The State, Society and Big Business in South Korea (Routledge Advances in Asia-Pacific Business, 6)

The State, Society and Big Business in South Korea Despite the steadily increasing economic power of big business (the ...

Author: Yeon-Ho Lee

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The State, Society and Big Business in South Korea Despite the steadily increasing economic power of big business (the chaebôl), the South Korean state remains strongly autonomous in terms of establishing and implementing economic and industrial policies. The State, Society and Big Business in South Korea examines how the Korean state has maintained control despite the growing influence of social forces, and how it has been able to execute national policies that are often opposed to the interests of industrial capital. The author suggests that economic analysis alone is insufficient to explain the autonomy of the Korean state; social, political and historical factors also need to be taken into consideration. He argues that state-chaebôl relations cannot simply be analysed from formal-institutional or economic viewpoints; state-society relations are as important as the interface between the state and the market. Yeon-ho Lee is an Economic and Social Research Council Fellow, Department of Politics and International Studies, University of Warwick.

Routledge Advances in Asia-Pacific Business 1. Employment Relations in the Growing Asian Economies Edited by Anil Verma, Thomas A.Kochan and Russell D.Lansbury 2. The Dynamics of Japanese Organizations Edited by Frank-Jürgen Richter 3. Business Networks in Japan Supplier-Customer Interaction in Product Development Jens Laage-Hellman 4. Business Relationships with East Asia The European Experience Edited by Jim Slater and Roger Strange 5. Entrepreneurship and Economic Development in Hong Kong Tony Fu-Lai Yu 6. The State, Society and Big Business in South Korea Yeon-ho Lee

The State, Society and Big Business in South Korea Yeon-ho Lee

London and New York

First published in 1997 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2002. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1997 Yeon-ho Lee All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Brtitish Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalogue record for this book has been requested ISBN 0-203-07507-2 Master e-book ISBN

ISBN 0-203-28091-1 (OEB Format) ISBN 0-415-14583-X (Print Edition)

To My Mother and Late Father

Contents List of figures and tables

ix

Preface

xii

Glossary

xiv

Abbreviations and notes on romanization and exchange rates

xv 1

1

State autonomy and big business

2

The origin and growth of the chaebôl, 1948–79: an overview

16

3

Criticisms of the chaebôl

26

4

Regulating the chaebôl, 1980–93

42

5

The sources of state autonomy

71

6

Liberal-pluralism, neo-Marxism, corporatism and state—chaebôl relations

91

7

Alternative modernity and strong state autonomy vis-à-vis the chaebôl

105

Conclusion with the examination of the Kim Young-sam regime case

140

Notes

153

Bibliography

164

Index

183

Figures and tables FIGURES 5.1 The role of expert advisers in the Democratic Justice Party (1981–90) and the Democratic Liberal Party (1990–93) 5.2 The procedure for drawing up bills by the ruling party 5.3 The procedure for drawing up a bill by the executive

TABLES 2.1 Year of establishment of the top fifty chaebôl

73 75 80

18

2.2 Foreign exchange market distortions, 1953–60

21

2.3 Changes in the ten largest chaebôl on the basis of sales, 1960–87 3.1 Changes in small/medium size enterprises: comparison between Korea and Japan 3.2 Cross-national comparison of the role of small/medium size enterprises

23

3.3 The market share of merchandise produced by chaebôl enterprises, 1987

31

3.4 The market position of merchandise items produced by chaebôl enterprises, 1987 3.5 The market competition between the twenty largest chaebôl

31

3.6 Percentage of shares in organizations owned by the largest shareholders 3.7 The situation of succession in forty-seven major chaebôl companies 3.8 Debt ratio and stockholders’ equity to total assets of the top ten chaebôl, 1980, 1984 3.9 Interest rates in the official financial market, inflation, and unregulated market lending rate, 1979–85 3.10 The chaebôl’s percentage shareholding rate of main banks, 1988 3.11 The result of the fourteenth general election, 1992 3.12 Changes in the people’s support of the three major presidential candidates, 1992 4.1 Constituent percentages by industry of total investment in the manufacturing sector 4.2 The growth rate of GNP and the balance of trade, 1986–91

29 30

31 32 32 33 36 37 39 40 49 55

4.3 Percentage growth rates of manufacturing industry and GNP 4.4 Korean manufactured goods’ percentage share in overseas markets

55

4.5 The change in the number of member companies of the ten largest chaebôl,

59

55

4.6 4.7 4.8 4.9

1972–93 Average numbers of business areas in which the ten and thirty largest chaebôl participated, 1989–91 and 1992–93 Percentage of the thirty largest chaebôl’s sales in the mining/ manufacturing sector, 1977–90 Percentage of value added to GNP, which was created by the fifty largest chaebôl The number of the thirty largest chaebôl’s market-dominating items

60 60 60 61

4.10 The thirty largest chaebôl’s internal holding rate

61

4.11 Financial ratios of the top ten Korean chaebôl, 1980, 1984, 1987, 1991

62

4.12 The thirty largest chaebôl’s loans as a percentage of total loans 4.13 Changes in small/medium size enterprises’ industrial capacity, 1970–92

63 64

4.14 Summary of the Federation of Korean Industries’ policy suggestions to the government 5.1 Percentage of Korean companies’ quasi-tax to total sales, 1982–87

67-69 77

5.2 Comparison of terms of office of the President’s economic secretary and economic ministers 5.3 The professional background of the President’s economic secretaries

82

5.4 Numbers of measures which the Civilian Advisory Committee for the Relaxation of Administrative Restrictions proposed to ease or abolish, and the ministry with which they were associated 5.5 Inter-country comparison of procedures for setting up a factory 5.6 The professional background of economic ministers

85

84

86 88

Preface This book is about relations between the South Korean state and big business conglomerates, the chaebôl, since 1980. After the Park Chung-hee Regime collapsed, following Park’s assassination in 1979, the principal role of the state in relation to big business turned from that of ‘patron’ to ‘regulator’ and recently ‘umpire’. The Chun government, which took over in 1980, started to regulate economic concentration in the chaebôl in an attempt to enforce economic stabilization and liberalization policies. I have examined the relationship during the period of a see-saw between them, through a lens of the autonomy of the state. The Korean state has been able to keep a high degree of autonomy not only under the authoritarian Fifth but also the democratic Sixth Republic. Although forms of oppressive political apparatus were removed through constitutionalinstitutional reforms for democracy in 1987, the high degree of autonomy built into the strong executive power did not fundamentally change. The Korean state retained various formal and extra-formal institutions, with which it formed a hierarchical relationship with the chaebôl. In explaining the strong autonomy of the state, economic analysis is not sufficient: we need to take social, political and historical factors into consideration. In this sense, the Korean state-chaebôl relationship is more systematically understood from the perspective of state-society than state-market relations. The relationship in Korea, however, cannot be relevantly elucidated within the state-society paradigms derived from western experience and history, e.g. liberal-pluralism, corporatism and Marxism. South Korean state-society relations have been characterized by alternative-modern factors, aspects of the Korean experience. One must not attempt to explain the state-capital relationship in South Korea simply from an economic viewpoint for it is significantly involved in political and historical aspects. When I embarked on the research in 1991 to prepare for the book, state-business relations in East Asian countries were a popular subject among students of political economy, and several academic works on the South Korean case were already in existence. The reason I nonetheless decided to choose the subject was that most of them were written with economic and structural approaches. At that time I had an assumption that state-business relations in South Korea could be more distinctively elucidated with socio-political and historical analyses. My development of the assumption emanated from the discussion with Geoffrey Hawthorn, my mentor and supervisor at Cambridge. I obtained a fresh insight into the theory and history from him while reading for politics there. Through his continuous supply of questions and new perspectives, the argument of this study has been developed. He showed me the coolness of a scholar and a warm heart of a human being. In completing this book, I also owe a debt to fellow scholars. Charles Elliott, Chang Ha-joon, B.Keehn and Lim Young-jae kindly offered me economic knowledge and comments. Kwon Jeongkee, Yu Bok-hwan, Paul Kim and Ken Tzsumabayashi willingly shared their valuable ideas and experiences with me. Richard Higgott allowed me to publish a part of the results of my research through The Pacific Review he edits, Victoria

Smith, my editor at Routledge, encouraged me to publish the book, and referees of my book including Barry Gills provided me with valuable comments in the procedure of revision. Friends, Anne, Chris, David and Jon, meticulously refined my poor English writing. I am also very grateful to Korean government officials, politicians, and scholars. Kang Chang-sung, Lee Yu-hyung, Chung Hae-joo, Moon Hui-gap, Lee Chun-sik and Shin Keum-sik were willing to answer my blunt questions on the Korean government and political parties, and provided me with their frank opinions. Thanks to their cooperation, I could report more accurately on feature of the South Korean state in this work. Choi Yearn-hong, Jung Ku-Hyun, Shin Myung-soon and Moon Chung-in also gave me theoretical insights, whenever I visited Washington or Seoul. To the British Embassy, Seoul, I am also greatly obliged. A British Foreign and Commonwealth Office Scholarship that the embassy generously offered me was a critical motivation of the continuation of my research at Cambridge. I must extend my thanks to friends who did not hesitate to show their friendship and affection when I was frustrated. Mee-kyung, my wife and, at the same time, friend, has always taken care of me although she was busy pursuing her own career with incomparable excellence. Se-min, who is practically my brother, and his wife Jihyun were my valuable family in Britain. Finally, I must express my gratitude to my brothers Chung-ho and Kwang-ho, sister Jeong-yea, my grandmother, my late father and, above all, my mother. Without their love and support, the book would not have existed. In particular, I would like to deliver my love to my mother, who is not only my biological mother but also a teacher who taught me the importance of patience in progressing one’s life. She has always looked after me with the Christian belief. This study is dedicated to her.

Glossary bantto Professional, salaried managers (Japanese) chaebôl Korean big business chôn’gyôngnyôn Federation of Korean Industries chung’in The second highest social class in the Yi dynasty hoejang Chairman or chief executive keidanren Federation of Economic Organizations (Japanese) keiretsu Post-Second World War big business in Japan (Japanese) myôn Sub-division of a county pyông Unit of area: approximately 3.306 sq meters/3.954 sq yards sadaebu The literati sijang Mayor tojisa Governor of a province ûpchang Town headman yangban The members of the ‘two orders’ of officialdom who served in the bureaucracy, or the aristocratic class of the Yi dynasty zaibatsu Pre-Second World War big business in Japan (Japanese)

Abbreviations and notes on romanization and exchange rates AID APOC BA BOK DJP DLP DRP DSC EPB FKI FKTU FTA FTC FTS FYEDP IDL ISI JMA KCIA KDI KERI KIET KMA KTUC LDCs MCI MOF MOFE MLS MNC NCU NDP NDRP NIC NIESI

Agency for International Development American Office of the Property Custodian bureaucratic-authoritarian Bank of Korea Democratic Justice Party Democratic Liberal Party Democratic Republican party Defense Security Command Economic Planning Board Federation of Korean Industries Federation of Korean Trade Unions Fair Trade Act Fair Trade Commission Fair Trade System Five-Year Economic Development Plan Industrial Development Act import substitute industrialization Japanese Military Academy Korea Central Information Agency Korea Development Institute Korea Economic Research Institute Korea Institute for Economics and Technology Korea Military Academy Korea Trade Union Congress Less Developed Countries Ministry of Commerce and Industry Ministry of Finance Ministry of Finance and Economy Military Language School multinational company National Conference for Unification New Democratic Party New Democratic-Republican Party Newly Industrialized Countries National Institute for Economic System and Information

OBSE OECD PDP POSCO SCENSM SMEs SOE UDP UPP WTO

Office of Bank Supervision and Examination Organization for Economic Cooperation and Development Peaceful Democratic Party Pohang Steel Cooperation Standing Committee for Emergency National Security Measures small and medium size enterprises state-owned enterprise United Democratic Party United People’s Party World Trade Organization

ROMANIZATION In romanizing Korean, I have used the McCune-Reischauer system. A hyphen was put between the two personal names, the second of which is not capitalized. For the names of historical political figures and trade names of companies, I have used the most widelyknown romanization. For works written in English by Korean authors, the spellings of their names were recorded as they were written in those publications. As for the order of Korean names, I put the family name first. Hence, even if a Korean author wrote an article or book in English, his or her family name appears first for the sake of consistency. EXCHANGE RATES The exchange rate used is, in each case, that of the year of the transaction.

1 State autonomy and big business STATE—CHAEBÔL RELATIONS DURING THE CHUN AND THE ROH REGIME PERIODS With the establishment of the Chun Doo-hwan regime in 1980, the role of the state altered in relation to big business, in the specifically-Korean form of the conglomerate, the chaebôl. The role of the state which the Park Chung-hee regime (1961–79) intended to play in the economic development procedure was ‘entrepreneur’ (Amsden 1989) or ‘Korea, Inc.’ (Jones and SaKong 1980). This reflects the industrialization strategy the Park regime consistently assumed: the state plans economic development, rigorously invests in the public sector, and supplys private businesses with massive financial support to promote industries. While the Park regime pursuing such a state-led industrialization policy, a ‘patrimonial’ pattern of the relationship was formed between the state and the chaebôl, the largest recipient of the state’s supply of national resources (Jacobs 1989; Biggart 1990). It was patrimonial in the sense that the chaebôl, as clients, owed openended obligations to the government, the patron (Weber 1978; Jacobs 1989). Alliance between the state and capital was formed, but the nature of the alliance was hierarchical in favor of the former rather than equal. The government retained patrimonial authority to decide an enterprise’s success or failure. Entrepreneurs’ submission and ‘open-ended’ loyalty to the state led to the prosperity of their business. In appreciation of their services, the state granted preferential treatment in the allocation of industrial resources, which were pivotal in the growth of the chaebôl. After Chun entered office as President, however, the state began to play the role of ‘regulator’ in its relationship with the chaebôl. The patrimonial characteristics of their relations did not, of course, disappear entirely; the government still functioned as a ‘patron’. Nevertheless, taking deregulation and stabilization rather than growth as the main goals of its economic policies, the Chun regime became less enthusiastic about playing the part of ‘investor’ and ‘planner’, and laid emphasis on the responsibility and the consequences of an enterprise’s behavior. Its policy orientation toward the chaebôl was well manifested through ‘the measures for the rationalization of entrepreneurial structure’ promulgated on 27 September 1980. In accordance with these measures, the Standing Committee for Emergency National Security Measures (henceforth SCENSM), the military junta established by Chun’s coup, carried out ‘the adjustment of investment in the heavy/chemical industry’ in order to reduce excessively redundant financial allocation to the area and, at the same time, ordered the chaebôl to reorganize their business group structure by the disposal of unnecessary subsidiary firms. Moreover, an effort was made to control the concentration of economic power in the chaebôl, an economic phenomenon structured as the Park regime intensively directed national resources to big business in the growth-centered economic development process. To this end the Chun regime initiated a series of policies to regulate big business’s economic

The State, Society and Big Business in South Korea

2

activities, such as ‘the fair trade system’, ‘the loan and payment guarantee management system’ and ‘the small/medium size firm fostering policy’. As the authoritarian rule became stabilized, the Chun regime dealt more sternly with the chaebôl. In 1985, the Chun government ordered banks to terminate financial support for the Kukche chaebôl and, as a result, the company went bankrupt.1 Through this incident, the government intended to make it clear that the chaebôl should be under its firm control and it was powerful enough to regulate them. Under the Roh regime, the government continued to play the role of ‘regulator’, on the one hand, and more forcefully implemented the policies of regulating the economic concentration via the chaebôl, on the other. The Roh regime executed regulatory policies such as the selection of main line businesses, ‘measures for the disposal of non-business related real estate’ and the reinforcement of the examination of inheritance tax, in order to restrict economic concentration. There were two reasons for the reinforcement of the restriction of the chaebôl by the Roh regime: economic and socio-political. First, the concentration of economic power by the chaebôl was not satisfactorily relaxed under economic deregulation policies: they tended to keep expanding through diversification or speculation in real estate or financial institutions particularly during an economic boom between 1986 and 1989, rather than specialize in specific business areas or improve international competitiveness through research and development (R&D). In 1988 nine South Korean chaebôl companies were listed in the Fortune 500, and four of them were included among the international top 100 non-US companies. Second, such quantitative expansion incurred the South Korean people’s discontent, not only with the chaebôl themselves but also with the government’s chaebôl-centered industrial policy. Since the democratization movement in 1987, which took place despite the remarkable economic success of the Chun regime, the negative public opinion of the chaebôl has been rapidly amplified. The chaebôl were severely criticized for so-called ‘octopus-leg-like’ diversification and unethical economic activities such as tax evasion, illegal property inheritance and speculation in real estate. The politico-economic adhesion between the government and the chaebôl also became a target for criticism. People believed that the chaebôl had been expecially favored by the government. In addition, as the chaebôl’s economic role in the South Korean economy became more important, their socio-political influence likewise increased. Some chaebôl protested against government regulation and disobeyed the government’s orders more openly under the Roh regime. In 1992, the Hyundai chaebôl challenged the government through direct political participation. Chông Chu-yông, chairman of the Hyundai group and the most influential entrepreneur in the South Korean economic arena, founded the United People’s Party (UPP) to join in the fourteenth general election in January 1992, and appointed himself as chairman of the party. The UPP secured thirty-one of the 299 National Assembly seats in the election held in March, 1992, so could form a negotiating body in the Assembly. The relationship which had been formed while the state actively subsidized industries and guaranteed businesses the monopoly of the market, became more or less transformed as the state newly defined its role as the regulator that would supervise free market competition. The state-chaebôl relationship of the post-Park era involves conflict and tension. The prime concern of this book is to analyze the relationship formed between the state and the chaebôl during both the Chun and the Roh regimes, neither of which were


3

established with open-ended loyalty at the outset, and how each regulated the concentration of economic power in the chaebôl. When Chun assumed power, he did not secure political support from either the chaebôl or state bureaucrats. At that time, the military junta held a negative view of the chaebôl because of their heavy economic concentration. Regarding him as a young general, the chaebôl were also reluctant to pledge the same allegiance to Chun as they had done to Park, although they were extremely afraid of the physical power the new military regime showed when it implemented ‘the adjustment of investment in heavy/chemical industry’. In the beginning, Chun lacked the political authority necessary to evoke the loyalty of the chaebôl. In order to create the authority himself, he attempted to achieve both economic stabilization and growth on the one hand and reinforce oppressive authoritarian political rule on the other. The Roh regime had to fight a fiercer battle against the chaebôl. While the democratization process restricted the regime’s ability to use the authoritarian repressive apparatus to control the social actors, the political economic influence of the chaebôl grew remarkably while they were undergoing an economic boom during the Chun regime period. Conflicts between the state and the chaebôl were more frequently observed. Nevertheless, both Chun and Roh succeeded in placing the chaebôl under the state’s tight control. A high degree of autonomy was maintained although the methods each employed were not the same. Neither was the state lightly caught by the power of the chaebôl, nor was the role of regulator given up. The Korean state retained infrastructural authority which cannot be easily eroded by the commercial power of capital. Statechaebôl relations in the post-Park era show the way new political leaders, Chun and Roh, were able to keep a high degree of state autonomy by standing on the dignity of the state over the chaebôl. LEAPING OVER DEVELOPMENTAL STATE THEORIES I intend to investigate why the Korean state was able to manage a high degree of autonomy, while tension occurred in relations with the chaebôl, by examining the Chun and the Roh regime cases from the perspective of state-society, rather than state-market, relations. The book, therefore, is less interested in the economists’ customary question ‘how could South Korea achieve such successful economic development?’ As the study investigates an unusually hierarchical pattern of state-society relations in South Korea rather than the state itself, the theoretical position it attempts to observe should be distinguished from developmental state theories. In economic studies, the state-centered approach has been employed to discover the motive force behind the east Asian countries’ rapid and consistent economic growth with ‘relatively equitable income distribution’.2 It was suggested as a counter thesis of the free market point of view that emphasizes the role of trade liberalization and the removal of distortion incurred by state intervention.3 Developmental statists attempted to answer the question: why is the economic development pattern of east Asian NICs distinct from that of their Latin American counterparts? The Latin American economy has been characterized as dependent and relatively stagnant. In comparison, east Asian economic growth tends to be independent and constant, despite the employment of more externally open


4

development strategies based on trade and export promotion and dependence on ‘high levels of early external capital assistance’ (Deyo 1987c:15, and see White and Wade 1988). Why? Developmental statists find a clue to this question in ‘state-led strategies’: i.e. state agencies continuously, selectively intervening ‘in private sector decision-making and market transactions, to achieve strategic goals’ (ibid.: 17). They generally suggest five factors which enabled the east Asian states to pursue state-led strategies successfully. The first is the availability of depoliticized, or insulated, policy institutions for intervention in private business.4 That is, the east Asian states retain interventional economic institutions, such as state-owned enterprises, economic planning sections, development banks, government research institutions, etc., which are insulated from political influences. Moreover, they are uniformly integrated. Through these institutions, the states support or intervene in the private sector with the financing of, private enterprises, tax aid, business information supply, technological assistance and so on. Alternatively they protect them from the threat of foreign investment. The second factor, from the viewpoint of class relations, is that neither a strong bourgeoisie nor a powerfully organized labor class existed5 in the east Asian countries. The landlord class lost its political power through land reform in the 1950s, and a powerful industrial bourgeoisie did not emerge as industrialization was sustained. Not only did the states secure pre-emptive controls before a powerful bourgeoisie appeared, but also the bourgeoisie’s institutional access to decision-making and implementing procedure was limited. Laborers were controlled through state-created labor organizations, and deprived of opportunities for interest representation. Accordingly, the political incompetence of the bourgeoisie and labor classes strengthened state autonomy. The third factor concerns the state’s financial independence.6 For example, the ruling party could also self-supply political funds by managing numerous enterprises, as in the Taiwanese case, or by economic cooperation with Japan and military cooperation with the US, as in the South Korean case. By comparison, the Liberal Democratic Party, the Japanese ruling party relied heavily on political funds offered by businessmen. Yet it did not have to be dominated by the influence of business, since the state could secure political support from the agricultural as well as the business sector. The fourth factor is the role of authoritarian, antiCommunist regimes. Developmental states in Taiwan and South Korea are the legacy of the centralized, authoritarian Japanese colonial rule. They efficiently took advantage of industrial assets bequeathed by the Japanese colonial regime and the influx of abundant financial resources, such as economic and military aid from the US, earned by a shrewd exploitation of the east Asian states’ geopolitical importance in the Cold War system, while imposing repressive controls over organized labor and suppressing the challenge of opposition political forces.7 The final factor is the state policy-makers’ conscious actions to upgrade industrial structure to attain an independent economy. In the case of South Korea, whose state was characterized as highly interventional, policy-makers viewed ‘a constant upgrading of the industrial structure based on the development of local technological and managerial capabilities’ as ‘the surest way to achieve sustained growth and efficient structural change’ (Chang Ha-Joon 1993:153–4). The statist theories, however, are open to criticism. First of all, it is argued, the statist view tends to ignore the institutional diversity of the state by depicting the state as an internally cohesive, unitary actor. In reality, the state consists of various contending sub-


5

actors, pursuing their own institutional interests; tense struggles for retaining greater authority exist amongst bureaucratic groups. Legislative and judicial actors are also deeply involved in the policy decision-making process (Moon and Prasad 1994:365; Cho Mun-boo 1992). Second, government officials in east Asian developmental states are not always insulated from the influence of social components; they are woven together with social constituents through formal and extra-formal ties (Zhao 1995; Migdal et al. 1994). As they have their own interests, and seek to strengthen their positions, social actors can take advantage of those connections to influence policy decision-making and implementation procedures. Third, there is criticism of the paradigm’s assumption that the combination of a large pool of policy instruments with authoritarian and/or corporatist political rule enables the developmental state to carry out economic policies consistently and effectively. This is not sufficiently supported by evidence. Even an extremely authoritarian regime cannot always eliminate social pressure in order to implement economic policies efficiently (Kernell 1991; Ikenberry 1986:136–7). Whatever the type of regime, industrial and economic policies are necessarily subject to ‘politicization’. Moreover, results of the developmental state’s intervention in the market are not always triumphant (Clark and Chan 1994; Haggard and Moon 1990). Erratic, market-distorting policies and, as a result, poor economic performance, were often brought about by the state’s active intervention. Rather, luck, beyond the state’s control, has often been associated with a boom in the domestic and international economy. The state’s capacity to shape competitive advantage has a clear limitation (Porter 1990). It is impossible to make a ‘generalization on the relationships between state structure and economic performance that can be commonly applied to the east Asian countries as a whole’ (Cho Munboo 1992). Recent empirical studies of east Asian states may support these points, emphasizing the private sector’s independent business capacity and social forces’ potential penetration power into the state (Doner 1992; Kernell 1991; Okimoto 1989; Hong 1992; Hwang 1993). Indeed, as Migdal, et al. observed (1994:294), ‘influence flows between state and society tend to be mutual’, in most developing countries as well as in developed ones. Finally, criticism of the concept of the state itself is raised. American political scientists argue that the term ‘state’ cannot cover the enormous political mobilization that took place in the Western world in the nineteenth and twentieth centuries and the proliferation of new political institutions such as political parties, interest groups and mass media, suggesting the ‘political system’ as an alternative concept (Almond 1990:192). THE STATE AND SOCIETY Indeed, the statist theories must be under fire. The sovereignty of the (nation) state may even be threatened by globalization and internationalization. As a theorist commented, it is ‘palpably unable to master problems which it once handled with aplomb, incapable of ensuring an order of its own (ecological, economic, civil, even spiritual) on its subjects’ behalf’ (Dunn 1995:4). However, no one can conclude that we must stop discussing the state, since states are becoming more porous owing to the growth of the infiltrating power of society and international factors. Despite their ‘hollow’ and ‘defective’ character (Strange 1995), states still function as ‘the most influential and therefore critical sources


6

of authority’ not only within their own territories but also in the world system. In particular, the frequently successful intervention of states in the market and society in the east Asian region still deserves special attention. Undoubtedly, there exist numerous cases in which private business actors successfully pioneered a new industry without the state’s guidance and support and sometimes even in defiance of the government’s objection (Hong 1992; Hwang 1993). Moreover, as the economic capacity of private business expands, governments find difficulty in controlling their desire for excessive business expansion. But one needs to note that east Asian developmental states still play an active role in weathering fierce international competition, providing advice, information and strategic succor to private businesses. The private businesses’ successful exploitation of a new industry without the state’s support constitutes a relatively small portion of the total of successful cases. A wiser approach to the assessment of the statesociety relationship appearing in policy decision-making and implementation procedures will be, therefore, to make allowance not only for the organizational structure of the state but also for the detailed mechanism of the state-society nexus. The relationship between the state and society is not uniform. Since being derived from the state-centered view, the developmental state paradigm emphasizes the state’s independence of society in policy decision-making and implementation procedures. However, it tends to neglect the possibility that social constituents will be able to affect these procedures.8 The ‘network’ and the ‘internal organization’ theories are looked upon as an attempt to re-interpret the state-society relationship which uniquely appears in the east Asian region. That is, the Weberian paradigm of the state which sees it as a set of the institutional system9, does not convincingly describe the sophisticatedly intertwined state-society nexus which has evolved under east Asian tradition. The network theory approach assumes that there exists ‘a concrete set of social ties’, i.e. formal and informal, organic (family, school, local) networks, ‘which bind the state to society and provide institutionalized channels for the continual negotiation and renegotiation of goals and policies’ (Evans 1992:164). The autonomy of the state is embedded in the internal/external networks. Horizontal consultation and consensus through the networks can create harmonious relations between the state and private business, and enhance economic performance by facilitating the exchange of knowledge. The networks play a significant role in designing and implementing industrial policies. Government officials and leaders of the business community coordinate their opinions through ‘intermediate organizations’.10 In a similar vein, the internal organization theory emphasizes the intimate bond between the two in a much stronger fashion. It looks upon the government and large enterprises as constituting an internal organization. This entity is a hierarchical organization which handles transactions that might otherwise be carried out in the market place, with administrative process’ (Lee Chung H. 1992:188; Williamson 1985). The government-business relationship in east Asian countries, the argument goes on, can be best understood when both are regarded as integrated into an internal organization. Therefore, ‘the government is not merely an outsider to the market system but is a member of the most important internal organization inside the system’ (Lee Chung H. 1992). The network and the internal organization theories are, however, not without crucial drawbacks. Of these the most critical is that the extra-formal network between the state and social constituents does not always work in a positive direction. When the state’s


7

interests are in accord with those of private businesses, social and policy networks may function smoothly. However, when they are in conflict, formal and extra-formal networks are likely to collapse. Up to the present, studies of east Asian developmental states have tended to focus excessively on the cooperative relationship between the state and society. A precise description of the relationship will be possible when they are verified by the study of the relationship between them emerging in a period of conflict. When analyzing state-capital relations in developing countries, if one considers both the state and society rather than the state alone, a more persuasive explanation can be produced. As Migdal et al. pointed out, even the states in underdeveloped areas are not always the most powerful social actors; states and societies are ‘mutually transforming’ (1994:293–4). A globally generalized pattern of state-society relations does not exist. Whether dominancy is with the state or society will be decided by social, political, economic and historical settings in which a country is situated. In the cases of east Asian NICs, including South Korea, the state power tends to dominate over social constituents. METHODS AND QUESTIONS This book is based on the position that in state-society relations ‘the state is a political form of social power’. The political power which legitimately manages violence and coercion is paramount to economic and ideological social powers (Poggi 1990; Mann 1986, 1993). The state is an institutionalized entity of political power. To look upon the state as a part of society, however, does not necessarily suggest that the state is simply a reflection of society. The state can generate its own preferences, which are sometimes insulated from other social powers. Despite a mainstream political scientist’s criticism of its conceptual ambiguity (Almond 1990:191–2), this study prefers the term ‘state’ to ‘government’. The term ‘government’ is often regarded as synonymous with the ‘administration’ or the ‘executive’, although it is an authoritative expression of the state (Blackwell Encyclopaedia of Political Science). By comparison, the term ‘state’ has a broader conceptual meaning than the ‘executive’, and emphasizes that it is distinct from society. The state, in this study, refers to political agents/actors involved in every arena of politics and administration and formal and, more importantly, extra-formal institutions operated by them. The main formal components of the state this study will mention include the President and his secretariat, cabinet members and other government officials, the military, the national assembly (i.e. the legislature), political parties and the judiciary. How can we theoretically elucidate the uniqueness of the relationship between the South Korean state and the chaebôl, particularly during the Chun and the Roh regime periods? Can the relationship be convincingly explained under the existing major paradigms of the modern state and society relationship, i.e. liberal-pluralism, Marxism and corporatism, which are derived from the modern history of the West? In Chapter 6, we will test the relevance of these three standard paradigms of the modern state and society. In order to analyze Korean state-capital relations, this study examines the ‘autonomy’ that the state exhibited while regulating the concentration of economic power in the chaebôl. It is, in fact, an immensely controversial term, and has often been criticized at various levels for its conceptual ambiguity and utility (Kohli 1994). Nevertheless, adopting the concept of autonomy is, in my view, the most appropriate


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approach insofar as the analysis of the ‘see-saw’ between the state and capital is concerned. It enables this study to focus more directly on the relationship between them than other competing approaches such as ‘strength’ (Wallerstein 1974), ‘hardness’ (Myrdal 1963) and ‘capacity’ (Stepan 1978; Skocpol 1985:9) of the state, can do. The state autonomy is defined as ‘the autonomy, if necessary, to act against the social groups’ interests in establishing and executing national policies for the achievement of the state’s own political/economic interests’. This study states that the state autonomy in relation to society is ‘relative’ or ‘limited’ rather than absolute, i.e. a matter of degree. This, however, does not mean that I will apply the term autonomy in a neo-Marxist manner. It is my understanding that there are three different views of autonomy amongst neoMarxists according to perspectives of state-capital relations. One is to see the state as a guardian (if not an instrument) of the dominant class’s interests (Miliband 1970). In such a context, the state retains a slight autonomy as capital occupies a major share of the state. Another is to view the state as an ideological machine (Poulantzas 1972). Since there exists a division of labor between state officials and the capitalist, interests of the ruling class do not necessarily coincide with the interests of a power proprietor body. The division enables the state to be relatively autonomous from the capitalist class’s interests. The other is to regard the state as a mediator. ‘State managers are collectively selfinterested maximizers, interested in maximizing their power, prestige and wealth’ (Block 1977, 1980). The maximization is limited not by a specific class’s interests, but by particular patterns of class relations. Hence, the state is able to be highly autonomous from capital. Although they have different views in evaluating the degree of state autonomy vis-à-vis capital, i.e. slightly, relatively, or absolutely autonomous, they have something in common in the sense that they inquire into the reason the state becomes eventually subordinate to the interests of capital. I, however, embark on this research with an opposite concern: i.e. although the state autonomy can be eroded by social influences, why is the state able to keep a high degree of autonomy in an east Asian capitalist state? I do not suppose that the state is necessarily subject to capital because it promotes the interests of the capitalist class. In the South Korean case, for example, the state intensively directed national resources to the chaebôl, and has relied on their industrial power for rapid economic growth, but this did not lead to the submission of the state to capital; it was able to discipline them with various institutional means of control and even to subjugate them. This study does not argue that the autonomy of the Korean state was absolute; apparently it was not. The chaebôl exercise tremendous influence over the state sector. Nonetheless, the Korean state has kept a high degree of autonomy in dealing with the chaebôl. Debating whether or not the South Korean state is autonomous, however, is not the main subject of this study. In fact, the discussion of autonomy has long been the prime theme of Korean state studies, producing two polarized interpretations. The position supporting the South Korean state’s autonomy suggests that it has successfully managed to control the capitalist class despite the increase in the politico-economic power of that class.11 By contrast, the position denying state autonomy maintains that the state has spoken for the capitalist class’s interests in economic development.12 In my view, however, the debates no longer make a significant theoretical contribution. Both liberalplural and Marxist theorists (including Marx himself) have already recognized that the state could be autonomous under democratic as well as authoritarian regimes (Nordlinger


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1981; Krasner 1978; Almond 1990; Alavi 1979).13 The so-called ‘neo-Weberian’ state theorists14, assuming that the state legitimately monopolizes the use of force and has binding authority over ‘all action taking place in the area of its jurisdiction’ (Weber 1978:56), argued that the state can command potentially strong autonomy in relation to the dominant class, since ‘the state has its own distinct interests vis-à-vis subordinate classes’ (Skocpol 1979:30). The study, therefore, focuses not on the existence but on the ‘change in the degree of autonomy’. After we have reviewed the state and capitalist relationship under the Chun and the Roh regimes, we can raise a modified question: that is: ‘Did the degree of state autonomy change as Korea experienced constitutional reforms for the realization of democracy which occurred during 1987–88?’ (Question 1). Existing studies have focused mainly on static aspects rather than on changes of politics. None have examined ‘changes in the degree of autonomy’. Some political economic studies have suggested that there might exist a correlation between authoritarianism and economic development. They emphasized that east Asian countries could effect politically risky economic or industrial policies with a high degree of autonomy, owing to the authoritarian control of interest groups’ access to the government’s decision-making and implementing procedure.15 At a theoretical level, this argument has some, although not total, support. In under-developed countries where the bourgeoisie which will lead the development of capitalism through the expansion of material production power and mass-participatory democracy are absent, it is the state itself which assumes a leadership of economic development. For rapid economic development, developing states tend to adopt a ‘neo-mercantile’ (Myrdal 1963; Apter 1965) development strategy. They try to achieve rapid industrialization by the state’s direct mobilization and allocation of national resources to industrial areas having higher productivity; they pursue export-led industrialization policies while strongly protecting and promoting domestic industries by protective tariff and intensive financial subsidies; and put more emphasis on economic growth than distribution. Neomercantile states attempt to create legitimacy through successfully generating economic growth, proclaiming the so-called ‘order firstism’. In state leaders’ eyes, political participation or political liberty are foreign concepts injected as a result of westernization before the bourgeoisie, who will nurture liberal democracy emerges, and are looked upon as a cause of ‘disorder’. They, therefore, suppress political demands by force, in the interests of ‘effective’ economic development, which leads to the rise of authoritarianism. In such a circumstance, the greatest emphasis is put on the interest of the nation, not on capital or labor, under the banner of ‘economic-nationalism’. The power of the state tends to be assumed by those managing violence rather than those with property (Pak Kwangju 1992). With the absence of civil force which is strong enough to check the state and of an institutionalized route of political participation of the people, the state can retain a high degree of autonomy in relation to society. As the material foundation of the bourgeoisie enlarges with the state-led economic growth, however, the state again faces the demand for mass political participation. Citizens possess more property and become better educated. Conflicts between political and social powers become inevitable. Once democratization advances, the establishment of democratic political institutions tends to constrain the state’s control over social groups by force, and interest groups’ political participation increases: power is not monopolized by a single political individual or the executive and, therefore, checks and balances of


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power are possible amongst the executive, the legislature and the judiciary. An individual’s freedom, human rights and equal opportunities are guaranteed; the rule of law is respected; laws are made and changed by active citizens; a competition for political power exists; a change of power takes place by the people’s choice, for sovereignty rests with the people (Sabine and Thorson 1973:629–33; Becker 1941; Hawthorn 1993b, 1993c; Beetham 1993; Held 1987; Dunn 1992). In a theoretical respect, therefore, it becomes more difficult for the state to secure a high degree of autonomy visà-vis social actors by mobilizing force. The exercise of extra-constitutional power by the state class becomes impossible. As the rule of law, and the rule of consensus is formed, interest groups’ access to the decision-making procedure grows easier. Citizens’ demand for political liberty explodes, and criticism of the government increases. We could observe such a pattern of political changes accompanied by democratization, in preManchurian Incident (1931) Japan. The state could control the zaibatsu in an authoritarian fashion before the parliamentary institution was transplanted, but as the zaibatsu participated in politics by forming their own political parties during the, socalled, Taisho Democracy period (1912–26), the state autonomy in relation to capital drastically weakened (Hall 1970:265–348). In the South Korean case, then, what conclusion can be drawn? Between 1980 and 1993, South Korea experienced constitutional changes twice: in 1980 and 1987. Park Chung-hee’s assassination in October 1979 was followed by political turmoil and gave the military an opportunity to intervene directly in politics again. General Chun led a military coup in December 1979 which purged the old military faction with support from a clandestine Korean Military Acadamy officer faction, Hanahoe. He reinforced his power base by expanding martial law under the pretext of political-social turmoil and economic crisis. In May 1980 the Standing Committee for Emergency National Security Measures, in effect a military junta, was instituted. General Chun had himself elected as President at ‘the People’s Conference for National Unification’ in August 1980 under the Fourth Republic Constitution. However, he soon amended the constitution in October 1980, establishing the Fifth Republic and again having himself inaugurated as President in February 1981. The establishment of the Fifth Republic, however, did not replace the authoritarian rule of the Yushin regime, with democracy. Being established by military coup, it lacked from the outset, political support from either the bourgeoisie or state bureaucrats. Chun attempted to create legitimacy by achieving economic stability and continued growth. As a method to recover political economic stability, he maintained authoritarian rule by enforcing political repression. With the establishment of the Sixth Republic, democratization progressed at last, at least in institutional respects. In 1987, despite remarkable economic success, vigorous political protest against the Chun regime began to take place. The death in June of two student movement activists, Pak Chong-ch’ôl and Yi Han-nyôl, led to nationwide civilian political protests. The political conflict between the Chun regime and the people was, however, dramatically overcome by ‘the 29 June declaration’ made by Roh Tae-woo (appointed as the presidential candidate of the ruling Democratic Justice Party by Chun) in which he promised democratic constitutional amendment. The South Koreans expected that the Sixth Republic Constitution (ninth amendment) would greatly contribute to political development, in that it completed constitutional conditions of democracy. In the


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new constitution, the direct presidential election system, which had been suspended for fifteen years since the establishment of the Yushin regime, was reintroduced; presidential rights to proclaim a state of emergency and to dismiss the National Assembly was expurgated; the term of presidential office was reduced from seven to five years; the legislature’s right to check the executive by parliamentary inspection of the government was retrieved; the judiciary’s independence of the executive was guaranteed by stipulating that the appointment of the president of the Supreme Court by the President should be consented to by the legislature; freedom of speech, the press and assembly was clearly stipulated; labor’s three major rights (of organization, collective barganing and collective action) were guaranteed. Under the new constitution, therefore, it became more difficult for the government to insulate itself from social influences by controlling interest groups’ access to policy decision-making procedures in a suppressive manner. As was seen in the case of the ‘National Assembly hearing on the Fifth Republic’ (4 November– 15 December 1988, and 16–17 March 1989) which led to the indictment of forty-seven government officials and politicians, the increased influences of opposition parties and mass media to check the government restricted the Roh regime’s scope for wielding authoritarian leadership. In addition, with the institution of the Act of Local Selfgovernment, the authority of the central government was destined to be dispersed. The expansion of the middle class and the growth of the power of capital as a result of successful economic development spurred democratization in economic and administrative as well as political areas, which could lead to the shrinkage of the executive power. Under such political and institutional circumstances, the possibility again increased that the South Korean state autonomy could be eroded, as social forces, in particular the chaebôl, grew to have more leverage. Then, as the political apparatuses of suppression are removed with the installation of democratic institutions, would the degree of autonomy formed under the authoritarian political atmosphere be drastically lowered? Did increased social power, e.g. the expansion of the bourgeoisie and organized labor, affect the degree of state autonomy in relations with the chaebôl? The second question is also relatively new: ‘if there were no significant changes in the degree of autonomy of the Korean state despite constitutional and institutional changes for democracy, how and why was this?’ (Question 2). As we saw above, existing studies of Asian NICs governments’ successful market intervention with a high degree of autonomy, are based on the analysis of the role of the strong economic formal institutions enforced by the government for market intervention in such areas as export initiatives, financing, trade, technology development, foreign exchange, think tanks, economic bureaucracies, etc. The implication of the studies is that the government’s successful intervention in the market was aided by its ability to compel their people to sacrifice themselves for economic development. In fact, the governments of Asian NICs contained political competition between political parties and interest representation by interest groups, and centralized policy decision-making procedure, by mobilizing methods such as repression, incorporation and ideological education (Wade 1990). Those studies, therefore, indirectly suggest that if authoritarian political rule is relaxed by democratization and if the market is liberalized, the degree of autonomy or the strength of the state is likely to diminish. Then, what results will be produced in the Korean case? I intend to test the assumption, paying more attention to political, administrative factors and extra-formal institutions which bring about a high degree of state autonomy.


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The third question is, ‘from what theoretical point of view can the relationship between the Korean state and the chaebôl, in particular during the Chun and the Roh regime periods, be most persuasively explained?’ (Question 3). Korean state-chaebôl relations are unique in that although the state has concentrated national resources on the chaebôl and protected them to foster domestic manufacturing industry, one cannot find sufficient evidence that the state has done so because it is subordinate to chaebôl. Although the politico-economic influence of the chaebôl has expanded remarkably so that they manage a significant portion of the Korean economy, they have failed to form ‘egalitarian’ or ‘laissez-faire’ relations with the state. The control of the state is still strong enough to prevent them from dominating the relationship as the state retains various formal and informal institutional powers to regulate and discipline them. So, is the unique relationship in Korea well elucidated with existing paradigms of the modern state and society relations which have developed in western experiences, such as liberalpluralism, Marxism and corporatism, or must a fresh explanation be attempted? In this book, answers to these theoretical questions are sought. In analyzing the South Korean state’s high degree of autonomy vis-à-vis the chaebôl, which appeared while the state regulated economic concentration, I will address the following five points: first, one can more clearly show the state autonomy in relation to social forces by examining discordant rather than amicable aspects of the relationship between them. Concerning the developmental state’s autonomy vis-à-vis society, numerous detractions have been brought forward. For example, it is argued that to dichotomize them is impossible; the process of formulation and implementation of public policies cannot be monopolized by the state alone; and social actors’ penetration into the process is inevitable (Samuels 1987; Doner 1992). This is particularly true of a cooperative period. In the case where the state’s benevolent support of private businesses and the state’s exercise of outstanding leadership serve as main motivations of economic growth, the demarcation between them becomes more ambiguous. In an amicable milieu, economic policies are likely to reflect the position of private business. In this context, a reverse interpretation may also be possible: i.e. the state’s generous aid of private business can be regarded as the forced outcome of the demand of the capitalist group. However, if we examine the case of conflicts between the state and social actors, the relationship between the state and society can be more clearly observed. Social actors’ efforts to prevent the state from formulating and fulfilling the policies opposed to their interests, will still be made, but the state will try to enforce the policies overcoming their protests. Then, we can assess its autonomy in accordance with the degree to which it successfully achieved original policy goals. Second, the strength of the east Asian state’s autonomy lies not in its inherent, absolute unity but in its ‘political integrating power’. Thanks to which, east Asian developmental states have been able to keep their sub-institutions combined to a considerable extent in establishing and implementing economic policies. As pointed out above, conflicts between components of the state are unavoidable. No state is a unitary entity, and numerous intrastate institutions do not always share common interests. Politicians and bureaucrats involved in the executive, the legislature and the judiciary pursue their own interests. Even authoritarian rule cannot always guarantee the unity of the state’s sub-organizations. It may be a fallacy to assume that authoritarian regimes are more cohesive and efficient in establishing and carrying out economic development plans


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than democratic regimes. Democratization does not always make the state surrender to the demands of social groups. Nor does it always lead to the disintegration of unity. For instance, a legitimate democratic regime based on the people’s extensive support will be able to exercise stronger infrastructural power than an authoritarian regime facing potential political protests, in managing the conflicts between state components or dealing with the demands of the capitalist group. Therefore, it is more logical to posit that the real strength of the state rests with its political integrating power to control the interest representation of social groups and to mediate discords among the state components, rather than the regime type. East Asian states, undoubtedly, are not entirely cohesive entities, nor secluded from the influence of social components. Nevertheless, in the sense that they can more powerfully integrate the sub-institutions of the state contending with one another for greater authority, and contain social agents’ intervention in the economic decision-making procedure, than can their Western and Latin American counterparts, they are looked upon as strong or autonomous. The concept of state autonomy must be perceived in a relative rather than in an absolute sense. Third, in interpreting a high degree of autonomy of the South Korean state vis-à-vis society, more research on political and administrative institutions needs to be conducted. Existing works on east Asian economic development have not developed a detailed examination of the functions of political, administrative institutions which enable economic policies to be implemented consistently and effectively.16 The consideration of economic institutions alone is not sufficient for the justification of the high degree of autonomy of east Asian states. It is political institutions which can shield them against social influences. Also important is the behavior of political and administrative agents who operate institutions, and various interactions among them. Indeed, their behavior could be a more direct cause of the emergence of the strong east Asian state autonomy vis-à-vis society. The strength and character of institutions depend on the behavior of the agents who handle them. They are not bearers of a structure; when they behave they are guided by their commonsensical experiences and interests (Hawthorn 1991:184–5). Fourth, the state-market relationship must not be generalized into the state-society relationship. For example, the hierarchical relationship between the South Korean state and the chaebôl will be better understood from the viewpoint of the state-society relationship. The narrow focus of the state-market relationship analysis may simplify various dimensions of state-chaebôl relations. Without an appreciation of how it is involved in an aspect of wider and more longstanding relations between the state and society, one cannot correctly analyze the Korean state-chaebôl bond. It includes social and political as well as economic issues. Finally, in inquiring into the reason why east Asian states tend to install centralized, integrated, powerful and interventionist institutions for the development of their economies, one needs to give more consideration to extra-formal institutions17, such as customs, tradition, ideology and political history. Concerning the rise of the strong state, the bureaucratic-authoritarian paradigm based on economic determinism had been proposed. Its argument was that the autonomous bureaucratic-authoritarian regime emerged owing to the need for economic structural adjustment from import-substitution to export-led industrialization or the vertical integration of domestic industry, i.e. industrial deepening (Cumings 1984:26–35; O’Donnell 1979:51–114). But the limitation of such an economic explanation is clear. A more precise understanding will be possible


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by taking notice of political, historical and cultural aspects of east Asian states. This, however, does not mean that I intend to suggest the cultural deterministic view that Confucianism was a direct cause of the successful development of east Asian economies, as an alternative to the economic explanation. Cultural studies seeing Confucianism as conducive to east Asian states’ economic growth (Morishima 1982; Kahn 1979; Dore 1987) run into the criticism that it is impossible to demonstrate the existence of a causal linkage between Confucianism and economic growth (Johnson 1982; Sampson 1981). Instead of viewing Confucianism as a unique factor of economic rise, I propose it simply as a principal factor serving as cultural, historical foundations of the hierarchical pattern of state-society relation in the east Asian region. Also I suggest that we should make allowance for political causes for the rise of highly autonomous developmental states. For instance, powerful state leaders in east Asia who are determined to attain a higher political goal, e.g. the creation of political legitimacy through realizing ‘rich nation, strong army’, have often created an authoritarian political atmosphere for the effective management of the economy and politics by shrewd political maneuver, which led to the rise of a high degree of autonomy of states. ORGANIZATION The book consists of seven chapters and a Conclusion. Chapter 1 has been an introductory chapter. Here, I have explained the theoretical position of this study. Chapter 2 is a preliminary analysis of the procedures of the chaebôl’s birth and growth as well as the state-chaebôl relationship under the Park regime. Chapter 3 deals with criticisms of the chaebôl, which are elucidated with empirical data. These criticisms indicate social/political/economic issues of the chaebôl which have been raised by scholars, government officials and public opinion, and make it clear why the Chun and the Roh regimes established the policies to regulate economic concentration in the chaebôl. Chapter 4 analyzes the content of those restrictive policies. It reviews the ‘Fair Trade Act’, the ‘loan and payment guarantee management system’ and the ‘small/medium size business expansion policy’. Then, as the main analysis, I consider policy-establishing and implementing procedures, focusing on state agents, institutions and social actors. I further examine the results of policy implementation by assessing the degree to which the critical issues of the chaebôl were improved. I conclude that constitutional and formalinstitutional changes exerted virtually no influence on the degree of the South Korean state’s autonomy. Not only under the Chun regime which maintained highly authoritarian rule but also under the Roh regime established with a more democratic constitution, the Korean state kept a high degree of autonomy in restricting economic concentration via big business. In Chapter 5, I investigate the sources of the Korean state’s autonomy, and show how the autonomy emanated from the strong and efficient executive (presidential and bureaucratic) power. In Chapter 6, these findings are discussed from liberal-plural, neo-Marxist and corporatist viewpoints. However, I argue that these theoretical positions, particularly those based on structuralism or economic determinism, expose numerous limitations in describing a high degree of autonomy of the South Korean state vis-à-vis the capitalist group or a hierarchical pattern of state-society relations. In Chapter 7, I propose a new theoretical explanation of South Korean state-chaebôl relations, in two


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stages: in the first stage, extra-formal institutional factors (i.e. alternative-modern factors) of the old Korean state which had existed before the modern South Korean state was established are enumerated; in the second stage, a politico-historical analysis of individual incidents that distorted and strengthened the alternative-modern factors, rather than discouraged the manifestation of them, is attempted. Finally, in the Conclusion, I summarize the findings of my research, and suggest final ideas, updating them through the case study of state-chaebôl relations under the present Kim Young-sam government.

