sources of growth in terms 
of accounting for inputs and technology, his views on the 
export-oriented (institutional) regime, trade patterns, chaebol as 
engines of growth and the role of credit are well presented. The 
comparison of South Korea and Taiwan and their industrial structure 
is particularly interesting. The conglomerate-based Korean model, 
which is politically influenced made Korea's economy more vulnerable 
than of the Taiwanese economy, with its foundation in small and 
medium enterprises (SME), but also had an impact on the possibility 
of rebound. It is unfortunate that the implications for reform of the 
Korean model are not discussed in more detail here.

	In his conclusion (143) Hong calls the 1997 crisis an 
admittedly costly blessing in disguise that helped Korean people to 
"wise up by experience." In a self-proclaimed optimistic view, he 
sees the positive aspects of the change in the economic system after 
the crisis, with new and more transparent "rules of the game," less 
political interference, and, finally, less corruption. Hopefully, the 
lessons learned will remain the basis of economic policymaking in 
Korea in the future.

	 Korea's New Economic Strategy in the Globalization Era by O. 
Yul Kwon, Sung-Hee Jwa and Kyung-Tae Lee was published in 2003. In 
two aspects it differs from the two other books under review: first, 
it does not look into the crisis itself, but rather into 
policy-making after the crisis. Secondly, and appropriately so, given 
its focus, many of the writers are or have been advisors to the 
Korean government, thereby making this book more policy-oriented and 
less theoretical. Given the short life cycle of some political and 
policy ideas in Korea, this focus, naturally, also may become a 
limitation. Catchwords like "Cyber Korea 21" change under every new 
administration (consider, e.g., Kim Young Sam's globalization drive, 
Kim Dae Jung's DJnomics and the "hub of East Asia" debate under Roh 
Moo Hyun). With the exception of a paper from Bernie Bishop of 
Griffith University on FDI liberalization in East Asia, only Korean 
"insiders" have contributed to the volume, with concomitant 
advantages and limitations.

	This book offers a highly comprehensive sectoral treatment, 
covering not only trade, restructuring, the financial sector, labor 
and social policy, but also energy, agriculture and inter-Korean 
relations. My personal favourite among the papers is by Sung-Hee Jwa, 
head of Korea Economic Research Institute. While the topic of his "A 
New Framework for Government-Business Relations in Korea" is hardly 
new, he is the only author in any of the books reviewed to stress the 
paramount importance of competition policy as a substitute for direct 
government intervention. Giving maximum freedom to companies, as he 
calls for in his conclusion (96), does not, then, mean unlimited, 
unregulated "Manchester capitalism." Competition itself becomes the 
prime regulator of behaviour, firm structure and size. Given that the 
state can effectively bar restrictive practices, collusion, and 
monopolization based not on innovation, but barriers to market entry, 
its market-correcting actions become as unnecessary as they are 
damaging.

	Two papers focus on a national innovation system as a 
precondition for sustained growth: "Korea's Drive for a 
Knowledge-based Economy" by Kwang Sun Pai, Ki-Hong Park and Suk-In 
Chang, and "A Development Strategy for Korea's Information Society" 
by Chang-Bun Yoon and Sang-Young Sonn. As mentioned above, in the 
light of the recent scandal surrounding cloning research by Professor 
Hwang Woo-Suk, the stress on a national innovation system governed 
and steered by the central government seems problematic. The problem 
of the selection of prestige projects without proper control has been 
at the core of the scandal. After attempts to establish Korea as a 
"hub of East Asia" had been loudly trumpeted, but then more or less 
evaporated as they were belittled by competitors, the "international 
stem cell hub" led by Professor Hwang became a huge prestige project. 
But, similarly to earlier Korean experiences with corporate expansion 
under quasi-state guarantee, the project failed and left the state 
with the resulting damage (here, mainly to Korea's image as a modern 
state on the forefront of international research and technological 
competition). As the lessons of the financial and monetary crisis 
showed, strong institutions and governance structures are the key to 
success, not direct state involvement in business or innovation 
activities. Nothing could demonstrate the ongoing necessity to learn 
from the crisis of 1997 and its lessons more vividly than this case.

	Overall, each of the three volumes gives important insights 
on the crisis. Although my personal favourite is the book by Chung 
and Eichengreen with its more international approach and outlook, I 
learned much from each one. The debate on the crisis is ongoing, and 
valuable lessons are still to be found in analysis of the Korean 
crisis.


	      
Citation:
Seliger, Bernhard 2005
Review of _The Korean Economy Beyond the Crisis_, by Duck-Koo Chung 
and Barry Eichengreen (2003); _Catch-up and Crisis in Korea_, by 
Wontack Hong (2002); and _Korea's New Economic Strategy in the 
Globalization Era_, by O. Yul Kwon, Sung-Hee Jwa, Kyung-Tae Lee 
(2003).
_Korean Studies Review_ 2006, no. 01
Electronic file: http://koreaweb.ws/ks/ksr/ksr06-01.htm
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