2 The origin and growth of the chaebôl, 1948–79 An overview THE CHAEBÔL The chaebôl are referred to as the largest industrial capitalist group in South Korea, which have grown rapidly with the export-oriented industrialization policy. They are defined as big business groups or conglomerates exclusively owned, managed and controlled by an entrepreneurial founder and his family.1 In Marxist terms, they may be regarded as the monopolistic and owner capitalists, and distinguished from the petty bourgeoisie and white-collar managerial workers (Hong Tôk-ryul 1988:82–96).2 Historically, the chaebôl originated from small/medium size firms which were founded by indigenous entrepreneurs during the Japanese colonial period. After Park Chung-hee came to power through the 1961 military coup, they grew rapidly with the strategic support of the state, bestowed in the course of an unprecedented economic development. The word ‘chaebôl’ stems from the Japanese word ‘zaibatsu’. Both terms can be written by identical Chinese characters, and commonly signify conglomerates or big business groups. The zaibatsu, which prospered in Japan before World War II, and the chaebôl share some common aspects. Both, for instance, account for a large part of the economy. As of 1945, the four largest zaibatsu accounted for 25 percent of the total paidup capital of joint stock corporations (Hattori 1989:239). As of 1985, the five largest chaebôl constituted 20.4 percent of the total assets of the manufacturing sector in South Korea (Cho Tong-sông 1991). Both were able to accomplish remarkable growth in a short period under the strong support and protection of the government. The Meiji regime in Japan, which had to respond to the threat from Western powers by pursuing industrialization, promoted private undertakings with the policy of protection and subsidy, which led to the creation of political merchants. These businessmen received generous assistance from the government, and their activities soon developed into major zaibatsu (Morikawa 1992:4–5). Similarly, the chaebôl in South Korea also developed into large conglomerates with the government’s strategic support, after Park came to power. In addition, the chaebôl are analogous to the pre-war zaibatsu in that they are exclusively owned by a few families. In the case of Samsung in South Korea, the Yi family members owned at least 33 percent of the stocks of its member companies as of 1982 (Hattori 1989:274). The owner family of pre-war Mitsui in Japan possessed 67 percent of the stocks of major companies (Hattori 1989:242). Nevertheless, the difference between them is much greater than is commonly imagined. First, the most noticeable difference between the chaebôl and the zaibatsu is that, in the case of the latter, ownership and management rights were divided whereas, in

The origin and growth of the chaebôl, 1948–79

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the case of the former, they are not. Although the owner families of the Japanese zaibatsu, such as Mitsubishi, Mitsui and Sumitomo, retained a large share of their respective member companies’ stocks through holding companies, they did not participate in company management after the early stages of their business. Management was entrusted to salaried managers, called bantto? Second, while the zaibatsu had financed themselves through their own banks or other financial institutions (Morikawa 1992:136–9), the case is different for the chaebôl. In Mitsui, Mitsubishi and Sumitomo’s achievement of business diversification, the role of large financial reserves obtained through their own banks was essential (ibid.: 93–6). By contrast, the South Korean chaebôl have been financially dependent on the government, as the law prohibits main city banks from being owned entirely by them (Jones and SaKong 1980:259–60). The dissimilarity between the Japanese keiretsu, i.e. post-war zaibatsu, and the South Korean chaebôl is even greater. After World War II, the zaibatsu were compulsorily disbanded by the McArthur military administration: owner families of the zaibatsu were forced to dispose of their stocks to the public with the dissolution of shareholding companies and, thereafter, ownership by families remained strongly restricted. For this reason, the largest shareholder of the keiretsu is now the company itself rather than the owner families. Individual stockholders have been replaced mainly by financial firms (i.e. banks and insurance companies), and business enterprises (i.e. industrial and commercials firms). At present, the keiretsu keep 20–30 percent of the stocks within the group through cross-holding among member companies (Gerlach 1992:59, 72; Hattori 1989:255). In the case of the chaebôl, however, as stated above, the founders, called hoejang, i.e. chairmen, and their family members, are normally the largest shareholders of the chaebôl companies. For example, as of April 1992, the owner families of the thirty largest chaebôl virtually owned, on average, 46.2 percent of the whole stocks of their member companies (Kongjông kôrae yônbo 1993:81). At the same time, owner chairmen and their family members tended to participate directly in the management of the companies. The reason owner families are closely involved in the management of the chaebôl enterprises is that owners’ participation in management has proved to be of great advantage to the rapid expansion of the chaebôl under the political economic circumstances of South Korea. In the course of South Korean economic development, political connection has been considered a prime factor of the chaebôl’s growth. Under the Park Chung-hee regime, the allocation of investment licenses by the government was the most important source of capital accumulation. To secure the exclusive investment licenses, they had to be able to persuade extremely risk-averse government officials who were practically in charge of the selection of companies and, above all, the President (Kim Seok Ki 1987:108–9). Owners’ direct participation in management was almost inevitable to build firm connection with leading political figures. In a decision-making procedure, it was natural that government officials and the President should give higher credit to the owners of the companies rather than to salaried managers. Moreover, the owners felt that to supervise their rapidly diversifying companies effectively they had to control the personnel affairs of their companies themselves and to fill main posts with family members. Traditionally, family ties based on blood ties have tended to be strong enough to make Korean people resist leadership outside the immediate family and blood relatives (Jannelli 1993:38) and feel reluctant to repose trust in non-family members. In order to


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keep the integrity among member companies of big business groups, the owners and their family members’ participation in management was regarded as necessary. In terms of organization, the keiretsu is integrated by the group presidents’ council (shacho-kai), banks (or financial institutions) and general trade companies. In Japan, it was the shacho-kai, e.g. hakusui-kai (White Water Club) of Sumitomo and kinyo-kai (Friday Club) of Mitsubishi, in the 1950s, which reintegrated ex-zaibatsu subsidiary companies under the original trade names used in the zaibatsu era (Gerlach 1992:104–5). Group projects are discussed and decided through group-wide meetings at various levels, yet most prominent is the presidents’ council. Also, banks or financial institutions still have the principal role maintaining the integration of the member companies. Mitsubishi, Mitsui and Sumitomo all of which have pre-war zaibatsu origin, retain city banks at their center. There are even bank groups such as Fuji (or Fuyo), Dai-Ichi Kangyo and Sanwa, which were organized after World War II by combining banks with subsidiary firms which had previously been associated with pre-war zaibatsu (ibid.: 81, 115–16). Another element binding keiretsu member companies together, along with the group banks, is general trade companies, which constitute network bridges among member companies. They also function as shareholders and consultants as well as traders (ibid.: 21, 30, 109; Hattori 1989:284). By comparison, the integration of the member companies of the South Korean chaebôl is maintained, as stated above, by chairmen’s ownership and their direct participation in management. The general trade companies of the chaebôl are no more than trading companies and, therefore, their integrating power is much weaker than ‘that of the zaibatsu. In addition, the self-financing capacity of the chaebôl is greatly limited by government regulations: for example, the ‘Bank Act’ forbids institutional investors such as big business to own more than 8 percent of the shares of major city banks (Bank Act 1994: article 17). THE ORIGINS OF THE CHAEBÔL: 1948–60 The origin of some of the chaebôl can be traced back to the late Yi dynasty era and the Japanese colonial occupation period. As we see in Table 2.1, five of the fifty largest chaebôl’s owners (ranked by sales in 1985), who are generally called ‘chairman’ (hoejang), had already accumulated enough wealth to establish mother firms prior to 1945.4 However, most of the fifty largest chaebôl, about 70 percent of them, sprang up between 1945 and 1960. This period includes the liberation from Japan (1945), the American Military Government rule (1945–48), the Korean war (1950–53), Rhee Syngman’s First Republic (1948–60), Hô Chông’s Interim Government (1960) and Chang Myôn’s Second Republic (1960–61). By taking advantage of the government’s liquidation of the remaining vestiges of Japanese colonial rule, they established a foothold on which they could develop from mere small/ medium size firms into big business groups, i.e. the chaebôl, during this period.

Table 2.1 Year of establishment of the top fifty chaebôl (ranked by sales in 1985) Pre-1945 1945–48 1949–60 1961–71 1972–79 1980–86 Top 10 1 3 5 1 0 0


Top 20 Top 30 Top 40 Top 50 Total %

2 1 1 0 5 10

2 3 2 2 12 24

3 6 4 5 23 46

2 0 3 2 8 16

1 0 0 1 2 4

19

0 0 0 0 0 0

Source: Kuk Min-Ho (1987:58) Sources of capital accumulation In the early stages of the chaebôl’s accumulation of wealth, unlawful methods such as tax evasion, smuggling, illegal transactions, illicit property and share holding, bribes and extortion were allegedly employed, although it is almost impossible to prove them empirically. Jones and Sakong (1980:271–2), Chung Young-Iob (1987:13–14) and Kim Seok Ki (1987) offer persuasive explanations on wealth accumulation through the analysis of the Rhee regime’s economic policies and distorted economic structure: • non-competitive allocation of import quotas and import licenses; • bargain-price acquisition of former Japanese properties; • divestiture of government property; • the government’s selective allocation of aids and funds (with distorted foreign exchange rates) and materials; • privileged access to cheap bank loans with distorted interest rates; • non-competitive awards of government and US military contracts for reconstruction activities. The rest of this chapter will be concerned with the most significant factors among the above six explanations, namely vested property disposal, selective allocation of aid funds by the government, and privileged access to bank loans with distorted interest rates. Vested (repatriated) property disposal The most significant source of capital accumulation and the first impetus to the formation of many chaebôl enterprises was the vested properties that former Japanese colonists had left in Korea. After World War II, followed by the liberation from Japan, Korea came to acquire vested properties formerly owned by the Japanese. Reportedly, these vested properties such as power stations, railroads, factories and communication networks accounted for 70–80 percent (Yu Kwang-ho et al. 1987:96) of all industrial assets in South Korea. The assets were first entrusted to the American Office of the Property Custodian (AOPC), which, by July 1948 disposed of 2,268 items of vested properties, including: 513 firms, and 839 items of real estate (ibid.: 96–7). The rest of the properties, which accounted for 21.6 percent of the total number of factories, 80 percent of large corporations which hired more than 30 employees and 59.6 percent of nationwide


20

employees, were transferred to the Rhee regime in August 1948. The Rhee regime sold 263,774 items of property, including 2,029 firms and 259,639 items of real estate (e.g. factories, land, etc) to Korean businessmen in accordance with the ‘Chôgsan Pulha’ (The Disposal of Enemy Property) program by May 1958 (ibid.). This program reflected Rhee’s belief that a free market economy system was necessary for the smooth development of a transplanted democracy (Im Chong-ch’ôl 1976:492–3). Planned economic policies were strongly rejected during the Rhee regime period. According to the Repatriated Property Liquidation Law (Kuisok chaesan ch’ôri pôp), proclaimed in 1949, the properties were to be sold at the current market price, to be paid in total, or in installments over a maximum of 15 years, with a 10 percent downpayment.5 Priority for the purchase of the property was given to those who were renters or employed managers, former stockholders or employees who had served two years or more in the given enterprise, and former landowners who had lost land through the land reform program (Chung Young-Iob 1987:5). These conditions of the Repatriated Property Liquidation Law, meant that the vested properties could in effect, be purchased at an absurdly low price. According to the law, the price of the assets was supposed to be set at the current market price. However, in practice, the price was set at pre-1945 book value which was substantially lower than the real value and, what is more, most of the items were distributed at an even lower price than the book value (Yu Kwang-ho et al. 1987:99). The purchase prices of the properties, as Chung estimated, were probably, on average, ‘no more than one-quarter of their worth’ (Chung Young-Iob 1987:15). Moreover, under the conditions of the law, entrepreneurs who had personal ties with the higher echelons of the regime could gain special benefits from the government in the acquisition of the properties through covert political deals with politicians. They, allegedly, donated funds to politicians in return for benefits. Such political-economic adhesion constituted the general characteristics of the economy in the 1950s. The acquisition of the repatriated assets induced rapid economic concentration among private entrepreneurs in the short term during subsequent years. As of 1961, according to Kim’s study (Kim Seok Ki 1987:56–7), seven out of the ten largest firms had previously benefited from the government’s preferential allocation of the vested properties. The selective allocation of aid funds and materials by the government Since the volume of Korean exports was small in the 1950s, foreign exchange necessary for import was mainly acquired from the inflow of foreign aid. Some of this foreign exchange was earned of course by the export of primary materials such as tungsten, but the amount was insignificant. During 1945–65, the US and UN offered about $3.8 billion of economic aid, including approximately $0.3–0.4 billion of military aid (Yu Kwang-ho et al. 1987:118). The aid offered to Korea during 1948–62 accounted for, on average, 12 percent of GNP of the same period per annum (ibid.). In effect, the Korean economy was operated by foreign aid during the period. Entrepreneurs could make enormous profits through the government’s preferential allocation of the aid funds and materials. These were accompanied by incidental advantages; for instance, they could again be financed by long-term and low-interest bank loans arranged by the government. Moreover, hyperinflation and overvalued domestic currency made their real value overestimated. The Rhee regime, during 1953–


21

60, fixed the official rate of foreign exchange at a very low level, much lower, in fact, than the market rates (see Table 2.2). ‘In terms of Korean currency’, Chung observed, ‘the US dollar was under-valued, on average, by more than 50 percent of the market price’, which induced ‘the under-valuation of import goods and services as expressed in Korean currency by about the same percentage’. Under such an exchange rate system, it is estimated that ‘the importers could realize gains equivalent to about 50 percent of the value of the imports’ (Chung Young-Iob 1987:18). Hence, anyone who secured foreign aid, could even build factories with only a meager investment of their own capital. In addition, once their production began, further imports of foreign merchandise were restrained to protect the domestic industry. An official and empirical elucidation of the reason foreign aid was selectively allocated to larger firms has not

Table 2.2 Foreign exchange market distortions, 1953–60 Official Rate (a) Realistic Rate (b) 1953 18.0 1954 18.0 1955 50.0 1956 50.0 1957 50.0 1958 50.0 1959 50.0 1960 65.0

33.5 43.6 71.2 89.6 103.9 101.8 103.9 113.2

b/a 1.86 2.42 1.42 1.79 2.07 2.03 2.07 1.74

Source: Chung Young-Iob (1987:19)

Note: Korean currency per one US$ been made, but it is believed that the Rhee regime’s preferential policies toward those larger firms in the aid allocation were closely linked to political favoritism and, even, corruption. Privileged access to bank loans In the 1950s, the continuous shortage of credit was further deepened by high inflation and the low interest rate policy. Under such circumstances, once a bank loan was secured, a debtor could, ironically, gain windfall profit by the negative real interest rate.6 The distorted interest rate system, therefore, invited the government’s political intervention in the allocation of bank loans. In decisions of credit allocation, a prominent political figure’s backing often played a decisive role, and beneficiaries offered political contributions in return for support. Reportedly, just before the 1956 election, the Commercial Bank of Korea loaned 17 billion hwans7 to twelve industries. However, as much as 100 percent of the loans were kicked back to the Liberal Party for the party campaign fund (Jones and SaKong 1980:273).


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THE STATE AND THE GROWTH OF THE CHAEBÔL DURING THE PARK REGIME PERIOD The years 1961–72 The period 1961–72 falls under the Third Republic (from General Park Chung-hee’s military coup in May 1961 to the advent of the Yushin regime in October 1972). During this period, the chaebôl, which had established a foothold for development in the 1950s, began a rapid growth in respect of assets and sales, with the government’s strategic support. Under the Park regime, the economic policy was fundamentally altered (Im Chong-ch’ôl 1976:495). First, while the Rhee regime pursued the free market system, the Park government reinforced ‘the economic power’ for itself so that it could strongly lead the planned economic policy. Second, the government created new state-owned enterprises (henceforth SOEs) and consolidated existing ones with a view to strengthening its economic control over the industrial sector. Twenty-four SOEs had been set up since 1962, and they ranged from manufacturing to financial institutions. Third, to raise the investment rate, the policy of encouraging savings was consistently pursued and, for this reason, various restrictive monetary policies were contrived, and the growth of the capital market was strengthened. Fourth, an export-oriented industrial policy was pursued in order pay for the increase in imported inputs caused by the uplift of the investment rate. Fifth, to promote exports, the undervalued exchange rate was maintained. Sixth, to secure the imported inputs that could not be financed with exports alone, numerous policies for the induction of foreign capital were devised. Along with the shift of economic policy, the government-chaebôl relationship also changed. The government maintained a friendly and cooperative relationship with the chaebôl, on the one hand, but on the other gradually reinforced its controlling power over them by taking various restrictive measures or by exercising a discretionary power in allocating financial resources/licenses to them. The cooperative relationship and the government’s dominance over the chaebôl came to be formed through the military junta’s attempt to purge chaebôl entrepreneurs with the Special Law for the Disposal of Illicit Wealth Accumulation (June 1961). In accordance with the special law, most of South Korea’s main entrepreneurs were detained, and expected to forfeit their assets. However, Park, the vice-chairman of the Revolutionary Council at the time, induced leaders of the businessmen to subordinate themselves to the military regime in return for exemption from criminal prosecution and donations to the government.8 Park wanted to mobilize businessmen’s managerial skills, and needed compliance from the industrial sector to achieve the new government’s ambitious economic development plan. The main function of the government during this period was defined as support, indication and intervention. The three factors which made the chaebôl achieve quantitative expansion and diversification between 1961 and 1972 are summarized as follows. First, the chaebôl which could participate in the first and second Five-Year Economic Development Plan (1962–66 and 1967–71, henceforth FYEDP) achieved remarkable growth. During the FYEDP period, the government strategically concentrated financial support on the oil refining, chemical fertilizer, and cement industries, and on the labor-intensive textile industry. Second, to promote exports, the government took various measures on taxation, tariff and the allocation of financial resources, e.g. domestic bank loans and international


23

borrowing. Since high inflation and high unregulated market interest rates still continued, and the gap between domestic bank loans and international borrowing rates existed during this period, the enterprises which secured the financial resources allocated by the government could enjoy various advantages. Third, because of the special procurements that took place owing to the outbreak of the Vietnam War, the chaebôl could accumulate foreign capital in the transportation and construction industries. The manner of allocating resources to the private sector during this period was distinct from that of the Rhee regime period in some ways (Kim Seok Ki 1987:90–1; Jones and SaKong 1980:108–9). First, under the Rhee regime, it was resources, e.g. repatriated properties and aid materials, which the chaebôl could readily take advantage of to accumulate their wealth, which were mainly transferred. Under the Park regime, it was transfer of opportunities, e.g. license to invest, which had to be joined with entrepreneurial and managerial efforts, which was more significant. Second, although discretion or personal bias remained undeniably in allocation decisions under the Park regime, they were largely made in ‘the spirit of the priority system’. Eligibility of applicants was thoroughly examined by bureaucrats, who were relatively freer from external pressure in decision-making than they had been under the Rhee regime. The years 1972–79 During the Third Republic period (1963–72), the chaebôl had witnessed drastic changes in terms of ranking (Table 2.3). The chaebôl companies that succeeded in securing the government’s support flourished, although some of them had a relatively short history in business. In contrast, those which neither established mutual relationships with high ranking politicians of the Park regime nor adjusted themselves to the government’s industrial policies were pushed out of the leading group. The Park government’s state-led economic development strategy in which the government encouraged the

Table 2.3 Changes in the ten largest chaebôl on the basis of sales, 1960–87 1960 1972 1979 1987 1 Samsung Samsung Hyundai Hyundai 2 Samho Lucky Lucky Samsung 3 Gaepung Hanjin Samsung Lucky-Goldstar 4 Daehan Shinjin Daewoo Daewoo 5 Lucky Ssangyong Hyosung Sunkyung 6 Doyang Hyundai Kukche Ssangyong 7 Keukdong Daehan Hanjin Korea Explosive 8 Hanguk Glass Korea Explosive Ssangyong Hanjin 9 Doklip Keukdong Korea Explosive Hyosung 10 Taechang Daenong Sunkyung Lotte Source: Cho Tong-sông (1991:211)

Note: the names in italics are the firms which still remained among the top ten largest chaebôl. For example, only four out of the ten largest chaebôl of 1960


24

could maintain top ten status in 1972. chaebôl to lead industrialization by exclusively supplying national resources to them, did not change at all in the 1970s. The promulgation of the so-called ‘3 August emergency measures’ in 1972, and the proclamation of ‘the heavy/ chemical industrial policy’ on 12 January 1973 are good examples that show the pattern of the state-chaebôl relationship during the Yushin (Fourth) Republic period (1972–79). The 3 August measures in particular, give clear evidence that the Park government had intensified its intervention in the chaebôl sector, in order to increase the industrial production capacity. The Korean economy stagnated in the early 1970s; the aggregate investment rate in 1971 decreased by 1.6 percent, and further decreased in 1972 by 4.7 percent. Inflation rates, as high as 13–16 percent per annum, continued consistently and, in 1972, the Korean economy recorded the lowest rate of GNP growth (7.0 percent) since 1963 (Federation of Korean Industries 1987:254).9 To break the economic deadlock, the Park government declared ‘the presidential emergency decree for economic stability and growth’, on 3 August.10 The decree was very successful. In 1973, the Korean economy attained the highest GNP growth rate in Korean economic history reaching 16.5 percent, as against 7.0 percent in 1972. The aggregate investment increased from 20.9 percent in 1972, to 26.2 percent in 1973 (Federation of Korean Industries 1987:283). The 1970s, as a whole, saw the phenomenal growth of the chaebôl. First, the number of member companies of the chaebôl groups increased remarkably. The average number of member companies of the ten largest chaebôl increased from 7.5 per chaebôl group in 1972 to 25.4 in 1979, i.e. by 239 percent, within seven years (Kim Seok Ki 1987:169).11 Second, the ten largest chaebôl of 1979 attained 47.7 percent compound average annual growth rate in respect of assets during the period (ibid.).12 The government, which apprehended the public’s negative opinion of the government-chaebôl relationship, understandably made a gesture to prevent the chaebôl’s monopolization in the economy. On 29 May 1974 it announced a set of presidential special directives in an effort to force the chaebôl to open themselves to public participation by selling their shares on the stock market.13 The directives, however, could not achieve those purposes because few chaebôl responded to them and the government’s ability to enforce them became weaker as the national economy declined during 1974–75. As the state’s financial support of the chaebôl expanded with the proclamation of ‘the heavy/chemical industrial policy’, the relationship between the state and the chaebôl became more hierarchically formed, and, accordingly the autonomy of the state was strengthened. During the Third Five-year Economic Development Plan period (1972–76), the government strongly boosted the construction of heavy/chemical industries. Five specific areas (nonferrous metals, petrochemicals, general-type machinery, shipbuilding and electronics) were designated as strategic heavy and chemical industries, and large amounts of funding were poured in to build factories. Approximately 70–80 percent of the loans invested in plants and equipment were assigned to this sector between 1975 and 1979 (Yu Kwang-ho et al. 1987:231). As a result, percentage of the heavy/chemical industries to the whole of manufacturing industry, jumped from 34.9 percent in 1972 to 45.9 percent in 1976 (ibid.: 214–15). Korean entrepreneurs, who were encouraged by the government’s intensive financial and administrative support, came to share an expectation that, without their participation


25

in the heavy/chemical industry, they would be demoted to the second-class chaebôl group. Tense competition took place, yet the licenses were again almost exclusively granted only to certain chaebôl companies. Except for the steel industry, in which the government-owned Pohang Steel Corporation almost monopolized steel production, licenses to participate in the other areas of heavy/chemical industries were assigned to a few of the larger chaebôl. During 1972–79, the chaebôl which joined in the heavy/chemical industries were able to accomplish remarkable growth in assets with protective policies taken by the government. Of the asset growth of the ten largest chaebôl, 57.4 percent resulted from the manufacturing sector, and 85.8 percent of their manufacturing sector growth resulted from the heavy/chemical industries (Kim Seok Ki 1987:185).

3 Criticisms of the chaebôl As we saw in the previous chapter, the chaebôl expanded rapidly following the establishment of the Park Chung-hee regime. This rapid expansion, however, began to attract criticisms in the late 1970s, focused upon the chaebôl’s concentration of economic power. It was argued that the economic concentration had been deepened by the contraction of small/medium size enterprises (see p. 33), the concentration of ownership, the monopoly of bank loans, the chaebôl’s expansion into the banking industry and speculation in real estate. The criticisms were not confined only to the economic area. As Chông Chu-yông, the owner chairman of the Hyundai chaebôl, participated in politics by organizing the United People’s Party, in the early 1990s (see p. 41), the chaebôl’s political participation was raised as another critical issue in Korean politics. Meanwhile, the political and economic problems which emanated from the economic concentration incurred, as a consequence, the denunciation of the government. Criticism was made that the cause of the economic concentration in the chaebôl, in essence, lay in the government’s big business-centered industrial policies through which favor had been preferentially bestowed on them. The emergence of a Marxist interpretation of the statechaebôl relationship, i.e. the state’s tendency to advocate capitalists’ interests, in the late 1970s and the early 1980s, reflected the criticism of the chaebôl-centered economic system which had been fostered by the state. One may think it is an irony that the chaebôl came to be severely criticized, although they had greatly contributed to the economic development of South Korea. The economic concentration in big business is not a phenomenon that is unique to South Korea. There is no concrete evidence to show that the chaebôl’s expansion distorted the distribution of wealth or to support the argument that the development of small/medium size enterprises would definitely contribute to the improvement of social equity (Song Pyông-nak 1991:444–54). Why, then, did the Korean government come to check the chaebôl’s economic expansion? Basically, the answer is found by exploring an economic debate. That is, in the beginning the Chun government instituted measures to regulate the chaebôl, such as the Act on Monopoloy Resriction and Fair Trade (Act no. 3320, 1980), for the purpose of coping with inflation, the monopolization of markets, unequal development between sectors, market distortion, economic inefficiency emanating from large-scale enterprises, inequality in distribution and so on (Fair Trade Commission and Korea Development Institute 1991). However, the government’s restriction of the chaebôl, at the same time, had significant social and political implications. The governments of the 1980s, in particular the Roh regime, had to cope with social and political problems such as social inequality, people’s relative feeling of deprivation, the spread of socialist ideas amongst laborers and students, and anti-government movements which radiated from economic concentration in the chaebôl. In this chapter I intend to describe those criticisms. But a judgment as to whether or not the criticisms were appropriate in economic and managerial senses will not be


27

attempted. What I intend to focus on is the South Korean people’s and the government’s idea of economic concentration. This will help us to comprehend what induced the Chun government (1980–February 1988) to take drastic measures in the early 1980s to regulate economic concentration in the chaebôl, and the Roh government (February 1988– February 1993) to take over the same measures and even develop them. AGGREGATE CONCENTRATION: THE OVER-GROWTH OF THE CHAEBÔL The aggregate economic concentration notes the degree to which the economy of the nation is controlled by the chaebôl. In the 1960s and 1970s, the Korean chaebôl were able to achieve stupendous growth in quantity owing to the government’s strategic support. For instance, between 1961 and 1979, the number of member companies of the ten largest chaebôl increased by 388 percent (Kim Seok-ki 1987). In the case of the thirty largest chaebôl, the number of member companies multiplied from 126 in 1970 to 429 in 1979 (Kang Ch’ôl-kyu et al. 1991:115). Of course, the numeric increase in member companies of the chaebôl does not necessarily reflect the real aspects of their growth. Nevertheless, the increase in the number of member companies was a significant indicator of the chaebôl’s business diversification. The chaebôl were, in fact, expanding by means of starting a new business with the capital accumulated from previous business rather than re-investing it. As the chaebôl grew quantitatively, their relative importance to the whole Korean economy also became significant. Percentages of sales and value-added accounted for by the chaebôl were exceedingly high throughout the 1970s. During 1970–74, the member companies of the five largest chaebôl accounted for no more than 5.4 percent of the total number of manufacturing companies; nevertheless, they constituted 56.2 percent of the total sales in the manufacturing sector. This situation continued in the late 1970s. During 1975–78, the five largest chaebôl’s member companies accounted for only 7 percent of the total number of companies in the manufacturing sector. Nonetheless, they still accounted for 54.8 percent of the total sales in the manufacturing sector as a whole (Chu Chong-hwan 1985:13). The percentage of value-added in GDP created by the forty-six largest chaebôl increased by an average of 27.5 percent per annum between 1973 and 1978. This growth rate was 17.2 percent higher than that of GDP (10.3 percent). In addition, the bigger the chaebôl enterprises, the higher the growth rate of value-added. The growth rate of the top twenty chaebôl (25.4 percent) was twice as high as that of the 21st–46th largest chaebôl (12.3 percent) (Chu Chong-hwan 1985:17). The chaebôl’s rapid growth also continued into the 1980s. Between 1980 and 1987 the chaebôl again achieved remarkable quantitative growth. During this period, sales of the fifty largest chaebôl increased by about 244 percent (Han’guk Ilbo 27 September 1981; Kyông’yông Nûngnyul Yôn’guso 1988). In addition, although the number of member companies decreased, their business areas still tended to be diversified. The number of business areas in which the ten largest chaebôl participated increased from 17.6 in 1979 to 18.9 in 1985. (Kim Seok-ki 1987:171, 251) The diversification of the chaebôl’s business into unrelated areas showed conspicuous progress. According to Chông’s study,


28

between 1984 and 1989, while the diversification of business into areas related to existing business decreased, the unrelated diversification increased (Chông Ku-hyôn 1991:28). Bigger chaebôl tended to be more diversified. The chaebôl’s unrelated diversification revealed two characteristics during this period. One, they participated in high-tech industries such as semiconductors, high-tech chemical industry, genetic engineering, computer engineering, aerospace, telecommunications and new materials. Between 1979 and 1987, the 91.1 percent of the growth in total assets of the ten largest chaebôl’s manufacturing sector was made in the heavy/chemical industry area. Their investment in R&D also increased. In the 1980s, it increased by 20–30 percent per annum (Cho Tong-sông 1991:204–5). For the chaebôl, it was deemed imperative to join in the high-tech industries, in order to become a top-ranking enterprise. Two, they diversified into consumer goods, real estate and, particularly, the financial industries, for the latter could help them to mobilize financial resources. The reason the strategy of diversification into unrelated areas was favored as a method to expand the chaebôl’s business areas was that it induced ‘internal financing’ and ‘risk reduction’ effects (ibid.: 50–1). That is, companies within a group could supply capital by mutual contribution, and a mother company’s financial credit enabled a newly established member company to draw capital with more advantageous conditions. Moreover, member companies supported the newly-formed company so that it could overcome financial troubles at an infant stage in the business. To increase the number of companies and to diversify their business areas, the chaebôl took advantage of two methods: ‘the investment in non-member companies’ and ‘mutual contribution between member companies’. In particular, the latter was abused to create ‘phony capital’. The mechanism of this is summarized as follows: company A invests, for example, one billion won to found company B, and company B reinvests one billion won in company A buying stocks from it, instead of repaying its debts. As a result, company A, in effect, can establish company B without substantial capital. As of April 1987, when the government amended the Fair Trade Act (henceforth FTA), the total amount of mutual contribution carried out by thirty-two chaebôl business groups was 3,470 billion won (US$ 4.2 billion), which accounted for 43.9 percent of stockholders’ equity (ibid.: 398). Meanwhile, the heavy dependence of the Korean economy on the chaebôl was still a critical issue in the discussion of the aggregate economic concentration in the 1980s. According to Yi’s study (Yi Kyu-ôk 1989), although 270 member companies of the thirty largest chaebôl accounted for 0.75 percent of the total number of manufacturing companies in 1985, they accounted for more than one-third of the total sales, value-added and assets of the manufacturing sector as a whole, and hired about 18 percent of the total manufacturing laborers. The economic concentration phenomenon exists between chaebôl as well as between chaebôl and non-chaebôl business groups. For example, amongst the thirty largest chaebôl, the top five chaebôl’s share of the Korean economy is much bigger than that of the remaining twenty-five chaebôl, i.e. from the sixth to thirtieth largest. As of 1985, the five largest chaebôl accounted for about 40 percent of employees and more than 50 percent of the total sales, value-added and total assets of the thirty largest chaebôl. In terms of size, the five largest chaebôl also showed remarkable differences from the remaining chaebôl. For example, in 1987, the total sales of the


29

Samsung chaebôl (first) were about thirty-seven times bigger than that of the Dongguk chaebôl (thirtieth) (Kyông’yông Nûngnyul Yôn’guso 1988:50). The criticism was, at the same time, based on managerial logic. Until the early 1980s, merchandise of the diversified companies tended to create higher profits and retain stronger international competitiveness. However, in the late 1980s, the diversification of the Korean chaebôl’s business areas tended not only to reduce profits but also to weaken the international competitiveness of their merchandise. These results have two implications according to Chông: (1) diversification increased incidental costs such as administrative costs and, accordingly, reduced profits, and (2) unrelated diversification strategy might be disadvantageous to both the development of technologies and the reinforcement of marketing (Chông Ku-hyôn 1991:40–86). Cho’s study also shows a similar result. According to him, the chaebôl’s diversification had a negative influence on profit and the growth of sales (Cho Tong-sông 1991:360). THE DECLINE OF SMALL/MEDIUM SIZE ENTERPRISES Another criticism is that the reckless business diversification of the chaebôl arrested the development of small/medium size enterprises. The chaebôl not only led manufacturing industries such as the components/machinery, petrochemical/plastic and the financial industries but also occupied a large part of low-tech industries which were regarded as more suitable for small/ medium size enterprises. Percentages of the small/medium enterprises’ number of companies and employees, sales and value-added to the whole, gradually decreased between 1960–81. In the early 1980s, the percentage of the valueadded accounted for by Korean small/medium size enterprises was significantly lower than those of the USA and Taiwan as well as Japan (see Tables 3.1 and 3.2). Meanwhile, as of 1988, 242 large enterprises encroached upon 127 out of 205 specialist areas, which the government had designated with a view to protecting small/medium size enterprises’ markets from the chaebôl’s

Table 3.1 Changes in small/medium size enterprises: comparison between Korea and Japan Percentage of total 1960 1963 1978 1979 1981 South Korea Number of companies 99.1 98.5 96.5 96.5 96.9 Sales 68.8 56.0 32.3 31.8 32.4 Value-added 66.3 49.8 34.3 35.2 34.7 Japan Number of companies 99.1 99.4 99.5 99.5 99.5 Sales 48.9 50.3 52.7 52.7 52.1 Value-added 45.7 53.3 57.1 57.1 56.9


30

Source: Economic Planning Board, cited in Chu Chong-hwan (1985:19)

Table 3.2 Cross-national comparison of the role of small/medium size enterprises Percentage of total Korea (1982) Japan (1981) Taiwan (1977) USA (1977) Number of companies 97.3 99.5 99.0 95.6 Sales 34.4 52.1 92.8 – Value-added 36.2 56.9 56.8 51.4 Source: Economic Planning Board, cited in Chu Chong-hwan (1985:19)

Notes: Definition of small/medium enterprises 1 number of employees: less than 300 2 assets: mining and textile businesses: less than 4 billion won food and textile dyeing businesses: less than 6 billion won paper manufacturing and printingpublishing businesses: 8 billion won business participation (Han’gyôrye Sinmun, 14 October 1988). The chaebôl produced those items for the purpose of supplying them for internal transaction between member companies with a cheaper prime cost. Critics maintained that under such circumstances, it was impossible for the small/medium size companies to compete with the chaebôl, which retained superior marketing and financing capacities. Therefore, it was argued, the expansion and diversification into these business areas had to be restricted in order to promote the expansion of the small/medium size enterprises, something which had been relatively neglected since the 1960s (Kang Ch’ôl-kyu et al. 1991:227, 233). The frequency of this encroachment by the large enterprises began to increase in 1988, as their exports dwindled owing to the appreciation of the Korean currency. MARKET DOMINATION In Korea, the monopoly or oligopoly of markets by the chaebôl was tolerated to a considerable extent, or even deliberately fostered by the government, to develop strategic industries such as heavy/chemical industries. This policy was based on a Schumpeterian position that the monopoly of the market was essential to the development of corporations. A monopoly, rather than perfect competition is conducive to technological innovation (Schumpeter 1954: ch. 8). In Korea, the monopoly or oligopoly prevailed not only in the heavy/ chemical industries but also in the general merchandise markets. According to Yi’s study, given that market monopoly/oligopoly means a situation in which the top one, two or three companies constitute more than 60 percent of the total sales of that market, 81.5 percent and 83.7 percent of the total number of commodities and 60.1 percent and 61.2 percent of the total sales were situated under a monopoly or oligopoly, in 1974 and 1977 respectively (Yi Kyu-ôk 1980:10). The market concentration by the chaebôl companies tended to continue in the 1980s. As of 1987, the thirty largest chaebôl participated in markets for 1,499 items and retained over 40 percent of the market share in 335 (22.4 percent) of them. Out of the 335 items,


31

162 (48 percent) were produced by the five largest chaebôl (Table 3.3). In addition, the thirty largest chaebôl’s products retained the highest market share in markets for 475 (31.7 percent) items and ranked within the top third in 941 markets (Table 3.4). Market competition between the chaebôl enterprises had slightly increased since the 1970s, but it was still limited. As Table 3.5 shows, the percentage of merchandise which was monopolized by a chaebôl group fell from 76.7 percent to 59.3 percent between 1974 and 1987 but, on the contrary, the percentage of merchandise which was duopolized by two groups rose from 17.5 percent to 24.6 percent. The number and percentage of commodities which were oligopolized by three or four chaebôl companies increased slightly, but the increment was not significant compared with the duopolized items.

Table 3.3 The market share of merchandise produced by chaebôl enterprises, 1987 Percentage share of total market 0–20 20–40 40–60 60–80 80–100 Total Chaebôl ranked 1st–5th Number of items 345 141 82 38 42 648 Percentage 53.2 21.7 12.7 5.9 6.5 100.00 Chaebôl ranked 1st–30th Number of items 873 291 151 81 103 1,499 Percentage 58.2 19.4 10.1 5.4 6.9 100.00 Source: Yi Kyu-ôk and Yi Chae-hyông (1990:40–1, 43)

Table 3.4 The market position of merchandise items produced by chaebôl enterprises, 1987 Ranking by number of items in certain markets First Second Third Others Total Chaebôl ranked: 1st–5th 224 133 68 223 648 1st–30th 475 296 170 558 1,499 Source: Yi Kyu-ôk and Yi Chae-hyông (1990:40–1, 43)

Table 3.5 The market competition between the twenty largest chaebôl 1974 1982 1987 1 No. of Chaebôl No. of Items % No. of Items % No. of Items 1 224 76.7 366 62.4 438 2 51 17.5 124 21.1 182 3 15 5.1 67 11.4 63 4 2 0.7 30 5.1 56

% 59.3 24.6 8.5 7.6


Total

292

100.0 587

32

100.0 739

100.0

Source: Yi Kyu-ôk and Yi Chae-hyông (1990:40–1, 43)

Note: 1 the number of chaebôl groups competing in a market THE CONCENTRATION OF OWNERSHIP In respect of the distribution of wealth, the chaebôl were blamed for an exclusive ownership structure. According to previous studies, the share rate of the largest shareholders, i.e. the first shareholder plus his family members plus affiliated corporations, of the chaebôl was higher than that of non-chaebôl in the 1980s. As shown in Table 3.6, in 1982 and 1986, the former was higher than the latter by 8.72 percent and 6.5 percent respectively.

Table 3.6 Percentage of shares in organizations owned by the largest shareholders 1982 1986 (%) (%) Chaebôl 32.67 39.09 Non-chaebôl 23.95 32.59 Source: Cho Tong-sông (1991:395) The succession of kinsfolk deepened the concentration in ownership. As Table 3.7 shows, it was usually the eldest son or other family members of the chaebôl groups’ chairmen who inherited the right of management, except in one case. In most cases, eldest sons succeeded their fathers as chairmen (hoejang).

Table 3.7 The situation of succession in forty-seven major chaebol companies State of succession Chaebôl Successor Chaebôl Firm (no.) (no.) Succession 21 Eldest son: 15 completed Other sons: 3 Samsung, Samyang Jinro Brother: 1 Sunkyung Son-in-law: 1 Dongyang Professional 1 Kia manager: Succession possible 15 Eldest son: 13 Other sons: 2 Keukdong, Woosung Succession 11


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undecided Source: Kang Ch’ôl-gyu et al. (1991:54)

POOR FINANCIAL STRUCTURE Although the assets and sales of the chaebôl increased and business areas were more diversified, their financial structure was seldom improved. In the early 1980s, the average debt ratio of the fifty largest chaebôl was much higher than that of small/medium size enterprises and manufacturing industry as a whole. The average debt ratio of the ten largest chaebôl was also higher than that of the fifty largest chaebôl. In conclusion, it tended to show that the larger the company, the higher the debt ratio. (Table 3.8). On the other hand, the average stockholders’ equity ratio to total assets of the fifty largest

Table 3.8 Debt ratio and stockholders’ equity to total assets of the top ten chaebôl (ranked by sales), 1980, 1984 (excluding financial industry) 1980 A B 1984 A B (%) (%) (%) (%) Chaebôls ranked 1st–10th 773.5 14.6 504.8 17.2 1 Hyundai 366.3 21.5 Samsung 447.5 13.2 2 Lucky 555.2 15.3 Hyundai 340.7 22.7 3 Samsung 615.0 13.9 Lucky-Goldstar 456.2 18.0 4 Sunkyung 2,161.5 4.4 Daewoo 442.8 18.4 5 Daewoo 397.2 20.1 Sunkyung 485.6 17.1 6 Ssangyong 510.7 16.4 Ssangyong 433.8 18.7 7 Hyosung 861.1 10.4 Korea Explosive 320.3 23.8 8 Kukche 690.7 12.7 Kukche 914.5 9.9 9 Hanjin 1,251.8 7.4 Hanjin 422.1 19.2 10 Daelim 325.4 23.5 Hyosung 784.1 11.3 Chaebôls ranked 1–50 524.0 15.5 462.1 17.8 SMEs 394.9 20.2 366.0 21.4 Manufacturing industry 487.9 17.0 342.7 22.6 Source: 1980: Han’guk Ilbo, 27 September 1981

1984: Han’guk Ilbo, 10 May 1985 Bank of Korea (1981, 1985) Note: A: Debt ratio B: Stockholders’ equity to total assets chaebôl was lower than that of small/medium size enterprises and manufacturing industry as a whole.


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The reason the debt ratio was high and the stockholders’ equity ratio to assets was low was that the Korean chaebôl chronically depended on bank loans to supply capital. For example, during 1980–84, Korean companies could supply only 43.7 percent of capital for themselves. By contrast, in the cases of US, German, Japanese and Taiwanese companies, they supplied 93.7 percent, 71.1 percent, 66.5 percent and 67.4 percent of capital for themselves respectively.1 Between 1986 and 1988, during which time Korea enjoyed a trade surplus, companies could have either decreased the debt ratio or increased the stockholders’ equity ratio. Instead, they invested their surplus capital in purchasing real estate and bonds, or deposited it in secondary financial institutions such as insurance companies and short-term financing companies, which would provide a higher rate of interest. This will be further explained in the following sections. MONOPOLY OF BANK LOANS The government’s preferential allocation of bank credit and easier access to foreign loans greatly contributed to the chaebôl’s economic expansion under the Park regime, and these two factors would undoubtedly have involved a considerable element of administrative discretion (Mason et al. 1980:267). Korean firms were highly dependent on external borrowing, and the dependence deepened rapidly as the Korean economy developed. The average debt-equity ratio of the manufacturing sector rose from 1.36 in 1961 to 3.77 in 1979 (ibid: 268; Kim Seok Ki 1987:119, 175).2 The Korean government invariably dictated access to venture capital, so-called ‘policy loans’, to businesses, along with regular commercial loans, especially to the chaebôl, so that they could purchase government properties and foreign aid goods/services, and expand business operations. Since large personal savings hardly existed in the 1950s and the early 1960s, policy loans from the government were important in securing financial resources (Chung Young-Iob 1987:20). Between 1972 and 1979, they accounted for 59 percent of the total loans, and most of that total were also assigned to the chaebôl enterprises rather than small/medium size enterprises (ibid.: 23). The loans, e.g. the government, commercial and foreign loans, had two attractive conditions: they were relatively long-term and were at low interest rates. The loans were provided at a favorable term, and a period of grace for their repayment was sometimes granted. A more attractive advantage lay in significantly low interest rates. In Korea, the dominant sources of cheap finance were bank loans and international borrowing, both of which were strictly controlled by the government. In case of AID money borrowed on foreign exchanges, it was loaned out at a rate between 5 percent and 12 percent per annum for a period between 8 and 20 years, and was repayable in equal instalments, in local currency. In the case of loans to finance exports, the rate charged by the Bank of Korea after 1964 was even lower: 3.5 percent. The interest rate of the semi-public commercial bank loans ranged from 6 percent to 8 percent during 1963–79. Moreover, owing to the difference between the official and the unregulated financial market interest rates, firms which secured the loans could make unexpected profits, as they did under the Rhee regime (Chung Young-Iob 1987:23–4).3 As the Korean government not only set the interest rate for bank loans but also controlled the allocation of loans and international borrowings, the chaebôl had


35

advantages over small non-chaebôl firms in acquiring them. They could benefit from the government’s strategic support by actively participating in exporting industries, and retained powerful lobbying capability with high-ranking politicians. As the chaebôl became even larger during this period, their competitive advantages in financial markets became greater. Bigger chaebôl, with good track records, were regarded as much more reliable than small/medium size enterprises, by bureaucrats who were afraid of risk and preferred visible quantitative growth (ibid.; Mason et al. 1980:289; Kim Seok Ki 1987:122). Another factor that caused the high debt-equity ratio of the chaebôl was the government’s taxing policy. In the 1960s, 1970s and early 1980s, the government intentionally applied a low tax rate to interest on financial capital deposited with banks, for the purpose of promoting savings. While, as of 1982, maximum marginal income tax rate reached a total of 76.5 percent, and the corporation tax rate was as high as 40 percent, the tax rate imposed on profit was as low as 15 percent (Mun Hûi-gap 1992:227– 8). Hence, the chaebôl tended to expand their business with the profit rather than improve their companies’ financial state (e.g. the debt-equity and the stockholders’ equity ratios), because, if they produced profit or dividend on stocks, the corporation tax of 40 percent and the income tax of 76.5 percent would be imposed on them respectively. But, in cases where they borrowed money from banks (or kept their financial statement in the red), they did not have to pay the taxes because the interest on the loans was regarded as a managerial cost. For this reason, the chaebôl with a greater security power of borrowing loans than small/medium size enterprises, relied heavily on bank loans. The monopoly of bank loans by the chaebôl was not improved in the early 1980s, either. In 1983 and 1984, the thirty largest chaebôl still accounted for 43.2 percent and 48.0 percent of the total domestic credit respectively (Kim Seok Ki 1987:259). The degree to which the chaebôl exclusively held available credit was also higher in the secondary financial markets such as the insurance and short-term-loan markets. As of December 1987, the thirty largest chaebôl utilized 37.8 percent of the loan and payment guarantee provided by the secondary financial institutions and the life insurance companies with the five largest chaebôl accounting for 17.62 percent of it (Kim Tongwôn 1991:73). As explained above, the chaebôl’s heavy reliance on bank loans resulted partly from a distorted financial market structure in Korea, in which dual interest rates operated with a wide disparity between the official interest rate and the unregulated financial market rate. In the 1980s, however, enterprises could no longer benefit from the negative real interest rate brought about by inflation higher than prevailing interest rates, as they had in the 1960s and 1970s. Although the government deliberately lowered the bank lending rate from 17 percent to 10 percent in accordance with the economic stabilization program, the inflation rate was kept down to between 7.1 percent and 3.6 percent and, accordingly, the real interest rate was also kept positive. Nevertheless, both the bank lending rate, which was closely controlled by the government, and the real interest rate were still significantly lower than the unregulated financial market’s lending rate (Table 3.9). SPECULATION IN REAL ESTATE


36

There was also the criticism that the chaebôl speculated in real estate which was not directly related to productive activities, by using cheap bank loans acquired by the government’s special favor, rather than make an earnest effort to improve their poor financial status. As of 1989, the thirty largest chaebôl owned 438.3 km2 of land, which accounted for 9.7 percent of the 4,496 km2 of land owned by all domestic corporations. In terms of currency, it was equivalent to approximately US$16.8 billion. Of this, the five largest chaebôl

Table 3.9 Interest rates in the official financial market, inflation, and the unregulated market lending rate, 1979–85 Bank lending rate Inflation Real interest rate Unregulated lending (A) rate (B) (A—B) (%) (%) (%)* (%) 1979 19.0 21.2 –2.2 42.4 1980 20.0 25.6 –5.6 45.0 1981 17.0 15.9 1.1 35.3 1982 10.0 7.1 2.9 30.6 1983 10.0 3.0 7.0 25.8 1984 10.0 4.1 5.9 24.7 1985 10.0 3.6 6.4 n/a Source: Kim Seok Ki (1987:258)

Note: *Annual average figure retained 191.8 km2, which accounted for 43.8 percent of the thirty largest chaebôl’s lands. The reason the Korean chaebôl invested heavily in real estate was that it was regarded as an important source of capital gain. According to one study, the profit of a company which invested in real estate had been six times larger than that of a company which invested in productive facilities during 1975–90 in Korea (Chung’ang Ilbo 13 June 1991). In addition, real estate was looked upon as the most credible security which would be accepted by banks. The chaebôl’s possession of real estate for speculative purposes has been encouraged by the continuously rising real estate price. During 1980–89, land prices in Korea rose by an average of 18.9 percent per annum. The years 1986 to 1989, during which time Korea made a trade surplus, was largely the period when the chaebôl invested their profits in purchasing real estate instead of redeeming the debt. According to the Office of Bank Supervision and Examination, real estate constituted 53.1 percent of the total investment of the fifty largest chaebôl in 1987 (Yi Kyu-ôk and Yi Chae-hyông 1990:54). The amount of money spent on purchasing real estate during the period, corresponded to 26 percent of the trade surplus made for 1986–89 (Tong’a Ilbo, 9 October 1991). The Samsung, Lotte, Kia and Doosan chaebôl purchased 74 percent, 88 percent, 79 percent and 70 percent of their real estate respectively during 1985–88. Meanwhile, according to an announcement made by the Office of National Tax Administration, as of August 1989, 35.3 percent of


37

the real estate possessed by the forty-eight largest chaebôl was non-business-purpose land, not directly related to productive activities. THE CHAEBÔL’S EXPANSION INTO THE BANKING INDUSTRY By 1983, the government had privatized five city banks in accordance with the economic liberalization program. Although the government forbade the twenty-six largest chaebôl from participating in the auction of the banks and limited the maximum shares of individuals or corporations to less than 8 percent, the chaebôl steadily increased their shares in city banks. As of 1988, the chaebôl owned between 1–11 percent of the banks’ shares (as shown in Table 3.10).

Table 3.10 The chaebôl’s percentage shareholding rate of main banks, 1988 Bank Cheil Hanil Sang’ôp Chohûng Shintak Hanmi Samsung 5.3 6.3 11.0 7.4 2.7 0.7 Hyundai 2.2 1.9 4.5 Lucky-Goldstar 3.2 3.9 1.0 Daewoo 8.6 Ssangyong 1.2 Korea Explosive 4.3 Hanjin 4.6 Daelim 3.7 Shindonga 6.5 1.1 6.5 6.3 Donga 4.2 Taekwang 8.7 1.1 Dongguk 1.5 Source: Cho Tong-sông (1991:149) The foundation or merger of non-bank financial institutions by the chaebôl has also increased since 1980. The chaebôl owned twenty-three non-bank financial institutions prior to 1980 (Kang Ch’ôl-kyu et al. 1991:118). In comparison, as of 1989, the top fortythree chaebôl possessed fifty-four non-bank financial institutions such as short-termfinancial companies, insurance companies, and security corporations (Yi Kyu-ôk and Yi Chae-hyông 1990:57–8). These non-bank financial institutions played a role in supporting affiliated companies’ financing. For instance, in September 1989, the life insurance companies owned by chaebôl business groups lent an average of 15.9 percent of their total operating capital to their own member corporations. At the same time, the


38

ten security companies of the chaebôl business groups, on average, owned 43.6 percent of the securities of their member companies.4 POLITICIZATION During the Fifth Republic period, the chaebôl did not openly express dissatisfaction with the government’s restrictive measures of regulating their economic expansion. In the early years of the Chun regime (1980–85), although the government carried out a series of policies to regulate the economic concentration in the chaebôl, they did not dare to defy it, since the government was strongly oppressive. In the last years of the regime (1986–88), as the Korean economy enjoyed an abrupt economic boom, however, the restrictive policies more or less weakened. During 1986–89, Korea recorded a total trade surplus of US$27.9 billion. The government again supported the chaebôl’s exporting activities, and the chaebôl did not undergo significant difficulties in managing their companies, owing to, in particular, cheap and abundant capital. The state and the chaebôl kept a hierarchical but stable relationship during the Fifth Republic period. After the Roh regime was established, however, some symptoms of recession began to appear. In 1989, the ‘three-lows’ (low dollar, low oil price and low interest rate) and ‘high yen’, which had led the Korean economy into a boom, began to die out. In addition, as democratization was advanced, labor movements, which would incur the rapid rise of wages, were also activated. In 1990, the recession prevailed in almost all of the industrial areas. The won appreciated, wages rose rapidly, and the Korean economy again recorded a deficit in international trade. The stock market was dismantled, and companies suffered financial difficulties. The Roh regime more strongly regulated the reckless expansion of the chaebôl. The government pressed the chaebôl to dispose of non-business-purpose real estate, and forbade mutual contribution within member companies to improve the poor financial status of the chaebôl. On 10 May 1990, the chaebôl announced that they had voluntarily decided to dispose of their non-business-purpose real estate. Ostensibly it seemed that the government and the chaebôl still maintained an amicable relationship, but in fact, the chaebôl’s antipathy toward the Sixth Republic was growing. Some chairmen of the chaebôl companies began to criticize the Roh regime’s economic policies openly. Chông Chu-yông, the owner chairman of the Hyundai chaebôl, claimed that the government’s intervention in the civilian economic sector had to be removed, emphasizing the need for an autonomous and independent financial system. Chông also made the criticism that ‘the express railroad construction plan’ and ‘the two million houses supply plan’, which President Roh had promised during the presidential election campaign period, would never be economical. After he had made up his mind to join in politics, his criticism was extended even to political issues. On 9 January 1992, Chông disclosed that he had personally donated between 1–4, 5–6 and 6–10 billion won per annum to Park, Chun and Roh respectively as political funds (as of 1992, 10 billion won corresponded to US$ 12.8 million). He had often described Korean politics as a ‘sewer’. On 8 February 1992, Chông set up the United People’s Party (UPP) with his own money, and it took part in the fourteenth general election.5 The advent of the UPP caused apprehension, not only in the government and the public but also other chaebôl. The


39

government and the public were skeptical about Chông’s promise to separate the UPP from Hyundai. Although he officially retired from Hyundai on 31 December 1991, in reality, the UPP, Hyundai and the Munhwa daily newspaper, which was owned by Chông himself, cooperated closely during the general election campaign. Hyundai provided the money, the equipment and the manpower, and the Munhwa newspaper took charge of the propaganda. The government and the public were apprehensive that the political influence of Hyundai could be strengthened by acquiring the mass media company. Other chaebôl also assumed a negative attitude toward Chông’s political participation fearing that the government might further intensify the restriction of the chaebôl’s economic activities, if Chông failed to win any seats in the election. In addition, they felt it uneasy that, if the UPP should come into power, the rival chaebôl groups would be disadvantaged in competition. On 21 March 1992, the chairmen of the Korean Chamber of Commerce, the Federation of Korean Industries, the Korean Trade Association and the Korean Federation of Small Business jointly issued a statement, which asked Hyundai not to get involved in the UPP’s general election campaign. Despite the pressure and troubles, however, the UPP achieved a remarkable success in the election. It secured 31 (10.4 percent) out of the 299 seats in the national assembly (24 of the local constituency seats and 7 of those allocated on proportional representation), and gained 17.4 percent of the total votes (Table 3.11). The UPP were thus able to form a negotiating body in the

Table 3.11 The result of the fourteenth general election, 1992 Party Local constituency Proportional seats representation seats Democratic Liberal 116 Party Peaceful Democratic 75 Party United People’s Party 24 New Political Party 1 Independents 21 Total 237

Total seats 33

149

22

97

7 0 0 62

31 1 21 299

National Assembly. Chông’s supporters believed that the self-made businessman would be able to revive the staggering Korean economy. The people, however, did not extend their support to the UPP in the fourteenth presidential election and Chông himself obtained only 16.3 percent of the total votes. The people were deeply apprehensive at the chaebôl’s politicization, and other chaebôl, which might be damaged if Chông should come into power, were strongly opposed to Hyundai’s political participation. According to a survey, during the campaign period, the electorate’s political support for Chông eventually turned out to be very low (Table 3.12). Meanwhile, rumor had it that as the Hyundai chaebôl and Chông were


40

Table 3.12 Changes in the people’s support of the three major presidential candidates, 1992 17 Nov. (%)* 27 Nov. 7 Dec. 17 Dec. Result Kim Y.S. 39.9 36.3 37.7 39.5 42.0 Kim D.J. 25.3 26.4 29.5 31.1 33.9 Chông C.Y. 14.6 16.1 15.0 15.7 16.3 Source: Chôson Ilbo, 20 December 1992 participating in politics, Kim U-jung, chairman of Daewoo, who was personally antagonistic to Chông, would also enter politics with the establishment of a new party. The rumor, however, was not substantiated. SOCIAL AND POLITICAL IMPLICATIONS The above criticisms of the chaebôl induced the Chun and the Roh regimes to take restrictive measures on the economic concentration of the chaebôl. Apart from political participation, they were basically on economic agenda, but associated social and political problems were also significant motivation for both regimes’ implementation of policies to regulate that economic concentration. After the emergence of political protest against authoritarianism in the late period of the Chun regime, the social and political problems were further highlighted. Such economic dominance by conglomerates was not a unique phenomenon confined to Korea. In terms of the percentage of large companies’ sales to the manufacturing sector as a whole, in the USA, the top 200 companies accounted for about 60 percent, and in the UK, West Germany and Japan the top 100 companies accounted for approximately 40 percent, 25 percent and 20 percent respectively of early 1980s sales. In Korea, the top 100 manufacturing companies constituted 44.9 percent, 46.8 percent and 38.9 percent of the manufacturing sector’s total sales in 1977, 1982, 1987, respectively (Yi Kyu-ôk and Yi Chae-hyông 1990:26–7). Therefore, it cannot be concluded that the economic concentration rate of the chaebôl was significantly higher than those of the aforementioned countries. Moreover, concentration rates of those countries might in a sense be rather higher than those of Korea as the total number of manufacturing companies is greater. For instance, in Japan, the top 100 manufacturing companies account for no more than 0.026 percent of the total number of companies (Yi Kyu-ôk and Yi Sông-sun 1985:95–6). Why, then, was the economic dominance by the chaebôl condemned? In fact, the criticisms were not purely economic. It was true that the Chun regime’s enactment of measures to regulate chaebôl was largely grounded on economic logic, but this was not so under the Roh regime. Although the idea was often camouflaged with economic logic, social and political factors were significantly involved. The criticisms were based on the idea that the chaebôl had expanded owing to the state’s strategic support, and a supposition that without the support, the uncommonly rapid growth would have been impossible. The public believed the chaebôl were morally wrong, the competition between enterprises was not fair, distortion in the distribution of wealth and resources


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ensued from economic concentration in big business groups, and the restriction of the chaebôl by the government needed to be reinforced (Sôul Sanggong Hoeûiso 1991). The fact that the chaebôl were exclusively owned by some families, that ownership and management were not divided and had been succeeded to by kinship, and that they were, in effect, ruled by owner chairmen, made people consider that wealth was not properly distributed. Owners and managers of small/medium size enterprises felt they were being exploited by the chaebôl, and the spread of socialist ideas amongst students and laborers was accelerated by the economic concentration. Because of the chaebôl’s rapid growth in such a short period it was suggested that their wealth could have been accumulated by dubious means, or linked to political support of the government. The criticism mirrored the people’s hazy anxiety that the chaebôl’s economic power might be extended to political and social areas.6 In fact, the politico-economic power expansion of the Korean chaebôl was analogous to that of the Japanese zaibatsu, which had been witnessed in the era before World War II (Hall 1970:265–348). The zaibatsu that had grown rapidly after the Meiji restoration, with the state’s strong support, had been able to accumulate sociopolitical power as well as capital, while Japan suffered the world economic crisis which took place after World War I, the earthquake panic in 1923, and the financial crisis that followed the earthquake’s destruction of a large part of the country’s industrial facilities and financial institutions. They ruthlessly absorbed small/medium size enterprises, and carried out a retrenchment of operations and a mass reduction of employment, organizing cartels or trusts under the pretext of industrial rationalization or of weathering the economic crisis. In addition, as parliamentary political institutions were introduced to Japan during the Taisho era (1912–26), they manipulated politics by bribing politicians. Some zaibatsu groups, such as Mitsui and Mitsubishi, were voluntarily affiliated with political parties by financing them. In short, economic reasons alone do not explain the government’s policies of regulating the chaebôl. The transition of the government, from playing a supportive to playing a restrictive role, was not merely in terms of economics, but also involved such non-economic factors as the people’s social/political emotions, elections, domestic security, the President’s personal will, and the bureaucrats’ effort to keep their initiative in leading the economy.

4 Regulating the chaebôl, 1980–93 In this chapter, we will first review the industrial and economic measures taken to restrain economic concentration via the chaebôl under the Chun (1980–88) and the Roh (1988–93) regimes, and, then analyze the procedures of establishing and implementing the measures. What I intend to do is to seek an answer to the previously posed question: ‘Did the degree of state autonomy change as Korea experienced constitutional reforms for the realization of democracy during 1987–88?’ (Question 1) The state, here, refers to political agents/actors involved in every arena of rule, and institutions operated by them. Main components of the state include the President and his secretariat, cabinet members and other government officials, political parties, and the military. We will scrutinize the changes in the relationship between the components of the state and the chaebôl (and their interest group, the Federation of Korean Industries) under the authoritarian Chun regime and the relatively, formally, democratic Roh regime. In carrying out an analysis, emphasis will be laid on singular factors rather than on structural aspects. In a micro-research like this volume, a structural analysis may exhibit critical limitations; that is to say, it may fail to descry the ultimate causes of a phenomenon. The source of the autonomy of the South Korean state, which will be dealt with in the next chapter, can also be found, in my view, by studying actors rather than the economic structure. We, therefore, will focus on agents (or actors) who were involved in the policy-making and implementing procedures, institutions, and the conditions that enabled an economic idea to have force in a particular historical setting (Hall 1989:362). THE ANALYSIS OF MEASURES RELATED TO THE RESTRICTION OF ECONOMIC CONCENTRATION VIA THE CHAEBÔL Fair trade system In December 1980, the Act on Monopoly Regulation and Fair Trade was passed (often referred to as the Fair Trade Act). It stipulated that: ‘the purpose of the law is to prevent the abuse of market-dominating positions by business bodies and the immoderate concentration of economic power, and to encourage balanced economic development by stimulating fair and liberal competition through regulating undue collaborative activities and unfair trade practices’ (Act on Monopoly Regulation and Fair Trade, 1980 (amended 1986, 1990): article 1). The Fair Trade Commission was organized as an adjunct institution of the Economic Planning Board (henceforth EPB). In April 1983, the government promulgated the Notice on the Designation of Unfair Trade Behaviors in Subcontracting, as EPB notice number 59, to protect subcontractors’ interests and restrict


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the unfair subcontract trade activities of main contractors (Fair Trade Commission and Korea Development Institute 1991:47). When the Commercial Law was amended in April 1984, the National Assembly appended two articles intended to regulate mutual contribution. However, the concentration of economic power via the chaebôl could not be systematically restrained within this law or the existing Act on Monopoly Regulation and Fair Trade, because the range to which both laws could be applied was limited. The Act on Monopoly Regulation and Fair Trade was therefore further reinforced through a first amendment in 1986. This gave the government more effective administrative means to deal systematically with various aspects of the economic concentration through the amendment (ibid.: 52). In January 1990, the act was amended again. The fair trade function was further reinforced to secure effectiveness in the application of the law, and the whole ‘Fair Trade System’ (FTS) was remodeled to encourage the independence and specialty of the working of The Fair Trade Commission. As of 1991, the Act on Monopoly Regulation and Fair Trade consisted of three main sections: the ban on mergers, the regulation of the abuse of market-domination, and the restriction of economic concentration. Regulations on combination of enterprises (the Act on Monopoly Regulation and Fair Trade: article 7) A company, whose paid-in capital and total assets exceed one billion won and five billion won respectively, should not engage in acquiring shares of other companies (more than 20 percent), interlocking the board of directors, merging with another company, or the establishment of a new company, in cases where these activities may threaten, in practice, to limit competition in a particular field of trade. Regulations on collaborative activities (article 3) The unfair collaborative activities of market-dominant business bodies are restricted by the FTS. The kinds of unfair activities banned are: 1 Excessive price setting 2 Unfairly determining the terms and conditions for the sale of commodities or the rendering of services 3 Restricting the sales territory of trade or customers 4 Interfering with the market entrance of competitors 5 Other activities which can limit market competition and hamper the interests of consumers. (Fair Trade Commission and Korea Development Institute 1991:86–9) Restriction of the concentration of economic power 1 Establishment of a holding company, which holds shares of other companies for the purpose of controlling the business of those companies and the total amount of the value of the shares is 50 percent or more of the total assets of the company, is banned (article 8). 2 Direct mutual contribution is banned completely (article 9). 3 Investment which exceeds 40 percent of fixed assets1 in other companies is banned


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(article 10.1). 4 When a company, which belongs to a large conglomerate, i.e. big business group, designated by the Fair Trade Commission, purchases more than 20 percent of the shares of other firms in association with its member enterprises or a person who has special relation to the company, it must report the fact to the Fair Trade Commission (article 12.1). 5 Any company which belongs to a big business group and operates financial or insurance business shall not exercise its voting rights in a domestic affiliated company which it acquires or owns (article 11). The loan and payment guarantee management and the main line business systems The loan and payment guarantee system grew out of the ill-managed-company liquidation team operated under the presidential office since 1969 (Min Pyông-gyun 1991:113). Originally, it aimed at preventing the advent of ill-managed companies and improving the financial condition of companies. Since 1980, however, it has been utilized politically as well as economically, to alleviate economic concentration, through the settlement of over-allocation of financial resources to big business groups. During 1980– 92, the Loan and Payment Guarantee Management System underwent two stages in its development. The major correspondent banks’ loan and payment guarantee management agreement system (1978–84) This system was instituted by combining the loan payment guarantee management system agreement on conglomerates with the working agreement on the major correspondent bank system. It was gradually reinforced, by fourteen amendments. The purchase of real estate and excessive investment, business acquisition, and investment in purchasing stocks of other companies were systematically restricted by this system. The regulation of big business groups was further reinforced by ‘measures for the reinforcement of enterprise competitiveness’ (henceforth the 27 September measures), taken on 27 September 1980. Under the Park regime, the government had tried to control the increase in the number of the chaebôl’s member companies with ‘the 3 August measures’ in 1972 and ‘the 29 May measures’ in 1974, but neither of these measures could make the chaebôl improve their poor financial condition. The 27 September measures stipulated the disposal of unnecessary member companies, the disposal of nonbusiness-purpose real estate, the selection of main companies (for the specialization of business), and the guiding rate of stockholders’ equity. Loan and payment guarantee management rules on conglomerates (1984–90) The major correspondent banks’ loan and payment guarantee management agreement system was abolished in July 1984, and replaced by these management rules, which retained two main characteristics. First, each business group (not individual member company) was regarded as a unit for purposes of regulation (Bank Act: article 30.2). That is, in managing the stockholders’ equity ratio (i.e. stockholders’ equity to total assets) and the total amount of loans, all member companies of a business group were collectively


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calculated, and in regulating business groups, they were classified into the five largest or the thirty largest debtor business groups. Second, the Loan and Payment Guarantee Management System included social and political aims, in line with the government’s intention to rectify any biased allocation of bank loans ((Min Pyông-gyun 1991:131). During the Chun and Roh regime period, the contents of the Loan and Payment Guarantee Management Rules on Conglomerates were as follows: 1 When a company which belongs to one of the thirty largest business groups intends to invest, it should obtain approval from its main banks (Loan and Payment Guarantee Management Rules on Conglomerates: article 11.1; Yi Ch’ôn-p’yo 1991:200–5). 2 To encourage business specialization, the banks which transact with the thirty largest chaebôl should induce them to dispose of non-main line businesses, and restrict them from joining new businesses (ibid.: article 8.4). 3 Each of the thirty largest business groups may, select, in consultation with their major correspondent banks, no more than three member companies to be designated main line businesses (ibid.: article 8). The main line companies are not restricted in borrowing loans from banks or purchasing real estate. 4 When a major correspondent bank allows a company which belongs to one of the thirty largest business groups to invest in its member companies (except the designated main line companies), the finance should be raised through ‘self-effort’ (ibid.: article 16). Self-effort implies the disposal of member companies, or real estate, and the issue of new shares (ibid.: article 2.12). 5 When a company which belongs to one of the thirty largest business groups intends to purchase real estate, it should get permission from its major correspondent banks (ibid.: article 13.1). Real estate identified as ‘non-business’ should be disposed of within six months of the date of government judgment (ibid.: article 22.1). 6 Basket ratio management: the loan and payment guarantees offered to the big business groups are managed in accordance with ‘the bank basket ratio’ and ‘the affiliated firm basket ratio’. That is, the amount of loan given to each business group is regulated by the bank basket ratio, and each business group can borrow loans only within the limit of the affiliated firm basket ratio (Min Pyông-gyun 1991:116). The basket ratio management system was introduced in January 1984. Besides the loan and payment guarantee management system, the Roh government promulgated the so-called ‘8 May real estate measures’ to restrict the possession of real estate by big business groups in 1990. The measures stipulated that the thirty largest business groups, designated as targets of the loan and payment guarantee management, should dispose of non-business purpose real estate. The small and medium size enterprise2 support system Immoderate investment in the heavy/chemical industry area, carried out by the Park regime in the 1970s, incurred the under-development of small/ medium size enterprises. Since the Korean economy relied heavily on the parts assembly industry, criticism was made that the balance of trade would not be improved without the development of the component industry. For this reason, the Chun government actively engaged in supporting small and medium-size businesses.


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Institutional support The establishment of a long-term plan for the promotion of small and medium-size enterprises In April 1982, the government established a long-term plan for the promotion of small and medium size enterprises in order to support them systematically and consistently. Support of the foundation of small and medium size enterprises The system for selecting and supporting promising small and medium size enterprises’ and ‘the supporting system for the foundation of small and medium size enterprises’ came into force in May 1983 and April 1986 respectively, to build the institutional basis of the development of small/medium business and to relax entry barriers. Both systems stipulated financial support, special favor in taxing, and the simplification of the authorization procedure in inaugurating enterprises (Bank of Korea 1990:199). The systematic organization of the link between small and medium size enterprises and big business conglomerates By the amendment of the Act on the Promotion of Systematization in 1982, the kinds of items for systematization were expanded. In October 1983, the ‘small and medium business systematization promoting conference’ was instituted to lead this program regularly. In order to encourage the specialization of business areas between large business conglomerates and small and medium size enterprises, the government notified ‘businesses and items for systematization’. In addition, the Ministry of Commerce and Industry legislated the Act on the Rationalization of the Subcontract System in December 1984, as an effort toward the effective division of business specialization (Sanggongbu 1988:59). Besides these, the government exhorted the large conglomerates to leave small and medium size enterprises to operate in certain areas. The protection of small and medium size enterprises’ business areas To develop small and medium size businesses and protect them from the chaebôl companies’ diversification, the ‘small and medium size enterprises’ specialist business system’ was introduced to the Small and Medium Size Business Coordination Act in December 1982 (Sanggongbu 1988:60). Support of business stability for small and medium size enterprises To encourage the purchase of merchandise produced by small and medium size enterprises, the Act on the Promotion of Purchasing Small and Medium Size Enterprises’ Merchandise came into force in December 1981 (Sanggongbu 1988:61). Adjustment of the structure of the small and medium business industry In 1988, the government introduced the Support System of the Small and Medium Business Structural Adjustment Fund to assist small and medium size enterprises, which were suffering with the appreciation of won currency, wage rises, and labor strikes, so that they could adapt themselves to structural adjustment (Bank of Korea 1990:205). In 1989, the Special Measure Act on the Stabilization of Small and Medium Business Management and the Promotion of Structural Adjustment was jointly legislated by four political parties (Democratic Justice Party, Peaceful Democratic Party, United


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Democratic Party, and New Democratic-Republican Party). Under this law, the ‘small/medium business structural adjustment fund’ (370 billion won) was created. The Roh regime aimed at the so-called ‘three-high structure’, i.e. high-level technology, high productivity, and high value-added, of small and medium size enterprises. Other measures To modernize small and medium size enterprises, the government helped and encouraged them to share facilities, factories, etc., along with participation in joint investment in and use of equipment, joint management, and company mergers. To elevate productivity and promote technological development, the government not only supported the R&D fund but also induced small and medium size enterprises to establish affiliated research institutes or form an industrial technology research association. At the same time, government research institutions supported small and medium size enterprises’ technological research. Under the Roh regime, the government supported information technology (computerization) and automation in small and medium size enterprises, and assisted them in improving managerial and industrial skills. In addition, the government supported the internationalization of small and medium size enterprises, and helped them to join in the exporting industry and to launch their business in the overseas markets. The state’s fiscal support The government expanded the allocation of budgets to the small/medium business sector during 1980–92. It gradually increased its investment in the Industrial Bank of Korea, the Citizens’ National Bank, and the Korea Long Term Credit Bank. The government’s fiscal support of the small/medium business promotion fund, the small/medium business mutual benefit project fund, the manufacturing industry development plan, and national institutions which were assigned to assist small and medium size enterprises in developing technology, also increased by degrees. Banks’ financial support Instituting ‘the system for selecting and supporting promising small and medium size enterprises’ in May 1983, the government imposed a duty on financial institutions to support 600 small and medium size enterprises per annum. Promising firms were given special favor in financing, credit security, technology development, and marketing assistance. In 1980, the government increased the city banks’ obligatory minimum rate of small/medium business loans from 30 to 35 percent of the annual increment of total loan of each bank. In the case of local banks, the rate rose from 40 to 55 percent (Bank of Korea 1990:179). These rates have consistently risen since 1980. As of 1992, city banks, the Korea Exchange Bank, and local banks allocated 45 percent, 35 percent and 80 percent respectively of the amount of increased loans to small and medium size enterprises (Sanggongbu and Chungsogiôp Hyôptong Chohap Chung’anghoe 1992:38). Similar regulations were applied to secondary financial institutions such as short-term loan companies, insurance companies, and lease companies. Other measures In addition to the above support, the government bestowed special tax exemption and administrative aids on small and medium size enterprises. In 1992, the interest rate was as


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high as 14–20 percent. This was because the government retained the retrenchment policy to remove bubbles in the economy, although entrepreneurs strongly urged the government to intervene in the financial market to lower the interest rate. Small and medium size enterprises, whose financial basis was weaker than that of the chaebôl companies, faced serious financial troubles, and bankruptcies of small/medium firms greatly increased. Between May and June 1992, the government announced some exceptional measures to help small and medium size companies to overcome financial difficulties. The Office of National Tax Administration announced that it would exempt small and medium size enterprises from tax investigation for one year. The Ministry of Home Affairs forbade administrative institutions to collect public contributions from small and medium size enterprises or to mobilize their workers for government-organized public functions. Regulation by commercial law Under the Commercial Law (article 342), the possession of the parent company’s stocks by a subsidiary company is banned. ANALYSIS OF POLICY-MAKING PROCEDURE The Fifth Republic Why did the Chun regime strongly undertake the above three economic/ industrial policies, i.e. the ‘fair trade system’, the ‘loan and payment guarantee management and main line business systems’, and the ‘small/medium size enterprises support system’, which were closely related to the restriction of economic concentration in the chaebôl? To answer this question, we need to comprehend a policy decision-making procedure, in which the Fifth Republic came to focus its economic policy on stabilization and deregulation (or liberalization) rather than growth and a state-led economy, which had been consistently pursued under the Park regime. Growth-centered economic policies and the fostering of heavy/chemical industry by the state’s initiative in the 1970s brought about critical economic problems such as inflation, the reduction of effectiveness in investment, and unbalanced development between industrial sectors and regions (Pak Myông-ho 1991:24–5; Ôm Yong-sôk 1991:17). The Chun regime, following the Park regime, therefore, attempted to settle the problems through a policy transition to economic stabilization and deregulation. The above three policies were means to achieve these two goals; that is, it intended to establish a condition of fair and, at the same time, optimally effective competition, to achieve the effective allocation of resources, and to narrow a gap between the chaebôl and non-chaebôl sectors. Economic stabilization, in fact, had already been attempted under the Park regime. Between 1976 and 1978, the growth rate of the South Korean economy was as high as, on average, 10.9 percent, and the balance of its current account recorded a small surplus for the first time in 1977, as exports reached 10 billion dollars. The economic boom ensued from the government’s extensive support for investment in the heavy/chemical industry and success in the Middle East construction market. However, a series of economic


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problems incurred by the boom appeared in 1978 and 1979; wholesale prices rose;3 real estate prices soared; the stock market stagnated, and wages rapidly rose owing to a shortage of labor. These were the ill effects brought about, mainly, by immoderate investment in heavy/chemical industry. Between 1975 and 1979, the government intensively allocated bank loans to the heavy/chemical sector according to ‘the heavy/chemical industry expansion policy’. As a result, the heavy/chemical industry accounted for 63.9 percent of the total investment in the manufacturing sector during 1975–79 (Table 4.1).

Table 4.1 Constituent percentages by industry of total investment in the manufacturing sector 1971–74 1975–79 (%) (%) Light industry 43.5 36.1 Heavy/chemical industry 56.6 63.9 Source: Yi Sông-hun et al. (1989:27) In the meantime, the ruling Republican Party almost lost the general election held in December 1978. In terms of the number of parliamentary seats, the Republican Party (68 seats) narrowly outnumbered the New Democratic Party (61 seats), but in respect of votes acquired, in contrast, the latter (32.8 percent) surpassed the former (31.7 percent) by 1.1 percent. Presuming that the failure of economic policy had incurred the political defeat, the government began to adopt economic stabilization programs (Tong’a Yôn’gam 1979:293).4 On 17 April 1979, the Deputy Prime Minister announced the ‘general measures on economic stabilization’ (henceforth the 17 April measures), which had been prepared by the EPB since around 1977.5 They were aimed at the stabilization of commodity prices, financial retrenchment, the adjustment of investment in heavy/chemical industry, the improvement of financial management, the restriction of speculation in real estate, and the improvement of the standard of living of the poor. The 17 April measures, however, could not effectively stabilize commodity prices. In 1979, with the second oil crisis and President Park’s sudden demise, Korea had to suffer severe economic turmoil. The rate of increase in wholesale prices rose from 11.8 percent in 1978 to 18.6 percent in 1979, and to 39.0 percent in 1980. The economic stabilization was succeeded by the Chun regime, which was established in December 1979 through a quasi-military coup. Chun had to cope with the sudden social, political, and economic crises which followed President Park’s assassination. The Korean economy recorded an economic growth rate of –5.7 percent in 1980; the unemployment rate increased from 3.8 percent to 5.2 percent between 1979 and 1980; and the deficit in the balance of current account reached US$4.2 billion and US$5.3 billion in 1979 and 1980 respectively. In such a situation, the stabilization policy, which had been prepared and originally suggested by the Economic Planning Board, could be easily accepted by the Standing Committee for Emergency National Security Measures (henceforth SCENSM), which functioned as a military junta and the highest decisionmaking office until Chun’s Fifth Republic was regularly established. Thereafter, Chun’s


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Fifth Republic selected stabilization as a policy goal, along with harmony, abundance, and welfare. Meanwhile, the economic deregulation policy had also been suggested by the bureaucrats of the EPB in the late 1970s. EPB emphasized that import liberalization would contribute to economic stabilization (Economic Planning Board 1982:211–13). The import items suggested by the EPB were, by and large, agricultural and marine products and electrical home appliances. The argument of EPB, however, drew objections from the Ministry of Commerce and Industry, the Ministry of Agriculture and Fisheries, and the Ministry of Construction, all of whom had direct interests in these areas. So the import liberalization attempt by EPB attained only limited success (Ch’oe Pyông-sôn 1989:32–3; Yi Chang-gyu 1992:46–7). However, deregulation was again emphasized under the Chun regime. The Fifth Five-year Economic Development Plan (1982–86) specified deregulation as one of the supplementary policies of economic stabilization. EPB insisted that the economic deregulation policy ought to be introduced on the following grounds (Fair Trade Commission and Korea Development Institute 1991:30–3; Korea Development Institute 1982:71–97; Kim Chung-ung 1981). First, the government’s market interventionist policy, such as the selection of investment objects, restrictive competition in the acquisition of business licenses, direct price control, and the expansion of policy loans, hampered the self-regulating function of prices, and induced socio-economic ineffectiveness. Second, an oligo-monopolistic market structure had been shaped, as the chaebôl enterprises raised commodity prices, and it impeded their competitors’ business activities by the abuse of monopolistic status. The chaebôl then undertook immoderate expansion with the surplus profit created by this oligomonopoly, or invested it in non-manufacturing areas such as real estate. Third, the Act on Commodity Price Stabilization and Fair Trade, enacted in 1976, could not effectively institute a fair trade system, because it emphasized the stabilization of the commodity price rather than ‘fair trade’ itself. As a means of accomplishing economic deregulation, the government took four measures: the Fair Trade System, the enforcement of the Industrial Development Law, limited financial deregulation, and import liberalization. First, the Fair Trade System was introduced as a basic rule of fair and effective market competition. The EPB’s attempt at economic deregulation accomplished a significant success. It persuaded the Chun regime to append an article banning monopolies, to the constitution of the Fifth Republic (Fifth Republic Constitution amended on 27 October 1980: article 120). Also, the government enacted the Act on Monopoly Regulation and Fair Trade on 31 December 1980. Secondly, seven (industrial) promotional laws, stipulating the intervention of the government in the private sector, were replaced with the Industrial Development Law (IDL) in 1986, which rather reduced the government’s intervention.6 (The IDL, however, still justified government intervention to prevent excessive competition among business actors.) Third, the government attempted financial deregulation. The direct and selective allocation of financial resources by the government had been significantly dedicated to the rapid growth of the chaebôl, along with the low interest rate policy. However, the government’s control over financial distribution and the interest rate induced chronic and excessive financial demands, difficulties in financial management, and the poor managerial situation of financial institutions. Since the government was involved in lending and the management of financial institutions, many loans were taken out to


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attract the financial security of the government (Chông Kôn-yông 1987:21–4). That is, the more loans a company retained, ironically, the safer the financial support it could secure from the government. In the case of a company failing to service the debt, serious financial loss could be incurred by transaction banks, and the government had to compensate the loss. Therefore, the enterprises with loans tended to make speculative choices, while relying on the financial support of the government. Financial deregulation was accelerated by the so-called, ‘Yi and Chang bill fraud incident’7 which occurred in May 1982. Between 1981–83, four banks were newly privatized8 and two other banks were established. Entrance barriers to the secondary financial institution were removed, and limited liberalization of interest rates began to be carried out in 1984. Fourth, the government relaxed the protection of the domestic market. EPB maintained that businesses would continue to neglect the development of technology as long as the domestic market was protected from foreign competitors; a price gap between domestic and overseas commodities weakened the international competitiveness of related industries; and intensive support of the protected industries distorted a fair distribution of resources (Kyôngje paeksô 1983:47). Also, the government expected that the liberalization of imports would contribute to economic stabilization. Deregulation, however, did not mean entirely free competition or liberalization in the South Korean case. For instance, the government did not aim at an entirely autonomous financial system. The government officials saw that the chaebôl’s indiscreet use of financial resources and reckless diversification were the main reasons for their poor financial conditions and, at the same time, the financial troubles of small/medium size enterprises. Hence, as we saw above, the government still intervened in the allocation of bank loans, and firmly maintained legal and financial leverage over the chaebôl through the ‘loan and payment guarantee management system’. In the course of disorganizing illmanaged enterprises, moreover, the government intervention in the private sector rather deepened. As the shipping and the overseas construction industries almost went bankrupt with slump in the world economy and the construction market in the Middle East, city banks holding a large amount of payment guarantees also came to a crisis of collapse. Between 1984–88, therefore, the government executed six times of the rationalization of ill-managed enterprises. As a result, eighty-two enterprises in those industries were disposed of. To the undertakers of the ill-managed enterprises, the government granted generous special financial benefits such as tax exemption and the special loans of the Bank of Korea. What the Korean government was eventually pursuing were conditions for optimally effective, rather than free, competition. Even state intervention to prevent excessive competition through the main line business system and the IDL still continued despite deregulation. By nature, deregulation did not simply imply liberalization in Korea. It merely meant the removal of irrationally excessive control over the private sector (Chông Kôn-yông 1987:15; Kyôngje paeksô 1993:242–3). By whom, then, were those reformative policies described above, established? It was the President himself, his head economic secretary, and the bureaucrats of the EPB who made the Chun regime effect the economic stabilization and the economic deregulation policies at an infant stage of the Fifth Republic. The officials of the EPB could provide military personnel who wanted to restore social, political, and economic stability, with professional economic advice. Kang Kyông-sik had asserted the need for economic stabilization since the mid-1970s, and created circumstances in which the Chun regime


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took on the stabilization policy, through economic education and persuasion of government officials and public relations (Kang Kyông-sik 1992). Kim Chae-ik, who had been dispatched to the SCENSM from the EPB as head of the subcommittee on science and economy and who, thereafter, served as the chief economic secretary of President Chun, played a central role in drawing up the economic policies of the Fifth Republic. Allegedly, he was one of the authors who drafted the economic stabilization plan, while serving as head of the planning bureau in the EPB between 1976 and 1980. After assuming power, Chun started to take private economics lessons from Kim, and obtained economic advice and ideas mainly from him. The wage-freezing policy, retrenchment policy, the fair trade system, the privatization of banks, the liberalization of the interest rate, the independence of the Bank of Korea, and the real-name financial transaction system were all originally drafted and propelled by Kim and other bureaucrats of EPB. The EPB had consistently suggested the economic stabilization policy since the mid1970s. Why did they assume such a reformatory attitude, although President Park, as well as bureaucrats of other ministries, had objected to the policies in the beginning? There exist no empirical studies on this issue, but a clue may be found in the character of EPB. According to an interview with an ex-government official, since EPB was relatively independent of sectional interests in comparison with other economic ministries such as the Ministry of Finance (which was in charge of financial institutions), and the Ministry of Commerce and Industry (closely linked to private enterprise), it tended to observe macro-economic features. A consensus of the above reform policies had already been formed in the EPB at that time.9 In instituting economic reform, EPB faced resistance from the Ministry of Finance and the Ministry of Commerce and Industry, because the above economic deregulation policies meant the reduction of authority for both ministries. The Ministry of Finance opposed the ‘Bank of Korea liberalization scheme’, and was reluctant to privatize city banks rapidly. For the ministry, keeping the central bank and main city banks under its supervision was crucial in managing the national monetary system and policy loans. The Ministry of Commerce and Industry was afraid of possible damage to domestic industry which might be induced by import liberalization. Also, it wanted to remain as the competent authority of the ‘Act of the Fostering of Industries’. Neither ministry wanted to relinquish bureaucratic control over financial institutions and private enterprises. The conflicts among the government institutions, however, were resolved by the President’s strong political integrating power. Kim Chaeik could overcome the resistance by asking Chun to appoint the EPB bureaucrats to key positions in both ministries (Yi Chang-gyu 1992). Meanwhile, the political party and interest groups could exercise only a limited influence on the decision-making process. Of course, a few economic reforms were frustrated by social pressure and the chaebôl’s lobbying. Many conglomerates would be disadvantaged by the real-name financial transaction system as they had hidden their assests by registering them under aliases, so they tried to persuade politicians, bureaucrats, the press and even the President, not to institute it. Arguing that the enforcement of the system would bring about an economic turmoil, the ruling Democratic Justice party was also firmly opposed to it. As a consequence, the attempt to implement it in 1982 was thwarted. Despite a few cases of failure, however, President Chun, his head economic secretary, and the aforementioned EPB officials, on the whole, successfully effected a series of economic reforms as they had planned.


53

The Sixth Republic In the later period of the Chun regime, however, the control of the chaebôl by the government became somewhat enfeebled. This does not seem to have resulted from a change of industrial policies but, rather, was due to economic euphoria which pervaded South Korean society in the late era of the Chun regime. As the South Korean economy made a trade surplus during 1986–88, the Chun government came to have a generous attitude toward the chaebôl. According to the record of Chun’s speech published by his public information secretary, he was convinced of the success of his economic policies in the late period of his rule. He expressed the intention not to regulate the chaebôl forcibly any longer so that they could fully devote themselves to exportation and economic development (Kim Sông-ik 1992:132–3, 613). Of course, this did not mean that he would withdraw restrictive policies entirely. Nonetheless, the policies of regulating the chaebôl showed a disposition to be somewhat mitigated in the late era of the Chun regime. Even after Roh took office as the President, the government’s restriction of the chaebôl was not reinforced immediately. Roh was interested in political democratization and diplomacy with former Communist countries rather than in economic development. When he was inaugurated as the President in 1988, the South Korean economy was experiencing an economic boom. For him, therefore, economic development was regarded as less important than the other interests, in gaining political popularity.10 Roh’s attitude toward the management of the economy, however, altered drastically around 1990, and changes in state-business relations occurred. As the South Korean economy entered a recession and economic concentration via the chaebôl deepened, the Roh government could not uphold economic optimism any longer. It tried to break through the depression by harmonizing two major, potentially contradictory, economic policies. On the one hand, it advanced economic deregulation. An emphasis was put on relaxing practical restrictions in each industrial sector. In 1990, the Committee for the Relaxation of Administrative Regulation was established, and on an average 322 regulations were relaxed per year during the Roh regime period (1988–92). (By comparison, during the Chun regime period, 1980–87, on an average 32 regulations were relaxed per year.) On the other hand, it began to intervene more strongly in the economy and particularly the chaebôl sector, with the appointment of the new vice-prime minister, Yi Sûng-yun, and presidential economic secretary, Kim Chong-in. In contrast with their predecessors, they tended to prefer moderate to radical reforms, and to emphasize interventional steps to stimulate the economy rather than stabilization policies. They again took growth-oriented measures such as the support of the ‘special fund for equipment investment’ and financial favors for trade, notwithstanding the danger of inflation which might result from currency expansion. Insofar as chaebôl matters were concerned, however, their views were not greatly different from those of their predecessors. Government intervention involved regulations as well as support. Kim Chong-in firmly held that the competitiveness of the chaebôl business would not be recovered, unless the government could make the chaebôl stop their speculation in real estate and specialize in specific industries (Ôm Chi-do 1992). There were three reasons for the Roh regime restricting the chaebôl again: one, Roh and the DJP had promised political democratization and economic equity during the presidential election period; two, the Roh government reckoned that it still needed to maintain interventionism in order to overcome the economic depression and to promote the expansion of high value-


54

added industries; three, the government wished to make sure that the chaebôl were still under the government’s control. Political democratization and economic equity In 1987, despite remarkable economic success, political protest against the authoritarian rule of the Chun regime began to take place. It was the so-called, ‘Pak Chong-chôl incident’ which ignited anti-government protest: Pak, a student movement activist, was tortured to death by the police, and this was disclosed by a Catholic priest in ‘the seventh memorial mass for the Kwangju democratic movement’. In June 1987, another university student, Yi Han-nyôl who joined a political protest, was killed by the police. As a result, a succession of nationwide political protests occurred between 10 and 26 June. Along with the political protest for democratization came labor strikes. The number of strikes jumped from 256 in 1985 and 276 in 1986 to 3,749 in 1987. Although the Chun regime carried out the aforementioned economic reforms in the late period of the regime, the people felt, on the contrary, that the economic concentration via the chaebôl had deepened further, and the unequal distribution of wealth did not ameliorate satisfactorily. While the government strictly controlled the rise of laborers’ wages with the stabilization policy, the entrepreneurs could realize profits, thanks to the appreciation of the Japanese currency and the so-called ‘three lows’: low interest rate, low dollar, and low oil price. The political conflict between the Chun regime and anti-government forces was dramatically overcome by a declaration made by Roh, Chun’s political successor and the presidential candidate, on 29 June 1987. In the declaration, he promised democratization and economic equity. In order to compete with Kim Young-sam and Kim Dae-jung for the presidency in the thirteenth presidential election in 1987, Roh had to take public opinion into account. In drafting election manifestos, he and the ruling DJP emphasized ‘equity’ rather than ‘efficiency’ in the economic area and the removal of the political authoritarianism which had prevailed since the rise of the Yushin regime. So economic promises were mainly focused on improving distribution and restraining the economic concentration via the chaebôl, and political promises on democratization. They included the following detailed items: 1 The advancement of the economy • maintenance of the stability of commodity prices 2 The establishment of the free market economy11 principle • economic operation based on the free market economy principle • establishment of a fair trade order and the protection of consumers • regulation of economic concentration via the chaebôl • financial deregulation • expansion of small and medium size businesses 3 The realization of distributive justice and promotion of welfare • realization of economic justice • implementation of ‘real estate public ownership’ 4 The promotion of laborers’ welfare and the growth of the middle class • settlement of a democratic relationship between labor and management


• • • • 5 • • •

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guarantee of proper wage levels improvement of working conditions modernization of the labor market preferential treatment of technicians Democratization revitalization of party politics and parliamentarianism institution of a local self-government system security of freedom of speech and publication (Democratic Justice Party 1987)

These ideas were also suggested as campaign promises in the thirteenth general election (Democratic Justice Party 1988), and became the basic principles of the Sixth Republic’s economic and political policies. The weathering of economic depression and the fostering of high value-added industries An economic depression set in 1990. As Table 4.2 shows, the GNP increase rate gradually decreased from 13.0 percent in 1987 to 8.4 percent in 1991. The trade surplus, which had lasted for four years (1986–89) came to an end in 1990. The economic depression was incurred, above all, by stagnation in the manufacturing industry. While the manufacturing sector had grown by an average of 13.3 percent during the Chun regime period (1981–88), it grew by, on average, only 7.1 percent between 1989–91 (Table 4.3). Korean

Table 4.2 The growth rate of GNP and the balance of trade, 1986–91 1986 1987 1988 1989 1990 1991 GNP (% growth) 12.9 13.0 12.4 6.8 9.3 8.4 Balance of trade (billion US$) 4.2 7.7 11.4 4.6 –2.0 –7.0 Source: Song Hûi-yôn (1992:6)

Table 4.3 Percentage growth rates of manufacturing industry and GNP 1960– 1971– 1981– 1989 1990 1991 70* 80* 88* GNP (% growth) 9.2 7.7 10.0 6.8 9.3 8.4 Manufacturing industry (% 16.8 15.5 13.3 3.7 9.1 8.5 growth) Source: Song Hûi-yôn (1992:10)

Note: *average of annual averages Table 4.4 Korean manufactured goods’ percentage share in overseas markets 1981 1987 1988 1989 1990 1991 World market (as a whole) 1.14 2.01 2.25 2.14 1.96 –


US market Japanese market

2.00 2.37

4.19 5.40

4.56 6.30

56

4.17 6.16

3.74 4.99

3.50 5.21

Source: Song Hûi-yôn (1992:11) merchandise had rapidly lost market shares since 1988 in overseas markets. The percentage share (by value) of Korean merchandise in world markets decreased from 2.25 percent in 1988 to 1.96 percent in 1990 (Table 4.4). Reasons for manufacturing industry’s loss of competitiveness were: one, although wages rose rapidly after Roh’s democratization declaration in 1987, the increase in the productivity of Korean enterprises was not quick enough to catch up with wage rises. Between 1988 and 1991, wages rose by 110.0 percent, but labor productivity increased by a mere 47.2 percent. The percentage of wages to total value-added also continuously increased from 47.0 percent in 1987 to 53.3 percent in 1991 (Kyôngje paeksô 1992:105–7). Two, technological inferiority weakened the quality competitiveness of Korean merchandise. The quality of Korean merchandise did not improve, although prime costs increased both as a result of rising wages12 and the appreciation of the Korean currency. By contrast, Japanese merchandise, which had lost price competitiveness owing to an appreciation of the yen, began to recover its shares in overseas markets, and the products of other Asian developing countries encroached upon the overseas market shares of South Korean goods. Policy-makers of the Sixth Republic reached the conclusion that the state should police the speculative behavior of the chaebôl and maintain intervention in the private sector in order to overcome the economic depression and to promote the expansion of high-value-added industries. As we saw in the previous chapter, the chaebôl were criticized for having expanded their assets by investing in real estate and financial business during an economic boom rather than improving the competitiveness of the manufacturing industry by reinforcing R&D. Also, the chaebôl’s monopolization of economic resources had stunted the growth of small/medium size enterprises, the root of industry. For this reason, the government forced the chaebôl to specialize in specific business areas on the one hand, and intensively supported small/ medium size enterprises related to component-manufacturing industries on the other, in order to recover the international competitiveness of South Korean industry. The re-establishment of the government’s authority Under the Roh regime, democratization progressed smoothly. However, Roh was confronted with barriers in the early days of his regime: political democratization involved the reduction of administrative authority, the reinforcement of legislative power, and the freedom of the press; the authoritarian administration which had helped the government to propel economic policies in a coercive fashion became bridled (Chông Chông-gil 1992); the National Assembly was dominated by opposition parties, and its right to inspect the executive which had been suspended under the Fourth (i.e. the Yushin regime) and the Fifth (i.e. the Chun regime) republics was restored. The mass media which had been censored by authoritarian regimes began publicly to denounce the failure of the Roh government’s economic policies. Moreover, the chaebôl’s defiance of the Roh government became daring, with the augmentation of their political, economic


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potentiality. They were not submissive to the government any longer. Roh and the bureaucrats attempted to tame the chaebôl to recover the political authority of the state. The dispersion of the ownership of the chaebôl enterprises was among the main goals of the Seventh Five-year Social and Economic Development Plan. It seemingly claimed that the ownership of their member companies should be dispersed in order to induce the chaebôl to stop immoderate business diversification and to specialize in main line businesses. However, the plan undoubtedly reflected the Roh government’s intention to check the expansion of the political, economic influences of the chaebôl. While reinforcing the aforementioned three policies of regulating the economic concentration via the chaebôl, the President, his head economic secretary, government officials of EPB, and other economic ministries, again played pivotal roles, and conflicts between ministries did not appear. The Sixth Republic’s main policies were based on the aforementioned election campaign platforms of the DJP, which had been, in fact, drafted by government officials working in economic ministries such as EPB, the Ministry of Finance, and the Ministry of Commerce and Industry, and already systematically reviewed by them in the late period of the Chun regime. For instance, the necessity for a main-line-business system was strongly emphasized in a government report from the Ministry of Commerce and Industry in July 1987 (Kong’ôp Paljôn Simûihoe 1987). Government officials of competent ministries were deeply involved in developing the election manifestos, whereas the party and the assembly members’ participation was limited. Another reason the election campaign platforms tended to reflect the government’s position in essence rather than that of the party was that those assembly members, such as the head of the policy mediation office, who directed the preparation of the campaign promises, had careers as bureaucrats or researchers for government institutions. After the platforms were drawn up, they were modified through the partygovernment meeting, so the party’s role was, in fact, no more than offering verbal modification. In order to convert the manifesto into policies, the President promoted his head economic secretary to minister level so that he had the power to execute the restrictive policies on the chaebôl. He and the Deputy Prime Minister, i.e. the Minister of the EPB, played key roles. Mun Hûi-gap, Roh’s economic secretary, and Cho Sun, the Deputy Prime Minister, introduced ‘the real estate public ownership system’ bill, into the National Assembly and had it passed. Kim Chong-in, the successor to Mun, suggested and carried out, in a much stronger fashion, a series of the policies to regulate the chaebôl, such as the restriction of their reckless business diversification and speculation in real estate, and the main-line-business system of the chaebôl groups. The Roh regime, which was considered to be relatively democratic in comparison with the Chun regime, was still considerably independent of the chaebôl’s influence in establishing economic, industrial policies, although it was under a disadvantageous politico-administrative atmosphere incurred by democratization. The President, his head economic secretary, and the government officials still enjoyed strong decision-making power. After the Democratic Justice Party, the United Democratic Party, and the New Democratic Party were merged into the Democratic Liberal Party in 1990, the policy implementation capacity of the government was greatly fortified as the political support of the ruling party became stronger while the opposition party’s ability to check the executive shrank. In respect of the strength of restriction on the chaebôl, the anti-


58

economic concentration measures of the Roh regime were, in effect, much tougher than those of the Chun regime. The legislation of the system of real estate public ownership, the 8 May measures concerning real estate, the restriction of the chaebôl’s business diversification, the main-line-business system, and the reduction of the mutual standing surety between member companies were instances of the Roh regime’s restrictive policies toward them. By contrast, the influence of the chaebôl on decision-making and implementing procedures shrank further. As the Roh regime intentionally kept itself aloof from the chaebôl in order to manifest its fairness as a democratic government and to carry out the anti-economic concentration measures strongly, the relationship between them rapidly grew worse. The chaebôl openly displayed discontent with the government, but the government, which considered its authority to be damaged by democratization, enforced the measures more strictly. Under the Roh regime, communication between them in planning and implementing the economic policies was often disrupted by political tension. ANALYSIS OF THE POLICY-IMPLEMENTATION PROCEDURE In Chapter 3, we reviewed economic, social, and political problems which radiated from the economic concentration via the chaebôl. In this part, we will observe the change in the strength of state autonomy in the course of policy-implementation, by assessing the results of the enforcement of anti-economic concentration policies. Aggregate concentration As a main strategy of business expansion and diversification, the chaebôl frequently employed the methods of the foundation, combination, and acquisition of new member companies, which eventually deepened economic concentration (Fair Trade Commission and Korea Development Institute 1991:103). Owing to the Chun government’s strong anti-economic concentration policies, the average number of member companies of big business groups drastically decreased from 34.6 in 1980 to 22.5 in 1983 (Table 4.5). But it began to increase in the late era of the Chun regime and in the early stages of the Roh regime. In my view, the increase was due to an economic boom and the rationalization of the shipping and the overseas construction industries executed by the Chun government between 1984–88. The latter was a more direct reason: a total of eighty-two ill managed firms were disposed of and many of them were taken over by the chaebôl. However, it has again revealed a tendency to stop increasing since 1991 when the Roh government strongly controlled the immoderate business expansion of the chaebôl. The average number of the ten largest chaebôl of 1993 (32.6) was lower than that of 1980 (34.6). Considering the fact that the fifty largest chaebôl’s sales jumped by 556 percent between 1980 and 1991, the attempts of both governments to restrict the reckless business expansion of the chaebôl is not considered a failure. In addition, the increase in the number of member companies under the Chun and the Roh regimes was much lower than that under the Park regime. During 1972–80 as a whole, the rate had been as high as 284 percent. As for business diversification, according to data from the Office of Bank


59

Table 4.5 The change in the number of member companies of the ten largest chaebôl (ranked by sales), 1972–93 (including financial industry) Number of member companies Chaebôl 19721 19802 19833 Samsung 16 Hyundai 60 Hyundai 35 Lucky 18 Lucky 53 Samsung 31 Hanjin 8 Samsung 39 Lucky-Goldstar 42 Shinjin 8 Sunkyung 28 Sunkyung 14 Ssangyong 6 Daewoo 48 Daewoo 27 Hyundai 6 Ssangyong 20 Kukche 18 Daehan 5 Hyosung 39 Korea explosive 16 Korea Explosive 7 Kukche 29 Hanjin 12 Keukdong 8 Hanjin 19 Hyosung 16 Daenong 8 Daelim 11 Ssangyong 14 Average 9 34.6 22.5 19874 19914 19934 Samsung 34 Samsung 52 Samsung 50 Hyundai 40 Hyundai 43 Hyundai 48 Lucky-Goldstar 50 Lucky-Goldstar 59 Lucky-Goldstar 54 Daewoo 26 Daewoo 22 Daewoo 24 Sunkyung 13 Sunkyung 31 Sukyung 33 Ssangyong 18 Ssangyong 22 Ssangyong 23 Hanjin 14 Kia 10 Hanjin 21 Hyosung 18 Hanjin 23 Kia 13 Korea Explosive 20 Lotte 32 Lotte 31 Shindonga 8 Korea Explosive 27 Korea Explosive 29 Average 24.1 32.1 32.6 Source: 1 Kim Seok Ki (1987)

2 Tong’a Ilbo, 1 January 1981 3 Han’guk Ilbo, 16 June 1984 4 Kyông’yong Nûngnyul Yôn’guso (1988, 1992, 1995) Supervision and Examination, the average number of businesses in which the ten and the thirty largest chaebôl participated, did not exhibit significant differences during 1989–91 and 1992–93 periods (Table 4.6) Economic concentration in the thirty largest chaebôl in the mining/ manufacturing sector has decreased since 1985. As Table 4.7 shows, the percentage of the sales of the thirty largest conglomerates to the whole mining/ manufacturing sector has largely decreased since 1985. In the meantime, the percentage of value added to GNP created by the fifty largest chaebôl rose from 15.8 percent in 1980 to 19.5 percent in 1983. However,


60

between 1986 and 1991, it remained at 15.4 percent. This indicates that, while the development of the chaebôl sector was restrained, the non-chaebôl sector gradually developed (Table 4.8).

Table 4.6 Average numbers of business areas in which the ten and thirty largest chaebôl participated, 1989–91 and 1992–93 1989 1991 1992 1993 10 largest chaebôl 31.1 30.2 n/a n/a 30 largest chaebôl 21.1 22.7 17.9 18.3 Source: Office of Bank Supervision and Examination.

Note: Since 1992, the OBSE has applied a new industrial classification system, therefore, a direct comparison between the two periods is impossible Table 4.7 Percentage of the thirty largest chaebôl’s sales in the mining/manufacturing sector, 1977–90 1977 1981 1985 1987 1989 Sales (%) 32.0 39.7 40.2 36.8 35.2

1990 35.0

Source: Kongjông kôrae yônbo (1993:86)

Table 4.8 Percentage of value added to GNP, which was created by the fifty largest chaebôl 1980 1983 1986 1989 1991 Value added/GNP (%) 15.8 19.5 15.4 15.4 15.4 Source: 1980–83: Han’guk Ilbo;

1986–91: Kyông’yông Nûngnyul Yôn’guso (1987, 1990, 1992) Investment in other companies, a crucial method of the expansion of the chaebôl, was also restrained during 1980–92. The amended Fair Trade Act forbade direct mutual contribution which might produce ‘phony capital’ and investments in affiliated companies or non-member companies which exceeded 40 percent of fixed assets. As of March 1990, the mutual contribution, conducted by the chaebôl companies, was entirely cleared up. The chaebôl companies designated by the Fair Trade Commission as big business groups, disposed of mutual contribution stocks worth 69.3 billion won (US$97.9 million) (Fair Trade Commission and Korea Development Institute 1991:118). The excess of investment limit (40 percent of fixed assets) was also cleared off smoothly. In the case of the twenty-nine largest business groups designated by the Fair Trade Commission in 1987, the percentage of the investment in other companies to fixed assets decreased from 43.6 percent in 1987 to 28.8 percent in 1992 (Kongjông kôrae yônbo 1993:84). This was because the companies actively issued new stocks to be purchased, increased internal surplus resources, and disposed of surplus stocks that exceeded the investment limit.


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Market concentration The degree of market concentration in the chaebôl companies did not decrease. The Fair Trade Commission has, since 1980, designated ‘market dominating companies and items’ in accordance with the Fair Trade Act, to regulate market-dominating positions of big business groups. Items, for which the first-ranked companies held over 50 percent market share or where the market share of the top three companies is over 70 percent, (with the yearly market size exceeding 300 billion won), fall into this category (Yi Kyu-ôk and Yi Chae-hyông 1990:42). The market-dominating items have increased since 1984. The percentage of the thirty largest chaebôl’s market-dominating merchandise among the whole of market-dominating merchandise largely increased between 1984 and 1993 (Table 4.9). Therefore, the government’s attempt to regulate market concentration in the chaebôl was not considered successful.

Table 4.9 The number of the thirty largest chaebôl’s market-dominating items 1984 1986 1988 1989 1990 1991 1992 1993 Total number of market dominating 71 100 122 131 135 136 144 122 items (a) Thirty largest chaebôl’s market 45 77 84 99 106 102 n/a 95 dominating items (b) b/a (%) 63.4 77.0 68.9 75.6 78.5 75.0 – 77.9 Source: Chông Chin-yông (1991:7); Kongjông kôrae yônbo (1991–93) Concentration in ownership (the possession of the chaebôl by the few) By and large, concentration in ownership was successfully controlled under the Roh regime. The internal holding (owner+family+member companies) rate of the thirty largest business groups decreased from 56.2 percent in 1987 to 43.47 percent in 1993 (Table 4.10) (Fair Trade Commission and Korea Development Institute 1991:117–8). However, the rate of public offering of stocks was still low. As of April 1991, the thirty largest chaebôl listed only

Table 4.10 The thirty largest chaebôl’s internal holding rate (i.e. percentage of shares owned by owner-chairman, his family and member companies) April 1987 April 1990 April 1991 April 1992 April 1993 Internal holding rate (%) 56.2 45.4 46.9 46.2 43.4 Source: Democratic Liberal Party (1922a:3); Fair Trade Commission 28.7 percent (161 out of 561 companies) of their affiliated companies (Kongboch’ô 1993:424). In 1990, the rate was 27.3 percent. Poor financial situation


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The debt ratio and stockholders’ equity to total assets of the fifty largest chaebôl, indicating their financial stability, were slightly improved in the 1980s. The debt ratio decreased from 524.0 percent in 1980 to 410.6 percent in 1987 and again to 368.9 percent in 1991. On the other hand, the stockholder’s equity to total assets increased from 15.5 percent in 1980 to 19.6 percent in 1987 and again to 21.3 percent in 1991. In addition, while the financial condition of small/medium size enterprises deteriorated, that of both the ten and the fifty largest chaebôl improved during 1980–91. The financial situation of the chaebôl enterprises had been worse than small/medium size enterprises in the 1980s, but, in 1991, not only were the debt ratios of both the ten and the fifty largest chaebôl lower than that of small/medium size enterprises, but also the stockholders’ equity ratios of the former were higher than that of the latter (Table 4.11). Monopoly of bank loans The government has, since 1984, tried to reduce loans and payment guarantees directed to the chaebôl enterprises. The percentage of the thirty largest business groups’ loans among the whole bank loans decreased from 21.6 percent in 1987 to 7.1 percent in 1993 (Table 4.12). Since the special equipment loan, credit for exporting industrial equipment and for high-tech industrial equipment, and loans for main line companies, which had previously been controlled by the credit management regulation, were newly excluded from a regulation category in 1990, the real decrease might not be as significant as suggested in the statistics. Nevertheless, the credit percentage of the thirty largest chaebôl among the total domestic credit loaned by city banks tended to decrease slightly, if not drastically, during the progress of the 1980s, compared with that in the early 1980s. In 1983 and 1984, the percentages of the total domestic credit accounted for by the thirty largest chaebôl were as high as 43.2 percent and 48.0 percent respectively (Kim Seok Ki 1987:259). Speculation in real estate In 1980, the Chun regime forced the chaebôl to dispose of their non-business-purpose real estate with the promulgation of the ‘27 September measures’. As a result, the chaebôl disposed of 78.2 percent (65,941 pyông, i.e. 217,987.75m2) of the whole of their nonbusiness-purpose real estate (84,377 pyông, 278,933.48m2) (Min Pyông-gyun 1991:127). The Roh regime also took radical measures to restrict investment in real estate by the chaebôl. The Roh government promulgated the ‘measures of non-business-purpose real

Table 4.11 Financial ratios of the top ten Korean chaebôl (ranked by sales), 1980, 1984, 1987, 1991 (excluding financial industry) A B A B A B (%) (%) (%) (%) (%) (%) (% Top ten 773.5 14.6 504.8 17.2 483.0 23.5 408.0 chaebôl 1 Hyun 366.3 21.5 Sam 447.5 13.2 Hyundai 452.1 18.1 Hyundai 398.2 dai sung


2 Lucky

555.2 15.3

3 Sam sung 4 Sunky ung 5 Daewoo

615.0 13.9

6 Ssang yong 7 Hyo sung 8 Kukche 9 Hanjin 10 Daelim

2,161.5 4.4 397.2 20.1 510.7 16.4 861.1 10.4 690.7 12.7 1,251.8 7.4 325.4 23.5

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Hyu 340.7 22.7 Samsung 483.4 17.1 Samsung 335.9 ndai Lucky- 456.2 18.0 Lucky- 384.8 20.6 Lucky- 356.5 Goldstar Goldstar Goldstar Daewoo 442.8 18.4 Daewoo 407.4 19.7 Daewoo 356.7 Sungk 485.6 17.1 Sunkyung 349.6 22.2 Sunkyung 306.7 yung Ssang 433.8 18.7 Ssangyong 389.0 20.4 Ssangyong 224.7 yong Korea- 320.3 23.8 Hyosung 297.0 25.2 Kia 340.7 Explo sive Kukche 914.5 9.9 Hanjin 1,777.0 5.3 Hanjin 1,262 Hanjin 422.1 19.2 Korea- 202.4 33.1 Lotte 174.3 Explosive Hyos 784.1 11.3 Lotte 87.2 53.4 Korea- 324.2 Explosive ung 462.1 17.8 410.6 19.6 368.9

Chaebôls 524.4 15.5 1st–50th SMEs 394.9 20.2 366.0 21.4 Manuf 487.9 17.0 342.7 22.6 acturing industry Source: 1980: Han’quk Ilbo, 27 September 1981 1984: Han’quk Ilbo, 10 May 1985 1987: Kyông’yong Nûngnyul Yôn’guso (1988) 1991: Kyông’yong Nûngnyul Yôn’guso (1992) Bank of Korea (1981, 1985, 1988, 1991) Notes: A=Debt ratio, B=Stockholders’ equity to total assets

375.0 21.1 340.1 22.7

Table 4.12 The thirty largest chaebôl’s (government-controlled) loans, as a percentage of total loans 1987 1988 1989 1990 1991 1992 1993 Loan percentage 21.6 18.3 14.7 13.5 10.3 9.8 7.1 Sources: Democratic Liberal Party (1992b:147); Kim Tong-Wôn (1991:73); Tong’a Ilbo, 14 October 1992; Maeil Kyôngje Sinmun, 1 April 1995

415.5 309.2


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estate disposal’, the so-called ‘8 May measures’, in May 1990. As of October 1992, 71 percent of non-business-purpose real estate of the chaebôl was disposed of in accordance with the measures, with the rest entrusted to the Readjustment Corporation (Han’guk Kyôngje Sinmun, 6 October 1992). The restrictive policies of the government were consistently maintained.13 This government also used the measures to ban the chaebôl from purchasing real estate until the end of June 1991. Later, the ban was extended twice: on 24 January 1991 and 19 May 1992.14 The support of small and medium size enterprises Owing to the Chun and the Roh governments’ strategic support, the percentages of the numbers of firms, employees, production and value-added of the small/medium size enterprises all increased in the 1980s (Table 4.13). In particular, while the number of small/medium size enterprises in the light industry sector increased by 1.4 times between 1978–88, those in the heavy

Table 4.13 Changes (as a percentage of overall total) in small/medium size enterprises’ industrial capacity, 1970–92 1970 1975 1980 1984 1987 1989 1992 Number of companies A 97.1 96.2 96.6 97.5 97.6 98.1 98.6 B 2.9 3.8 3.4 2.5 2.4 1.9 1.4 Number of employees A 49.0 45.7 49.6 54.9 57.3 60.9 65.8 B 51.0 54.3 50.4 45.1 42.7 39.1 34.2 Production A 30.3 30.7 31.9 34.6 37.8 42.3 45.8 B 69.7 69.3 68.1 65.4 62.2 57.7 54.2 Value-added A 28.5 31.7 35.2 36.3 39.4 45.0 47.6 B 71.5 68.3 64.8 63.7 60.6 55.0 52.4 Source: Chungsogiôp Hyôptong Chohap Chung’anghoe (1991:138–45); Ministry of Commerce and Industry

Notes: A: small/medium size enterprises B: big business conglomerates industry sector increased by 3.3 times (Paek Nak-ki et al 1992:2). In respect of financing, the percentage and the absolute amount of bank lending directed to small/medium size enterprises among the total bank loans increased from 45.2 percent in 1981 to 55.0 percent in 1990. Political participation of the chaebôl


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As Chông Chu-yông declared political participation, the government imposed legal and financial restrictions on Hyundai in order to contain it. The Office of National Tax Administration charged the Hyundai group a penalty tax of 136.1 billion won (US$185.6 million) for illegal stock transactions in November 1991. Chông’s initial response to the government decision was reactionary: he refused to pay the tax. However, he and Hyundai soon withdrew from this recalcitrant position, and, instead, said that they would pay 92.1 billion won (US$125.6 million) of tax, and asked the government to grant them a period of grace for the payment of the rest (44 billion won, i.e. US$59.9 million). A financial sanction was also placed on Hyundai almost simultaneously. New lending to Hyundai by city banks was stopped after August 1991. As Chông founded the United People’s Party in February 1992 despite the tax sanction, the government imposed more sanctions on Hyundai. In April 1992, the Office of Bank Supervision and Examination announced that Hyundai Electronics had diverted 4.8 billion won (US$ 6.1 million) of bank loans, which had originally been lent for the improvement of factory facilities, to an unofficial payment to Chông and the United People’s Party. The Korea Foreign Exchange Bank decided to apply financial sanctions against five Hyundai member companies, revealing that they had purchased, built and rented real estate without the permission of their major correspondent bank. When Chông Mong-hôn, vice-chairman of the Hyundai group and Chông Chu-yông’s son, was detained by the Public Prosecutor’s Office on a charge of the tax evasion of 5.8 billion won (US$ 7.4 million), the sanction against Hyundai by the government reached the height of its intensity. According to the prosecutor’s announcement, Chông junior ordered the president of the Hyundai Merchant Marine to create a secret fund by means of tax evasion. In June 1992, the Korea Foreign Exchange Bank embarked on additional financial sanctions against thirteen Hyundai member companies including the Hyundai construction company, as they did not retrieve the provisional payment, which had been lent to Chông and his family members. Despite the government’s sanctions against Hyundai, Chông ran for the fourteenth presidential election. The government did not take further extreme measures such as tax investigations to deter Chông from joining in politics. Instead, it employed indirect methods, for example, exercising institutional controls and of arousing public opinion in checking the political participation of Chông and Hyundai, so as to evade a denunciation that it had oppressed a private business by abusing administrative power. Why, then, did not the government make Hyundai go bankrupt, as the Chun regime had done to Kukche in 1985? For the government, if the Hyundai chaebôl had been dismantled, the loss would apparently, have been greater than the gain. Above all, the managerial performance of Hyundai was excellent, compared with that of other big business groups. In 1991, Hyundai ranked top among the chaebôl in respect of pure profit, although it ranked second after Samsung in total sales (Samsung: 31,051.472 billion won, i.e. US$42.3 billion, Hyundai: 29,889. 172 billion won, i.e. US$40.8 billion). The profit that Hyundai made (449.576 billion won, US$613.3 million) was 1.74 times larger than that of Samsung (257.996 billion won, i.e. 351.8 million) which ranked second (Kyông’yông Nûngnyul Yôn’guso 1992). In addition, Hyundai owned the largest stockholders’ equity amongst big business groups (Hyundai: 5,193.481 billion won, i.e. US$7.1 billion, Samsung: 4,571.315 billion won, i.e. US$6.2 billion). By contrast, Kukche, the eighth


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largest chaebôl of 1984, recorded a deficit of 20,256 billion won (US$25 million) in respect of pure profit, and the debt ratio was as high as 914.49 percent, which was the highest amongst the ten largest chaebôl (Han’guk Ilbo 10 May 1985). Also, the dismantling of Hyundai could put a political burden on the Roh regime. Chun had been severely blamed for the Kukche incident in the National Assembly’s public hearing after his retirement. Hence, Roh, who was facing his termination of office, did not wish to invite the political stigma that could be incurred by possible economic turmoil and the fall of the South Korean economy’s international credit. The political participation of Chông and Hyundai, however, ended in a fiasco. Chông declared that he would secede from the United People’s Party which he had organized, and leave politics permanently, in February 1993. The systematic and tenacious sanctions by the government effectively thwarted the political participation of the chaebôl. In order to satisfy public opinion that the government must manage the fourteenth presidential election impartially, Roh withdrew from the ruling Democratic Liberal Party, and formed a neutral cabinet in October 1992. The police investigation of Hyundai’s illegal financial support for Chông and the party, carried out under the neutral cabinet, was accepted as fair. After the presidential election, the Seoul District Public Prosecutor’s Office decided to indict Chông for a violation of the Presidential Election Act and the Additional Punishment Law on Specific Crimes. According to the police announcement on the investigation, Hyundai Heavy Industry prepared secret funds of 56.5 billion won (US$ 72.4 million), and some of the funds were transferred to Chông and the party. Subsequent to the decision, the Public Prosecutor’s Office detained the company president and two other officials of Hyundai Heavy Industry, and indicted them. Chông’s abrupt retirement from politics seemed to be the result of the determined attitude of the government and negative public opinion. The illegal conversion of managerial capital to political funds by Hyundai was severely criticized. In conclusion, the government’s control over the political participation of Chông and Hyundai was largely successful. The government also successfully contained the political participation of the Daewoo business group. When Daewoo’s chaiman, Kim U-jung, revealed that he might run for the fourteenth presidential election, the Office of Bank Supervision and Examination ordered the Cheil bank, the major correspondent bank of Daewoo, to conduct a special investigation of bank lending to Daewoo, so that Kim could not misappropriate managerial funds for a political purpose. In addition, city banks and short-term financial institutions, afraid of the government’s financial and taxation sanctions against Kim, together suspended new lending to Daewoo. Kim, in the end, did not run for the presidential election. The managerial situation of Daewoo was not so sound as that of Hyundai. Although it ranked as the fourth largest chaebôl as of 1991, it ranked only eighth amongst the ten largest chaebôl in terms of pure profit (Hyundai: 449.576 billion won, i.e. US$613.3 million, Daewoo: 19.727 billion won, i.e. US$26.9 million). The evaluation of state autonomy We have, hitherto, observed the establishment and implementation procedures of antieconomic concentration policies. How can we evaluate the autonomy of the South Korean state in the procedures? I conclude that the South Korean state has retained a high degree of state autonomy in formulating and executing the measures of regulating the


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chaebôl during 1980–93. The attempt to enforce some measures had failed (e.g. the realname financial transaction system), and some did not fully accomplish the aim which the state had initially planned (e.g. the restriction of market concentration in the chaebôl). Yet, this does not deny the strong autonomy of the South Korean state. One must not argue that the state is regarded as autonomous only when the state can bring about changes to the structure. A state which keeps a greatly ‘distorted status quo against overwhelming societal opposition’ is not necessarily weaker or less autonomous than one which brings forth great societal changes when it is confronted by equally strong opposition. In fact, the former could be regarded as ‘stronger than a state that succeeds in reconstructing society with the backing of the politically dominant groups’ (Nordlinger 1981:24–5). It was understandable that the Chun and the Roh regimes, should be faced with a limit in planning and fulfilling the aforementioned policies of regulating the chaebôl, because the chaebôl-centered economic system has been developed and maintained in South Korea for over thirty years. The Chun government, which took the first measures of antieconomic concentration via the chaebôl, could not completely attain policy goals owing to the chaebôl-centered industrial system, which had been formed during the Park regime. The Roh regime, which manifested ‘democratization and equity’, also made strenuous efforts to execute the measures, but also found it hard to reduce economic concentration via the chaebôl in a limited period. Nonetheless, we should not conclude that the Chun and the Roh regimes failed to gain autonomy vis-à-vis the chaebôl, since the policies of regulating the chaebôl attained limited success: we need to take into account the fact that the policy implementation term was relatively short. The assumption that the government did not succumb to pressure or lobbying from the social groups while it planned and fulfilled the policies can be verified by a content analysis of the annual activity report of the Federation of Korean Industries, i.e. the interest group of the chaebôl. The Federation of Korean Industries has regularly manifested their interests related to government policies by offering suggestions based on their opinion surveys. The suggestions of the Federation of Korean Industries, however, did not notably weaken the establishment and implementation of the policies of regulating the chaebôl. The chaebôl made efforts to deter the state from devising and executing the restrictive policies, or tried to persuade the state to lift or change the measures. But their attempts were seldom successful. Table 4.14 enumerates the contents of the suggestions of the Federation of

Table 4.14 Summary of the Federation of Korean Industries’ policy suggestions to the government 1980 Amongst three labor rights, the collective action right needs to be limited by laws; laborers’ managerial participation must not be stipulated by the constitution. (March) The re-consideration of financial retrenchment policy, the reduction of interest rate, the extension of the term of loan redemption. (April) In establishing ‘the act on monopoly regulation and fair trade’, the positions of big business should be specially considered. (October) 1981 A consistent support for strategic industries (the heavy/chemical industries). (August)


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1982 Re-consideration of the enforcement of ‘the stockholders’ equity ratio guide line system’. (February) Objection to radical enforcement of ‘the real-name financial transaction system’. (July) Improvement of ‘the basket-ratio management system’ of the loan and payment guarantee system. (October) 1983 Objection to the radical enforcement of import liberalization. (March) Reconsideration of the enforcement of ‘the stockholders’ equity ratio guide line system’. (June) Objection to a complete deregulation of bank interest rates. (September) Rationalization of ‘the basket-ratio management system’. Deregulation of the loan and payment guarantee management system. (December) 1984 Lowering of the ‘stockholders’ equity ratio guide line’ Relaxation of the restriction of mutul contribution among member companies. (June) 1985 Relaxation of the intensive management of the five largest big businesses through the loan and payment guarantee management system. (January) Relaxation of the self-help capital supply obligation Relaxation of the compulsory disposal of non-main line business when launching a new business Lowering of ‘the stockholders’ equity ratio guide line’. (March) 1986 Abrogation of the mutual contribution ban stipulation (of the ‘Fair Trade Act’). (September) Gradual reduction of the interest rate. (November) 1987 Reconsideration of the big business group criteria Reconsideration of the member company criteria Reconsideration of the market-dominating business criteria. (March) 1988 Objection to the liberalization of the bank interest rate. (July) Cancellation of the small and medium size enterprises’ specialist business items, which have been designated for over four years Lowering of the bank interest rate Abolition of the loan and payment guarantee management system. (September) Lowering of the market interest rate Abolition of the basket-type management of business groups in applying the ‘loan and payment guarantee management system’ Relaxation of the restrictions on launching a new business. (December) 1989 Lowering of the interest rate Abolition of the loan and payment guarantee management system Abolition of the basket-type management of business groups in applying


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‘the loan and payment guarantee management system’. (January) Reconsideration of judging criteria for non-business purpose real estate. (December) 1990 Reconsideration of judging criteria for non-business purpose real estate. (February) Gradual enforcement of the real-name financial transaction system. (March) Reconsideration of judging criteria for non-business purpose real estate. (June) Reconsideration of judging criteria for non-business real estate. (August) Relaxation of the basket-type loan and payment guarantee management system. (September) Reconsideration of judging criteria for non-business purpose real estate. (November) 1991 Extension of the term of non-business purpose real estate disposal. (January) Abolition/improvement of the loan and payment guarantee management system Abolition of the basket-type management of business groups. (March) Source:Chôn’gyôngnyôn saôp pogo (various years) Korean Industries to the government. Its suggestions deal with almost every industrial policy. Some of them may have influenced the relaxation of restrictions. For instance, the lowering of the bank interest rate, the objection to the institution of the real-name financial transaction system, and the objection to the liberalization of interest rates were partly accepted by the government. However, most of them did not have a noticeable effect of altering government policies toward the chaebôl. Despite the strong objection of the Federation of Korean Industries, the Fair Trade Act, the loan and payment guarantee management system and the small/medium business support system were, ironically, further strengthened in the last period of the Roh regime. The government submitted a revised Fair Trade Act to the National Assembly under the leadership of the Fair Trade Commission, and the bill was passed unanimously by the economic-scientific committee in November 1992. The revised act newly stipulated the reduction of ‘mutual standing surety for obligation between member companies’. In accordance with the amendment, the thirty largest chaebôl had to reduce the amount by which they stood surety to less than 200 percent of stockholders’ equity in two years. Rumor had it that the chaebôl, which were opposed to the amendment, lobbied extensively to deter the National Assembly from passing it. However, the government strongly backed the passing of the bill, and had the active cooperation of the political parties preparing the campaign for the fourteenth presidential election. The parties apprehended that they would be looked upon as collaborators of the chaebôl, unless they got the bill passed. In summary, the original policy goal of the anti-economic concentration policies, i.e. the regulation of excessive economic concentration via the chaebôl, has been consistently championed by the state.


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State autonomy was never enfeebled under the relatively democratic Roh regime. Under the Chun regime, state autonomy was maintained by authoritarian political power, upheld by the military. By comparison, under the Roh regime the possibility that state autonomy would be encroached upon by pressure from social groups was greater, owing to democratization and the rapid growth of the chaebôl’s economic and political influences. However, the attempts of the government to keep its authority became more frequent, and the restriction of economic concentration via the chaebôl was rather strengthened during democratization. State autonomy, in formulating and propelling the anti-economic concentration policies, was firmly maintained even during a ‘lame-duck’ period of the Roh regime. As President Roh seceded from the ruling Democratic Liberal Party and formed a neutral cabinet, the executive became more independent. This was different from the case of the Chun regime, under which the restriction of economic concentration via the chaebôl became rather weaker in the last era of the regime, owing to an economic boom and the need for the support of the chaebôl in preparing for elections. In conclusion, the Roh regime successfully maintained state autonomy vis-à-vis the chaebôl, although it was deprived of authoritarian suppressive power owing to democratization.

5 The sources of state autonomy In the current chapter, we will seek an answer to the question, ‘if there were no significant changes in the degree of autonomy of the Korean state despite constitutional and institutional changes for democracy, how and why was this?’ (Question 2). By analyzing three main factors, i.e. the party and assembly members, interest groups and the executive, involved in the economic policy decision-making and implementing procedures, it will be argued that the source of a high degree of Korean state autonomy is embodied in the executive power, i.e. presidential and the bureaucratic authority. ANALYSIS OF FACTORS INVOLVED IN ECONOMIC POLICY DECISION-MAKING AND IMPLEMENTING PROCEDURES Factor analysis In South Korea, the main factors that influenced the decision-making and implementation of the policies for regulating the chaebôl were fourfold: the will of the President, government officials, parties and assembly members and interest groups. Amongst them, in particular, the executive factors, i.e. the President and the government officials, played central roles. By contrast, few cases existed in which a policy suggested by the party or interest groups was adopted as a national policy. The party and the interest groups influenced the alteration of existing policies rather than the formulation of new ones. They tried to make the policies designed by the government reflect their interests by an intervention in the decision-making process. The influence of these two factors sometimes dominated that of the government during an election campaign. While the ruling party and the government prepared for an election, the position of the ruling party was preferentially considered. Nevertheless, the main economic policies tended to be decided authoritatively by the President and the executive. They were, in effect, designed in accordance with the will of the President and the ideas of government officials, and supported by the party which was controlled by the President himself. The party and assembly members Under both regimes, the role of the party was much less important than that of the government, in the economic policy decision-making procedure. This can be explained by two facts. One is that the influence of individual assembly members on the process was limited, because the ruling party was, in fact, dominates by the President and the party leaders. Moreover, effective opposition to the ruling party or the government in the National Assembly was hampered because the ruling party was almost always in a majority. The National Assembly Act stipulated that bills could be proposed if approved


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by at least twenty assembly members. According to a survey, the number of bills proposed by assembly members accounted for 46.0 percent of the total number of bills between 1948–91.1 But the activities of assembly members might have been, in fact, more limited than the statistic indicated. Even bills proposed on the initiative of the assembly members were often devised by government officials.2 Korean assembly members were rarely deeply involved in the policy-decision-making procedure. There existed only a few cases in which the assembly members drew up bills or participated in a bill-drafting procedure themselves. Even when the (ruling) party introduced a bill into the National Assembly, it was not the assembly members but party leaders, expert advisers or, indeed paradoxically, the officials of the executive who prepared the bill. While policies were being established, meetings between the ruling party and the executive took place in various stages. Nevertheless, the opinions of individual assembly members tended not to have sicnificant effect on the direction of the policies which party leaders or the government officials drafted, except during electoral campaign. The influence of assembly members was not only limited within the party, but also outside it. While a bill was being discussed in the National Assembly, the assembly members were not allowed to influence it either. The position of the ruling party was already decided in the government-party joint meeting, in which the President, highranking party officials and the ministers concerned, participated. In the National Assembly, the unity of opinion among assembly members was forced under the command of their party’s floor leader, when a bill was put to a ballot. For members of the Korean National Assembly, who had no choice but to depend on party leaders for political funds and candidate nomination, it was almost impossible to refuse their orders. A party leader (in the case of the ruling party, the President) could exercise authoritarian power in policy-decision-making procedures (Kim Yông-gu 1991:154). The other fact is that the policy-drafting function of the ruling party was almost entirely held by incumbent or former government officials, so the party could not have its own voice. The policy committee of the ruling party, i.e. the Democratic Justice Party (1981–90) and the Democratic Liberal Party (1990–93), consisted of incumbent assembly members who had previously served in the executive or government institutions such as the Korea Development Institute (and who mostly became assembly members through the proportional representative system), incumbent government officials and expert advisers. Amongst them, the expert advisers, who were largely recruited from among high-ranking government officials, played central roles when the ruling party drafted bills or developed campaign promises (see Figure 5.1). They served between one and two years in the ruling party, and


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Figure 5.1 The role of expert advisers in the Democratic Justice Party (1981–90) and the Democratic Liberal Party (1990–93) then returned to government positions, in many cases with promotion (Sin Kûm-sik 1995).3 Under the Chun regime, the manifestos of the ruling party were almost entirely developed by the expert advisers. By comparison, under the Roh regime, the party tried to expand its role by mobilizing the assembly members and party brains rather than relying on the incumbent government officials to develop manifestos. But the attempt could not fundamentally change the existing system. The role of the expert advisers was still significant under the Roh regime, and four out of the seven economic committee members had previously held posts as government officials. In conclusion, the bills or manifestos of the party, by nature, had an inclination to reflect the positions of the government rather than the party. The role of assembly members in drawing up policy


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was merely formal. The principal role of the ruling party was to support the policy implementation of the government. The government intended to secure the legitimacy of their policies through the party-government meeting, and the ruling party propagandized its achievement by helping the government to implement the policies successfully (see Figure 5.2). Interest groups During the Chun and the Roh regime periods, the influence of the chaebôl on the government and the party policies affecting their interests was not strong. The interest group which advocates the interests of the chaebôl is chôn’gyôngnyôn, the Federation of Korean Industries (henceforth FKI). It utilized two methods to deliver their opinions to the decision-makers. One was the official way: the FKI submitted propositions/petitions; visited/had interviews with government officials; invited them to its conferences, or participated in seminars held by the government. In addition, the FKI operated the Korea Economic Research Institute to deal with theoretical aspects of government policies. The other was an unofficial method. The president of the FKI or chairmen of the chaebôl business groups sometimes delivered their opinions to the government directly, when they had the chance to meet the President or high-level government officials in person. Political donations were the most crucial factor in enabling the FKI and the chaebôl to have access to the government. The FKI has been the largest source of political funds in South Korea since it was established in August 1961 by the coercion of General Park’s military junta (Federation of Korean Industries 1983).4 As of 1992, the budget of the ruling Democratic Liberal Party, was approximately 30 billion won, approximately US$38.4 million, (excluding an electoral budget).5 The budget was financed officially from four main sources: state subsidy, party membership dues, donations and contributions from the supporters’ association (Chung’ang Sôn’gô Kwalli Wiwônhoe 1992). Among them, donations were mainly made by corporations and organizations, and collected by the FKI and offered to the ruling and opposition parties in the name of the FKI. Another major source of political funds was personal and unofficial political donations to the President, which were made by the chairmen of the chaebôl companies. For the President, the political funds were a necessary condition to holding a firm grip on the party. In order to encourage extra activities of the ruling party (e.g. constituency activities of assembly members, running the electoral district offices of the party, supporting election


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Figure 5.2 The procedure for drawing up bills by the ruling party campaigns and enhancement of the morale of party administrative officials), the President needed to secure unofficial ‘governing funds’. Objective data concerning this have been


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released recently through a legal investigation of the political funds of two former presidents, Chun and Roh, conducted by the Kim Young-sam government. It was revealed that the political funds which Chun and Roh collected during their tenure of office amounted to a total of 950 billion (US$1.2 billion) and 450 billion won (US$576 million) respectively. Reportedly they provided the Democratic Justice Party (the ruling party) with 1–2 billion won (U$1.2–2.4 million) every month as operating expenses; distributed 0.1–0.3 billion won to each electorate; and spent 200 billion won (US$243.1 million) to support Roh’s presidential election campaign in 1987. These funds were mainly donated by the chaebôl entrepreneurs.6 The chaebôl also provided each assembly member with political funds. In South Korea, candidates for the general election spend, on average, 0.1–1 billion won (US$0.13 million—US$1.3 million) to prepare for the election. In the case of the fourteenth general election in 1992, each chaebôl which ranked among the thirty largest, allegedly donated 1–10 billion won (US$1.3 million—US$13 million) of political funds to assist the candidates they preferred (Chosôn Ilbo, 29 March 1992). This shows a great disparity with the official statistics of the election administration committee, where, it was claimed, the FKI contributed only 5 billion won (US$ 6.4 million) of political funds. A very important contention can arise here: did the political funds influence the economic, industrial policy-establishing and implementing procedures? In fact, it is very difficult to judge whether or not the political funds donated by the chaebôl significantly affected the procedures. It is almost impossible to correlate the donation of the political funds and the acquisition of special benefits. It was true that the political donations contributed to the advocacy of the business interests of the chaebôl to a considerable extent. During the Roh regime period, for example, the six largest construction companies of the chaebôl carried out forty-five of fifty-six major government-ordered construction projects. In terms of construction cost, they accounted for 88 percent of the amount (Chosôn Ilbo, 26 November 1995). According to the investigation report of Chun and Roh’s political funds, those companies rebated 10 percent of construction cost to the presidents as a token of gratitude for the support of the government. Indeed, the political fund was a major cause of political cohesion between politics and the economy. When the Ministry of Finance intended to implement the real-name financial transaction system in 1982 and in 1989, it was the ruling Democratic Justice Party which was strongly opposed to the institution of the system. Ostensibly, the party objected to the plan on the following grounds: first, the plan might be a shock to the unregulated financial market which had functioned as another main source of company financing; second, it would reduce bank deposits; and, third, the data management systems of banks and the Office of National Tax Administration which would have to implement the plan, were not computerized (Mun Hûi-gap 1992:231). However, a more significant and practical reason lay in the fact that the Democratic Justice Party and even the politicians of opposition parties were afraid that the system might remove sources of political funds, because contributors could easily be identified under the real-name financial transaction system.7 The enforcement of the system was eventually stiffled, as the leaders of the ruling party and politicians did not want the decrease in political donations. But, we need to appreciate the characteristics of the political funds offered by the chaebôl. The chaebôl did not always donate political funds to the President to affect national economic policy decision-making. The political donations of businesses in South


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Korea had two main purposes. One, the chaebôl tended to make donations to acquire direct benefits from the government in pursuing their business interests (e.g. governmentordered construction projects) rather than to alter the direction of national policies. For the major chaebôl, the winning of government contracts was important not only in expanding their business but also in enriching their track records, which was critical in bidding for overseas construction projects. Two, the political donation was rather a sort of membership fee, insurance or a voluntary tax that businesses should subscribe, in order to keep securing the preferential care of the government in the long term. The chaebôl, for instance, have been forced to make public contributions, such as heart-disease child relief funds, ‘let’s help needy neighbors campaign’ funds and national defense contributions. The amount of the contributions was equivalent to 0.74 percent of total sales of private companies as of 1987 (see Table 5.1). A higher

Table 5.1 Percentage of Korean companies’ quasi-tax to total sales, 1982–87 1982 1984 1985 1986 1987 Percentage 0.67 0.85 0.77 0.82 0.74 Source: Yi Chun-gûn (1988, 1991) percentage of the pure profit of Korean companies was contributed than for either US or Japanese companies. According to a study, the donations of Korean, US and Japanese companies corresponded to 3.14 percent, 1–1.5 percent and 0.96 percent of pure profit, respectively (Chung’ang Ilbo, 19 April 1991). Political donations tended to be regarded as quasi-tax to create unofficial governing funds in South Korea. When Chun collected the donations, he issued hand-written receipts so that donors could receive tax exemption. The chaebôl had to make unofficial contributions to the President, the ruling party and politicians, to recompense the state for its patronage and to maintain their economic vested rights. For them, to hold an amicable relationship with high-ranking state officials was essential to the prosperity of their business. As he revealed in the investigation of Roh’s secret political funds by the Prosecutor’s Office, Ku Cha-kyông, former ownerchairman of Lucky-Goldstar, privately donated political funds to the President to apologize for a verbal mistake he had made at a presidential party: he allegedly described the Park and the Chun governments as dictatorial regimes founded by military coups. No chaebôl, it was believed, could survive an intensive government tax probe or flourish without governmental support. The state retained enough power to control the chaebôl in political and economic areas. Despite their political donations, the influence the chaebôl could exercise on macroeconomic policy decision-making procedures was, for this reason, less powerful than expected. As the government carried out ‘national economic policies’ such as the regulation of economic concentration via the chaebôl, the effect of the chaebôl’s lobbying became more limited. For ex-presidents, Roh and Chun, the abandonment of the antieconomic concentration policy could be regarded as forfeiture of the government’s control over capital. At the same time, they perceived that if their regimes continued to champion the chaebôl, they could lose votes in forthcoming elections owing to the people’s antipathy to the chaebôl. The state officials, who were desperate for victory in


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the elections, had no choice but to decline the relaxation of the national policy despite the political donations of the chaebôl and the Federation of Korean Industries (FKI)’s tenacious persuasion of competent authorities. This is confirmed by the statement of Yu Ch’ang-sun, chairman of the FKI. On 6 November 1992, in a press interview, Yu declared that the FKI would not collect political funds to assist presidential candidates any longer, insisting that although chôn’gyôngnyôn (FKI) had donated political funds to politicians, it had been impossible to exercise its influence on the political area as Japanese keidanren could. His declaration reflected the discontent of the chaebôl with the amendment of the Fair Trade Act by the government, which stipulated the restriction of mutual standing surety for obligation between the chaebôl member companies. In this light, the relationship between the Korean government and the chaebôl was distinct from that between the Japanese government and the keiretsu, post-war Japanese big business. Like the South Korean chaebôl, the keiretsu are under tight bureaucratic control. But the extent to which they can enjoy autonomy from the state is greater than in the case of the chaebôl, as they can freely own financial institutions such as city banks (Gerlach 1992). Also, they are largely immune from social and political criticisms, since they are no longer exclusively owned by families. The wishes of the keiretsu were even considered to be, as one Japanese scholar once observed, ‘tantamount to commands’ to the government (Yanaga 1968:70). In the South Korean case, however, rather the converse of this prevailed. The chaebôl were dependent on the government, so they could not defy its order (Jones and Sakong 1980). Only in a few cases could the chaebôl persuade the government not to enforce regulative measures against them, e.g. the realname financial transaction system. The status of the government vis-à-vis the chaebôl has not been changed fundamentally since the Park regime, because the government still maintained various administrative institutions for their regulation despite the deregulation policy which has been carried out since 1981. On the expansion of the power of the executive The powerful executive of the South Korean state may originate from the centralized government system of the Yi dynasty (1392–1910), in which state affairs were discussed and decided by the King and the State Council, a supreme bureaucratic organization of government affairs, and implemented by six ministries (Pak Pyông-yôn 1990:156–64). Centralism was still maintained in the modern South Korean state; the policy decisionmaking procedure was led exclusively by the executive factors, i.e. the President and government officials (see Figure 5.3). As we saw above, the party and the interest groups’ capacity to affect the decision-making procedure or effectively present their interests was limited. The executive had unequaled power to obstruct these two factors from influencing the procedure. Moreover, the executive was seriously checked by neither the legislature nor the judiciary. Almost every authority was concentrated on the executive. So the role of the executive in national policy decision-making procedures was extensive, under both the Chun and the Roh regimes. The executive consisted of two main components: the President and the government bureaucrats. The relationship between them was rather hierarchical in favor of the former, as Korea employed the presidential executive system which was highly centralized. Of course, as we see in Figure 5.3, bureaucrats were also deeply involved in the policy decision-making procedure. Career bureaucrats dominated the important decision-making


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positions in the 1980s, as Chun delegated more power to his government officials (Chông Chông-gil 1992). They revealed their strength in managing detailed technical matters. Nevertheless, the autonomy of the government bureaucrats (in relation to the President) tended to be limited in comparison with their Japanese counterparts: the executivebureaucrat nexus in South Korea was of top-down rather than of bottom-up (Cho Munboo 1992). The bureaucrats were subject to the political control of the presidential office. The President and the counseling apparatus, such as the presidential secretariat and the EPB, tended to take charge of decision-making, whereas other executive organizations were inclined to concentrate on policy implementation. In the following parts, these two factors will be analyzed with empirical data. The will of the President Amongst the four main factors involved in the policy decision-making procedure, i.e. the President, government officials, the political party and assembly members, and interest groups, the President’s will was the most predominant factor. In South Korea, where militaristic authoritarian political regimes ruled in the form of the presidential system, the presidency was an institution with unrivaled power.8 Almost every state power was concentrated on the President, who was virtually unchecked by any other institutions. He was even able to mobilize oppressive power apparatuses such as the Agency for National Security Planning (previously the KCIA), the Defense Security Command, the police, and even use the Office of National Tax Administration at his discretion, to suppress opponents politically. In addition, the presidency’s patriarchal authority, an extra-formal institutional factor, contributed to the shaping of strong presidential power.


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Figure 5.3 The procedure for drawing up a bill by the executive The President’s will always had priority over the other factors in policy decision-making. For example, as Park Chung-hee, Chun Doo-hwan and Roh Tae-woo declared, as policy principles, growth, stability and equity respectively, the highest priority was given to them in establishing economic policies. Since these three Presidents, who had all been military personnel, did not secure enough political legitimacy from the people when they were inaugurated, they intended to acquire it by settling the problems which had been incurred under previous regimes. Park and Chun tried to compensate for this lack of political legitimacy with success in economic development. Roh, who was installed as the President under the pressure of democratization, attempted to acquire legitimacy by deauthoritarianization and the improvement of economic distribution. The President’s will was esteemed a principle in policy decision-making, and, thus, any possibility that the President’s will could be fundamentally swayed by the interest groups or the social groups was relatively low. In addition, because they had the complete support of the military, which was once the most powerful political force, and at the same time could control them, they were able to exercise considerable autonomy vis-à-vis the social classes and interest groups in deciding policies. It was Park Chung-hee who developed the tradition of the President’s direct economic intervention. In carrying out economic development, he applied the style of the military to economic administration. The core of the military operation is the order of the commander. When an operation is planned, the commander is assisted by his staff, but the plan of operation basically reflects the commander’s idea. Likewise, the President played the role of commander, and his secretaries were equivalent to the staff in forming an economic development plan. By utilizing the military command system, he could manage the economy himself with his own economic secretaries. Such an administration style contributed to successful economic development in South Korea. Despite strong objections, the Kyôngbu (Seoul-Pusan) highway project, the construction of the Pohang Steel Corporation, and heavy/chemical industrialization could all be accomplished owing to Park’s strong leadership. This was emulated by his successors, Chun and Roh, who had also once been military personnel. The President’s strong intervention in economic policy-making procedure became firmly established. Since the President’s will was dominant in policy-decision-making, the role of the head economic secretary who counseled the President and delivered his will to ministers was also critical. The President controlled the state economy mainly through his head economic secretary and the deputy prime minister, i.e. the Minister of EPB. Hence, the stronger the President’s interest in the economy, the more authority was given to the head economic secretary. The authority of the head economic secretary was extremely powerful, particularly under the Park and the Chun regimes.9 Although the position officially carried the rank of vice-minister (Jones and SaKong 1980:59),10 his influence on decision-making procedure was often stronger than that of economic ministers such as the Minister of Finance and the Minister of Commerce and Industry, in many cases. For instance, the President’s head economic secretary, who spoke for the President’s will, often retained strong decisional power at the meeting of economic ministers in which the


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main economic policies were discussed and decided, although he was not a regular member of the meeting.11 The head economic secretary had the power which radiated from three vantage points. First, he could contact the President most frequently, because he was the President’s closest adviser. This gave him exclusive opportunities to introduce his economic ideas to the President. Second, he was a gatekeeper of the President’s ideas. Not only was the President’s meeting with economic ministers often arranged by the head economic secretary but he was also deeply involved in the selection of economic ministers. Therefore, he could control the access of contradictory economic opinions to the President. Third and most important, the term of office of the head economic secretary, as Table 5.2 shows, was largely (and particularly under the Chun regime) longer than that of economic ministers. The so-called ‘28 June interest rate lowering incident’ was a notable example of the power of the President’s head economic secretary. On 28 June 1982, the Minister of Finance, who had been appointed only three days before, suddenly announced that the bank interest rate and the corporate tax rate would be lowered to 4 percent and 20 percent respectively. Before the announcement of Minister Kang Kyông-sik, however, the plan had not

Table 5.2 Comparison of terms of office of the President’s economic secretary and economic ministers Chun regime average Roh regime average (months) (months) Head economic secretary of the 31.3 15.0 President Kim Chae-ik 37.0 SaKong Il 43.0 Pak Yông-chôl 9.0 Pak Sûng 9.0 Mun Hûi-gap 16.0 Kim Chong-in 24.0 Yi Chin-sôl 11.0 Economic ministers 16.3 14.5 Minister of EPB 13.4 15.0 Minister of Finance 15.6 15.0 Minister of Commerce and 18.8 12.0 Industry Minister of Energy and Resources 15.6 20.0 Minister of Construction 18.8 10.0 Minister of Agriculture, Forestry 15.6 15.0 and Fishery


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Source: Yônhap Yôn’gam (various years) been discussed with the members of the monetary board (the Deputy Prime Minister, the Chairman of the Bank of Korea, and the previous Minister of Finance). In fact, this drastic action was secretly planned by Kim Chae-ik, the President’s head economic secretary at that time, and Kang himself. Before Kang was appointed as Minister of Finance, he had been serving as vice-minister of Finance. Reportedly, he had been dispatched from EPB to the Ministry of Finance to support the head economic secretary’s economic deregulation policy. When they planned a drastic lowering of the interest rate, they expected strong opposition, particularly by the Bank of Korea and the Ministry of Finance, because the plan included the abolition of export loans, one of the most common policy loans, to which both institutions’ authority was related (Yi Chang-gyu 1992:168). However, the plan could still be achieved, since President Chun gave wholehearted support to his economic secretary’s economic reform. ‘The 8 May real estate disposal measure’ was also another remarkable example. In 1990, speculation in real estate began to prevail again. The government employed a strong restrictive policy to uproot the speculation in real estate. The targets of the measure included not only individuals but also the chaebôl. The measure taken, on 8 May 1990, to restrict the chaebôl’s speculation in real estate was extremely resolute. It stipulated the compulsory disposal of non-business-purpose real estate and a ban on new purchases. It was also devised by the secretaries of the President, led by Kim Chong-in, and the EPB. The chaebôl, to which an ultimatum was sent by the government, had no choice but to succumb to its order. Chairmen of the ten largest chaebôl held a press conference on 10 May, and announced that they had decided to dispose of 15.7 million pyông (51,901,060m2) of real estate. On 28 May, another thirty-five largest chaebôl declared that they would voluntarily sell off 15.66 million pyông (51,768,828m2) of real estate. The speed of transferring the real estate, however, was not as quick as the government had expected. President Roh summoned the chairmen of the ten largest chaebôl on 12 June, and pressed them to carry out the government’s directions. The President’s head economic secretary, Kim Chong-in, summoned the planning office managers of the chaebôl enterprises, and urged them to dispose of non-business-purpose real estate as quickly as possible. In addition, the head of the National Tax Administration Office warned that the chaebôl companies which were inactive in selling off the real estate would be subject to a special tax investigation. The 8 May measure was fairly successful. As of December 1990, ten of the largest chaebôl and another thirty-five chaebôl disposed of or entrusted to the government-sponsored Re-adjustment Corporation, 98.1 percent and 70.4 percent of their real estate respectively (Tong’a Yôn’gam 1991:110). Government officials With the growth of political authoritarianism and bureaucracy, government officials came to retain autonomy in establishing and executing economic/ industrial policies. The roles of government officials, particularly in economic decision-making and policyimplementing procedures, were greatly reinforced under Park’s rule. He put an emphasis on efficiency for rapid economic development, and regarded bureaucracy as a means of actualizing his ideas. He insulated officials and procedures from the influences of the


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National Assembly, interest groups and political parties. Instead he urged the ruling party and the National Assembly to support the executive in carrying out economic policies (Chông Chông-gil 1992:151). Institutional factors that enabled the government officials to retain autonomy and strong controlling power over the civilian sector are summarized fourfold. First, their great influence on the decision-making process stemmed from an extensive bureaucratic network. Bureaucratic organizations have consistently expanded,12 and their administrative power extended over all social areas: educational institutions, the press, religious activities, private economy and even politics. Government officials were deeply involved in every decision-making stage, and, thus, could make a policy reflect their bureaucratic views. The President’s decision-making behavior was not beyond their influence, either. Under the Chun and the Roh regimes, former and incumbent government officials dispatched from or sent by competent ministries,13 accounted for 42.9 percent of the President’s head economic secretaries and 78.6 percent of general economic secretaries (Table 5.3). Government officials were directly involved in party affairs as well. Each ministry dispatched expert advisers to the ruling party, and they gave it administrative advice in drafting party policies. Economic policy decisions were also exclusively made by bureaucrats of the executive. Most of the economic/industrial policies were discussed and practically decided at the

Table 5.3 The professional background of the President’s economic secretaries Bureaucrats Non-bureaucrats Gov’t officials Military personnel Scholars No. Others No. Total No. No. (%) No. (%) (%) (%) (%) Head economic secretaries Chun 1 2 3 regime Roh 2 2 4 regime Sub-total 3 (42.9) 4 (57.1) 7 (100) General economic secretaries Chun 11 3 1 2 17 regime Roh 22 2 1 25 regime Sub-total 33 (78.6) 3 (7.1) 3 (7.1) 3 (7.1) 42 (100) Total 36 (73.5) 3 (6.1) 7 (14.3) 3 (6.1) 49 (100) Source: Yônhap Yôn’gam (various years); Wôlgan Chosôn Sa (1993:534–47) aforementioned Economic Ministers’ Meeting and formally resolved at the cabinet meeting.


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Second, the authority of Korean government officials originated from the strong powers of intervention, which was particularly conspicuous in the economic area. Here this power implies business authorization and restriction. Table 5.4 shows the degree of restriction by the economic ministries. In

Table 5.4 Numbers of measures which the Civilian Advisory Committee for the Relaxation of Administrative Regulations proposed to ease or abolish, and the ministry with which they were associated Competent ministries Restrictive measures No. (%) Economic ministries Economic Planning Board 15 Finance 179 Commerce and Industry 25 Agriculture, Forestry and Fishery 3 Power and Resource 22 Construction 88 Sub-total 332 (51.2) Others 317 (48.8) Total 649 (100) Source: Haengjông Kyuje Wanhwa Min’gan Chamun Wiwônhoe (1992:444–5) 1992, the Civilian Advisory Committee for the Relaxation of Administrative Regulations, an advisory body to the Prime Minister, proposed that the executive should relax or abolish 649 restrictive measures, out of which 332 (51.2 percent) measures were associated with six economic ministries. This proves that the executive’s intervention in the economic sector has been extensive. In the course of economic development, the South Korean government intervened in markets, and allocated resources, e.g. loans and business licenses, to enterprises in a direct and coercive manner (Jones and SaKong 1980; Woo 1991; Luedde-Neurath 1988; Wade 1990). In doing so, the Korean bureaucrats came to acquire powerful discretionary power. Since then, the bureaucrats have tried to maintain their control over entrepreneurs, because their controlling power was deeply concerned with the morale of competent ministries. The more intervening power they possessed, the stronger their authority was.14 For instance, the control, by licenses, of market entry was closely associated with the authority of competent ministries. The relaxation of restriction implied the reduction of their authority (Korea Economic Research Institute 1992:48). In the private business sector, state intervention was practiced in the following eight areas. 1 Intervention in resource distribution: the government intervened in the allocation of financial resources, private enterprises’ investment decisions, and decisions about interest rates. 2 Direct ownership of productive means by the state: the Korean government took


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control of ownership and management of capital-intensive basic industries such as steel, electric power, communications and heavy industry. 3 The regulation of business areas: the Korean government directly controlled market participation with its authorization rights in order to prevent private enterprises from over-competing or over-investing in a specific industry and, strategically, to let a company secure monopolistic profit. Table 5.5 compares authorization procedures required to found a factory.

Table 5.5 Inter-country comparison of procedures for setting up a factory Required stages Days required Documents required South Korea 60 1,000 312 USA 9 175 23 Taiwan 20 245 238 Japan 46 492 325 Source: Chosôn Ilbo, 24 December 1992 In the case of factories being built in South Korea, more stages, and days were required than in the US, Japan and Taiwan, and more documents than in the US and Taiwan. 4 Regulation of prices and wages: the government’s direct regulation of prices and wages was reduced in the 1980s owing to deregulation policy. However, a guideline on wages was still notified, and the indirect regulation of prices also existed. 5 Intervention in production activities: the government intervened in the amount of production, manufacturing technique and facilities, standard/ quality/packing of products, working safety, the preservation of the environment, and the management of energy. 6 Support of enterprises: enterprises which joined in strategic industries greatly benefited from financing, taxation rates and industrial information. 7 Regulation of business combination: in order to prevent the monopolistic behavior of big business, the government regulated business combination in accordance with the Fair Trade Act. 8 Income redistribution: the government forced enterprises to return their profit to the public by collecting quasi-tax. (Chông Ku-hyôn 1988:33; Federation of Korean Industries 1988) Third, the bureaucrats could apply various sanctions not only against private enterprises but also against financial institutions, in cases where they did not obey government instructions. When the government punished enterprises, for instance Hyundai and Kukche, it tended to employ the following methods: • investigation of a target enterprise’s main transaction banks by the Office of Bank Supervision and Examination • ordering the main transaction bank to examine whether a target enterprise abused loans or not, and to suspend new lending • tax investigation by the Office of National Tax Administration


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• reference to the prosecution service The main reason the financial control of the government over private enterprises was possible was that it could institutionally direct city banks. As stated above, five main city banks were privatized in the 1980s in accordance with the financial deregulation program. Nonetheless, the government still firmly controlled them through the Monetary Board,15 and the Office of Bank Supervision and Examination (henceforth OBSE),16 which were virtually under the command of the President. The Bank of Korea Act stipulated that the Monetary Board should be presided over by the Minister of Finance, and the Superintendent of Banks, i.e. the head of the OBSE, was appointed by the President on the recommendation of the Monetary Board. These two organizations superintended financial organizations (Bank of Korea Act: article 30; Bank Act: articles 7, 32, 33, 34), authorized banking business (Bank Act: articles 9, 10, 12), and had the right to dismiss bank executives from their offices (Bank Act: article 39; Bank of Korea Act: article 115). Moreover, the government’s direct/indirect influence on the selection of bank executives was another means of control. Presidents of ten chartered banks were appointed by the President on the recommendation of the Minister of Finance. In the case of city banks, ostensibly, the presidents were selected by a general meeting of the stockholders. However, in practice, their appointment was also decided by the ‘invisible hand’ of the government. Main posts of private financial institutions were customarily recruited from among ex-government officials of the Ministry of Finance (Han’guk Kyôngje Sinmun, 18 February 1993; Kwôn T’ae-u 1991). Meanwhile, city banks could intervene in the management of the chaebôl firms. The ‘regulation of the operation of financial institution loans’ stipulated that main transaction banks could give business groups and their associated subsidiary companies managerial guidance. The stockholders’ equity guide ratio of big business groups had to be set by their main transaction banks and, when they launched a new business or purchased real estate, their decisions had to be approved by the banks, in advance. Main city banks in South Korea were empowered with a right to supervise their clients’ managerial activities. Fourth, the authority of the Korean bureaucrats originated from exclusivism. That is, the main posts of the executive were mostly recruited from among ex-government officials. Under the Chun and the Roh regimes, ex-bureaucrats accounted for 73.8 percent of ministers, leaving only 26.2 percent of political appointments for non-bureaucrats. This contrasts with the American practices where the relationship between administrative elites and those of private business is interchangeable (Salzman and Comhoff 1980). In South Korea, cases in which private businessmen were installed as cabinet members rarely existed (Suh 1989:129–31). The reason ex-bureaucrats were preferred as ministers was that they were already accus-tomed to the bureaucratic organization of the government, possessed rich experience and knowledge of the duties and, thus, were able to carry out tasks efficiently. Among the non-bureaucrats, ex-scholars were relatively frequently appointed as ministers. This was because economic ministerial positions needed professional knowledge. However, the percentage of ex-scholars (21.3 percent) was still lower than that of ex-bureaucrats (Table 5.6).

Table 5.6 The professional background of economic ministers


Bureaucrats Government Military officials No. (%) personnel No. (%) Economic Planning Board Chun 5 regime Roh 1 regime Ministry of Finance Chun 2 regime Roh 3 regime Ministry of Commerce and Industry Chun 4 regime Roh 3 regime Ministry of Construction Chun 5 regime Roh 4 1 regime Ministry of Energy and Resources Chun 4 1 regime Roh 3 regime Ministry of Agriculture, Forestry and Fishery Chun 5 1 regime Roh 2 1 regime Sub-totals Chun 35 25 (71.4) 2 (5.7) regime (100) Roh 26 16 (61.5) 2 (7.7) regime (100)

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Non-bureaucrats Scholars Politicians Others No. (%) No. (%) No. (%)

1

1

3

4 1

1 1

1

1

1

1

7 (20.0) 6 (23.1)

1 (2.9) 1 (3.8)

1 (3.8)


Total

61 41 (67.2) 4 (6.6) (100) Source: Yônhap Yôn’gam (various years)

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13 (21.3) 1 (1.6)

2 (3.3)

Meanwhile, the government research institutions such as the Korea Development Institute (KDI) and the Korea Institute for Economics and Technology also contributed to enhancing the professionalism of competent ministries. These institutions provided the theoretical background of the policies that EPB and the Ministry of Commerce and Industry (MCI) intended to draft. Since personnel affairs and the budget were fully controlled by the government, and the research subjects were often selected by the EPB and the MCI, institutional autonomy was more or less limited. Nevertheless, the political influence of KDI was significantly noteworthy. Under the Chun and the Roh regimes, four head economic secretaries of the President, three general economic secretaries, and three economic ministers were recruited among the ex-KDI researchers. In addition, the views of both institutions often significantly influenced the policy-decision-making process. Democratization and state autonomy The prime source of Korean state autonomy was embodied in strong executive power, i.e. presidential and bureaucratic authority, which was involved in both formal and extraformal institutions. The extent to which the party, assembly members, and the interest groups could affect policy-formulating and implementing procedures was quite limited. In particular, in the case of the party, superficially, it seemed to secure its own institutional autonomy but, in reality, mainly played a supporting role to the executive. These three factors concerned with the procedures might be no more than ‘bearers’. As democratization progressed under the Roh regime, their roles became emphasized. But they were still frequently penetrated by the influence of the executive factors. In effect, the South Korean state was almost entirely dominated by the President and the government bureaucrats, even after the legislature’s power to check the executive was strengthened by constitutional reforms. Amongst the executive factors, the President was most influential in respect of policy decisions. He was able to command various extra-formal as well as formal institutional modes of authority. With its patriarchal authority embedded in the Korean state, the will of the President had the highest priority in policy decision-making, and the procedural power of the presidential secretariat sometimes surpassed that of the cabinet. The role of government bureaucrats was also significant in drafting and implementing the policies. The institutional authority they could exert was powerful, and they retained extensive bureaucratic networks. The boundaries of both factors overlapped and, thus, were not well distinguished. However, the relationship between them was extremely hierarchical. Although the policy decision by the President was affected by the bureaucrats, the latter were considerably dependent on the former. The political and institutional power of the President was strong enough to thoroughly control the bureaucrats through its secretariat. The conflicts between the ministries in planning and fulfilling the policies were settled mainly by obeying the President’s will. One can view the Korean state as one with ‘ultrapresidential power’ or ‘ultra-executive power’.


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Democratization certainly made it more difficult for the Roh regime to exercise ‘violent-unofficial’ methods to control the chaebôl. Under the authoritarian Chun regime, such violent means aided by the military’s suppressive power were frequently employed to subjugate the chaebôl instantly. In the procedure of ‘the adjustment of investment of the heavy/chemical industry’, for instance, the owners of the chaebôl were forced to accept the government’s adjustment plan without any conditions, under a threat of the Defense Security Command, the military’s domestic intelligence unit. Even after the Chun regime was established in a civilian form, the ‘unofficial’ means of control, utilizing military and civilian surveillance agencies, were favored to check the irregularities of the chaebôl. By contrast, the Roh regime which was installed through a democratic constitutional reform, could not adopt such means any longer. In terms of strength, the bureaucratic power of the Roh government tended to be weaker than that of the Chun government. The Roh regime, however, did not forfeit the superiority of the executive by institutional-constitutional changes. Although it was constrained in employing the ‘unofficial’ means as a result of democratization, it still retained various institutional methods that could be taken to subjugate the chaebôl. It could, if it wished, attain its purposes simply by strictly applying the administrative institutions: intensive tax investigation of the chaebôl would be the most prime example. Political maneuver was also an effective method to defend the autonomy of the state. As political democratization induced a weakening of the executive power in relation to the legislature and the civilian sector, the Roh regime recovered the strength of the executive by the strategy of undermining the influence of opposition in the National Assembly by persuading two opposition leaders to merge their parties into a new bigger ruling party. Above all, the most important factor which enabled the Korean state to maintain a high degree of autonomy was extra-formal institutional in form. The Korean state tends to dominate society, and appears not to allow social influences to infiltrate into the state. Although the constitution stipulated the checks and balances between the executive, the judiciary and the legislature, in reality they hardly worked. Interest representation of social groups were discouraged, and the means to persuade the government to consider their positions in policy decision-making procedures were limited. The interest articulation through social networks was also repressed in the situation where conflicts occurred between the state and the chaebôl as the former attempted to regulate the latter. In cases where the will of the President was predetermined or the position of the government was already fixed, the institutional ways available to the chaebôl to induce a change in decisions were extremely limited. The source of the South Korean state autonomy would not be properly elucidated by examining only formal institutional aspects. Obviously, it was significantly related with extra-formal institutional factors. This will be further discussed in Chapter 7.

6 Liberal-pluralism, neo-Marxism, corporatism and state—chaebôl relations To begin with, this book addressed itself to research by raising the following questions: ‘Was the South Korean state, by nature, autonomous vis-à-vis the chaebôl and if so, did the degree of state autonomy change as Korea experienced constitutional reforms for democracy?’; ‘If it was autonomous, what was the source of the South Korean state autonomy?’ Through the analyses conducted in previous chapters, we concluded that, not only under the authoritarian Chun regime but also under the relatively democratic Roh regime, the South Korean state was substantially autonomous vis-à-vis the large capitalists, the chaebôl, in establishing and implementing the economic policies of regulating economic concentration. It was also concluded that the degree of its autonomy rested on the strength of the executive and the political integrating power of the President. In this chapter, we will explore the answer to a final question: ‘By what theory can the relationship between the state and the capitalist group in South Korea, particularly during the Chun and the Roh regime periods, be most persuasively explained?’ We will engage in theoretical discussion on the relationship between the South Korean state and the chaebôl, analyzed in the previous chapters. We will examine the relevancy of the three major paradigms of modern states, i.e. liberal-pluralism, neo-Marxism and corporatism, which derived from Western and Latin American experiences. LIBERAL-PLURAL DISCUSSION Various descriptions of liberal-pluralism exist. Nonetheless, a rough definition of the liberal-plural pattern of state-society relations may be possible. The most basic assumption of this position is that a society consists of heterogeneous constituents and is self-regulating. That is, interest groups, which are looked upon as the main components of the society, compete with one another to secure economic interests or access to power, and freely combine, dissolve and recombine in accordance with their interest lines. The state is equated with the ‘political system’. Its role is ‘to balance these pressure-group claims in order to secure political and social stability’ (McLennan 1984:83). There are roughly three views of the liberal-plural state. One is to see the state as a ‘cash register’ (Latham 1953), a ‘pawn’ (Dahl 1963) or even an entity with no value, i.e. one which simply adjusts interests (Bentley 1949). States are ‘responsive to, biased towards, and indeed colonized by the strongest pressure groups in their domain’ (Dunleavy and O’Leary 1987:44). Another way is to look upon the state as a neutral referee. Public officials, i.e. the state, seek after public interests by re-weighting the balance of pressures by exercising ‘administrative discretion’ in the realm where statutes cannot precisely determine matters (Truman 1962:397), rather than simply carrying out what the strongest


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interest group demands. The third view is, by contrast, to envisage the state as ‘a partisan or a self-seeking broker’. State officials and state organizations have ‘their own nonaltruistic policy preferences, and policy is as much the outcome of self-interested contests within the state apparatuses as it is of contests outside’ (Dunleavy and O’Leary 1987:47). These liberal-plural views of the state which have evolved in the Anglo-American tradition reveal limited relevancy in South Korea. Despite plural theorists’ acceptance of governmental autonomy, the idea of the small and non-interventional state did not fit well in the South Korean case where the extraordinarily strong intervention of the state extends to social, political and economic arenas. The reason I suggest that the pluralist paradigm reveals extremely limited applicability in describing the nature of the state, society and the relationship between them in South Korea is, first of all, that the political process in the South Korean political arena was hardly plural. In a formal-institutional respect, ‘the important resources for obtaining influence were’, obviously, ‘fragmented and dispersed’ (Dahl 1961:11). But the principle of the balance of power was often paralyzed by the strong military-based authoritarian executive. The judiciary and the legislature passively carried out what the executive demanded. The political leaders of South Korea tended deliberately to isolate the political procedure from social influences for reasons of the security of their regimes and economic development. Under such circumstances, the core instruments of plural government process, e.g. interest representation through interest groups, political parties and the press (Truman 1962), could not develop. The policy decision-making was not the output of the reconciliation of interest articulation. Indeed, the state heavily dominated the political procedure. The South Korean state was a highly efficient interventionist. Interest groups neither autonomously combined nor dissolved in accordance with their interests. Labor unions were often remotecontrolled by the state with no regard to their own interests. The South Korean government supervised labor unions, and actively intervened in not only the appointment of executives of the unions but also their financial affairs. Even after political democratization, the interventionism of the South Korean state still remained strong to the extent that it could dominate society as well as the economy. The pluralist anti-state view exhibits critical drawbacks in elucidating traditional state domination over society. The idea of stable and relatively open political competition (Dahl 1956) was unfamiliar to South Korean politics until recently. The dominance of a military-supported political class over the state and society hindered political competition among social groups. This makes the market view of the political process, in which voters and politicians are assumed, respectively, to be demanders and suppliers in a competitive atmosphere (Schumpeter 1954), sound like sophistry. One may consider Korean politicians as (material) interest maximizers, as rational choice theorists (Downs 1957). But the politicians did not look upon themselves as a proxy for their clients. Under the authoritarian political culture of South Korea, they were rather, a privileged political class, who reigned over their ‘followers’. In formal terms, the South Korean state was equipped with the institutional arrangement for democratic political methods but, in many cases, the political class did not achieve political power by means of a competitive struggle for the votes of the people. For example, the military acquired the power with non-competitive methods such as the military coup, and forced the people to present their votes to legitimize their regimes. In this respect, elections in South Korea were not based

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on market mechanisms. The rational choice view does not sufficiently account for the results of elections. The political rather than economic issues (e.g. the achievement of democracy, the overthrow of military dictatorship and the realization of a just society) most frequently decorated the main contents of the election platforms of political parties. The reason the ruling DJP lost the thirteenth general election in 1987, notwithstanding the Chun regime’s economic success, was deeply related to a political issue, i.e. the antipathy of the people to authoritarian rule by the military-based regimes. The materialistic view of interests suggested by the rational choice theory obviously has limited relevancy. The formation of the non-plural political process in South Korea is concerned with the monistic character of South Korean society. Racial uniformity, in particular, greatly limits the development of a plural society. The experience of the centralized state also hinders the evolution of a plural political process. On the other hand, the idea of democracy and egalitarianism made the people unsettled and preoccupied with the idea of freedom. Tocqueville’s interpretation of sustained authoritarian rule in France is also true of the South Korean case (Tocqueville 1994). The dispersion of power and authority brought about serious social instability. Under such circumstances, the people longed for the return of the centralized state and accepted centralized and authoritarian solutions to the problems related to government and politics. The pattern of the relationship between the state and society in South Korea is far from being liberal-plural. The view that states are ‘inert recipients of pressure from interest groups’ (MacPherson 1973:188) cannot convincingly depict the existence of the ‘big’ government and the interventionist behavior of the South Korean state that we observed in the previous chapters. The relationship between the state and interest groups tends to be hierarchical in favor of the former. In the senses that the demands of interest groups could not constrain the state and that the state could exercise initiative in setting up the relationship with the groups, the South Korean state-society nexus was and still is hardly liberal-plural. NEO-MARXIST DISCUSSION Despite some crucial academic contributions, e.g. the re-illumination of the concept of the state, critical shortcomings are revealed in the application of neo-Marxist positions to the South Korean case. A fundamental limitation radiates from historical-economic differences. While the main actor of capital accumulation in Western capitalist states has been the bourgeoisie, that in South Korea has been the state. What Marxist theories originally intended to explain was the orthodox Western-modern-capitalist states, whose historical-economic backgrounds utterly differed from that of South Korea. None of them were aimed at illuminating Asian LDCs. Neither the instrumentalist nor the Marxiststructuralist view provides us with a persuasive elucidation of the relationship between the state and the capitalist group in South Korea. The state as a guardian of the dominant class’s interests: Miliband Overall, Miliband’s view of the guardian/instrument state (Miliband 1970) is of little relevance in explaining the relationship between the South Korean state and the chaebôl.


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Above all, his assumption that the real purpose and mission of the state is to ensure continued predominance of the dominant class’s economic interests (ibid.: 265–6) is not convincing. The deliberate dismantling of the Kukche chaebôl by the Chun regime might be suggested as evidence to refute Miliband’s argument. A hierarchical relationship existed between the South Korean state and the chaebôl in favor of the former. In fact, the chaebôl’s mission was regarded as a contribution to the development of ‘national economy’. If the state had worked as a guardian or an instrument of capitalists, the Chun and the Roh regimes, as described in the previous chapter, would not have implemented the policies of regulating economic concentration against the interests of the chaebôl in such an authoritarian fashion. The state, of course, was not always successful in its attempts to restrict the economic concentration in the chaebôl; nevertheless, it is true that both regimes, at least, succeeded in directing more resources to the non-chaebôl sector, while restraining the monopoly of resources by the chaebôl. As a result, the role of small/medium business in the South Korean economy expanded by the government’s promotion, and labor conditions also improved, particularly under the Roh regime. The relationship between the South Korean state and the capitalist class was utterly distinct from that of the advanced capitalist states which Miliband analyzed. He argues, quoting Karl Kautsky’s observation, that ‘the capitalist class rules although it does not govern’ (Miliband 1970:55). ‘Businessmen’, he sees, ‘have assumed the major share of government’ (ibid.). ‘Furthermore the world of administration and the world of largescale enterprise are increasingly linked in terms of an almost interchanging personnel’ (ibid.: 125). But, according to Suh’s study on the social and political networks of the South Korean capitalist class (Suh 1989), the above assumptions are not well supported in the South Korean case. Between 1980–86 few cases were observed in which businessmen held positions at the minister or vice-minister level of government, or were elected to the National Assembly. And there was no career mobility from the business to the government sector, while there was some mobility from top and especially middle level government to the chaebôl firms (ibid.: 134). Of course, businessmen are directly/closely involved in government and administration. As Chung Lee (1992:189) observed, a partnership was formed between the state and business through the ‘quasiinternal organization’. ‘Deliberation councils’ and ‘discussion groups’ ‘facilitated a more direct exchange of information than was possible through markets’. However, business could not always influence government decision-making. Particularly in a crisis period, the state tended arbitrarily to establish and carry out industrial policies as opposed to the interests of the chaebôl. The managers of the state were independent of the capitalist class to a considerable extent and, therefore, could exercise a remarkable autonomy vis-à-vis the chaebôl (see Chapter 4). The chaebôl were reckoned, on the contrary, to be the state’s tool for rapid economic development. The state could command various restrictive measures not only under the authoritarian Chun regime but also under the relatively democratic Roh regime. Although the state voluntarily abandoned many restrictive means against the chaebôl with the implementation of economic deregulation policies, the most powerful instrument remained intact: the state was deeply involved in the distribution of bank loans, and strongly controlled private banks through intervention in personnel affairs and supervision through the Monetary Board and the Office of Bank Supervision and Examination. In South Korea, the privatization of banks did not mean total financial deregulation.


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The state as an ideological-repressive machine: Poulantzas Unlike Miliband, who places an emphasis on economic factors, Poulantzas inclines toward understanding the state from a political point of view. While the former considers the state as an instrument of the dominant class for owning and controlling the means of production, the latter tends to envisage the state as an ideological-repressive machine. The state and the bourgeois class, Poulantzas argues, are independent of each other, and the former is relatively autonomous vis-à-vis the latter (Poulantzas 1972, 1978a:256–7). However, this position also shows fundamental limitations in its application to the South Korean case. The most substantial critique arises from its methodology. In building up his theory of the state, Poulantzas adopts structuralism and the class struggle theory to explain why the state is liable to serve the ruling class, despite its autonomy. In relation to the dominant class, i.e. the bourgeoisie, the principal role of the state is to organize the dominant class or to represent the long-term political interest of a power bloc (Poulantzas 1978c:127). Here, a question arises. In South Korea, then, did such a capitalist structure exist, in which ‘the state is the factor of reproduction of the conditions of production of a system that itself determines the domination of one class over the others’ (Poulantzas 1972:246)? If it did, how can the abrupt advent of the political restriction of the chaebôl be explained? Obviously, the South Korean state cannot be reduced to a structure that guarantees the dominant class’s interests. As stated in the previous chapter, the restrictive policies did not coincide with the chaebôl’s interests. On the contrary, they were opposed to the interests of the capitalist class. In such a case, can the restrictive policies, particularly the advent of the small/medium business expansion and the labor rights security policies, be looked upon as far-sighted capitalist class strategies? In other words, are the general interests of capital distinguished from those of one fraction of capital? In Poulantzas’s state theory, these two policies may be regarded as a ‘social equalizing procedure’. He argues that the general function of the state is to manage the equilibrium of compromise among classes in struggle (Jessop 1985:61). In another sense, this function may be seen as the inevitable behavior of the state to hold a power bloc. The principal political role of the capitalist state’, Poulantzas emphasizes, ‘is organizing the power bloc and disorganizing the popular masses.’ The state prevents laborers from forming a unified front against the state and links them severally to the power bloc through its management of material concessions’ (Jessop 1985:125). In the case of South Korea, however, those two assumptions are not supported, either. The South Korean state did not establish the two policies to secure the domination of the capitalist class. The government aimed at regulating the economic concentration in the chaebôl, and, at the same time, developing the component industry through the expansion of small/medium business. Second, the Korean government intended to attain both politico-economic democratization and structural adjustment simultaneously. Since the authoritarian Chun regime had come to an end with a massive democratic movement of the people, the newly inaugurated Roh regime was seriously committed to democratization from the beginning. In addition, it intended to transfer South Korean industry from a labor intensive to a technology-intensive one by propelling those two policies, although the labor rights security policy incurred a rapid rise of wages and, at the same time, the deterioration of the profit rate of enterprises. Economic planners of the Roh regime judged that, under the labor-oppressive policy of the Chun regime, the chaebôl had depended on cheap labor or on investment in real estate for


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making profit rather than on technology development. In this light, the expansion of small/medium business and the labor rights security policies cannot be regarded as concessions to the dominated class to neutralize their protest. We can raise another question: how can the structural view convincingly explain the pivotal role of agents in the establishment and implementation procedures of the policies of regulating the chaebôl? This is not answered by Poulantzas’s theory, either. As we know, it was a small number of reformist bureaucrats and Chun and Roh themselves who designed the chaebôl restrictive policies and carried them out. These agents were not bearers of a structure, in the South Korean case; on the contrary, the agents were powerful enough to reorganize the structure. The state as a mediator: Block Block’s theory is distinct from Poulantzas’s, in that it does not conceive of the state as an ideological machine.1 His theory also exposes theoretical limitations in explaining the South Korean case. First of all, his ‘business confidence assumption’ (Block 1977:16) is not convincingly supported in the South Korean case. He argues that the reason the state serves the interests of the ruling class, in spite of the division of labor between the state managers and the ruling class, is that the destiny of a regime relies entirely on the state of the economy. In other words, to run the state successfully and win the election, the state managers necessarily secure taxation and public support. Because the economic situation of the capitalist state is ‘largely determined by the private investment decisions of capitalists’, the state must gain business confidence to achieve a healthy economy. The capitalists as investors have a veto over the state policies, in that their failure to invest at adequate levels can create major political problems for the state managers’ (ibid.: 15). In South Korea, where private enterprises’ financial activities are controlled by the government through the aforementioned ‘loan and payment guarantee management system’, however, business confidence was neither an essential factor in determining the state of the economy nor a critical factor in determining the fate of a regime in South Korea. Indeed, the initiative in the economy lay not in capital but in the state. The South Korean state itself planned and supervised the investment activity of the private sector as well as the public sector. When the chaebôl hesitated or neglected to augment investment in their business, in areas such as R&D, the government could encourage or command them to do so with institutional or non-institutional means. Moreover, owing to the competition amongst the chaebôl, the South Korean economy was often under a state of excessive investment. Of course, the economic state could influence the result of the election, but the influence was not absolute. The success or failure of the election often rested more crucially on political factors than on economic ones. Although the authoritarian Chun regime achieved great success in reinstating economic growth with a low inflation rate, it suffered from extensive political protests. Moreover, Roh, the ruling DJP’s presidential candidate, barely won the thirteenth presidential election, while the DJP eventually failed to hold the National Assembly in the thirteenth general election shortly afterwards. In terms of the number of assembly members, the ruling party was outnumbered by three opposition parties. In conclusion, at least in the South Korean case, the economic factor should not be seen as having been the most crucial one to decide the fate of regimes.


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Furthermore, it was nearly impossible for capitalists to veto the economic leadership of the state, unless they were determined to abandon their businesses. In effect, the chaebôl were not allowed to defy the government. It was again important to note that the government envisaged the chaebôl as its instrument to generate economic growth. The chaebôl desperately wanted to be chosen as the instrument, and accordingly competition among the chaebôl was intensive. Even if one of them was removed, it was not difficult for the government to replace it with other chaebôl. The deliberate dismantling of the Kukche chaebôl by the Chun regime was a case in point. One may regard Hyundai’s political participation as the capitalist’s veto over the state. Even if that was the case, it is apparent that Chông Chu-yông’s veto power was not so influential as to affect the general economic state, nor to provoke a political crisis. Most other chaebôl did not agree to support Chông’s political participation. The top-ranking chaebôl, which were competing with Hyundai in many business areas, opposed Hyundai’s politicization, since they were afraid of Hyundai’s potential ability to retaliate against them politically. The competition amongst the chaebôl significantly contributed toward the maintenance of the state autonomy in South Korea. In assessing the Hyundai case, to accentuate only the politico-economic power of the chaebôl may distort the nature of the incident. When Chông protested against the government, the Roh regime was undergoing a kind of ‘lame-duck’ phenomenon. Hence, this instance must not be generalized to explain the chaebôl-state relationship during the Roh regime period. The second critique concerns ‘the rationalization of the capitalist state’. In his article, Block attempts an answer to the following question: ‘if the state is unwilling to risk a decline in business confidence, how is it then that the state’s role had expanded inexorably throughout the twentieth century?’ (Block 1977:20). Block finds a clue to the answer from the assumption of ‘class struggle between proletariat and the ruling class’. ‘When a strong popular pressure for social welfare surges in the capitalist state’, Block explains, ‘the state decides to respond to the pressure with concessions’, (1) ‘lest the class antagonism should escalate to a level that would endanger their own rule’; (2) ‘to expand the state’s power and resources’; and (3) ‘to the extent that the concessions do not damage business confidence’ (ibid.: 21–2). To wit, the state managers take advantage of the pressure from the working class to expand state intervention in the capitalist state. However, the increased state capacity does not serve the interests of the working class. The state uses its power to facilitate a smooth flow of investment by the capitalist, and the labor educational system produces a docile workforce with an appropriate skill. When, then, can the state carry out pro-working class policies, and contain the shortsighted capitalists’ interests? The reformist measures, Block answers, can be executed ‘during wartime, major depression, and periods of post-war reconstruction in which the decline of business confidence as a veto on government policies does not work’ (ibid.: 24). During a war period, the state can exercise very strong mobilizing power, and during depression or post-war reconstruction the state managers can ignore the decline of business confidence because the popular demands for economic revival are strong (ibid.: 24–5). Can Block’s argument provide us with an appropriate explanation of the advent of the labor rights protection policy in South Korea? The answer is not positive. Labor policies were not always conversely proportional to policies toward the chaebôl. The assumption that the state managers of the Chun and the Roh regimes took advantage of pro-labor and


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social welfare policies in order to aggrandize state intervention in the capitalists’ business activities is not supported. The authoritarian Chun regime initiated wage-freezing and anti-economic concentration policies at the same time, to achieve economic stabilization, even though the antagonism of the working class to the government could present a political threat to the government and the ruling party. The democratic Roh government adopted the labor rights protection policy at an early stage of the regime, but it again took a firm stance against laborers in the middle of 1989 as labor strikes got out of the government’s control.2 It did not seem to utilize the pressure from laborers to increase its interventional power in the chaebôl sector. Rather, it actively carried out the policies of regulating the chaebôl again with a view to improving the international competitiveness of Korean industries, as the South Korean economy entered a depression in 1990. In summary, one must not assume that the South Korean state had strengthened its power against the social classes by manipulating class struggle between capital and labor. Whenever both regimes were faced with a depression, they could implement drastic measures opposed to the interests of both the chaebôl and the laborers, to overcome the depression. Indeed, both regimes showed relative independence of the demands of laborers as well as of the chaebôl. It seems to me that Block’s theory does not entirely overcome Miliband’s instrumentalist view, either. In his theory, the state is merely a feeble subject under the strong economic influence of the capitalist class. CORPORATIST STATE DISCUSSION Corporatism is variously defined. In this part, I categorize it into three types: an interest intermediation system, an organic state and a political structure of integrating producer groups. Some of the corporatist models may be partly convincing in explaining the South Korean case. However, their limitations of applicability are still evident. Corporatism as a system to link interest groups to the state: Schmitter, Lehmbruch and Winkler Schmitter defines corporatism as ‘a system to link the associationally organized interests of civil society with the decisional structure of the state’ (Schmitter 1979:9). Corporatism is, according to his argument, a global phenomenon in the sense that its appearance is not geographically and culturally confined to certain areas. He observes this phenomenon even in Asian countries such as Iran, Thailand, Indonesia and Taiwan as well as Iberian, Northern European and Latin American countries (ibid.: 11). His notion of corporatism is broad, but generally it is understood as an alternative concept of pluralism. As he put it: Corporatism can be defined as a system of interest representation in which the constituent units are organized into a limited number of singular, compulsory, noncompetitive, hierarchically ordered and functionally differentiated categories, recognized or licensed (if not created) by the state and granted a deliberate representational monopoly within their respective categories in exchange for observing certain controls on their selection of leaders and articulation of demands and supports.


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(Schmitter 1979:13)3 It is obvious that his theory of corporatism, i.e. as an alternative concept of pluralism, can more powerfully explain interest/attitude representation in developing Asian countries, including South Korea, than pluralism can. However, significant shortcomings remain intact in its application to those cases. Above all, in South Korea, the government-interest group relationship was not based on interest representation but on the former’s nearly unilateral and paternal control over the latter. Not only was interest representation by interest groups considerably limited, but also the degree of laborers’ participation in the decision-making procedure of companies and the state was very low (Kim Ho-jin and Yi Kang-ro 1991:38). Schmitter’s descriptions of corporatist control, for example, ‘interest representation through limited number of component units’, ‘compulsory in membership’, ‘non-competitive between compartmentalized sectors’, ‘hierarchically ordered in inter-structure’, ‘recognized or certified in some de facto way by the state’, ‘successful in exercising a representational monopoly within functionally determined categories’, and ‘subject to formal or informal controls on leadership selection and interest articulation’ (Schmitter 1979:14), are not generally applicable in the South Korean case. This is because the government’s intention was not the official endowment of ‘monopoly of representation’ (Collier and Collier 1979:982) but institutional control. Under the authoritarian regimes of Park and Chun, labor unionization was discouraged and, as a result, between 1978–89, the average unionization rate was a mere 19.6 percent (by comparison; Sweden: 70 percent, Austria: 50 percent, West Germany: 32 percent, and Japan: 32–34 percent4). The level of South Korean interest groups’ representation activities in relation to the National Assembly and the executive was low and, moreover, participation in interest groups tended to be made involuntarily (Yi Chông-hûi 1993). Schmitter’s corporatist models of interest representation, i.e. the societal and the state corporatism models, reveal more definite limitations, when they are applied to the state and labor relationship under the Roh regime. In fact, the state-labor relationship under the Roh regime was neither corporatist nor pluralist. Labor unions were neither systematically excluded nor benevolently incorporated by the state. On the one hand, as politico-economic democratization progressed, oppression of the labor force by the state was more or less relaxed. Welfare policies for laborers were reinforced, and measures were taken to control the extravagant tendency prevailing in society, which might give rise to laborers’ relative feeling of deprivation. On the other hand, the Roh regime maintained restrictive wage policies, and exercised coercive measures against labor unions, when it reckoned that labor strikes badly affected the economy. Also, the government guided companies and workers to voluntary compromises instead of intervening directly in the conflict or mediating in a corporatist way (Choe Byung-yul 1991). Despite government intervention, the trade unions under the Roh regime were more autonomous than those under the previous regimes. With the founding of the relatively democratic Roh regime, the Federation of Korean Trade Unions (FKTU) came to be more independent of the government. In the extraordinary nationwide representative meeting, held in November 1988, it announced that it would refuse the government’s intervention in the organization. It was, furthermore, no longer a unique interest group of labor in South Korea. Radical laborers, who were opposed to the pro-government FKTU, formed the Korea Trade


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Union Congress (henceforth KTUC) in 1990, as the government came to allow unlimited union organization in accordance with the amendment of the Trade Union Law in 1987 (Kim Yông-nae 1986:21). When the KTUC was formed, it accounted for 8.6 percent of the total number of trade union members (Kim Ho-jin and Yi Kang-ro 1991:31). The KTUC was obviously beyond the corporatist influence of the state. In explaining the relationship between the state and the capitalist in South Korea, Schmitter’s corporatism models again lose applicability. The interest representational pattern of chôn’gyôngnyôn (FKI), the chaebôl’s interest group, was not corporatist. It was, de facto, almost entirely independent of the state. It was able to, if not licensed to, affect directly/indirectly the decision-making process of the government, but it was not subject to formal or informal controls from the government on leadership selection and interest articulation, nor was it financially subsidized. The chairman of the FKI was traditionally selected from among chairmen of the chaebôl companies through internal conferences. Moreover, it was not ‘the agent of authority; did not deputize for the state; nor had duties delegated to it that properly belonged to the civil service’ (Schmitter 1979:18). This pattern of relationship is different from the prototype of societal corporatism observed in liberal corporatist states such as Austria and Sweden. No corporatist institution existed between them. Schmitter’s paradigm of corporatism is largely not true of the South Korean case. Above all, the level of unionization was so low that the corporatist way of interest representation and bargaining between the government and trade unions hardly came to be realized. Lehmbruch’s corporatist model does not present a suitable framework, either, in explaining the state-capital relationship in South Korea. He suggests that ‘liberal corporatism means a special type of participation by large organized social groups in public, especially, economic policy-making’. The distinguishing trait of liberal corporatism is the high degree of cooperation among these groups themselves in the shaping of public policy’ (Lehmbruch 1979:54). However, the interest representational behaviors of South Korean interest groups differ markedly from Lehmbruch’s description of the corporatist model. Neither ‘bargaining among autonomous (interest) groups’ nor ‘exchanges between the government and the cartel of organized groups’ (ibid.), which were found in Austria, was observed in a policy-making procedure in South Korea. Winkler regards corporatism as a new economic system. ‘Corporatism’, he defines, ‘is an economic system in which the state directs and controls predominantly privately owned business according to four principles: order, unity, nationalism and success’ (Winkler 1977:45). The essence of his corporatist model is ‘state control’ and ‘private ownership’. However, his corporatist model is not without clear limitations, either, in its application to the South Korean case. In deploying his idea of corporatism, Winkler consistently lays stress on state control over the private economic sector. Ironically, in his view, corporatism is ‘a system of state control without bureaucracy’ (ibid.: 50). He maintains that ‘corporatism will tend towards indirect, informalized, non-public and covert forms of administration’ (ibid.). This was not true of the South Korean case, however. Winkler’s corporatist model is not convincing in expounding the extraordinarily strong influence of South Korean bureaucrats on the private sector. As we saw in a previous chapter, in South Korea, state intervention in private business’s activities was carried out by bureaucrats themselves, not by personnel or organizations that are not a regular part of the state apparatus.


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Corporatism as organic statism:5 Stepan The thesis of ‘corporatism as an organic statism’ had been frequently employed by students of Latin American and Iberian studies. According to this position, corporatism involves such characteristics as observed in J.Linz’s paradigm of authoritarianism. Linz defines authoritarian regimes as ‘political systems with limited, not responsible, political pluralism’ (Linz 1970:255). In the sense that South Korean regimes were largely categorized as authoritarian, this position needs to be specially reviewed. Stepan’s theory of state corporatism seems to be somewhat applicable to the South Korean case in that the South Korean state exercised strong state autonomy. He views corporatist states as tending to be, if not entirely, at least considerably autonomous. Some Latin American states with corporatist political systems, e.g. Peru, retained a capacity to control foreign capital and cope with multinational companies (Stepan 1978: ch. 7). The Park and the Chun regimes’ oppressive labor policies might be delineated with it. Of the two poles of the state corporatism suggested by Stepan, ‘the exclusionary corporatism model’ may be employed to describe the South Korean state-labor relationship more pertinently than the ‘inclusionary corporatism model’ (ibid.: 76–7). Under exclusionary corporatism, he argues, ‘state elites attempt to forge a new state-society equilibrium by relying on coercive policies to deactivate and then restructure salient working class groups’ (ibid.: 74). This was more or less true under the Park and the Chun regimes: autonomous organizations were coercively encapsulated into the state corporatist associational structures; the organizational capacity of workers or peasants was dismantled (ibid.: 77); the state was directly involved not only in the establishment of the labor association but also in its financial and personnel affairs (Kim Yông-nae 1986; Choi Jang-jip 1984). By contrast, Stepan’s inclusionary corporatist model is, largely, of little relevancy in the South Korean case on the following grounds: the trade union personnel’s participation in the policy decision-making procedure or the political arena was not active; accordingly, labor associations were not cooptatively encapsulated into a state corporatist structure; and South Korea did not experience political populism. Although Stepan’s ‘exclusionary corporatism model’ is partly supported in the South Korean case, critical limits still remain with the paradigm of state corporatism. First, as noted above, the ‘state corporatist model’ could not pertinently elucidate the state-labor relationship, particularly under the Roh regime. Labor unions did not develop to the extent that the corporatist state-labor relationship was formed. A corporatist institution through which the government intermediates interest representation between capital and labor, did not exist at all. South Korean interest groups’ main activities were merely to provide the government with consultation in establishing industrial policies, rather than to negotiate with the government or to articulate their interests through political parties or parliament participating actively in policy decision-making procedures (Kim Yông-nae 1986:144–5). Second, vast corporatist organizations did not exist, either. The experiences of Peru, Portugal and Spain, reported by Malloy, Wiarda and Pike (Wiarda 1977; Malloy 1974; Pike 1974) respectively, differed from those of South Korea. These states retained nationwide corporate structures, and sub-corporations could officially participate in the government’s decision-making procedure. In Peru, SIANAMOS, a government agency, functioned as the apparatus that ‘coordinated sectoral actions and organized the population as well as directly executed tasks designed to achieve effective popular participation through autonomous base organizations’ (Malloy 1974:63). In Portugal, a


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national corporative chamber which consisted of twenty-four sections existed (Wiarda 1977:358). But such a synthetic/nationwide corporative organization was not observed in South Korea at all. Third, even if the South Korean state is seen as corporatist, one cannot provide a satisfactory answer to the question: ‘Had the historical background in which a corporatist state is able to emerge existed?’ Organic statists tend to emphasize historicalcultural factors in accounting for the rise of corporatism. Stepan is not an exception. Although he criticizes Wiarda’s thesis of ‘corporatism as cultural continuity’, he does not reject the importance of historical factors (Stepan 1978:53–4, fn. 19). South Korea, however, did not possess such an organic state tradition as became the foundation of corporatism in Latin American and Iberian countries. Aristotle, Roman Law, medieval natural law and Catholic philosophy were not familiar cultural factors to South Korean society. The normative principles of organic-statism such as common good state theory and the tradition of government-chartered interest groups were even less familiar (ibid.: 27, 35–40). In addition, South Korea did not experience a populist era. In Latin American and Iberian countries, corporatism normally appeared after a populist stage. The state elites’ characteristic stance toward structural reforms naturally put emphasis on postpopulist consolidation (ibid.: 76–7). For the reason that the oppressive control of the state over the interest groups which appeared under state corporatism in the above countries, was also witnessed in South Korea, the South Korean case has often been considered similar to the Latin American cases, which had once suffered exclusionary corporatism. And, accordingly, it was often believed that the state corporatism model could be applicable to the South Korean case. However, it is important to note that this confusion arises from the fact that corporatism retains authoritarian political factors in many aspects. That is, as Stepan argues, corporatism is regarded as a sub-type of authoritarianism: although corporatism leans toward authoritarianism, ‘there may also be attempts within corporatist systems to expand the democratic components of the system’ (ibid.: 48–50). Then how is this authoritarianism defined? When Linz originally devised the concept of ‘the authoritarian government’, the third concept after democracy and totalitarianism, ‘to deal with Spain, Fascist Italy, pre-1945 Japan, the progressive one-party regimes of the underdeveloped areas and the modernizing military dictatorships,’ he defined it as follows: Authoritarian regimes are political systems with limited, not responsible, political pluralism: without elaborate and guiding ideology (but with distinctive mentalities); without intensive nor extensive political mobilization (except some points in their development); and in which a leader (or occasionally a small group) exercises power within formally illdefined limits but actually quite predictable ones. (Linz 1970:255) The South Korean state also falls under the authoritarian category, but it is not regarded as corporatist. With the exclusionary state corporatist model, we can partly outline the coercive state-labor relationship in South Korea but, as we saw above, we cannot systematically and synthetically describe the relationship between the state and every social group, e.g. the capitalist group. Moreover, if corporatism should surely, necessarily involve incorporation, not exclusion, the theoretical relevance of exclusionary state


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corporatism would become much weaker. Therefore, we must conclude that the oppressive phenomena observed in South Korea resulted from authoritarian rather than corporatist political characteristics (Choi Jang-jip 1984:54), and that to explain the South Korean case pertinently, we need to attempt a conceptualization of a new sub-type of authoritarianism other than corporatism. Corporatism as a political structure of integrating producer groups: Panitch Panitch’s theory of corporatism begins by pointing out three deficiencies of the liberal corporatist paradigm. According to his argument, the liberal corporatist paradigm does not address ‘a systematic bias toward capitalist class dominance on the part of the state’; assumes that in representing their interests, trade unions’ and business organizations’ power and influence are equivalent in a decision-making procedure; and ignores the high degree of instability which exists in the corporatist structure within liberal democracy (Panitch 1979:124–6). In his structuralist view, the state is regarded as non-neutral vis-àvis the classes. Corporatist structures tend to serve the domination of the capitalist class. Basically, corporatism is the state’s attempt to deal with inflation and international competition and, thus, it is not state intervention but business interests that bring about a corporatist structure. In the corporatist structure, not only do the advice and expertise of business associations have greater direction than those of trade unions, but also the state’s role is decided ‘by its need to foster economic growth within the context of facilitating capital accumulation’. Corporatism is a political structure induced by the state to contain the working class’s politico-economic strength and integrating it into the capitalist state (Panitch 1980:174–5). Panitch’s theory of corporatism also exposes numerous limitations in its application to the South Korean case. The corporatist (political) structure ‘which integrates organized socio-economic producer groups through a system of representation and cooperative mutual interaction at the leadership level and mobilization and social control at the mass level’ (Panitch 1980:173) did not emerge in South Korea. The patterns of state-capital and the state-labor relations in South Korea were not corporatist. As we saw above, the state was considerably independent of entrepreneurs’ interests, nor was the state’s role decided by the need to facilitate capital accumulation. If a corporatist structure, in which the capital’s domination of the state’s decision-making was guaranteed, had existed, the South Korean government’s gradual reinforcement of the restriction of the economic concentration in the chaebôl would have been impossible. Panitch’s structuralist view of the state and society presents such limited relevance as the above neo-Marxist theories do in the South Korean case. CONCLUSION In conclusion, the relationship between the South Korean state and capital is not convincingly elucidated with liberal-plural, neo-Marxist or corporatist paradigms. The liberal-plural view of society that interest groups, the main components of the society, compete with one another to secure economic interests or access to power, and freely


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combine, dissolve and recombine in accordance with their interest lines, was not supported. The South Korean state was not looked upon as a cash register, a neutral referee, or a self-seeking broker. Rather it was an active and paternal interventionist. The role of the state was more than acting as a balance to pressure-group claims in order to secure political and social stability. The state in South Korea has not been a guardian of the dominant class’s interest, an ideological-repressive machine, or a mediator advocating the capitalist class’s interests in relation to the working class. It was true, of course, that the state preferentially bestowed various special benefits on the chaebôl in the course of economic development. However, it did so, not because it was subject to the capitalist class’s interests, but because it had to achieve its own interests. The state was able to keep the chaebôl under its control, could command anti-economic concentration policies which ran counter to their interests, and discipline them when they defied its instruction. Finally, the South Korean state was not regarded as a system to link interest groups to the state, nor was it looked upon as an organic state. Historically, the South Korean state has not been familiar with the idea of corporatism. Despite the tradition of the strong state, the authoritarian character of the South Korean state was distinguished from that of organic statism. The origin of South Korea’s authoritarianism should be found elsewhere.

7 Alternative modernity and strong state autonomy vis-à-vis the chaebôl EXPLAINING THE STATE-SOCIETY RELATIONSHIP IN SOUTH KOREA In the previous chapter, we reviewed liberal-plural, neo-Marxist and corporatist debates with reference to their respective explanations of a hierarchical pattern of South Korean state-capital (i.e. the chaebôl) relations. We, however, learned that none of them could convincingly describe the South Korean case. Why does the South Korean state retain a high degree of autonomy vis-à-vis the chaebôl regardless of political transition from authoritarianism to democracy? Economists who examined state-market or governmentbusiness relations have explained that since Korean government was able to finance private businesses itself and operated powerful financial-industrial institutions through which it could support and control the private businesses, it could keep autonomy vis-àvis the chaebôl. However, there still remain social and political questions related to the high degree of Korean state autonomy: why is the South Korean state able to maintain powerful administrative institutions? Why do political-administrative agents build and operate such independent institutions? Why is it frequently possible for the President and government officials to exercise extra-formal institutional power? Why has the influence of extra-formal institutions (e.g. the President’s patriarchal authority in the state) often been involved in shaping the connection between the state and the chaebôl? For example, why has state power, in particular that of the President and government officials which has been exercised in fostering and thoroughly controlling the chaebôl, obviously risen above that stipulated in law. In order to answer these questions, I argue that we must understand what kind of state Korea is. Of course, I do not offer a complete paradigm of the South Korean state. Nevertheless, I can propose some theoretical factors that have contributed to the rise of the unique state-society relationship in contemporary South Korea. An accurate understanding of the state-chaebôl relationship can be sought by examining the statesociety rather than the state-market relationship, and by accumulating ample knowledge of Korean history rather than employing theories developed through non-Korean or nonAsian experiences; that is, one has to understand both the historical backgrounds from which it has developed and the political events it has undergone. Nobody would object to seeing South Korea as a modern state. Contemporary Korea, in formal terms, satisfies the conditions for standard Western modernity: it is ruled not by a monarch’s personal power but by legal order; legitimate use of physical force within a given territory is monopolized by the state; the right to participate in government is constitutionally secured and so forth (Weber 1978:56; Skinner 1978:349–58, 1989:105–6; Poggi


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1990:19–33). Yet these standard definitions do not sufficiently reflect the nature of the South Korean state. Why? What kind of modern state is South Korea? Is it merely a historical reappearance of a mercantilistic absolute state that emerges prior to the bourgeois liberal state? Or, as Paul Krugman argued, is it an ‘economic twin’ of state-centered former communist states (1994)? One may discover a clue to these questions by observing the Japanese case. Neither economically nor politically is Japan simply a liberal state. As Hawthorn put it: Although it observes a democratic constitution, and extends civil and political rights, its political class has not met what at least since Schumpeter has been regarded as the minimal condition of democracy: that political competition be decided by the electorate. (Hawthorn 1993a:1301) Political competition is not fairly constituted, as the political process is significantly dominated by factional rivalry. In addition, the Japanese economy has not sought after a model of economic liberalization. The Japanese bourgeoisie are under the strong hold of the state bureaucracy even now. As Johnson once observed, it locates somewhere inbetween the communist-type command economy and the Western-type mixed market economy (Johnson 1981). The Japanese state is not properly elucidated by the model of the social democratic modern state, either. A corporatist-style management of interests representation at a national level that some West European social democratic countries have employed does not exist in Japan. In a similar vein, one must not simply regard South Korea as a liberal-democratic modern state. With the collapse of the Yi dynasty in the early twentieth century, the aristocratic political class was disbanded and monarchy was abrogated. In formal and institutional respects, South Korea is now surely liberal and democratic: power is not monopolized by a single political individual or the executive and, therefore, the check and balance of power are possible amongst the executive, the legislature and the judiciary; an individual’s freedom, human rights and equal opportunities are guaranteed; the rule of law is respected; laws are made and changed by active citizens; a competition for political power exists; a change of power takes place by the people’s choice, for sovereignty rests with the people (Sabine and Thorson 1973:629–33; Becker 1941; Hawthorn 1993b, 1993c; Beetham 1993; Held 1987b; Dunn 1992). There exists, however, a great gulf between the formal institutional aspects and the nature of the modern state in South Korea. It might be problematic to see it as ‘liberal’. This is so, particularly in the sense that a ‘commercial society’ in which individuals have the full liberty of using their properties for their own interests without state intervention, does not exist in South Korea. (For example, the government has greatly restricted individuals’ capital transfer to overseas nations.) The classical liberalism was derived from the idea of the liberation of economy from the arbitrary intervention of the state. The liberty of utilizing individual properties is a natural right, which must not be encroached upon by the state (Locke 1982; Hall and Gieben 1992:102). With the rising bourgeoisie-led civil society, the development of the capitalist economy and, particularly, the spread of claims to individual property rights in the eighteenth and the nineteenth centuries, the state evolved in a direction in which it could serve the interests of the

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bourgeoisie (Mann 1986; Poggi 1990). The liberal argument advocating ‘laissez-faire’, emphasizes that the state’s involvement in the economy is redundant; that the economy is a separate domain of civil society, which exists out of political power and the duties of the state, and that the state must, therefore, stay aloof from the economy insofar as the security of individuals, ‘civil liberty’ and the market itself are not eroded by extreme commercialization (Smith 1993). In South Korea, however, economic liberty was still considerably constrained by the state’s interventional power during the Chun and Roh regime periods despite the rapid expansion of the bourgeois class and development of the private sector. The South Korean state still tended to be patriarchal and authoritarian in directing civil society and the market, notwithstanding democratization and economic liberalization. One may suggest two reasons for the rise of a high degree of autonomy of the South Korean state vis-à-vis society: one economic and fiscal, the other social and political. In the economic realm, the South Korean state is relatively, if not entirely, free from the dilemma which the contemporary democratic capitalist state faces: i.e. ‘it must reconcile the requirements of accumulation with the demands of the electorate, and it must extract an increasing revenue from capital to finance its support of capital and its response to the electorate’ (Macpherson 1989:25). The South Korean state was distinguished from Western capitalist states in that the leading actor of capital accumulation was the state itself rather than the capitalists. As the state monopolized financial institutions and arbitrarily allocated industrial, financial resources, the capitalist class became considerably subject to the authority of the state. The degree to which the state had to rely on capital for capital accumulation and the increase in revenue was, therefore, lower in comparison with the case of Western capitalist states. In such an illiberal atmosphere, political and economic democratization, ironically, strengthened state autonomy vis-à-vis capital. With the advancement of democracy, the political class found that they would not be able to succeed in elections without a proper response to the electorate’s demands for economic equity, e.g. the regulation of economic concentration via big business. This was one of the reasons that the relatively democratic Roh regime was still autonomous vis-à-vis capital while regulating economic concentration despite the tenacious lobbying of the chaebôl. The economic and fiscal account, however, can elucidate merely a part of the truth. This account presumes that the state will eventually have to stop intervening in the economy if the capitalist class completely takes over the role of capital accumulator. Also it is parallel with Fukuyama’s argument that ‘liberal democracy remains the only coherent political aspiration that spans different regions and cultures around the globe’ and ‘liberal capitalism’ is the surest means of achieving material prosperity (Fukuyama 1992). However, the assumption that economic prosperity and the development of civil society will necessarily create the liberal nature of capitalism and democracy might be subject to the criticism of over-simplification. Like Japan, the South Korean state has adhered to protecting state sovereignty from the threats from both domestic and international capital and, therefore, has been reluctant to develop a commercial society and to liberalize the economy. The state will not accept the dominance of the bourgeoisie or capital. The reason the ‘governed market’ (Wade 1990) pattern emerged in east Asian economies is not merely an economic issue. It is obviously involved in the society, politics and history of the region.


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THE IDEAL OF THE CONFUCIAN STATE We may be able to discover the nature of the Korean state through an understanding of the Confucian state of the Yi dynasty, which was established in 1392 and maintained until 1910 when Korea was eventually colonized by Japan. Neo-Confucianism provided the ideological and political foundations of the Yi dynasty. During the five hundred years’ tenure of the dynasty, a modern state emerged in Korea. The prime political ideology of the state was based on neo-Confucianism. Initially, Confucianism functioned merely as a system of scholarship offering education and a knowledge of administration during the (partially concurrent) Silla (57 BC–AD 935) and Koryô (AD 918–1392) dynastic periods, while Buddhism kept its status as the state religion dominating the spiritual milieu of the kingdoms. It was in the late period of Koryô, however, when Confucianism started to serve as a political ideology of the Korean state. While the military ruled Koryô for eighty years from 1171, the literati, sadaebu, educated in neoConfucianism, were taken into government service. These scholar-bureaucrats were differentiated from the powerful families, who had achieved wealth and social status by illegal means backed by political muscle, in that they strove for political advancement via the examination system, on the basis of scholarly achievement. Many of them came from the ranks of the petty functionaries in local administrations. They were small-middlelevel landowners or independent farmers (Lee Ki-baik 1984:160). The sadaebu were discontented with the veiled struggle for regal succession amongst branches of the royal family and nobles, the decline of national power, the disorder of the land tenure system and the corruption rampant in the state and society. So some of them joined in Yi Sônggye’s founding of a new dynasty, i.e. Chosôn, offering neo-Confucianism as a fresh political ideology. With the establishment of the Yi dynasty, neo-Confucianism was regularly adopted as the ideology of government. The rise of a new dynasty based on Confucianism was the result of those young Confucian scholars’ antipathy to the intervention of Buddhism in the government apparatus, ‘the traditional domain of the Confucians’ (Deuchler 1992:104). The misgovernment of Sin Ton, a monk appointed as the highest decisionmaker by King Kongmin (AD 1351–74), frustrated the sadaebu and radicalized their aspiration for a new political order. They considered Buddhism, which isolated individuals from family and state by emphasizing the cultivation of self rather than the collective, hierarchical social order, as a major cause of the political disorder rampant in the late era of Koryô. They felt that there existed analogies between Koryô society and that of T’ang (an old Chinese kingdom) in the sense that both societies had been dominated by Buddhism and had ended in disaster. They, therefore, intended to reconstruct social, political order by building a Confucian state. Neo-Confucianism was not a mere scholarly discipline but the foundation of the dynasty’s political order. The Confucian state was one in which hierarchical social relations between ruler and subject and father and son were properly set; rites offered the most effective ways to reconstruct social order and stability; the king and Confucian scholar-bureaucrats, the king’s assistants, had to display exemplary behavior to win over the people’s hearts and edify the people and, thus, ‘governing was essentially an educative and regulatory process by which the unruly nature of the people was subjected to state control and brought into harmony with the universe’. The sadaebu believed that if ideals described in China’s


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classical literature were instituted in Chosôn, ‘Korean society would eventually be transformed into an ideal Confucian society’ (Deuchler 1922:113–22). THE COLLAPSE OF THE CONFUCIAN STATE AND FORCED WESTERNIZATION From early in the nineteenth century, however, the Yi dynasty displayed signs of disintegration. The pillars that had upheld the Confucian state for more than four hundred years began to crack. Of the series of crises, the most critical was the disorder of the hierarchical Confucian caste. As royal in-law families monopolized the hegemony of the political class, the number of displaced yangban (the literati) consequently increased. Those whose lineages could not produce high-ranking government officials for several generations were unable to maintain the dignity of traditional yangban class status. Some of them became small-scale farmers. At the same time, the discrimination between legitimate and illegitimate lines of descent, which traditional Confucian customs had emphasized, became gradually relaxed. The customs had not allowed the descendants of illegitimate lines to take government positions. From the late eighteenth century, however, such discrimination became less strict. The confusion of the hierarchical Confucian class order grew worse with the growth of the chung’in class, the second highest status, and the emergence of wealthy farmers and great merchants. Originally, the chung’in class embraced technical specialists. They had been relatively discriminated against by the yangban, as philosophical training was more revered than practical skills under the Confucian value system. But as the chung’in class engaged in the introduction of Western culture through Ch’ing China, as professionals in the areas of interpretation, medicine, astronomical science, etc., their influence and social status in Yi society gradually increased. Meanwhile, upheaval in the peasant and the humble class that constituted the base of Yi society caused further deterioration to the unstable Confucian society. The introduction of a new rice-planting technique incurred a vast labor surplus in rural areas. Owing to severe famine and poverty, and the corruption of government and the power abuse of the yangban, the discontent and grievances against the ruling class increased. In the early nineteenth century, many peasants turned to brigandry, stirring up social lawlessness, or waged popular uprisings under the leadership of the displaced yangban. The spread of Catholicism and the Tonghak (Eastern Learning) doctrine, advocating the equality of all human beings, among alienated intellectuals and lower class people such as craftsmen, merchants and peasantry, further stimulated the reaction to the yangbancentered, hierarchical Confucian social order. For the Yi dynasty, there were two possible ways to cope with such domestic problems. One was to accommodate the new waves of change by opening itself to Western culture. The other was strictly to isolate itself from such foreign influences in order to sustain the traditional Confucian state. From the later eighteenth century, the argument that Chosôn should have commercial and diplomatic intercourse with Japan, China and Western countries in order to become a rich and strong nation had been suggested by the scholars of Northern Learning (e.g. Pak Che-ga). They were deeply impressed with Western civilization and the evolution of enlightenment reform.


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However, the option that the Yi dynasty eventually took in the nineteenth century was an extreme isolationist policy. The appearance of foreign vessels was looked upon as a menace to the Yi dynasty, which was suffering from internal crisis. The political class of the Yi dynasty apprehended that the unhappy experiences China had had in the process of opening the nation to Western powers, i.e. the Opium War and the Arrow incident, could be repeated in the Korean peninsula. They believed that the spread of the Catholic doctrine of ‘equality of all human beings’ would pose crucial threats to the maintenance of the Confucian state order. Emotional antipathy to the West was another reason for isolation. The German adventurer, Oppert, attempted to rifle the tomb of Taewôn’gun’s father. Taewôn’gun, who, for about ten years, practically ruled the Yi dynasty on behalf of his young son, King Kojong, coped with mounting pressure from the West in a fashion of absolute isolationism. After his soldiers repelled American battleships of the Asian Fleet under the command of Admiral John Rodgers (1871), which tried to land troops on Kanghwa Island, he ordered the erection of monuments in major strategic posts of the country, inscribed with this admonition: ‘Not to fight back when invaded by the Western barbarians is to invite further attacks, and selling out the country in peace negotiations is the greatest danger to be guarded against’ (translation from Woo Keun Han 1970:368). This policy of isolationism, however, soon proved to be an ineffective method of maintaining Korea as a country of hermits. As Taewôn’gun was ousted after ten years’ reign, by conservative Confucian scholars whom he had once targeted for reform, and by his daughter-in-law Queen Min and her clan, the isolationist policy was gradually abandoned. The pressure of commercial intercourse with foreign countries gradually grew. However, it was not a Western power but Japan, a neighboring Asian nation which had already been opened by America, that eventually opened the ports of the ‘hermit Kingdom’ by force. In February 1876, the Korean government reluctantly signed the socalled ‘Kanghwa Treaty’, an unequal amity treaty between Japan and Korea. With this incident, the absolute isolationism, which had been imposed by Taewôn’gun, finally came to be broken, and Korea was forced into exposure to the modern Western world. After the conclusion of the treaty, a quick move toward modernization was made. The Korean government sent special envoys to Japan, and they observed how an Asian nation had been adopting Western technology. One of them, Kim Hong-jip, obtained copies of two treatises from Huang Tsunhsien, counselor of the Chinese legation in Tokyo, which would exert a significant impact on Korean intellectuals. One of these, ‘A Policy for Korea’ advised that Korea must introduce Western technology in order to strengthen its power, and should build a friendship with China, treaty ties with Japan and diplomatic relations with America to guard itself from Russian aggression (Lee Ki-baik 1984:270). In 1881, it dispatched a large fact-finding mission to Japan and a selected group of students to China, where they inspected Japanese education, home affairs, foreign offices, military and industrial practices, and learned Chinese weapons technology, respectively. The effects of the missions were instant. By applying the knowledge obtained, the Korean government enforced military and administrative reforms. King Kojong reorganized the Korean army and invited a Japanese army officer to teach a newly organized army unit the skills of modern military warfare. In the administrative area, the King established a new government organization, the Office for Extraordinary State Affairs, that emulated the Ch’ing administrative system. It consisted of twelve


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departments, and was in charge of diplomacy, military affairs, foreign trade, language education and industrial matters. By establishing this new organization, the Korean government attempted to cope with a new international environment. Such enlightenment reforms, however, prompted a reaction from the conservative force. The Confucian literati had argued that the conclusion of the Kanghwa Treaty would eventually lead to the aggression of Western barbarians against Korea, suggesting the doctrine of ‘defending orthodoxy and rejecting heterodoxy’. This reactionary movement brought about conflict between the conservative and the enlightenment forces. The conservative force, represented by Taewôn’gun, recovered power through the ‘military mutiny of 1882’ with the back-up of the people’s antagonism to Japan. Taewôn’gun restored the military and government organizations to the original state. The enlightenment efforts seemed to be dispelled. The conservative reaction, however, was not long sustained, either. With this incident as a momentum, the intervention of the Ch’ing dynasty, apprehensive of the expansion of Japanese power in the Korean peninsula, became more active. It attempted to restore its traditional suzerainty over Korea that had been challenged by Japan. To remove the pretext under which Japan might intervene in Korean matters again, Ch’ing drove Taewôn’gun from power and sent him to Tientsin under protective custody. Instead of Taewôn’gun, Ch’ing supported the Queen Min faction. The new Korean government propelled enlightenment reforms in the areas of foreign relations, military organization and domestic administration under the strong influence of Ch’ing China. Korea concluded commercial treaties with the US, France, England, Germany and other Western nations with a view to containing the intervention of Japan, in accordance with the expostulations of the foreign diplomatic advisers, recommended by Ch’ing, the German Möllendorf and the Chinese Ma. The fundamental limitations of the enlightenment of Korea were summarized in two ways: (1), the direction of the enlightenment tended to be decided by the interests of super-powers around Korea rather than by Korea itself; and (2), more importantly, in promoting the enlightenment policy, the political class did not take the people’s demands into account. Political leaders made the enlightenment process more confusing by submitting themselves to foreign powers which could let them sustain their power, whenever the situation changed. The coup d’état of 1884 and the ‘uprising of the Tonghak peasant army’ clearly showed the limitations of Korean enlightenment. After the aforementioned military mutiny of 1882, it was royal in-laws of Queen Min’s clan who politically assumed the reins of the yangban officialdom. Most of them were elders supporting gradual reforms. By contrast, there emerged another persuasion consisting mainly of young intellectuals. These progressive yangban were those whose political advancement was blocked by the royal in-laws. They were ‘firm believers in the doctrine of equality’ and ‘the aim of the progressives was to do away with class distinctions’ (Lee Ki-baik 1984:276). They suggested that Korea should emulate the Meiji restoration model of Japan for enlightenment, and that in the cause of genuine independence, Chinese influence should be expunged from Korea. However, these young progressive intellectuals who were favored by King Kojong owing to their wider international knowledge, were also relying on Japan in order to execute drastic reforms. The coup d’état waged by them in 1884 eventually failed, as Ch’ing, realizing that they were remotely controlled by Japan, intervened in the incident.


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While the political class inconsistently deployed enlightenment policies according to their interests, the burdens on the peasantry became heavier, as fresh levies were imposed on them, and they were more harshly exploited by petty functionaries who collected the levies (ibid.: 281). Moreover, the village economy of Korea was devastated by Japanese economic infiltration. Under the circumstances, the grievances of the peasantry against the yangban reached such a point that they waged a revolutionary Tonghak (Eastern Learning) uprising in 1894. They demanded a ban on economic exploitation, the abolition of the caste system, and the punishment of those guilty of collusion with the Japanese. The Tonghak rebellion, however, was violently put down by government troops backed up by Chinese and the Japanese forces. In June 1894, the Sino-Japanese war broke out in Korea, with the confrontation between the Chinese forces, which the Korean government had requested be dispatched to quell the Tonghak rebellion, and Japanese troops, which were sent to contain the expansion of Chinese influence in Korea. With the defeat of Ch’ing China by Japan in this war, China’s suzerainty over Korea became negated. Japan, which had dispatched its troops to Korea (1894) under the pretext that it would protect its legation office and people, demanded that Korea should carry out internal reforms in order to prevent domestic agitation like the Tonghak uprising. The genuine intention behind Japan’s demand was to take a grasp on Korea before it waged a war against Ch’ing China, and to restore its economic supremacy in the Korean market. Japan’s demand, however, was rejected by the Korean government in order to avoid foreign intervention in domestic affairs. So Japan tried to achieve its purposes by using force. It ordered its troops to occupy the palace, made the Korean government form a pro-Japanese cabinet led by Kim Hong-jip, and instituted the Reform of 1894. Ostensibly, the reform reflected institutions of the Western modern state: the government was separated from the palace; the state council was reorganized in the form of a cabinet; the traditional government service examination system and the distinctions between yangban and commoners in recruiting government officials were abolished; the judicial administration became independent of the executive power; taxation systems were refined and, in social areas, the social caste system was abrogated and widows were allowed to remarry. As a consequence of the reforms, a new form of government with modern administrative organizations was established, and the Guiding Principles of the Nation (Hongbôm), fourteen articles of the constitution, were promulgated, in January 1895. Japan’s plan to establish a remotely controlled regime in Korea, however, became contained by Russia. While the influence of Japan weakened owing to the tripartite intervention of Russia, France and Germany in the issue of the retrocession of the Liaotung Peninsula in China, the Queen Min clan, acting under the auspices of Russia, founded a pro-Russian government, expelling pro-Japanese figures. Infuriated by Russian involvement, Japan egged on assassins to slay Queen Min, and restored the pro-Japanese regime. The forced reform by Japan, thus brought about the Korean people’s vehement reaction to foreign powers. By using this momentum as an opportunity, resistance activities by the ‘Righteous’ Armies began to take place under the leadership of the Confucian literati. The enlightenment of Korea lacked the people’s support and was, in effect, degraded to a bridgehead to the achievement of Japan’s ambition to invade the continent and penetrate the Korean market. As forced enlightenment progressed, the people’s antipathy to foreign powers, particularly Japan, deepened.


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At this time, the activities of young intellectuals to defend independence and freedom from foreign powers began vigorously to be manifest. An example was the Independence Club organized in 1896. The core members of this club were those who were devoted to Western liberalism, like Sô Chae-p’il, the founder. With its development into a citizen assembly, the club promoted the people’s social and political activities: e.g. it held debating forums and sponsored the publication of the Independence, a newspaper written entirely in the Korean alphabet. In social and political arenas, it advocated national independence, the people’s participation in the political process, i.e. democracy, a selfstrengthening movement through education, commercialization and industrialization. Ultimately, it intended to establish a constitutional government and to achieve the rule of law. King Kojong, who deemed that those activities were aimed at the abrogation of the monarchy and the establishment of a republic, ordered the dissolution of the club while arresting its leaders. Eventually, the reform from below to establish a Western-type liberal democratic state came to naught. Instead, after King Kojong (who had taken refuge in the Russian legation apprehensive of another possible assassination attempt by Japan) returned to the palace, the Korean government carried out limited reforms. Korea changed its official title from Chosôn to Taehanjeguk, the Great Han Empire, in October 1897. With the proclamation of the establishment of an independent empire to the nation and the world, the Korean government tried to institute political, educational and military reforms, and build up a modern economic system by executing industrial policies and constructing modern factories. The price Korea had to pay for modernization was great. Although the overall trend was toward modernization, neither a powerful political leadership nor the people’s united support existed. Conflicts between conservatives and reformists, remotely controlled by neighboring super-powers such as Japan, China and Russia, continuously occurred, and the Korean peninsula became a field of international power struggle between them. Consequently, the Korean government had to make numerous concessions to the foreign powers with regard to control over railroads, mining, communication, etc. on the peninsula. In 1905, Korea forfeited its sovereign power to establish foreign relations independently, as Japan forced it to sign the Protectorate Treaty. The early attempt at modernization concluded with the annexation by Japan in 1910, and Korea came to suffer more passive and forced modernization. The early history of Korean enlightenment was one of tragedy rather than hope. ALTERNATIVE-MODERN FACTORS OF THE SOUTH KOREAN STATE During colonial rule, social, economic and political Western modernities were imposed for the benefit of Japan rather than voluntarily introduced by a consensus among the Korean people. The systematic and spontaneous introduction of Western modernity was suspended until 1948, when the modern independent South Korean state was born. Formally, the introduction of Western modernity was completed with the establishment of the modern independent South Korean state. However, a truly liberal-democratic modern state could not be achieved simply by emulating Western modernity. The modernization of Korea lacked the ideological components of Western liberal modern


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states, such as constitutionalism, European liberalism and democracy. The historical and political factors which had characterized the traditional Korean state still prevailed in the modern South Korean state, keeping it from developing into an entirely liberaldemocratic modern state: e.g. political changes were often motivated by extra-formally institutional factors, such as the President’s personal disposition, alumni or regional connections, senior-junior relationship, etc., rather than institutionalized political competition, and the President’s bodyguard units such as the secret service and the KCIA were often deeply involved in political processes which should be legitimately deployed in the national assembly. The historical and political factors of the Korean state were alternative-modern factors, which had spontaneously developed in the Korean state after the foundation of the Confucian Yi dynasty and, accordingly, were distinct from those of Western modernity. Obviously, the Confucian state was a kind of modern state. Oriental despotism is not a relevant description of the Confucian state: as we will see in the next part, it was not ruled by a monarch’s personal power but by rites or proprieties and the law (although the right to participate in government was constitutionally secured), and legitimate use of physical force within a given territory was monopolized by the state. However, those factors were in contradiction to democratic political elements of the liberal-plural modern state.1 The alternative-modernity was composed of ethical allegiance as a link of the state-society relationship, the exclusive rule by Confucian sages (not by law), a hierarchical state order based on ethical wisdom, and family statism.2 The import of the Western-modern institutions could not have prevented the unique modern factors of Korea, which had evolved for five hundred years, from exerting strong influences. It is merely about fifty years ago (1948) when a Western-type modern state was regularly established. While ostensible Western modernity and distinctive alternative-modernities were co-existing, a different form of the modern state gradually emerged in South Korea. The strong autonomy of the South Korean state, the powerful authority of the executive (particularly the President), its exercise of extra-formal institutional power, and a hierarchical relationship between the state and the chaebôl might be more correctly understood by looking into those unique alternative modern factors of the Korean state rather than by analyzing economic aspects alone. The alternative-modernities were consistently emphasized as ideals or norms for achieving hierarchically organized state order. Although corporatists and even some Marxists have mentioned strong bureaucratic power or admitted state autonomy, as we saw in the previous chapter, the situation of the South Korean state was not well understood from these perspectives. The South Korean state, in my view, is a different kind of modern state from Western ones. In this section, I will attempt a new theoretical interpretation of the South Korean state where its strong autonomy in relation to society necessarily emerges. In doing so, two strategies are taken. In the first part, I will suggest four alternative-modern factors of the South Korean state by examining the political ideology of the Confucian Yi dynasty (i.e. Chosôn). Although the modern Korean state with formally liberal-democratic institutions was established in 1948, as I argued above, alternative-modern factors which had evolved under Confucian ideas are still serving as crucial elements of the contemporary Korean state and society. The way the contemporary South Korean state actually works will be sufficiently understood, not by analyzing the constitution, examining formal state


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institutions, or applying various models of politics derived from the recent political history of the West including Latin America, but by investigating inherent political relationships, established in the Yi dynasty. For example, the unique state-capital relationship in contemporary South Korea is crucially involved in the Confucian state order which emerged during the Yi dynasty period. Second, we will examine a procedure in which alternative-modernity has rendered services to the rise of an authoritarian modern state in South Korea despite the introduction of institutions of the Western-liberal-modern state, and in which alternativemodernity has been preserved or distorted with South Korea’s experience of political events rather than replaced with standard Western-modernity. As Janelli observed in his anthropological study of the Korean society, for example, while Korea experienced Japanese militarism which had been transplanted during Japanese colonial rule (Janelli 1993:47), some egalitarian aspects of the Confucian society of traditional Korea were eroded, but the hierarchical social order of the Confucian state was more strictly established. No interpretation of modern Korean politics in purely structural terms, whether ‘structure’ is interpreted economically, culturally (as established patterns of belief and action) or even linguistically (as a set of generative rules), is sufficient to demonstrate why these politics have continued to be as they are.3 We need to see how they have been reinforced by the impact of, and response to, political events that originated in and outside Korea. The concept of interest The most critical point which differentiates the South Korean state from its Western counterparts is the fact that the Koreans in the Chosôn era did not share the same view of ‘interest’ with Westerners. In the previously mentioned three views on the modern state, i.e. pluralism, Marxism and corporatism, it is interest that connects individuals and interest groups with the state. Pluralists see the state as an arena in which various kinds of interest are compromised. Corporatists look upon the state as an organ which actively guides and controls interest representation. Marxists envisage the state as a body subordinate to the interest of the capitalist class. In this context, the concept of interest largely, if not necessarily, retains economic meaning. In the feudal social system, ‘the primary social unit was an organized group of warriors bound by reciprocated ties of defined rights, privileges and obligations between lords and vassals, and the rewards for service were stipulated access to land and profit, termed fiefs’ (Jacobs 1989:8–9). The economic concept of interest came to be further reinforced as Western countries experienced capitalism. This was not true of the South Korean state, however, where a Confucian tradition has been strongly rooted for centuries. The relationship between the individual and the state or the sovereign was defined as the monarch’s ‘propriety and benevolence’ (or perfect virtue)—‘righteousness’ and the subject’s ‘ethical allegiance’ or ‘obedience’. Confucius taught, ‘a prince should employ his ministers according to the rules of “propriety”; ministers should serve their prince with “faithfulness”.4 Mencius, in his counsels to King Hui of Liang, suggested government grounded on ‘benevolence—righteousness’. He was opposed to rule in a utilitarian way, and saw that chaos originated from the pursuit of ‘profit’.5 Westerners, at one time, also employed the concept of obedience to define the


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relationship between the state and individuals. However, with the development of those ideas and practices that we now think of as ‘liberal’—the separation of executive, legislative and judicial power and checks on those powers, the observance of civil and political rights, popular sovereignty and open political competition—the nature and range of ‘obedience’ was more or less restrictively defined. Its Western meaning was based on the idea of social contract rather than an ethical relationship. Locke, for instance, argued that if the power of every individual entrusted to the ruler was miscarried, the government had to be dissolved, and the people had a right to erect a new government (1982:130–48). ‘The rights of law-making and enforcement are transferred, but the whole process is conditional upon the state adhering to its essential purpose: the preservation of life, liberty and estate’ (Held 1984:39); that is, the state must be restricted to ensure the maximum possible freedom of every citizen, who is able to judge his own interests. But the Western concept of interest was not acceptable in the Confucian state. Confucian sages taught that a man should reject greed (for wealth) and conform to the decorum that makes a man virtuous. To subdue one’s self (i.e. greed or desire) and return to propriety’, Confucius argued, ‘is perfect virtue’.6 The man of virtue must strive for truth, not food or material wealth. As he put it: The object of the superior man is truth. Food is not his object. There is ploughing; even in that there is sometimes want. So with learning; emolument may be found in it. The superior man is anxious lest he should not get truth; he is not anxious lest poverty should come upon him.7 An analogous lesson was also given by Mencius. To become a great man, one must seek virtue, not the satisfaction of desires of the senses (The Works of Mencius, Book 4: Kao Tsze, pt. 1, ch. 15—Legge 1861). Hence, whether an individual pays obedience to the state or not, does not depend on the state’s capacity to preserve interest including life, liberty and estate. The relationship between the sovereign and the subject was compared to family relationships. According to Confucian custom in Korea, children had an obligation to obey their parents. (This will be further discussed below.) Likewise, the sovereign was regarded as the father of the state and, therefore, the people had blindly to obey the sovereign’s order. The patrimonial tradition of Korea—as opposed to feudalism—was also closely related to the strong influence of the idea of ‘familism’. As Norman Jacobs puts it, under the patrimonial system, ‘subordinates, termed clients, owed open-ended obligations to superiors, termed patrons, who might not have offered in return any reciprocal rights or privileges’ (Jacobs 1989:8) That is, in serving ‘the father’, ‘the children’ were often not allowed to consider economic interest. Hence, it was natural that commerce and citizenship should not develop and emerge under the Confucian state in which moral values were emphasized, and creating material values through agricultural, industrial and commercial activities was disdained (Yun T’ae-rim 1984:132).8 In summary, the Confucian state was the extension of the family. Therefore, a clear division between the state and society was not in existence. The Confucian state was established on the premise of an unequal social relationship between the superior and the inferior. Inequality could be overcome by the harmony of those two parties. The ruler demanded that the ruled give up insolence and defiance. In


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return for this, the former practiced the complaisance proper to the rule of propriety (Confucian Analects, Book 4: Li Zan, ch. 13—Legge 1893). For the realization of the harmonious state, the pursuit of each class’s interest must be avoided. The function of the rule of propriety lay in harmonization (Confucian Analects, Book 1: Hsio R, ch. 12– Legge 1893). The nature of Confucian politics was not a compromise of interests, or competition for power, but the enlightenment of the people and the realization of moral perfection. In modern Korea, the idea of the subject’s blind obligation to the ruler may not be as relevant as it was in the past. However, one cannot deny that the Confucian relationship between the ruler and the subject is still functioning. As an example, the Hyundai chaebôl’s political participation described in previous chapters may be suggested. The purpose of Chông Chu-yông’s running in the presidential election was to protect his and Hyundai’s interest. That is, under the state’s strong intervention, he believed, the chaebôl’s interests were not well advocated; their interest representation was often constrained by the President and government officials for political reasons. Therefore, Chông intended to break through the institutional barriers by seizing political power himself. Whereas, for the Roh government, Chông’s political participation was seen as the pursuit of selfish interest and, furthermore, as a refusal to obey the state blindly or as a threat of the break-up of national harmony. Therefore, to maintain the patriarchal authority of the government, the rebel had to be sternly punished. The Hyundai case shows that individuals’ and interest groups’ pursuit of their exclusive interests is still not justified by Confucian-political logic emphasizing the state’s unrivaled authority and the harmony of classes. The moral authority of Confucian scholars The strong autonomy and powerful executive authority of the South Korean state originated from the tradition of Confucian bureaucratic rule. The Confucian bureaucracy began to be formed during the late period of ‘three Kingdoms’, i.e. from the fourth to the seventh century AD, and was completed under the Yi dynasty (1392–1910). Weber has argued that Confucian ideas impeded the professionalism of bureaucrats. He viewed the Chinese bureaucracy as patrimonial, and bureaucrats as gentlemen rather than professionally-trained administrators. He attributed the patrimonial tendency to Confucius’s idea that ‘a refined man is not a tool’, which radically opposed the occidental notion of specific vocation (Weber 1978:1049). However, the Yi dynasty, did in fact, retain a highly sophisticated and professionalized bureaucratic ruling system, which was divided into three general sectors: policy origination and promotion, the control of the policy decision-making and implementing process and the administration of institutions and legal systems and governmental logistics (Pak Pyông-yôn 1990:154). Moreover, the institutional power of the Confucian bureaucrats was strong enough to restrict the monarch’s exercise of despotic power; consequently the Yi dynasty was not under the monarch’s personal rule.9 Confucian scholars’ deep involvement in politics reflects the fact that the Yi dynasty pursued the ideal of politics by true believers, i.e. sage statesmen, which was a kind of elitism—only those who could rise above greed and personal interests and were respected by everyone through the achievement of knowledge and morality could participate in the


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governing process. The political ideology of Confucian Chosôn was utterly distinct from that of Western liberalism. Rule by majority, interest politics and the principle of check and balance were not the elements of Confucian politics. Under the paradigm of liberal democracy the people retain a right, directly or indirectly, to take part in the state’s decision-making procedure, e.g. the election of political leaders. Under the Confucian political idea, however, the people were forced to entrust the decision of state affairs to sage statesmen and to follow their guidance. They who first apprehend principles should instruct those who are slower to do so’ (The Works of Mencius, Book 5: Wan Chang, pt. 1, ch. 7, translation from Legge 1861:239). Therefore, public opinion had nothing to do with a decision-making procedure. Politics could be performed by a few men of foresight. Confucian politics stood for the enlightenment of the people by means of virtue and ethical wisdom, e.g. etiquette or manners (Hahm 1971:16; Confucian Analects, Book 2: Wei Chang, ch. 1–Legge 1893); the goal of politics was education for the people’s self-realization. Politics and education were inseparable. Who, then, were the Confucian bureaucrats of the Yi dynasty? In short, they were the literati armed with neo-Confucianism. Neo-Confucianism is a philosophical Confucianism that explains the origins of man and the universe in metaphysical terms and, at the same time, expands political ethics that emphasize the mutual relationship between the ruler and the subject (Lee Ki-baik 1984:166).10 They were not only administrators but scholars and politicians. Bureaucracy in Korea included both the governing and non-governing (i.e. administrative) elite. Bureaucrats of the Yi dynasty were scholar-officials or true believers. An ideal bureaucrat was a scholar-official who internalized the ideology of Confucianism and possessed independent judgment based on Confucian ideology. Confucian bureaucrats could defy the sovereign, to defend justice and their own conscience (Pak Pyông-yôn 1990:139) and, in cases where the King’s tyranny became unbearable, they could even depose him to enthrone a new King. They were never passive beings. The final decisional power of policies, perfunctorily, belonged to the monarch, but the bureaucrats were deeply involved in the decision-making procedure. The State Council, a supreme bureaucratic organization of state affairs, was responsible not only for policy-decision-making but also for preventing the monarch from exercising despotic power.11 Bureaucrats were not ‘bearers’ of the monarch but assistants to him who carried out a moral duty to govern the people. They regarded the monarch as a normal human being who was prone to err and, thus, believed that they should teach him Confucian ethics. They were convinced that, if the monarch did not govern by a principle of ethical doctrines, they had no duty to obey him. Indeed, they felt that they had the duty of pointing out the monarch’s errors, and that the King was obliged to heed his virtuous scholars’ remonstrance. Their right to point out the monarch’s errors or behavior, to advise on his political decisions, and to indoctrinate the King in Confucian ethics was institutionally guaranteed (Pak Pyông-yôn 1990:163–4; Palais 1976:4–5). The agency which was in charge of pointing out the monarch’s errors was called Saganwôn, an office of the censorate, and the academic education of the monarch and frequent discussion with him were performed through Kyông’yôn, the Royal Lecture (which took the form of a seminar or symposium). This indicates that a despotic exercise of power by the monarch was systematically controlled. The Confucian Yi dynasty, in this respect, is not looked upon


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as oriental despotism which Montesquieu once defined as the spirit of terror. A Westerntype check and balance of power, of course, did not exist. Yet, such political safety devices were firmly installed. Hence, as Palais reported, very few, including both kings and bureaucrats, could exert individual political leadership because of various formal/extra-formal restrictions which radiated from an abhorrence of excessive individual power, the hierarchical superior-inferior relationship and exclusive personal/ family ties and influence, such as regionalism and factionalism (Palais 1976).12 The political idea which the bureaucrats wished to realize was ‘benevolent governing of the people by wisdom’; i.e. Confucian politics implied a unilateral exercise of power rather than a reconciliation of diverse interests. The legitimacy of political authority lay in the pre-eminent mastery of morality and intellect, since, as Norman Jacobs put it, ‘morality-intellect is mastery of the essential rules (morality) of the basic cultural heritage of a society as expressed in its sacred literature (intellect), which is applied particularly to specific situations by specific masters of morality-intellect’ (Jacobs 1989:25–6).13 Hence, in the Yi dynasty era, it was believed that governance could be practiced only by a few men of exceptional virtue. Although the patrimonial tradition still pervaded society, the Yi dynasty retained a Confucian governing-institution, which was more advanced than the patrimonial rulinginstitution that had been largely maintained until the collapse of Koryô.14 According to Weber, patrimonial bureaucracy is distinguished from modern bureaucracy in that the former lacks the bureaucratic separation of the private and the official sphere. Under the patrimonial culture, the ruler-subject relationship tends to be formed through the latter’s personal submission to the former (Weber 1978:1028, 1047). However, the Yi dynasty had already risen above this level of the patrimonial state in many respects. The bureaucracy of the Yi dynasty was distinct from both the patrimonial bureaucracy and, even, the Western absolute state’s modern bureaucracy. First, the bureaucracy of the Confucian state transcended the power of the monarch. The state was not owned by the power of the monarch; on the contrary, the latter belonged to the former. Second, the monarch’s property was distinguished from the state’s, and stipends to the bureaucrats were paid from the state’s property. Third, bureaucracy was not a system to reinforce the power of the monarch but one to divorce the latter from the former. Furthermore, the bureaucrats could be institutionally opposed to the monarch’s power. Fourth, Confucian bureaucrats were independent of the monarch. The bureaucrats possessed their own economic base, and the monarch was looked upon as merely a part of the ruling class (Son Mun-ho 1990:17, 26, 30; Pak Pyông-yôn 1990:25). The original idea of rule by Confucian scholars, which was rather naive and idealistic, deteriorated in the last era of the Yi dynasty. The people were excluded from political participation, and socially and politically ignored. Strong bureaucrats of the Yi dynasty offered an historical background in which the modern South Korean state with a strong bureaucratic system appeared. The rule-obedience relationship between the former and the latter, formed during the Yi dynasty, perpetuated an image of ruling/authoritarian bureaucrats, which still remains in modern Korea (Paek Wan-gi 1982:60–2; Ahn 1983:55). Hierarchical state order based on ethical wisdom


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Political authoritarianism of the contemporary Korean state stems not only from the rule of Confucian bureaucrats but also from hierarchical state order based on ethical wisdom. Under the Confucian Yi dynasty, the political ruling class consisted of the monarch and Confucian bureaucrats. The essence of rule lay not in law but in virtue and ethical wisdom. Law was only an ancillary apparatus for the rule of virtue. ‘Since the common people did not naturally understand the true meaning of propriety’, the ideal instrument with which society could be brought into harmony with the universe, and ‘therefore failed to observe it’, they believed that, ‘the ancient sage-kings devised laws and regulations as necessary concomitants of propriety’ (Deuchler 1992:111). This, however, as we have already observed, does not mean that the Yi dynasty was under personal rule. While the modern political tradition of the West is characterized as legalistic, that of the Far East tends to be alegalistic or ethical. In the West, the law may be regarded as a form of convention arising through use and wont (Hahm 1971:8, 19), whereas, in the old Eastern tradition it was an instrument of chastising the vicious and the depraved, which was more or less synonymous with punishment. Kyôngguktaejôn (the National Code), promulgated in 1471, consisted of the writ issued by the monarch, ordinances and custom. And Soktaejôn (Supplement to the National Code), Taejônt’ongp’yôn (Comprehensive National Code) and Taejônhoet’ong (Updated National Code), compiled after the Kyôngguktaejôn had been promulgated, also mainly included the King’s ordinances.15 This was because to no one but the sovereign, the son of Heaven, belonged the right ‘to order ceremonies, to fix the measures, and to determine the written characters’.16 The law was situated under the dignity of the ruler. While the supremacy of law was regarded as a mark of the good state by Aristotle in ancient Greece, the idea of rule by law was not accepted in the Confucian world, where rule by virtue and ethical wisdom was emphasized. Aristotle’s argument was that ‘even the wisest ruler cannot dispense with law because the law has an impersonal quality which no man, however good, can attain’ (Sabine and Thorson 1973:100). In China, a Legalist School, similar to the constitutionalism of the West, had existed along with Confucianism. However, it never became the governing ideology of the Yi dynasty. In Confucian Chosôn, it was ethical wisdom or propriety, taught by legendary sages for overcoming chaos, that served as the principle of order in the state and society. In a broader sense, it is regarded as the cosmic reason for or a moral expression of the way of the universe. In a narrower sense, it implies etiquette and manners (Hahm 1971:22). Under the paradigm of propriety, politics implies the moral enlightenment of the inferior by the superior. Inequality between them is an indisputable truth. The unequal relationship between the superior and the inferior is built by ethics. Yet, inequality is sublimated into harmony by ethics. The subject was ruled with the Confucian rite and etiquette described in the Four Books (i.e. the Confucian Analects, the Works of Mencius, the Doctrine of Mean and the Great Learning) and Five Classics.17 It is important to note that the terms rite and etiquette in the Confucian idea implied three fundamental principles between the sovereign and the subject, father and son, husband and wife and five ethical imperatives in human relations: i.e. ‘righteousness between sovereign and subject; proper rapport between father and son; separation of functions between husband and wife; proper recognition of the sequence of birth between elder and younger brothers; and faithfulness between friends’ (Deuchler 1992:110). In other words, in Confucian political thought,


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human relations were largely epitomized by the family relationship, which was applied to the concept of rule. As a result, a state based on the idea of family came to emerge.18 In the Confucian world, politics meant ethical-benevolent government. As the son obeys his father, so the subject was expected to be loyal to the monarch whose duty was to carry out Heaven’s order. Such a unilateral human/political relationship inevitably gave rise to a hierarchical and authoritarian state. Authority came before the capability of an individual. Regardless of personal ability, the sovereign, father (or parents), husband, the elder always had priority over the subject, son, wife and the younger respectively. With respect to social class, the higher class enjoyed priority over the lower classes, and such a hierarchical social status system was justified ‘on the ground that it represented the proper application of Confucian moral teaching to the organization of society’ (Palais 1976:6). In the last era of the Yi dynasty, although class mobility took place through venality of nobility, the noble class (yangban) largely kept their vested rights. A new citizen class, grounded on economic wealth, education and professionalism and, thus, able to replace the yangban, did not emerge, for the development of commerce and industry, which were opposed to the Confucian moral values, were consistently neglected. Under the ethical rule, the people always remained as the political subject which should be governed by ‘moral enlightenment’ and, thus, it was quite an authoritarian rule. The authoritarianism of contemporary Korean politics is significantly derived from the moral authoritarian tradition of the Confucian political idea. Janus-faced characteristics of Korean politics radiate from this point. Even if the contemporary South Korean state retains an objective legal system, the President can often exercise super-constitutional powers by virtue of an invisibly stipulated Confucian authority. As we saw in a previous chapter, the dissolution of the Kukche chaebôl is suggested as a good example. The relationship between the state and the chaebôl was deeply involved in such an authoritarian and hierarchical state-society order. The chaebôl’s objection to or criticism of the government’s economic policy was looked upon as disloyalty to the state. For the President and government officials, the chaebôl were subjects to be governed. Family statism The Confucian state which existed during the Yi dynasty period may be regarded as a family state. That is, the state is a magnified model of the family, which is collective and patriarchal. The Korean terminology of the state (kukka), connotes the concept of the family (kachok). The terminology has two implications: (1) the power apparatus governing the people living in a territory, and (2) the family (Han Sûng-jo 1990:78–9). The state is the community built on family ties. As the ruler and the subject are compared to the father and the child, respectively, so children’s filial piety to parents is extended to the subject’s loyalty to the ruler. A man is understood not as an independent but as a dependent and subordinate being. That is, a son, wife and the subject belong to his parents, her husband and the ruler, respectively. The concept of ‘self’ could not develop, for an individual was regarded as part of a family, a hometown and a social group. The reason the rule of virtue and ethical wisdom rather than the rule of law was emphasized in the Confucian Chosôn lay in the idea of family statism.


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The idea of the Confucian state is in contrast to that of the West. In Western political thought, the rule of the household, i.e. rule over wife, children and slaves, must be differentiated from political rule (Sabine and Thorson 1973:119). The right and liberty of the individual and anti-statist/ laissez-faire doctrines have evolved along with the deployment of liberalism. In the Confucian world, on the contrary, a human being was understood with respect to his or her human and ethical relationships, thus an emotional and paternal, rather than an objective, human relationship was established. An individual was neither a social unit nor the object of a social contract. Competition for political power and confrontation between the ruler and the subject were replaced with cooperation and harmony. The principle of check and balance, liberty, equality and justice in law did not exist in the Confucian state. Once the premise was admitted, that it is the function of the ruler to rule and the ruled to be ruled, there was no room for a debate on liberty. Once it was considered that some men were superior to others in terms of intellect and virtue, unequal relationships amongst them was unavoidable. Under the idea of the rule of ethical wisdom, it was not considered that justice could be secured through the law (Hahm 1971:15–45). REINFORCEMENT OF ALTERNATIVE-MODERNITY THROUGH POLITICAL EVENTS Until now, we have reviewed alternative-modern factors of the South Korean state by examining elements of the Confucian state that had existed during the Yi dynasty. These factors have operated as background in which a high degree of autonomy of the South Korean state in relation to social groups appeared. In summary, the alternative-modern state that has evolved in Korea is characterized as a magnified model of the family, whose relationship with society was established by ethical allegiance rather than economic interests, which aimed at the exclusive rule by Confucian sages (which meant that the people’s participation in politics was not considered), and whose state order was based on ethical wisdom, rather than law. Obviously, the modernity of the Korean state is distinguishable from both standard Western modernity and the axiom of the liberal state. The state-society relationship formed by the alternative-modernity is also distinct from those of plural, Marxist, corporatist modern states. Why, then, do those elements, emanating from the Confucian and the patriarchal paradigm, still survive and exert strong influence, although it is more than forty-five years since a modern state of a Western type, equipped with liberal-democratic political institutions, was established in South Korea? Western modernity, e.g. impersonal rule or the rule of law, the people’s constitutional participation in forming government, could not entirely replace alternativemodernity. Also, the emulation of liberal political institutions, such as the separation of powers, the observance of civil and political rights, popular sovereignty, open political competition, and so on, did not guarantee the emergence of a liberal modern state in South Korea. The failure of the application of Western modernity and liberal political institutions is closely associated with two factors: first, both are fundamentally distinct from Confucian modernity; second, alternative-modernity has been reinforced or distorted, while it has brought about dramatic political events. The alternative modernity had been negatively distorted while South Korea experienced Japanese colonial rule


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(1910–45). It thereafter served as an underlying factor in the rise of ‘illiberal’ and ‘unlawful’ political events such as the so-called ‘Pusan political turmoil’ conspired by Rhee Syng-man (1952), Park’s military coup (1961), the establishment of the Yushin regime (1972), Chun’s military coup (1979–80), and the merger of the Democratic Justice Party (DJP), the United Democratic Party (UDP), and the New DemocraticRepublican Party (NDP), clandestinely schemed by Roh Taewoo (1990). At the same time, these incidents reversely reinforced or distorted the alternative modernity. As argued above, the alternative-modern factors have been deeply involved in the emergence of the state’s strong autonomy vis-à-vis society, as well as the authoritarian character of executive institutions, the strong influence of extra-formal institutions exercised by the President and bureaucrats, etc. which were observed in the examination of the relationship between the South Korean state and business. Furthermore, they have been concerned with frequent political changes whose natures are looked upon as illiberal and undemocratic. The formal introduction of political axioms of the liberal modern state could not eliminate them. On the contrary, they have been actively employed by the political class who regard them as useful in achieving the stability of domestic politics or economic development. In this section, I intend to examine the above cases which prove that alternativemodernity is still operating rigorously in the arena of the South Korean state, hindering Korean politics from being institutionalized by Western liberal modernity, and shaping a unique state-society nexus in South Korea. I will begin the debate by looking into Japanese colonial rule during which the alternative-modernity of the Korean state was distorted and rather strengthened. Thereafter, I will suggest five case studies which show that the political procedure is still greatly dominated by alternative-modern factors rather than Western liberal modern institutions that have been imported since the collapse of the Yi dynasty. Japanese Colonial Rule (1910–45) The initial factor which had restricted the autonomous development of society and magnified the state’s controlling power over it, is considered to be the colonial rule by Japan—which came to an abrupt end with the cessation of World War II in 1945. After Japan’s right to take control over Korea was acknowledged by the US, through the secret Taft-Katsura Agreement of July 1905, and by the UK through the Anglo-Japanese Alliance of August 1905, Japan divested Korea of the sovereign power to keep diplomatic relations with foreign nations by forcing the Korean government to sign the Protectorate Treaty in November 1905. In July 1907, another forced treaty, the New Korea-Japan Agreement, was concluded, which endowed the Japanese Resident-General with full authority to intercede in all matters of domestic administration, legislative enactment, and the appointment and dismissal of high officials. Immediately after the conclusion of the agreement, Japan dissolved the entire remaining Korean army units. In 1910, Korea was finally annexed by Japan. Having colonized the country, Japan carried out its rule through a Government-General, with which the Residency-General was replaced. The governor-general was to be appointed from the ranks of Japanese generals or admirals on active duty. He alone encompassed all legislative, executive, and judicial powers. Following the dissolution of the Korean Army, the Righteous Armies’


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resistance against Japan had taken place incessantly. The method employed to repress this resistance was the so-called gendarmerie police system. The provost marshal of the military police stationed in Korea was appointed police superintendent in charge of the gendarmerie. They had extensive authority and supervised the enactment and the operation of general administrative measures. The chief constable and the head of military police units could judge a civil trial in their districts of jurisdiction. After the rise of the March First Movement in 1919, Japan announced a change in its colonial policy: it would abandon reliance on its gendarmerie police forces in controlling Koreans, in favor of a so-called ‘enlightenment administration’. One of the symbolic modifications of the gendarmerie police system was demilitarization. The governorgeneral of Korea, who had been selected from among Army generals or Navy admirals on active duty was to be recruited from among civil officials. But the change soon turned out to be a hoodwinking. For example, police units were expanded and the number of police personnel increased from 15,000 in 1919 to 21,782 in 1938 (Lee Ki-baik 1984:346–7). The Japanese colonial rule bequeathed roughly three legacies to the contemporary Korean state. First, political authoritarianism, which had pervaded the Yi dynasty, became more reinforced and distorted. Modern political administrative institutions were introduced during this period, but they were not based on the principles of liberal democracy. On the contrary, they were not only ademocratic but also authoritarian. The oppressive rule of the Japanese Government-General entirely alienated the Koreans from the political-administrative procedure. Almost all high-ranking public officers were recruited from among the Japanese. Any type of political activity by Koreans was banned. Under such a military police system, even minor resistance activity by Koreans was subject to severe punishment. In consequence, in 1912 over 5,000 Koreans were arrested, a figure which reached more than 140,000 in 1918 (Lee Ki-baik 1984:314). The legal system instituted by the Japanese colonial government served as an oppressive machine of the Korean people, eliminating the role of principles of the Confucian rule, i.e. virtue and ethical wisdom. The Koreans referred to the rule of law imposed by the colonial master as most detestable (Hahm 1971:82). With the deployment of the oppressive gendarmerie police system, an authoritarian aspect of government was further reinforced. In this regard, the nature of the Japanese colonial regime’s authoritarianism was not the same as that of the Yi dynasty. Second, the rule of the bayonet brought about the expansion of bureaucratic power. With the oppressive role of the Government-General, the authority which civilian and military bureaucrats could exercise was extensive. And the rule by the Japanese Government-General induced the executive power’s dominance over the legislature and the judiciary. As stated above, the Government-General monopolized legislative and judicial as well as administrative powers. Separate judiciaries and legislatures did not exist, nor was there any check and balance amongst them. Third, the gendarmerie police system provided an opportunity for the military to dominate civilians. During the Confucian Chosôn era, the superiority of civil to military service had been respected, as Confucian ideology put more emphasis on virtue or ethics than on physical strength or force in government. However, with the appointment of generals or admirals on active duty to the governor-general’s post, civilian officials were subject to the order of the military. The surveillance of political irregularities by the


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Korean military’s information agency, such as the Counter-Intelligence Corps of the Rhee Syng-man regime and the Defense Security Command of the Park Chung-hee and the Chun Doo-hwan regimes, and their intervention in police affairs, in effect, originated from the constabulary system established in the colonial period. Case 1

: Pusan political turmoil (1952) The establishment of the First Republic was a historic event in the sense that, for the first time in Korean history there was a liberal democratic state which manifested the sovereignty inherent in the people. Indeed, the First Republic was faithful to the major elements of liberal democracy as well as standard Western modernity, in institutional respects. Above all, it was vividly distinct from any political entity which had existed during the Yi dynasty or the Japanese colonial periods, in that the constitution stipulated that every Korean person shared an equal right to select his/her representatives; state power must be divided amongst the executive, the legislature, and the judiciary, and it was to be a law-governed state. Nevertheless, a truly liberal modern state did not appear. Rhee Syng-man, elected as the first President in the republic, did not allow the National Assembly to impede his exercise of power. In the end, the First Republic became degraded into an oligarchic political system, resorting to an extremely authoritarian manner of governing the nation. In formal terms, the First Republic was equipped with liberal-democratic institutions and Western modernity but, by nature, it was not markedly different from a traditional Confucian state. It was the so-called ‘Pusan political turmoil’ through which Rhee initially intensified authoritarian rule. When elected as the President in the Constitutional Assembly, Rhee was popular enough to be unanimously elected by the assembly members. Yet he did not have the political force which would support his method of political management. During the two-year period of the Constitutional Assembly, anti-Rhee pressure led by the Korean Democratic Party was gradually strengthened. The second National Assembly, which opened in June 1950, witnessed the defeat of the candidate backed by Rhee in the election of a Speaker. Rhee’s political defeats were repeated thereafter. A candidate, Yi Kap-sông, nominated by Rhee, was rejected again in the election of vice-President which took place after Yi Si-yông had resigned from the vice-presidency to protest against Rhee’s maladministration. The growth of anti-Rhee pressure in the National Assembly foresaw a low possibility that Rhee would be elected again as the President by the assembly members. Hence, organizing the Liberal Party that was to serve as his power foundation, Rhee attempted an amendment of the constitution, in which the direct election of the President would be stipulated. But the National Assembly rejected the revised bill and a bicameral system (January 1952). Rhee, nevertheless, did not give up attempts to amend the constitution. The Korean War provided him with an opportunity in which he could dramatically strengthen his authoritarian power in an illegitimate fashion. The police arrested several assembly members, despite their parliamentary immunity, on the charge that they were bribed by communists. The army enforced martial law in the area of Pusan, a provisional capital


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during the war, on the pretext that the army and the police would mop up the remnants of communist guerrillas acting in Kyôngsang and Chôlla provinces. After detaining fortyseven assembly members in a bus, for refusing to show their identification papers, the police herded them to the assembly. They were held there until they passed the bill allowing for a direct presidential election system, while the police and gendarmerie besieged the building (July 1952). Even after the war, Rhee did not stop maneuvering the illegitimate operation of the National Assembly behind the scenes to extend his seizure of power. At the end of his second term of office, Rhee and his Liberal Party proposed a revised bill in order to allow him to run for exceptional third term of office. However, the bill was rejected again, with 135 ayes, which at that time was one short of a quorum (i.e. two-thirds of 203). Rhee and the Liberal Party mobilized another illegitimate method to have the bill passed. According to the Liberal Party’s argument, two-thirds of 203 was exactly 135.3333, but, if decimal fractions less than 0.5 were rounded off, 135.333 would become 135.0; therefore, a quorum should be not 136 but 135. The next day, using this ridiculous excuse, the Liberal Party declared the bill had been passed (November 1954). The ‘Pusan political turmoil’ implied that the experiment of the liberal-modern state in South Korea, was in fact, a total failure. Through this turmoil, Rhee attempted illegal and brutal government, with which he began to establish a dictatorial political system (Sin Myông-sun 1993:18–20). The introduction of the formality of Western modernity and liberal political institutions did not bring about the development of the First Republic into a truly liberal modern state. As we saw above, Rhee did not mind an infringement of human rights and the perpetration of illegal iron rule. He utilized the military and the police for a political purpose. The military’s surveillance of civilians’ irregularities, which had been notorious under Japanese colonial rule, by Army Counter Intelligence Corps and gendarmerie, was still maintained. In particular, the CIC was directly under the office of the President. Public opinion was fabricated by government-sponspored demonstrations. The Liberal Party, in the virtual control of Rhee, deployed a movement for sending a petition of support for Rhee’s constitutional amendments. Egged on by the Youth Corps, a group supporting Rhee, popular demonstrations were organized around the National Assembly. The bureaucracy assisted in this stirring-up of demonstrations by making sure that shops and schools were closed so that students and citizens could join the demonstrations (Kim Joungwon A. 1975:137). Also, legal procedure was customarily ignored. The power of legislature, which had once functioned as the center of the state in the early stage of nation-building, was weakened while in contrast, state power was concentrated on the executive, particularly the President himself. The Liberal Party’s domination over the National Assembly, moreover, made it easier for the government to manipulate legislative procedure. The legislature forfeited the power to check the executive and, after all this, the division of the three major constitutional powers broke down. Case 2

: Park Chung-hee’s 16 May military coup (1961)


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The revolution of 19 April 1960 brought about the collapse of the Rhee Syng-man regime giving South Koreans a chance to liquidate the legacy of authoritarian political rule. Under the interim government, which existed for about four months after April 1960, the National Assembly resolved to amend the constitution, by which the presidential system was to be replaced with the parliamentary cabinet system. But this was not a systematic discussion on the form of a new government: the opposition Democratic Party had always strongly advocated a parliamentary cabinet system since under the rule of Rhee’s Liberal Party, and the Liberal Party intended to escape from the political quagmire by supporting the amendment of the constitution. In August 1960, the Chang Myôn government was installed following the Democratic Party’s landslide victory in the general election of July. However, the experiment of the parliamentary cabinet system was destined to come to an abrupt end. The Chang government was dismantled by General Park Chung-hee’s coup in 1961, and the presidential system was reinstated. Park’s coup was a historically important event in the sense that it frustrated the democratic revolution from below. Under the presidential system, political power was transferred from the National Assembly to the executive and, moreover, it was again centralized on the President. While state-bureaucratic apparatuses expanded, the check of the executive power by the legislature and the interest representation activities of political parties were weakened (Sin Myông-sun 1993:104). The political foundation of the Park regime rested with oppressive state apparatuses such as KCIA and the military, which contained political demand from below. The return to the presidential system reflected Park’s idea that the parliamentary cabinet system under the Chang regime was not powerful enough to cope with the political demands of various social groups. In fact, the Chang government failed to attain the centralization of power to meet the people’s anticipation and pressure, forces which became rampant after the 19 April revolution in 1960. The absence of effective government leadership in completing democratic reforms induced the collapse of the alliance amongst students, conservatives and intellectuals which made the birth of the regime possible (Chang Taljung 1994:236; Sungjoo Han 1974). The reinforcement of the Park regime’s power base was represented by the foundation of the Korea Central Intelligence Agency and the Democratic Republican Party (DRP). The KCIA faithfully carried out the role of guardian of the regime, strengthening the state’s controlling power over society. The DRP was a highly centralized organization in which the power was devolved upon party leaders, although it claimed to be a public party with the people’s extensive support. The central executive bureau of the party took direct charge of the personnel management of the party’s constituency chapters. Thus, with a centralized and downward organization, the party platform tended to reflect leaders’ opinions rather than those of general party members (Cole and Lyman 1971:50– 2). While the DRP’s interest-representing function became weakened, its back-up function for the government was greatly emphasized. As a result, the executive’s dominance over the legislature and the judiciary emerged. Why, then, did the Park regime have to build a political system in which power was highly concentrated on the President? To answer this question, we must understand, above all, the illegitimate character of the coup waged by Park in May 1961. The coup, in essence, originated the discontent and frustration of Park and a handful of soldiers, rather than social structural abnormality (Lee Yeon-Ho 1991).19 The relevant essence of this


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incident is that ‘factional’ and ‘personal’ conflicts amongst military personnel resulted in the political participation of the military. After the liberation of Korea from Japan, the US founded the modern Korean military. The US military governing body ruling the Southern part of Korea, declared Military Government Ordinance No. 28, setting up the National Defense Command, on 14 January 1946 (Yuksa Samsimnyônsa P’yônch’an Wiwônhoe 1978:61–8). For reasons of military effectiveness, the US admitted ex-Japanese Army, ex-Manchurian Army,20 exKwangbok Army (Korean Restoration Army) and ex-Chinese Army officers21 to the newly-born Korean military. Amongst them, the ex-Japanese and ex-Manchurian Army officers played leading roles in the building up of the Korean military. The ex-Japanese Army officers were mainly divided into two factions: the Japanese Military Academy (henceforth JMA)22 faction and the Volunteer Corps faction. On the other hand, all of the ex-Manchurian Army officers were Manchurian Army Officer School graduates,23 who were largely formed into the northwest and the northeast factions24 according to their birth places. The factions did not come together to form a united Korean military for various reasons. First, the factions were formed on the basis of the senior-junior relationships of their alma maters, and there was great solidarity among members of each faction. For instance, Korean cadets in the JMA organized Keyrimhoe, an amity meeting, and this organization continued until the liberation of Korea. Meanwhile, General Chông of the Manchurian Army Faction used to address students of Kwangmyông Middle School, his alma mater, and encourage them to apply to the Manchurian Army Officer School. As a result, among thirteen Korean freshmen of the Manchurian Army Officer School at Shinjing, eleven were Kwangmyông Middle School graduates. These senior-junior relationships were carried over into the Korean army, and eventually developed into the Northeast faction. Second, the reassignment of ranks in the new army brought about emotional conflicts. For instance, an ex-senior officer of the Japanese Army found it difficult to obey an ex-junior officer who now served as his superior. This problem was rampant, for the promotion rate of the ex-Manchurian army officers in the Korean Army was much higher than that of the ex-Japanese Army officers. Before the liberation, exJMA officers’ ranks were generally higher than those of ex-Manchurian officers. Nevertheless, the ex-Manchurian Army faction eventually produced more four-star generals in the Korean Army. For instance, when General Paek Sôn-yôp, an exManchurian Army first lieutenant, became the first four-star general in the Korean Army, General Yi Chông-ch’an, an ex-Japanese Army lieutenant-colonel, was only a three-star general serving as the principal of the Army College (Paek Sôn-yôp 1989:242–3, 260, 328, 362). Third, the factional rivalry was reinforced by President Rhee’s partiality (Han Yongwôn 1984:209). He appointed officers only from certain factions to the posts of Army Chiefs of Staff or Joint Chiefs of Staff, or alternately appointed officers from rival factions to the positions to maintain the balance of power among them. The monopoly of hegemony of the Korean Army by those factions brought about a dissatisfied group of soldiers, who formed the ‘Military Purification Movement’ whose main targets were the pre-existing factions. This movement consisted of the officers who were dissatisfied by their exclusion from promotion, and formed three main groups (Oilyuk Hyôngmyôngsa P’yônch’an Wiwônhoe 1962): (1) senior officers such as Major-


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General Park Chung-hee and Brigadier-General Yi Chu-il, who were excluded from promotion and were eventually supposed to be discharged from the services, and General Kim Tong-ha who had already been involuntarily discharged from the military; (2) Officers from the irregular Korean Military Academy’s (henceforth KMA) eighth class, and (3) officers from the fifth class. The core was Park, and the officers from the irregular KMA eighth class.25 The senior officers of the Military Purification Movement faction were mostly Manchurian Army Officer School graduates. Until the 1960s, graduates of the Manchurian Army Officer faction had been led by two sub-factions: the P’yông’an (northwest) and the Hamgyông (northeast) factions, led respectively by Generals Paek and Chông. In addition, there was a minor group which consisted of the officers from the middle and southern parts of Korea. Officers from these regions had been excluded from the factional umbrella and, as a consequence, they were often excluded from promotion. All the officers of both main groups, except for one, Brigadier-General Yi Chu-il, had high ranks, with the lowest rank being that of major-general. However, the officers from the middle and southern parts of Korea were all major-generals, and General Park was one of them (Kim Se-jin 1971:63). In 1961 when General Park’s coup took place, with few exceptions, the irregular KMA eighth class officers had mere lieutenant-colonel status. (Han Yong-wôn 1984:209). Consequently, most of them were dissatisfied. What is more, at that time the Korean Army was experiencing numerous bureaucratic problems in its promotion procedure. The position of the Army’s Chief of Staff, excluding two cases, as well as that of the Chairman of the Joint Chiefs of Staff, were all filled by ex-Japanese or exManchurian officers who were all re-educated at the Military Language School. This school was the first military academy in Korean military history, and re-educated most ex-officers of both the Japanese Army and Manchurian army, as well as ex-members of the Japanese Volunteer Corps and Japanese Student Corps (Yuksa Samsimnyônsa P’yônch’an Wiwônhoe 1978:63–5). The post of Korean Army Chief of Staff was filled by the JMA faction from 1945 to 1952, by the Manchurian Army faction from 1952 to 1959 and by the Volunteer Corps faction from 1959 to 1961; thus, there was no room for newly-graduated officers. Moreover, because those appointed officers served two terms before the positions were reappointed, the lack of flow in promotion worsened (Han Yong-wôn 1984:208). Owing to senior officers’ monopolization of high positions, junior officers were forced to stay in their positions longer. Therefore, many of the first graduates of the irregular KMA were discharged from the service as only junior generals. The problem of promotion worsened still further for the subsequent classes. The fifth class of the irregular KMA ended up staying colonels for seven or eight years, and it looked almost impossible for the eighth class ever to rise to the rank of general. In a society where age is hierarchy, this situation caused great discontent. Seventy-one percent of Military Language School graduates became generals, whereas 48 percent of the first class, 21 percent of the third class, 15 percent of the fourth and the fifth classes, and 8 percent of the rest of the irregular KMA were promoted to the status of generals (ibid.). The average age of the cadets of the irregular KMA was 22–23, and those officers were commissioned within only three years. Although the age gap between graduates of the Military Language School and the fourth-eighth classes of the irregular Korean Military Academy (during the first-sixth class period the academy was called the


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Korean Constabulary officer school) was only four to five years (ibid.) the difference in the speed of promotion between the two groups was striking. Graduates of the MLS and the first-third classes of the KMA became generals at a young age—for example, General Paek, a graduate of MLS, became a four-star general at the age of 33 (Paek Sôn-yôp 198:242), but other officers had to stay at the rank of colonel for an unlimited period. The impact of the congestion in military promotion was particularly damaging to the eighth class, which had the largest number of graduates (1,848).26 Hence, Kim Jong-pil and some other officers of the eighth class came together to lead the Military Purification Movement under General Park’s leadership. In May 1960, under the Interim Government, the new army Chief of Staff was due to be appointed. Young officers of the eighth class asked for the appointment of General Park, the leader of the Military Purification Movement, to the position, but their request was offhandedly ignored (Oilyuk Hyôngmyôngsa P’yônch’an Wiwônhoe 1962:41). Discontent amongst the eighth-class officers further escalated when Chang Myôn, a candidate for prime minister, proposed to reduce the military by 100,000 soldiers (Kim Jongwon A. 1975:216–18). Already, the Korean military had been reduced from the 700,000s to the 600,000s by two drastic reductions in 1957 and 1958. The eighth-class officers felt that a further reduction in low-ranking soldiers would be out of the question, so put forward the idea of purging corrupt, inefficient high-ranking officers. The eighth-class members requested an interview with the newly-elected Prime Minister Chang and Defense Minister Hyôn to voice their suggestion, but the request for an interview was itself flatly refused. Moreover, Kim Chong-pil and Sôk Chong-sôn, the leaders of the eighth-class graduates, were discharged forcibly from the service for the ‘sixteen officers’ disobedience incident’ (Oilyuk Hyôngmyôngsa P’yônch’an Wiwônhoe 1962:43–58).27 After all this, the young officers had decided to execute a military coup, in order to purge the military drastically and remove institutional problems. This meant that dissatisfaction within the military had at last escalated to the point of considering political intervention. It was against this background that Park came to power, not through a recognized political procedure, so was lacking in political legitimacy from the outset. Hence, he tried to create it through successful economic development (Pak Kwang-ju 1992). To attain rapid economic growth and ensure external-internal security, an effective government with powerful presidential authority was required. The state’s power was further concentrated on the President himself, and government bureaucracy was chosen as an instrument of control. The bureaucrats, who had once functioned as a check to the monarch’s arbitrary exercise of power under the Yi dynasty, were forced to become executors of the President’s orders (Jones and SaKong 1980:48).28 The recruitment of military personnel as politicians and government officials, strengthened the executive power itself on the one hand, and the President’s control over the legislature on the other. Between 1964 and 1986 (the third-fifth Republic), ex-military personnel accounted for 33.3 percent of ministers and, from 1973 to 1989 (the sixthtwelfth National Assembly), 41.8 percent of members of the standing committee of the National Assembly (Kim Kwang-ung 1991:55–7). Under the military authoritarian regime, the overgrown influence of the military infiltrated into the civilian sector, and an extremely hierarchical and authoritarian military culture was transplanted to the political system. The military authoritarian regime tended to treat the management of the state as it


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would command military units; i.e. they centralized power, forced civilians to carry out their orders, excluded people’s participation and discussion in politics, and monopolized information. This naturally induced the reinforcement of executive power. Case 3

: The establishment of the Yushin regime (1972) Under the Park regime, the executive power was drastically strengthened again through the promulgation of the Yushin constitution in October 1972. Park intended to break through a set of international and domestic political crises by founding the extremely authoritarian Yushin regime, i.e. the Fourth Republic, in which he could install a political apparatus that would enable him to secure a long-term reign institutionally. Leading up to this were a variety of international and domestic political crises which posed threats to Korean security and drove South Korea to a state of extreme tension. In 1968, the presidential residence was attacked by North Korean commandos, and an American reconnaissance aircraft, EC-121, was downed by the North Korean force’s gunfire. By the end of 1971, the US withdrew about 20,000 ground troops from South Korea, according to the Nixon doctrine declared in 1969. The US force’s withdrawal from the Korean peninsula incurred the reinforcement of both South Korea’s and North Korea’s domestic security systems. Ostensibly, the diplomatic rapprochement between the US and China in 1972, which had been carefully engineered by the Nixon administration with a view to containing the USSR’s possible expansion in the east Asian region, seemed to present both Koreas with an opportunity for peaceful co-existence. On 4 July 1972, South and North Koreas issued a joint communiqué, which had been covertly prepared by exchanges between the chiefs of the two Koreas’ intelligence agencies in May, i.e. three months after Nixon and Zhou’s declaration of the Shanghai communiqué. In accordance with the communiqué, both authorities agreed to install the South-North Coordinating Committee and a hot line between them. The rapprochement between South and North, however, did not contribute to the eventual creation of a peaceful milieu on the Korean peninsula. The fact that their direct confrontation would be inevitable, with the disappearance of the US buffer force, made the two Presidents strengthen their security capacity. After the declaration of the joint communiqué, North Korea consolidated its internal security system through the reinforcement of the policing, the military, and the social organizations (Yi Ki-t’aek 1984:7). The withdrawal of the US forces had a greater impact on South Korea. To maintain the balance of power with North Korea, South Korea had to accomplish selfdefense as well as domestic-political stabilization. President Park, who had almost lost the presidential election in 1971 to Kim Dae-jung, declared the Yushin constitution in October 1972, which would inhibit any political challenges from opposition party leaders and guarantee him life-presidency. In addition, he organized local defense forces to strengthen military capacity, and embarked on heavy/chemical industrialization in the mid-1970s to produce military armaments.29 The procedure by which the bureaucratic-authoritarian regime emerged in South Korea was different from that in Latin America. In the case of South Korea, an economic explanation of the rise of the Yushin regime and the heavy/chemical industrialization


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employing the bureaucratic-authoritarian (henceforth BA) model, is not very convincing. Most of the assumptions on the advent and evolving process of the BA regime are not supported in the Korean case. In O’Donnell’s model, the procedure by which the BA regime appeared in Latin America, was divided into three stages (O’Donnell 1979:51– 114). In the first stage, the Argentine and Brazilian governments adopted the import substitution industrialization (henceforth ISI) policy as an alternative to overcome the economic crisis that had resulted from the depression in the 1930s. Domestic firms produced consumer goods that had been previously supplied mainly by import. At the same time, the state exercised an import restriction policy for the purpose of protecting them. This induced fairly successful industrialization and urbanization, providing the basis for a broad populist coalition. Moreover, the attitudes of Peron’s and Vargas’s populist regimes toward the public were so incorporating that they encouraged workers’ unionization, in part because it provided allegiance for them and in part because it facilitated governmental control over the newly incorporated segments of the popular sector. In the second stage, however, according to the BA model, the horizontal expansion of the economy soon faced the limitation of development. The increase of imports of intermediate and capital goods for the production of consumer goods caused a deficit in the balance of international payments, foreign debt, and inflation. Policy-makers tried to solve this problem with the vertical integration of domestic industry, the so-called ‘deepening policy’, which would enable domestic firms to produce intermediate goods. They solicited foreign investment from multinational companies (henceforth MNCs) possessing the necessary capital and technique. Meanwhile, the populist movement which had been activated for a while came to be oppressed. The government exercised a retrenchment policy to control inflation, disregarding a welfare policy for the public, and suppressed labor movements in order to create a favorable atmosphere which would be suitable for the MNCs’ investment. In the third stage, the populist force, activated during the ISI period, protested against retrenchment and oppression policies. Furthermore, strikes by labor unions caused a politico-economic crisis. Civilian and military technocrats, who had witnessed the society of a developed country while being trained in the US, and had higher expectations of socio-economic development, regarded the political participation of the public as the main barrier to economic development. Finally, coup coalitions were formed by the civilian and military technocrats, who came to launch a bureaucratic authoritarian regime through a coup. Most of the assumptions on the advent and evolving process of a BA regime in Latin America, based on economic determinism, are of little relevance in the South Korean case, however. First, the aforementioned relations between the ISI policy, industrialization and the activation of populist movement are not found. Of course, the ISI strategy contributed to industrialization to a certain extent. But the ISI period in Korea (1960–62) was relatively short compared to that in Argentina and Brazil and, moreover, it did not induce the activation of the populist force, nor did a populist authoritarian regime appear. Second, the assumption that labor strikes and political protests were direct reasons for the advent of the BA regime is not supported in the Korean case (Yi Chông-bok 1985). In Korea, the popular unrest was frequent during the late period of the Rhee and the Chang


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regimes. But General Park Chunghee’s military coup (1961), the Yushin Reform (1972) and General Chun Doo-hwan’s military coup (1979–80), were not uprisings by the people, intended to break through political and economic turmoil. General Park’s coup and General Chun’s multi-stage coup were purely military, and political protests that had arisen before those coups, were not the main motivation behind them. In fact, both military coups took place because of factional struggles within the Korean military. The Yushin regime was born out of President Park’s political desire for lifetime presidency and a series of security crises incurred by the Guam doctrine in 1969, which indicated that, although the US would keep aiding Asian nations resisting Communism, it would no longer engage troops in wars in the Asian region. Third, the assumption that the need for deepening (the vertical arrangement of industrial structure) stimulated the advent of the BA regime, tends excessively toward economic determinism.30 In the case of Korea, as we saw above, the motivation for heavy/chemical industrialization lay fundamentally in military rather than economic factors. One cannot simply argue that Park instituted the Yushin Reform to achieve economic purposes such as the deepening. Of course, the domestic economic situation was not always fair in the late 1960s and early 1970s, but the GDP and volume of export was continuously and rapidly increasing.31 Even if Park had not instituted emergency political reforms, he would have been able to cope with economic difficulties. Fourth, a civil-military coalition to wage a coup did not exist in the case of Korea. The BA regime in South America was launched by a civil-military coalition, but the coups that took place in Korea were executed solely by soldiers, not by a civil-military coalitional force. In Korea, civilian and military technocrats were neither coalitional nor cooperative, at least before a coup was effected. The coalition took place as the military invited civilian technocrats to engineer economic development after the coup. In Western society, the officer tended to represent the ruling class and its interests and, similarly, in Latin America which inherited and adopted the cultural back-ground of the West, soldiers were also normally from the middle or upper classes (Stepan 1971:30–53). In Korea, however, most soldiers belonged to the poorer class and were born in rural areas (Kim Joungwon A. 1975:92). Traditionally, soldiers could not belong to the ruling class in Korea, and military skill had been despised by the civilian elite under the Confucian culture. In addition, both groups did not commonly hold similar political opinions. In South America, military schools provided the opportunity for civil-military technocrats to form political empathy (Stepan 1973:47–65). In Korea, however, evidence of a broad communication network between civilian and military elites was not found. One, therefore, cannot properly understand the rise of the Yushin regime and its rule in the 1970s without considering the aforementioned political and military factors. By the amendment of the constitution, the superiority of the executive to the legislature and the judiciary was institutionally guaranteed. The Yushin constitution stipulated that the President should be the head of the executive; that the President should be elected by the National Conference for Unification (the NCU), an electoral college, whose chairman was the President himself; that the NCU should elect a third of the total number of National Assembly members, whose candidates should be uniformly recommended by the President; and that the constitution should bestow a presidential right to issue emergency measures. Therefore, the ruling party could safely secure a majority, and the


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President and the executive were able to control the legislature, owing to the Yushin constitution. Case 4

: Chun Doo-hwan’s military coup (1979–80) The strong oppression of social forces by the state and the monopolization of state power by the executive were also maintained during the Chun regime period. Since the Chun regime was established through a quasi-military coup, it also lacked political legitimacy. It had to create legitimacy by attaining political stabilization and resuming economic growth. The authoritarian government was regarded as the inevitable alternative. The case of Chun Doo-hwan’s coup of 1979–80 also showed that the existence of unique alternative modern factors hindered Western liberal-modern institutions from institutionalizing Korean politics. The change of political power could take place illegitimately, having nothing to do with the people’s will. A fair competition for political power was not always secured and power was not equally distributed. Laws could be ignored or, even, broken by powerful political individuals. Instead, factional bonds based on authoritarian, hierarchical social order, e.g. senior-junior relationships, (which are extra-formally rather than formally institutional) were significantly involved in the motivation of political changes. Hanahoe (Society of One Mind), which became the core force of the coup, was a secretive and highly exclusive faction; members were recruited according to regionalism and personal relationship and contact. It consisted of roughly 6 percent of each graduate class of the regular four-year Korean Military Academy graduates, mostly from Kyôngsang province. The cliquism of the Hanahoe officers was often criticized by other military officers, particularly by fellow regular KMA officers (Paek Tong-nim 1985). The Hanahoe stemmed from Ch’ilsônghoe (Seven Star Society) (Cho Kap-che 1988:17– 18)32 which had consisted of seven cadets from the Kyôngsang province, including two future Presidents of Korea, Chun Doo-hwan and Roh Tae-woo. Originally, they had organized this group to counter with the amity group of cadets from the northern part of Korea. In its early days as Ch’ilsônghoe, Hanahoe had no relationship with President Park. However, after Captain Son, a member of Hanahoe, worked as Park’s adjutant officer, and Captain Chun organized a KMA cadets’ parade in support of Park’s military coup, President Park began to favor members of this group, and generally preferred the regular KMA officers. The staff members of President Park, such as Pak Chong-gyu, the Chief of Presidential Body Guards, Yun P’il-yong, the commander of Capital Garrison Command, Kim Chae-gyu, the chief of the KCIA, supported and developed the Ch’ilsônghoe into Hanahoe (Yi Chong-ok 1988). The members of Hanahoe enjoyed many advantages. The most significant advantage they gained, however, was promotion. Most members were positioned in political units such as the Capital Garrison Command, Special Warfare Command (airborne command), Defense Security Command (DSC), and the West Front Line (Cho Kap-che 1988). Those units were regarded as the route to rapid promotion. Superficially, the Hanahoe was disbanded by President Park himself, when General Yun’s conspiracy was uncovered.33 However, in effect, only General Yun’s clique was


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removed, and the larger part of this faction was left intact.34 Furthermore, the investigation of the incident ceased under pressure from President Park, and General Kang Ch’ang-sông, the commander of the Defense Security Command, who conducted the investigation, was demoted and finally discharged from the service. Thereafter, nobody dared to confront the Hanahoe and, gradually, the Hanahoe members began to be appointed as commanders of the DSC. Meanwhile, the assassination of Park and the abrupt absence of his charismatic power brought about conflicts between General Chông Sûng-hwa (the Army’s Chief of Staff and the Commander of Martial Law Enforcement Headquarters) and his supporters, and General Chun and Hanahoe officers. General Chun, the chief of the Joint Investigation Headquarters into President Park’s assassination and the commander of the DSC, wanted to investigate General Chông because he was, at the relevant time, in the building where President Park was slain. On the other hand, General Chông tried to obstruct General Chun from assuming hegemony of the military, and did so by appointing his men to core postings such as the Capital Garrison Command to strengthen his supporting force and, in the end, decided to discharge General Chun from his positions. However, Chun detected this plan in advance, arrested General Chông, and detained him without the permission of the interim President Choi Kyu-ha. Then, by order of General Chun, the leader of their faction, the Hanahoe members of the Capital Garrison Command and the Special Warfare Command took their commanding officers captive. Allegedly, both commanders were opposed to General Chun, and had protested against the detention of General Chông Sûng-hwa by Chun. The institutional unity of the Korean military was thus disrupted by a faction of officers. Eventually, Hanahoe gave birth to the Fifth Republic with General Chun as the President. General Roh, another prominent member of Hanahoe, succeeded Chun as the President of Korea in the Sixth Republic. During the Fifth Republic, key positions in the military organizations were filled by members of Hanahoe, who also played key roles in significant civilian institutions, such as the KCIA, the National Assembly, and the Cabinet. After Chun and his Hanahoe officers purged the old generals who had cooperated with General Chông Sûng-hwa on 12 December 1979, they decided to acquire political power themselves. In an attempt to gain public sympathy, soldiers met civilian elites comprising government officials, scholars and journalists, and tried to explain the need and necessity for the military’s political involvement. They won over some civilian elites who began to support them. Yi Jin-ûi, the chief editor of Sôul Sinmun, a government-owned newspaper, wrote an editorial in their support, ‘The Stage of History is Being Changed’ (Sôul Sinmun, 21 April 1980), which was used by General Chun and his officers to justify their position. Nevertheless, public opinion, supporting the soldiers’ political involvement was, by and large, feeble. According to my survey of the editorials of two newspapers, Sôul Sinmun and Tong’a Ilbo (an anti-government newspaper) published during January–May 1980, almost no editorials advocating soldiers’ political involvement were released. Rather, some of them even criticized the irresponsible behavior and conflicts amongst opposition leaders (particularly Kim Young-sam and Kim Dae-jung) and students (Tong’a Ilbo, 6 March and 4 April 1980; Sôul Sinmun 2, 9, 15, 17, 23 May 1980). The implication is that the Chun regime was formed without support of the people and with no political legitimacy. It also, then, had no choice but to rely on a more strengthened


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authoritarian rule, contrary to the people’s political aspirations. As a result, authoritarian bureaucratic power was further expanded, but democratization was deferred again. Case 5

: The merger of DJP, UDP, and NDP (1990) The Sixth Republic, established with an amended constitution, achieved a political system corresponding more closely to standard Western modernity and the principles of liberal democracy, compared to the Fifth Republic, i.e. the Chun regime. A newlyamended constitution stipulated the reinstatement of the selection of the President by a direct election, which had been suspended for fifteen years since the rise of the Yushin regime. The President became divested of the right to declare a state of emergency and to dissolve the National Assembly. The legislature retrieved the right to check the executive by the revival of parliamentary inspection of the government. Assembly members came to enjoy the privilege of total exemption from liability for their speeches in the National Assembly. In order to guarantee the judiciary’s independence of the executive, the appointment of the president of the Supreme Court by the President had to have the consent of the legislature. In addition, freedom of speech, the press and assembly were clearly stipulated in the constitution, and labor’s three major rights were guaranteed. Also, with the clarification of the protection of human rights, the political oppression of opposition parties and anti-government forces was banned. The new constitution was regarded as an institutional apparatus which would secure the settlement of standard Western modernity in South Korea and the achievement of the principles of liberal democracy. The new constitution was expected to redress illiberal or ademocratic elements of the South Korean state by preventing state power from being concentrated upon the executive, particularly the President (so that the check of the executive power by legislative and judicial powers and the balance amongst them could be possible); preventing the President from exercising ultra-institutional or constitutional authority, and the government from suppressing the demand of the social force and trampling down the right of personal liberty in an authoritarian fashion. Democratic changes in the early days of the Sixth Republic appeared to anticipate the full blossoming of liberal democracy in South Korea. The Korean people achieved a peaceful power transfer through a presidential election in December 1987, which was the first since a modern government was founded in 1948. In the National Assembly, opposition parties commanded a majority as a result of the general election of April 1988. In the thirteenth National Assembly, hearings on political corruption of the Chun government, the Kwangju democratic movement, and the forced merger and abolition of the press by Chun’s military junta, i.e. SCENSM, were held. Also, assembly members conducted the parliamentary inspection of the Agency for National Security Planning, the Defense Security Command, and the army, navy, and air force headquarters, which had been regarded as a political sanctuary. It was again proved, however, that the introduction of an institutional apparatus would not always guarantee the establishment of a. Western liberal-modern state. The Roh government, which actively cooperated with opposition parties in democratization were soon to be confronted with the handicap that it was impossible to cope with a swift


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change of political situations without the support of a powerful ruling party in the National Assembly. In the general election of April 1988, while the ruling Democratic Justice Party (DJP) acquired 125 seats out of a total of 299, three major opposition parties won as many as 164. Moreover, Roh had earned merely 36.6 percent of the total votes in the presidential election (Kim Young-sam 28 percent, Kim Dae-jung 27 percent, Kim Jong-pil 8.1 percent). Roh, after all, proposed to merge the three conservative parties into the Democratic Liberal Party (DLP), in order to increase the ruling party’s support in the National Assembly. This would run counter to the expectations of the electorate that had aspired to the emergence of powerful opposition parties, so implied another failure of an attempt at liberal democracy (Sin Myông-sun 1993:171). The merger amongst the DJP, the United Democratic Party (UDP), and the New Democratic-Republican Party (NDP) in January 1990 converted the minority ruling party to a majority position in a day, with the DLP’s accounting for 72.2 percent of the total number of seats in the National Assembly. Obviously, the Roh regime was a more democratic political entity than the Park and the Chun regimes, but the limitations of its capacity to advance democratization was evident. Illiberal and ademocratic patterns of politics were still repeated. The institutionalization of party politics was far from completion, and personality-centered party operation was not easily overcome. The DLP could not accomplish a systematic integration after the merger, owing to factional struggles concerning the leadership of the party and competition for presidential candidacy. Main positions of the party were often decided through a compromise amongst three factions led by Roh Tae-woo, Kim Young-sam, and Kim Jong-pil. The justification which three politicians evinced at the time of merger, ‘a great patriotic determination for political stabilization and continuous economic development’, was never to be realized. Not only did the economy continue to decline, but also the people’s uneasiness deepened as political instability continued. In passing the amended acts relating to military organization, broadcasting, and the compensation for injured or killed participant of the democratic movement that took place in the city of Kwangju in May 1980, the DLP rushed them through unexpectedly. In the fourteenth general election, after all, the DLP failed to secure half of the total seats of the National Assembly, which reinstated the situation of ‘a minor ruling party with major opposition’. The attainment of fully operative liberal democracy in South Korea was illusive, but alternative-modernities still proved to be diehard. CONCLUSION: THE STATE-SOCIETY RELATIONSHIP IN AN ALTERNATIVE-MODERN STATE The strong autonomy of the South Korean state in relation to the chaebôl will be better understood from the viewpoint of the state-society relationship. One should not think of the way in which the state has directed production in Korea as consisting simply of the relationship between the state and the market or the government and business. Without an appreciation of how it is involved in an aspect of wider and more longstanding relations between the state and society, the Korean state-chaebôl bond cannot be correctly analyzed. For example, although the state has strongly supported the chaebôl’s business


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activities and bestowed special benefits on them in the economic development procedure, yet this did not incur the state’s ‘structural submission’ to the chaebôl. The former continued to have a firm grip on the latter in leading economic development by employing strong political power emanating from its own alternative-modernity. Of course, the chaebôl’s financial dependence on the government was among the important factors which formed the hierarchical relationship between them. Yet, historical and political elements of the Korean state were also significantly mixed up in the relationship. The presidential secretariat or information agencies used to check chaebôl families’ extravagant life-style, and punish them with unofficial procedures such as tax investigations. For example, when an information agency reported to President Chun that there was dispute between some chaebôl owner chairmen and their family members over the inheritance of their parents’ property, he summoned them and personally scolded them for their shameful and undutiful behavior (Tong’a Ilbo, 27 February 1996). This reflects the collective and patriarchal characteristics of Confucian ideas, which have hardly been eroded, despite the introduction of Western-modernity and liberal political institutions. This will explain why the South Korean state has retained strong autonomy in relation to the chaebôl, notwithstanding the political transition from authoritarianism to democracy. Indeed, the South Korean state-chaebôl relationship is beyond being either an industrial or an economic issue. Political economic studies seeking the origins of the South Korean and other east Asian States’ strong autonomy have tended, hitherto, to focus on economic and formal institutional aspects. However, as we saw in previous chapters, we also need to consider political and extra-formal institutional aspects. To analyze the state-chaebôl alliance in South Korea from an institutional and economic point of view may over-simplify a unique relationship between them. We must have more detailed knowledge of the South Korean state, and more carefully observe meaningful cases. As I showed in the analysis in Chapter 5, the President and bureaucrats could command various kinds of institutional authority. Moreover, as we saw in Kukche’s fall and the case of ‘the 8 May real estate disposal measure’, the President’s authority was regarded as ultra-institutional in the realm of the South Korean state. The formal and the extra-formal institutional aspects of the South Korean state’s strong autonomy reflected the historical, cultural features of the Korean past. (For example, the strong authority of the President, presidential secretariat, and the bureaucrats were a modern manifestation of a centralized Confucian-authoritarian political system.) Despite the importing of Western modern institutions since 1876 and the establishment of an independent liberal democratic state in 1948, the aforementioned alternative-modern elements have actively survived and are still deeply inculcated in the agents who operate those institutions. They have turned out to be not only compatible with the purpose of the developmental state but also positively useful to achieve ‘development’. Without understanding the alternative-modernity of the South Korean state, the elucidation of its inherently strong autonomy vis-à-vis social components would remain incomplete. Here lies the reason that the South Korean case requires distinctive explanations rather than those emanating from ‘a triumph of the market’ or the experience of ‘bureaucratic-authoritarianism’. The emergence of the South Korean state’s strong autonomy was also closely related to the cause and effect of particular political events. The alternative-modern factors were negatively transformed while South Korea was experiencing Japanese colonial rule and,


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thereafter, served as underlying factors in the rise of illiberal and unlawful political events such as the so-called ‘Pusan political turmoil’ conspired by Rhee Syng-man, Park’s military coup, the establishment of the Yushin regime, Chun’s military coup, and the merger among the DJP, UDP and NDP, and, again, have been re-vitalized by these events. Korean political leaders tried to exploit opportunities in which they could concentrate political power at the top of the state institutions by staging these incidents. The demand of the people for democratization was ignored by authoritarian political leaders, and social groups were put under the oppressive control of the state. The chaebôl were also no exception. For instance, the heavy/chemical industrialization in the 1970s was initiated basically for military rather than economic reasons; i.e. the need for arming the newly organized local defense forces and of armament expansion. In the beginning, the chaebôl were reluctant to join the heavy/chemical industry which required investment of astronomical finances and had a risky outlook. However, they were forced into it by the government’s coercion and persuasion which, however, ironically provided the chaebôl with an opportunity for rapid growth. The South Korean state’s support of the chaebôl has been initiated by the former’s will ‘to enrich the nation’ rather than by the demands of the capitalist group. The South Korean state’s strong autonomy in relation to the chaebôl must, therefore, be accounted for through a state-society rather than a state-market approach. We need to consider the historical alternative-modernity of the Korean state and a series of political incidents, as well as institutional and economic factors. I cannot suggest a complete paradigm of the Korean state at this stage—although I provisionally termed it ‘family statism’ in this chapter. But I can conclude that the importing of Western modernity has failed to established a state-society relationship based on the paradigms derived from the modern history of the West, including Latin America. In a nutshell, the relationship between the alternative-modern state and social groups has been established by Confucian hierarchy grounded on moral allegiance and ethical wisdom. The power, which is characterized as patriarchal, is devolved upon the wise rulers of the state, and the interests of the state, on the whole, are emphasized more than those of an individual or a social group, by harmonious family statism. The state-chaebôl linkage is grounded on this alternative-modern state-society relationship.

Conclusion with the examination of the Kim Young-sam regime case STATE—CHAEBÔL RELATIONS UNDER THE CHUN AND THE ROH REGIMES: A SUMMARY In this book, I have sought to examine Korean state-chaebôl relations which have developed since the collapse of the Park regime. While the state played the role of ‘planner’ and ‘investor’ (Amsden 1989) in engineering economic development during the Park regime period, the pattern of the relationship between the state and the chaebôl was formed in a patrimonial fashion. The state intensively allocated national resources to the chaebôl to promote industries, and the chaebôl, in return, rendered open-ended loyalty to the state. After the establishment of the Chun regime, however, the state began to emphasize its role as ‘regulator’. During the Chun and the Roh regime periods, therefore, tensions and conflicts occurred between them as the government regulated the concentration of economic power in the chaebôl, an economic symptom structured under the Park regime by the growth-centered economic development strategy. In this study, I intended to report state-chaebôl relations while the Chun and the Roh regimes regulated economic concentration in big business. I have attempted to find out answers to the following questions: (1) ‘Did the degree of state autonomy change as Korea experienced the constitutional reforms for democracy which occurred during 1987–88?’; (2) ‘If there were no significant changes in the degree of autonomy of the Korean state despite the constitutional and institutional changes, how, why and what were the sources of strong autonomy?; (3) ‘From what theoretical point of view can the relationship between the Korean state and the chaebôl, in particular during the Chun and the Roh regime periods, be most persuasively explained?’ The following suggests answers to these questions. First, the South Korean state maintained a high degree of autonomy under the Chun and the Roh regimes in relation to the chaebôl regardless of political democratization and economic liberalization during that time. In the analysis, I examined the policy-making and implementation procedure of regulating the concentration of economic power in the chaebôl, such as the Fair Trade Act, the loan and payment guarantee system, and the small/medium size business expansion policy, emphasizing the behavior of government officials, institutions, and social actors. As a result, I reached the conclusion that not only under the authoritarian Chun regime but also under the relatively democratic Roh regime, the state autonomy remained strong. That is, the degrees of autonomy of both regimes did not exhibit a significant difference from each other. Although the state’s discretionary powers to employ suppressive methods to control the chaebôl and other social actors and to protect the unity of state organizations became weakened after constitutional-institutional reforms, the Roh regime still retained effective institutional methods to subjugate the

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chaebôl (e.g. tax investigation), and kept the organizational unity of the state by exercising strong political integrating power. Roh could strengthen state autonomy by reinforcing executive power and by diminishing opposition influence in the National Assembly through party merger. As a result, restrictive policies could be strictly implemented even after democratization. Second, the strength of Korean state autonomy was related to political and administrative institutions as well as economic ones: in other words, the autonomy was inbuilt in the strong and efficient executive (presidential and bureaucratic) power as well as various interventional economic institutions. Although initially, neither the Chun nor the Roh regime secured the same open-ended loyalty of the chaebôl as had been rendered to the previous Park regime, they could reinstate strong state autonomy by mobilizing executive power. To enforce effective institutional executive regulation of the chaebôl, the Chun and the Roh regimes took political advantage of authoritarian oppressive rule and the people’s demand for economic equity, respectively. Along with formalinstitutional power, extra-formal institutional power was an important factor which brought about strong autonomy. The underlying state-society relationship in Korea, i.e. the state’s dominance over society, was not reversed simply by changes of institutions. Third, the paradigms based on structuralism or economic determinism and, above all, derived from the experiences of the West, i.e. the liberal-plural, neo-Marxist and the corporatist paradigms, did however, expose numerous limitations in describing the South Korean state and its autonomy vis-à-vis the capitalist group. I could not propose a new complete paradigm which could relevantly depict state-society relations in Korea but could suggest a theoretical factor which brought about a high degree of state autonomy in relation to society. Alternative-modern factors of the old Korean state which had existed before the modern South Korean state was established, still actively functioned, impeding the South Korean state from changing into a liberal modern state despite the import of modern institutions of the West. These were the extra-formal institutional factors which brought about the installation of strong formal institutions of the Korean state, and, therefore, a hierarchical relationship between state and society in favor of the former. They have been distorted and even strengthened, rather than discouraged, while Korea has experienced political events. STATE—CHAEBÔL RELATIONS UNDER THE KIM YOUNGSAM REGIME (AS OF 1996) Are the above findings of state-chaebôl relations still relevant under the Kim Young-sam regime? In February 1993, the Kim Young-sam government was inaugurated, succeeding the Sixth Republic established by President and former general Roh Tae-woo. Although both the Kim and Roh governments were formed within the framework of the same constitution, the Kim government has achieved much more fundamental and radical political democratization and economic liberalization than did its predecessor. Before I suggest a final conclusion, I intend to examine the state-chaebôl relations under the present Kim regime with, in particular, discussion of state autonomy.


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Political and economic reforms, 1993–95 In the political arena, President Kim’s government and military reforms are particularly noteworthy. Right after its inauguration, the new administration and the ruling Democratic Liberal Party instituted a ‘property registration system’ for National assembly members and government officials. In the aftermath of enacting this system, seven assembly members were forced to resign or leave the DLP, 242 government officials were forced out of office, and the government sacked 1,363 government officials suspected of corruption. The Kim government even extended its investigation into the political irregularities of former Presidents Chun and Roh, alleging that the two expresidents secretly amassed some 950 billion won and 450 billion won, respectively, in political funds from payoffs by Korean chaebôl. Meanwhile, the military, which had long been regarded as a political sanctuary since its intervention in politics in 1961, also became a target of the new government’s reform drive. The government detained a number of high-ranking government officials and military officers involved in bribery, following an investigation by the government’s Board of Audit and Inspection into irregularities in the Ministry of Defense’s ‘war potential strengthening procurement project’. Moreover, in order to get a tight grip on the military, the Kim government purged, by discharge or demotion, a number of high-ranking officers who were known to be members of Hanahoe, the powerful army clique founded by former generals Chun and Roh. In the economic arena, the Kim government instigated a number of radical reforms. Its industrial and economic policies were two-pronged. On the one hand, the administration tried to promote deregulation. When President Kim was inaugurated in 1993, he expressed a commitment to reduce government intervention in the private sector and instead create a small but powerful, effective and service-oriented government. Thus, when the administration decided to embark on its New Economic Plan (March 1993), priority was placed on removing or relaxing excessive administrative regulations. The plan maintains that control and instruction are the offspring of militaristic authoritarian government, whereas the democratic government respects liberty and creativeness of individuals. (Government of the Republic of Korea 1993) The government organized two institutions to carry out deregulation—the Committee for the Relaxation of EconomicAdministrative Regulation, composed of economic ministries, and the Committee for Administrative Reforms, directed by the President—and enacted a ‘special act of the relaxation of business regulation’. As for government reorganization, in December 1994, the administration reduced the number of central administrative organs from 39 to 37, and cut the number of central government officials by 900, under the banner of reducing the size of government. The administration also initiated a more radical financial liberalization system, as interest rates for major financial institutions were liberalized and intervention in selecting the presidents of city and local banks was withdrawn. On the other hand, the new administration has employed institutional methods, rather than such political means as those used by the previous Chun and Roh regimes, to regulate economic concentration by the chaebôl. With the establishment of the World Trade Organization and South Korea’s entrance to the Organization for Economic Cooperation and Development (OECD) in 1996, the government has faced international pressure to further its economic liberalization by guaranteeing free market competition in the private sector through deregulation.

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The most powerful institutional asset that the administration has used to advance deregulation and regulate economic concentration by the chaebôl is the government’s Fair Trade Commission (the FTC). The principal role of this organization is to create market conditions in which businesses can compete fairly with each other. The term ‘fair trade’ involves a reduction of excessive government intervention and a ban on unequal transactions between large corporations and small/medium size businesses. Critics have argued that since past government industrial policies brought about the heavy economic concentration of big business, in order to realize ‘fair trade’, the government must now follow an economic deregulation policy, and prevent economic power from being concentrated in the hands of a few large business groups so that other companies can have an opportunity to enter the market and gain access to business resources. President Kim separated the FTC from the Ministry of Finance and Economy (previously the EPB and the Ministry of Finance), and promoted its chairman to the rank of minister. The FTC now has an independent voice as a full member of the cabinet, and has been able to exercise stronger power in superintending the excessive business expansion of the chaebôl. The Kim government had set two specific targets in its attempt to regulate economic concentration by the chaebôl, namely ‘dispersion of ownership’ and ‘business specialization’, rather than enumerated extensive policy goals related to economic concentration. To disperse ownership, the government has instituted a ‘real-name financial transaction system’ and a ‘real-name real estate registration system’. These two reforms were designed to disrupt excessive and concentrated ownership of chaebôl companies in an institutional and rational way. Under the new rules, it is no longer possible to disguise the extent of shares or real estate owned by chaebôl but hidden under false names. As for business specialization, the government’s ‘fair trade system’, ‘loan and payment guarantee management system’ and ‘main line business system’ served as major initiatives to control excessive diversification by the chaebôl. The government has emphasized that unfettered business diversification hinders the chaebôl from creating internationally competitive companies; as long as the chaebôl continue to grow by depending on so-called octopus-leg-like diversification, they will not be able to compete with MNCs. These policies were designed to regulate unfair transactions between chaebôl-affiliated companies while decreasing their debt ratio and increasing the ratio of stockholder equity. SINCE 1996 As of 1996, there exist two opposite evaluations of the Kim government’s regulation of economic concentration in the chaebôl: positive and negative. The financial statements of the chaebôl have improved slightly with the reinforcement of the ‘fair trade system’. But the number of member companies of the chaebôl, the portion of SNP value-added created by the chaebôl, and the internal-holding rate have all increased. These however do not indicate that the Kim government has given up the implementation of anti-economic concentration policies. On the contrary these resulted from the advancement of financial liberalization and the strict enforcement of the fair trade system. The reason the number of chaebôl member companies increased is that the Fair Trade Commission succeeded in


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ferreting out the subsidiary companies whose owners’ names were disguised with false ones. In 1993 and 1996, the commission uncovered forty-six and seventy-three disguised member companies of the thirty largest chaebôl, respectively. The growth of the internalholding rate of the chaebôl is the result of financial liberalization. As M&A amongst enterprises will become possible from 1997 with the amendment of the ‘Stock Exchange Act’ in 1994, Korean companies tend to increase the rate of their own shares to protect managerial right. Previously, it was forbidden for outsiders to purchase more than 10 percent of voting shares of listed companies by the Act, so that the owners and managers can easily raise managerial capital by issuing stocks and offering them for public subscription, safely defending their firms against the threat of M&A. The amendment of the act is inevitable for further liberalization, even if the dispersion of ownership does not advance because of the measures. The government, it seems, will not stop the liberalization drive so that the chaebôl can compete effectively with overseas firms in the borderless global market. The government policies related to ‘regulation of economic concentration’ and the ‘dispersion of ownership’ can be more or less mitigated, for the reason that fundamental deregulation is impossible as long as those two restrictive policies remain. The government sees that the regulation of excessive economic concentration via the chaebôl can be achieved by the current ‘Fair Trade Act’ in the short term, and the strict collection of ‘inheritance tax’ in the long run, and, therefore, no more drastic measures will be necessary. Instead, the Kim government is attempting to prevent chaebôl owners from privately owning firms through family members’ participation in management and dogmatic management decision-making. That is to say, the target of regulation is shifted from firms to owner-managers. The axiom of the so-called ‘new chaebôl policy’, prepared by the Ministry of Finance and Economy and the Blue House, is reforming the ‘governance structure’ of big business groups so that managerial rights are properly dispersed. The government demands open management in which owner-managers cannot abuse managerial funds, the reinforcement of objective management audit, and the improvement of minority stockholders’ rights. The position of the Kim government appears to be that since the prime issue of economic concentration in the chaebôl is the self-serving management of enterprises by owners, if fairness of their management can be guaranteed, the government does not have to regulate the chaebôl forcibly; if ownership and management are severed and the firms are run by professional managers rather than owners themselves, social and political problems emanating from economic concentration will be spontaneously resolved. The Korean government intends to promote large and specialized Korean enterprises so that they can defend the nation’s economic sovereignty in the face of powerful multinational corporations in the coming era of completely free trade. The Kim government, therefore, tends to restrict economic concentration in an institutional manner rather than adopt coercive restriction-oriented policies, even though it cannot drastically regulate economic concentration in the chaebôl in the short term. Among its highest priority policy goals has been not only the restriction of economic concentration but also the promotion of the liberal market economy. The administration seems to want to play the role of fair ‘umpire’ rather than harsh regulator.

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STATE AUTONOMY AND POLITICAL INTEGRATING POWER: THE KIM GOVERNMENT CASE Given these developments, then, is the assumption of this study—namely, that ‘the South Korean state tends to keep a high degree of autonomy in relation to the chaebôl regardless of democratization’—still relevant? In previous chapters, I have suggested that the South Korean state maintains strong autonomy not only under authoritarian but also under democratic regimes, and that its strength is related to extra-formal institutions of the South Korean state, which I termed ‘alternative modern factors’. In my view, this assumption is still valid under the current Kim Young-sam regime. Indeed, notwithstanding its civilian, democratic nature, the Kim government’s autonomy is still extensive: not only does it exert powerful autonomy in relation to special interests, but it also commands strong integrating power against governmental and political organizations in establishing and implementing national policies. South Korea’s democratic state has been able to retain this strong autonomy vis-à-vis the chaebôl first and foremost by successfully securing political legitimacy through the support of the electorate. The way the Kim government secures state autonomy vis-à-vis capital is different from the Chun and the Roh regime cases. The Kim government has sought to secure its autonomy by establishing its moral credentials. In comparison, the Chun and Roh regimes, both supported by the military, authoritarian oppressive power based on political violence was a prime foundation of state autonomy. However, the Kim government is limited in the degree to which it can use oppressive political methods to control special interests, particularly the chaebôl, given the country’s political democratization and economic liberalization. As a consequence, it has moved to fill the vacuum created by this democratization and deregulation by appealing to the moral authority of the state. Chun and Roh could amass secret political funds from the chaebôl, and the chaebôl tended to be submissive to the state, because the state wielded a variety of political and economic controls. In South Korea, active intervention by the state in the private sector has resulted in political corruption. In the course of rapid economic development, the state bestowed special benefits to the chaebôl, and in return for such benefits the chaebôl secretly contributed political funds to state officials to secure more favors. With political and economic democratization, however, it has become difficult for the Kim government to rely on political methods when it needs to check the power of outside forces. The only way in which the administration can secure government autonomy vis-àvis social demands is to demonstrate its fair and clean handling of government affairs. President Kim’s declaration that he would refuse political donations from businesses was a signal that he was determined to break the collusive political-business ties by which the chaebôl had received special favors from past governments. As a consequence, the pressure that the chaebôl have come to feel under the Kim government has been stronger than ever, and the message of the administration is clear: no more political bargaining over economic matters. The Kim government’s attitude toward big business is obviously different from that of previous regimes. President Kim has strongly criticized the close and inevitably corrupt ties between previous regimes and the chaebôl, and has thus tried to keep some distance between his administration and the business community in order to demonstrate the fairness of his government’s industrial policies. As a consequence, the administration has retained the capability to punish those chaebôl that refuse to submit to


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government authority and abide by its rules. The former chairman of the Hyundai Group, Chông Chu-yông, who ran for president against Kim Young-sam in 1992, was sentenced to three years in prison and was eventually forced to retire permanently. Those chaebôl owners who were found to have provided political funds to ex-Presidents have been sentenced to penal servitude with a stay of execution. Ex-President Chun was sentenced to life imprisonment and ex-President Roh, to imprisonment for seventeen years. The Kim government is determined not to be compromised by the influence of the chaebôl, and appears to be succeeding in securing the moral authority to control these large business groups. Despite democratization and economic deregulation, the autonomy of the state in relation to capital remains even stronger. Second, the Kim government has also secured autonomy in policy-making through its strong political integrating power. The government’s establishment of the real-name financial transaction system and the real-name real estate registration system, as well as the reduction of the size of government, are examples of the government’s integrating power. Under the Chun and Roh regimes, two attempts to institute a real-name financial transaction system were made, in 1982 and 1989, but both were thwarted by the resistance of the chaebôl and, ironically, by some politicians and government bureaucrats. The owners of the chaebôl objected to these reforms since they used such accounts to hide funds and shares under false names, in part to reduce their tax burden. Similarly, many politicians benefited from false-name accounts by using them to amass secret political funds. Ironically, even government officials were reluctant to tamper with the system out of concern that instituting a real-name system might induce capital flight out of the country or lead to speculation in real estate, thus destabilizing Korea’s financial situation. This last concern appears to have been genuine, given that the size of the unofficial financial market has been estimated to be about 47 percent of GNP. In fact, since the institution of the real-name financial transaction system in 1993, the bankruptcy rate of small and medium size enterprises has increased rapidly. South Korean small and medium size enterprises have largely relied on the unofficial financial market to finance their businesses. Nevertheless, these changes were deemed necessary in light of the government’s other political and economic reforms: the establishment of a free-market economy, the rooting-out of political corruption, and the dispersion of chaebôl ownership. The preparation for instituting these systems was carried out in secret in order to isolate the reforms from possible interference. By direct order of President Kim, the minister of the EPB selected a handful of researchers and officials from the Korea Development Institute and the Ministry of Finance, and went about designing the reforms. This case illustrates that the will of the President is still the overwhelming factor in establishing and implementing national economic policies even under Korea’s democratic system. The strong political integrating power of the presidency can also be seen in the enforcing procedure of the Election Act, the Political Fund Act, and the Local Self-government Act (1994). Previous regimes were reluctant to institute this legislation, which could undercut the electoral advantages of the ruling party. Naturally, legislators from the ruling party were less than enthusiastic in supporting this legislation, but President Kim stuck to its reforms and persuaded reluctant members of the National Assembly that they should support the measures in the name of guaranteeing ‘clean’ elections, and thus succeeded in passing the legislation. Put simply, the autonomy of President Kim’s democratic government is based on its strong political integrating power.

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Third, political control has not entirely disappeared, either. When Ch’oe Chong-hyôn, the president of the Federation of Korean Industries and concurrently chairman of the Sunkyung Group, criticized President Kim’s economic stabilization policies, the government’s regulation of economic concentration by the chaebôl and the main-line business system, the government answered these complaints with investigations into the Sunkyung Group by the Fair Trade Commission and the Office of National Tax Administration. The government regarded Ch’oe’s criticism as a form of chaebôl’s defiance of state authority. To appease the government’s anger, Ch’oe had to apologize in person to the minister of the EPB and explicate his impolitic remarks to the press. Finally, in explaining why the Kim government has been able to maintain strong autonomy despite economic deregulation, it is still important to stress its use of extraformal institutional factors. The so-called alternative-modernity of the traditional Confucian state has not entirely disappeared. In form, South Korea has emulated Western political and economic systems, i.e., liberal democracy coupled with a capitalist, market economy. But South Korea is also still deeply entrenched with the idea that the state should retain moral guidance over society and that social constituents should not challenge the patriarchal authority of the state. Despite democratization and the reduction of the size of government, the administration’s attempts to enhance the state’s authority over capital has not ceased. By refusing to accept political funds from the chaebôl, the government has limited the degree to which the business community can influence state decision-making. The state’s political integrating power based on the patriarchal authority of the President has also remained intact. While carrying out social, political and economic reforms, the will of the President has had the highest priority. Although the chaebôl have expanded their political and economic power in the course of their development, the business community is still largely under the patriarchal control of the South Korean state. The state will not readily give up its dominant status over society. The state-industrial capital relationship in Korea is based on a complicated mechanism of the hierarchical state-society nexus. The South Korean state must be distinguished from its Western counterparts. It has different origins and has experienced a distinct process of evolution. One must not mistake the pattern of South Korea’s state-society relations simply as liberal and plural. Under the democratic Kim government, the state will continue to enjoy an autonomous relationship with the business community. This degree of autonomy is, of course, not absolute. To keep economic growth, it is still necessary for the Korean government to rely on the industrial power of the chaebôl. As the economic situation gets more difficult, the Kim government is softening the strength of the regulations of economic concentration to revive the vitality of the economy. The Ministry of Finance and Economy even argues that the government should further reduce economic regulations, criticizing the Fair Trade Commission’s attempt to decrease drastically the ‘ratio of mutual standing surety to stockholder’s equity’ of the chaebôl. One of the economic positions of the current government is to relax economic concentration through encouraging fair market competition, although this needs time. It takes the view that either excessive support or regulation of the government will eventually erode the international competitiveness of the chaebôl. As stated above, the establishment of WTO and entrance to OECD provides the Korean government with stronger motivation for economic liberalization. But, the Korean state’s economic ‘reliance’ on the chaebôl


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should be distinguished from the state’s ‘submission’ to capital. The Korean state obviously retains an ability to discipline and subjugate the chaebôl. The hierarchical pattern of state-chaebôl relations in favor of the former does not appear to have changed fundamentally. The new democratic government has successfully secured its strong autonomy vis-à-vis the chaebôl by employing institutional rather than overtly oppressive means. The government’s liberalization policy has not in effect weakened its power to control the chaebôl. In my view, the hierarchical pattern of state-business relations has not fundamentally changed under the current democratic, civilian government. As I have argued, deregulation in South Korea has not meant free competition or complete liberalization. Not only has the government’s restrictive attitude in executing economic policies not been withdrawn, but the autonomy of the South Korean state has actually been upheld by the use of sophisticated regulations. Although the government has emphasized that it will reduce business regulations, many powerful regulative measures remain intact. The aforementioned fair trade system and the loan and payment guarantee management system, for example, have all played active roles. Regulations have become less coercive and political, but also more rational and powerful. They have been institutionally and systematically refined following growing private business protests against state intervention. In selecting a personal communications server, for example, the Ministry of Information and Communication offered new criteria. It decided to take into consideration the financial state of potential servers, their willingness to support small/medium size businesses, their degree of business specialization, their business management morality, the degree of dispersed ownership, and their devotion to the local community. The intention of the ministry was to prevent big business from excessively diversifying their business lines and instead induce them to support small businesses and return a portion of their profits back to society. Under the pretext of encouraging business morality and service to society, the government attempts institutionally to keep a strong grip on the chaebôl. The merger of the EPB and the Ministry of Finance into the Ministry of Finance and Economy (MOFE) also rather boosted the interventional capacity of the state than diminished it. The checks and balances between the two ministries, which were respectively in charge of economic planning and financing, have vanished. The initial purposes of the merger were the reduction of government organizations and the enhancement of administrative efficiency. By monopolizing finance, budget planning and taxation, however, its ability to control economy and business became amplified. The EPB was once regarded as a pioneer in liberalizing the Korean economy, but after the merger, entrepreneurs in fact looked upon the Ministry of Finance and Economy as the chief instigator of government regulations. In 1995 when Samsung and Hyundai announced plans to build factories overseas using 100 percent foreign financing, the ministry quickly declared that it would not permit them to do so unless they should finance 10 percent of the investment with their own funds. The Ministry of Economy and Finance tried to prevent them from expanding by depending on foreign loans. Eventually, the chaebôl had no choice but to accept the government’s decision. In addition, the MOFE still does not allow the Bank of Korea to become independent, and indirectly intervenes in the setting of interest rates of the private banks, despite its promise of financial liberalization.

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Besides, the government still keeps controlling business through so-called ‘window guidance’, the most commonly-used method of unofficial regulation. Government officials arbitrarily apply economic, industrial acts with window guidance, so some say ‘window guidance is superior to written laws’. Even if a law is aimed at deregulation, officials render the act ineffective. When a bank brings in overseas funds, for example, it has to have the unofficial permission of the Ministry of Finance and Economy, although only the bank’s report of the imported loans to the ministry is actually stipulated. Moreover, banks cannot even dishonor the bills of ill-managed firms without consultation with the Ministry of Finance and Economy or the Blue House. Only after they affirm the intention of the government, can they make a decision (Chosôn Ilbo 26 April 1996). Notwithstanding deregulation policies, the government maintains official, unofficial methods of control, which sustain the domination of the state over capital in South Korea. The argument made by Korean businessmen—namely, that government regulation is too diversified and too strong—is to some extent convincing. Government regulation makes it difficult for domestic enterprises to cope flexibly with changes in the business environment. And since regulations are applied only to South Korean companies and do not affect those international companies that have set up shop in South Korea, domestic businesses are forced to operate at a disadvantage. According to one survey, South Korean entrepreneurs believe that government regulations weaken the competitiveness of their companies. But reducing regulations will not be simple. Government bureaucrats in general are convinced that the government’s regulatory power is still necessary to bring about a structural adjustment of Korean industry and to control economic concentration in the chaebôl, and thus they are reluctant to relinquish their authority, despite the general trend toward liberalization. The strong intervention of the state will operate actively in the process of creating a self-regulating capitalist market society where the economic discipline of fair competition is enforced over capitals (Polanyi 1957). In the government’s view, the chaebôl are too dependent and weak to lead a so-called private sector-led economy and thus are not ready to assume social responsibility. The management of chaebôl is in general overly centralized—often excessively concentrated in tight family groups—and they are too diversified to create long-term profit. As of 1996, South Korea’s thirty largest chaebôl had an average of 22.3 member companies (Fair Trade Commission figures). This diversification prevents them from developing internationally-recognized brands. As of 1992, the total sales of General Electric were 17.4 times greater than those of Hyundai Motors, and nine times greater than those of Samsung Electronics. Similarly, while GM and Hitachi had respective R&D investments of $7 billion and $3.6 billion as of 1994, the sizes of R&D of Samsung Electronics and LG were just $1.2 billion and $0.5 billion, respectively. (Sôul Kyôngjesinmun, 6 November 1996) Ironically, although the chaebôl demand deregulation, they still require generous government support. Yet state support inevitably includes a regulatory environment. The two are opposite sides of the same coin. As long as the business community continues to demand support from the government, the government will continue to intervene in the private sector. For the time being, a see-saw between the state and the chaebôl will continue. But it does not seem that the state’s dominance over capital will change fundamentally in the near future notwithstanding the economic liberalization drive and the expansion of chaebôl’s influence. The view that the government’s capacity for the financial support of


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industries is the major source of state autonomy, and therefore financial liberalization predicts the beginning of the end of the interventional state (Woo 1991), can be too economic-deterministic. The fact that not only the political class but also the public is apprehensive of capital dominating the state makes it difficult for the state to withdraw from control of the chaebôl. Although the state has decided to alter the plan to reinforce the regulation of economic concentration radically by the amendment of the ‘fair trade system’, as the economic situation rapidly deteriorated in 1996, the Kim government was not to be expected to remove core regulative measures. As the Minister of Trade Industry and Energy maintained, the Korean government will continue selective intervention in the chaebôl plans for large-scale business projects in order to prevent redundant investment. According to a survey, 51.5 percent of government bureaucrats admit that the Kim government’s deregulation policy is not successful. On the one hand they have canceled regulations, on the other hand they create new breeds of them. State officials well know that if once they lose the means of ‘regulation’, the chaebôl will no longer be subdued by the state’s authority. As long as the chaebôl pursue excessive business diversification, maintain poor balance sheets, and are arbitrarily run by owner-managers, the state will continue to feel compelled to play a regulating role. CONCLUSION: THE STATE AUTONOMY IN THE ALTERNATIVE-MODERN STATE Six conclusions may be drawn. First, in formulating and implementing a series of economic policies to regulate economic concentration in big business, the South Korean state’s autonomy vis-à-vis the chaebôl was strong, regardless of political transition from authoritarianism to democracy. Of course, this does not imply that the state could entirely insulate the procedure from the chaebôl’s lobbying. The Korean state was sometimes confronted with the chaebôl’s objections and protests, and persuaded by them. They retained an advanced apparatus of interest representation, the Federation of Korean Industries, and were able to mobilize official/unofficial means to deliver their opinions to the government. Yet, the degree to which the chaebôl could protest against the state’s will to restrain economic concentration in the chaebôl was limited. The Chun regime could strongly enforce executive institutions to regulate the chaebôl by taking advantage of authoritarian oppressive rule. In case of the Roh and the Kim regimes, with the advancement of political democratization, the state had to accede to the people’s political and economic demands such as economic equity, the weathering of economic depression, the fostering of high-tech industries, and the reinforcement of the state’s patriarchal authority, rather than to safeguard the chaebôl’s interests, which empowered the state with independence of capital in implementing regulative policies. Therefore, the democratic Roh and the Kim governments could also reveal strong power for controlling the chaebôl. This shows that a democratic government does not necessarily hold weaker autonomy vis-à-vis capital. Hence, the assumption that the authoritarian rule is more effective than democratic rule in insulating the economic policy decision-making and implementing procedures from social influences needs to be carefully reconsidered. Second, the first conclusion also suggests that arguments of policy network theory, that policies appear through interactions between private firms and bureaucratic agencies,

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and that the private sector and states in east Asia are merged into an internal organization, are not always supported in the South Korean case. In a period of conflict, the state tends to formulate and carry out economic policies without collecting the opinions of private business, and to force the latter to conform to its instructions. Third, the South Korean state’s strong autonomy was built into political and administrative institutions’ highly interventional power. The President and bureaucrats could employ various political and administrative powers. The President could arbitrarily mobilize political oppressive apparatus such as the Agency for National Security Planning, the Defense Security Command, and the Police to control the chaebôl. Even the Office of National Tax Administration was utilized as a means of political control. Government officials’ administrative power was based on an extensive bureaucratic web and the monopolization of expert knowledge of public policy designing. The web was stretched so far that they were, ironically, even engaged in the ruling party’s policyadvising capacity. For this reason, the cases in which social constituents’ interests were reflected in economic decision-making and implementation through political parties, were relatively few. They were able to exercise numerous ways of intervention such as business authorization and administrative restrictions, and apply numerous sanctions against private business, in the event that the latter did not obey the government’s instructions. Fourth, extra-formal institutional factors were also significantly involved in the rise of the South Korean state’s strong autonomy. For example, the authority of the President was more extra-formally, institutional. In the policy decision-making procedure, the President’s will had highest priority. Under such circumstances, the presidential secretariat’s authority could often surpass that of the cabinet. Indeed, institutional authority was not more than a stipulation of the minimum of the President’s power. The President’s extra-formal institutional authority might be described as patriarchal. The South Korean state’s strong autonomy rested upon this patriarchal authority, which also functioned as political integrating power. The state was not a unitary entity and, therefore, discords among subinstitutions often took place. Nonetheless, it was able to ensure its strong autonomy by the President’s patriarchal exercise of the political integrating power in policy-decision making, and by the bureaucrats’ conformation to guidelines on policies which were suggested by the President. In the early 1980s, when the South Korean government decided to adopt economic stabilization and liberalization policies, the Ministry of Finance and the Ministry of Commerce and Industry were opposed to those policies. They were apprehensive of losing their means of intervention. However, in time, the policies could be propelled under the leadership of the President. Officials of the presidential secretariat and EPB also played a significant role in decisionmaking and implementing those policies. Although they were a minority in the government, they could persuade the opposing majority, and settle the discords among competent departments, with the back-up of the President’s powerful authority. Fifth, the South Korean state’s strong autonomy vis-à-vis the chaebôl is not properly elucidated with the Western paradigms of the modern state such as pluralism, Marxism, and corporatism. In South Korea, the state was not regarded as a neutral, passive administrative organization or a body subordinate to the capitalist class. Nor was it a system of interest representation. In that the South Korean state was authoritarian, it has often been looked upon as a form of statist corporatism. But the authoritarianism which


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emerged in Korea should not be defined as corporatist. Historically, the corporatist and/or organic statist tradition has not been found in South Korea. Finally, the unique relationship between the South Korean state and the chaebôl can be more convincingly interpreted by investigating the history and culture of the Korean state and the political events which triggered the augmentation of the state’s controlling power. Also, the hierarchical relationship between the South Korean state and the chaebôl will be better understood from the viewpoint of the state-society rather than the state-market relationship. One should not think of the way in which the state has directed production in Korea, as consisting simply of the relationship between the state and the market. Without an appreciation of how it is involved in an aspect of wider and more longstanding relations between the state and society, the Korean state-chaebôl bond cannot be correctly analyzed. Both the extra-formal institutional aspects of the South Korean state’s strong autonomy and the rise of powerful formal institutions are involved in alternativemodernity, i.e. the unique characteristics of the Confucian state. Although the South Korean state had imported modern social and political institutions from the West, alternative-modern factors (e.g. ethical allegiance in the relationship between the state and individuals, the moral authority of Confucian bureaucrats, hierarchical state order based on ethical wisdom, and family statism) have still survived and actively exerted their influence. The alternative-modernity has shaped the state-society relationship in the following patterns: the interests of the state were more emphasized than that of a fraction of social groups or individuals; the state bureaucrats enjoyed moral authority over the people; the state-society relationship was ethically, hierarchically established; the President retained patriarchal authority in the state, and social actors had a duty to be loyal to the state. The South Korean state-chaebôl relationship has also been formed by alternative-modernity. The alternative-modern factors, moreover, were distorted and reinforced, during Japanese colonial rule, and have been associated with the rise of other unlawful, illiberal political events in contemporary history. The hierarchical Confucian state order, for example, brought about a new authoritarian rule of the modern South Korean state when combined with military authoritarianism. It might be looked upon as a useful political instrument of ‘growth’, for quasi-military regimes which had to generate ‘development’ in order to create political legitimacy. Consequently, those factors did not disappear readily, despite the formal importing of Western liberal political institutions. On the contrary, they still survived actively. They were, indeed, very helpful to the political economic purposes of the regimes. Hence, without an understanding of both the alternative-modernities and the political history, one cannot adequately elucidate the source of the South Korean state’s strong autonomy vis-à-vis social groups, including the chaebôl. Herein lies the reason that the Marxist, pluralist, and corporatist state paradigms were unable to explain the modern South Korean state-society relationship convincingly. In describing the relationship between the state and society in Korea, we must take the extra-formal institutional (e.g. historical, cultural) and political factors into account.

Notes 1 STATE AUTONOMY AND BIG BUSINESS 1 The Kukche Incident: In 1985, as the Chun government ordered the Cheil bank (Kukche’s major correspondent bank) to terminate financial allocation, the Kukche chaebôl went bankrupt. The government claimed that the reasons for the collapse of Kukche were poor management by family members, and financial strain. It was partly true. As of 1984, Kukche’s debt-equity ratio was 914 percent, which was the highest of the ten largest chaebôl. However, reportedly, the true reason lay elsewhere. According to Yang Chông-mo, chairman and founder, the dismantling of Kukche was closely related to his refusal of Chun’s request for cooperation in raising political, social funds. For official reasons for the fall of Kukche, refer to records of ‘Hearings on Ill-managed Companies (16–17 March 1989) and the Il-hae Foundation (4 November–15 December 1988)’ held by the Fifth Republic Special Committee of the Korean National Assembly. In summary, it is supposed that the fall of Kukche was a part of the Chun regime’s attempt to tame the chaebôl. 2 Amsden (1989), Jones and SaKong (1980), Luedde-Neurath (1988), Wade (1990), Lim Youngil (1981), Chang Ha-Joon (1993), Onis (1991), Gereffi and Wyman (1990), Johnson et al. (1989), Haggard and Moon (1983). Concerning an early argument advocating the state’s economic intervention as an essential element of growth, refer to Gerschenkron (1963), Hirshman (1958). Meanwhile, as for an approach of viewing the east Asian experience as a ‘dependent development’ taking place on the periphery of the international economic and political system, refer to Evans (1985, 1987), Lim Hyun-Chin (1985), Gold (1986), Cardoso (1973), Evans (1979). 3 Kreuger (1982), Galenson (1985), Balassa (1982), Fei and Ranis (1975). The free-market view posits that the state’s intervention in the market generates distortions and, therefore, inefficiency. Taiwan and South Korea, it argues, could achieve successful economic performance when they removed those distortions by taking a series of liberalization policies (e.g. trade liberalization) and introducing realistic foreign exchange and interest rate systems (Fei and Ranis 1975:55–6; Balassa 1982:270, 346–8). Meanwhile, in a compromised neoclassical position, the existence of state intervention is at least acknowledged. It suggests that a neutral incentive structure was eventually created, as various measures of state intervention canceled each other out, although state intervention operated in the process of the east Asian countries’ economic development (Little 1982; Lal 1983). In the other theory, it is argued that ‘prescriptive’ Far Eastern governments could attain more successful economic performance than their ‘prescriptive’ counterparts could, since they ‘tend[ed] to leave open areas (outside the prescriptions) where [private] initiative could be exercised’ (Bhagwati 1988:98–101). Therefore, even if the government distorted the allocation of existing resources, the prescriptive government did not ‘tend to stifle technical change and entrepreneurial activity’, nor did it hurt growth. 4 Amsden (1989: ch. 4), Johnson (1981: ch. 6; 1987), Deyo (1987a), Wade (1990: chs 7, 10), Luedde-Neurath (1988:73–93), Haggard and Cheng (1987:117–28), Haggard and Moon, (1990:221–30), Lim Youngil (1981), Jones and SaKong (1980: chs 3, 4, 5), Cole and Park (1983). On South Korea and Taiwan’s institutional emulation of Japan, see Park Ungsuh (1985). 5 Cumings (1984:30–1), Koo (1987:170–6), Deyo (1987a:232–5; 1987b:183–92), Evans (1987:212–15), Lim Hyun-chin (1985:121–8). 6 Johnson (1987:77–83), Mardon (1990), Cole and Park (1983), Woo (1991), Lee Chung H. (1992), Choi Byung-sun (1993). 7 Cumings (1984:8–26), Deyo (1987a:232–4) Woo (1991: chs 2, 3), Wade (1990:82–4), Kohli

Notes

8 9 10 11 12 13 14 15 16

17

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(1994), Lim Hyun-Chin (1985:80–8), Amsden (1985:79–82, 90–4), Evans (1987:209–11), Gold (1986:44–5, ch. 5). As for the position which views states and societies as mutually transforming, refer to Migdal et al. (1994:23). It is argued there that states may also be ‘molded by societies within which they are embedded’. From the institutional point of view, the state is defined as institutions and individuals engaged in formulating and implementing public policies, see Nordlinger (1981), Krasner (1978), Evans et al. (1985). Okimoto (1989:152–76), Shin (1991), Dore (1987). On the concept of policy networks, see Katzenstein (1977). See Jones and SaKong (1980:308), Haggard and Moon (1983:141–7), Johnson (1987), Kim and Geisse (1988:63), Gereffi (1990:15), Jung Ku-Hyun (1988), Cumings (1984). Ch’oe Pyông-sôn (1989:31–2), Kang Min (1986:160, 170), Yim Hyôn-jin and Paek Un-sôn (1986:233–43), Lim Hyun-Chin (1985), Kim Eun Mee (1987:271). Meanwhile, as for the autonomy of the democratic state, see Nordlinger (1981), Krasner (1978). Heclo (1974), Trimberger (1978), Skocpol (1979), Evans et al. (1985). See Amsden (1985), Cumings (1984), Johnson (1987), Deyo (1987a), Haggard and Cheng (1987), Jones and SaKong (1980). Concerning the political aspects of east Asian state autonomy, see Amsden (1985:82–4), Luedde-Neurath (1988:94–102), Wade (1990: ch. 8), Koo (1987:172–6), Cumings (1984:28– 9). It is argued that the authoritarian state based on a strong one-party system or on the military’s political support could easily dominate society by utilizing coercive organizations and, therefore, secure ample autonomy vis-à-vis social groups. For a study which emphasizes the Confucian heritage of the Korean past in accounting for the South Korean state’s strong autonomy, see Michell (1984). In defining the state, the Weberian position tended to be based on a narrow concept of the institution. In this context the institution connotes formal aspects, i.e. government organizations, the military, firms, law, etc. However, such a definition is too narrow and limited, so we should employ a broader concept of the institution. In this context, the institution includes not only formal but also extra-formal (or informal) aspects and, hence, implies customs, tradition, ideology, etc. In this study, I will call the former and the latter the formal and extra-formal institutions, respectively. See Doner (1992), North (1990: particularly chs 5, 6), Gourevitch (1993).

2 THE ORIGIN AND GROWTH OF THE CHAEBÔL, 1948–79 1 For definitions of the chaebôl, refer to Kuk (1987), Cho Tong-sông (1991), Hattori (1989), Kim Seok Ki (1987), Jones and SaKong (1980). 2 In South Korea the capitalist class broadly consists of two groups: business owners and managerial officials. The chaebôl fall under the business owner category. According to Sô’s calculation the capitalist class accounted for 1.2 percent of the total Korean population as of 1980 (Sô Kwan-mo 1988:114–18). 3 By comparison, in the case of the zaibatsu with post-restoration origins, founders and their family members practically controlled the top managers. For example, Mitsubishi’s owners had firm control on the top management. However, this system changed with the aging and death of the founders. See Morikawa (1992:98, 118) and Hattori (1989:238, 248, 282). 4 Whereas, in Chung Young-Iob’s study, it is argued that four of the fifty chaebôl had been formed before 1945 (Chung Young-Iob 1985:18). 5 Law no. 74, promulgated 19 December 1949, ROK Department of Treasury, translation from

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Chung Young-Iob (1987:5). 6 Between 1954 and 1957, the real interest rate (the bank lending rate—inflation rate) ranged from −3.9 to −43.8 percent. (1954:−13.5 percent, 1955:−43.8 percent, 1956:−15.7 percent, 1957:−3.9 percent, Kim Seok Ki 1987:53). 7 ‘hwan’ was the unit of Korean currency before 1961. 8 Contents of the deal are as follows: (1) The government would exempt most businessmen from criminal prosecution. (2) With the notable exception of commercial bank shares, existing assets would not be confiscated. (3) Businessmen would instead pay off their assessed obligations by establishing new basic industrial firms and by donating the shares to the government (translation from Jones and SaKong 1980:69–70, 281). 9 During 1970–72, Korea recorded 15.6, 13.9 and 16.1 percent annual inflation rates respectively. 10 Main features of the decree are summarized as follows (translation from Cole and Park 1983:162–3): 1 All the loan agreements between business firms with a business license and lenders in the informal financial markets as of 2 August 1972 were to be nullified and replaced by new ones. The borrowers would have to repay their informal loans over a five-year period after a threeyear grace period, carrying a 1.35 percent monthly interest rate, or the lenders had the option to switch their loans into shares of the borrowing firms. 2 Some of the short-term high-interest-rate bank loans by business firms were to be replaced by long-term loans at 8 percent annual interest rate payable over a five-year period after a threeyear grace period. The amount of the replacement was 200 billion won. 3 Establishment of a credit guarantee fund for small/medium size industries, and agriculture and fishing businesses, amounting to 2 billion won with government funds, would allow banking systems to make loans up to ten times the amount of the fund without collateral requirements. 4 Establishment of an industrial rationalization fund, to which the government supplied 50 billion won and which was to be used for long-term, low-interest loans to the business firms that could meet the criteria of the rationalization standards. 5 An overall reduction in the interest rates of banking institutions lowered the time deposit rate from 17.4 percent to 12.6 percent and general loans up to one year from 19 percent to 15.5 percent. 11 Of course, the numeric increase in member companies of the chaebôl does not necessarily reflect the real aspects of their growth. But in the sense that the increase in the number of member companies was significantly involved in the chaebôl’s business diversification in the South Korean case it is worth considering. The chaebôl have expanded by means of starting a new business with capital accumulated from previous business rather than re-investing it. 12 By comparison the annual average increase of GNP was merely 10.2 percent during the same period. 13 The 29 May directives contained the following contents (translation from Jones and SaKong 1980:282): • family oriented management should be modernized. • the scale of enterprises should be enlarged to enable them to become internationally competitive. • the managerial and financial capacities of families are limited, so privately held firms should go public. • accumulation of business assets in the hands of a few individuals or family groups should be prevented.

3 CRITICISMS OF THE CHAEBÔL

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1 Data from the Bank of Korea, May 1987. 2 During 1963–74, two-thirds of the cash flow of manufacturing corporations came from borrowing. Of the borrowing, 53 percent came from domestic banks and financial institutions, 29 percent from foreign sources, and 19 percent from miscellaneous sources such as the unregulated financial market. 3 Chung explains the mechanism as follows: the official rates were considerably lower than the market rates. For similar commercial loans, the market rates would average at least double the official rates, often from 50 percent a year to more than 100 percent. For example, according to a survey, the interest rate charged by non-bank financial institutions to manufacturing enterprises averaged 53 percent in 1963. The average interest rate charged by domestic commercial banks on loans during the period 1966–70 was 24.4 percent, while the rates prevailing in the unorganized financial market on average were 54.2 percent. The actual interest cost to the governmental bank loan, therefore, was much lower, e.g. about onehalf, than the cost to commercial borrowers in ordinary dealings. In some years, the official interest rates that the chaebôl borrowers paid were even negative in real terms, as the rate of inflation exceeded the nominal interest rates. This meant that loan recipients received annually, in effect, a subsidy of 20 percent to 30 percent of the unpaid sum of the loan. The interest charges varied according to the types of transaction and the projects for which loans were given. Typically low rates and longer maturity periods were characteristic of public overhead investment loans, while those for private and profit-oriented investment projects such as consumer goods manufacturing were high and short, respectively.

(Chung Young-Iob 1987:23–4) Data from the Supervisory Office of the Stock Exchange. 4 5 The UPP campaigned on the following platforms during the fourteenth general election campaign: 1 development of small/medium size enterprises as a backbone of the South Korean economy 2 reduction of the interest rate (7–8 percent) 3 removal of the government-controlled financial system 4 supply of apartments in large numbers at half the current price 5 fostering of creative Koreans to lead the country into the twenty-first century 6 realization of viable rural and fishing communities 7 fostering the cultural state 8 improvement of women’s social status. 6 This idea is also well summarized in Kang Ch’ôl-kyu et al. (1991). The authors of this book consisted of members of the Citizens’ Union for the Realization of Economic Justice. This organization is famous for having criticized the chaebôl and the government’s chaebôl-centered economic policy.

4 REGULATING THE CHAEBÔL, 1980–93 1 The percentage was lowered to 25 percent in April 1995. 2 Small and medium-size enterprises are defined as follows in Korea: 1 number of employees: less than 300 2 assets: mining and textile businesses: less than 4 billion won food and textile dyeing

Notes

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5 6 7 8 9 10

11 12 13 14

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businesses: less than 6 billion won paper manufacturing and printing-publishing businesses: 8 billion won The rate of increase in wholesale prices rose from 9.0 percent in 1977 to 11.8 percent and 18.6 percent in 1978 and 1979. At that time, an analysis showed that the ruling party’s defeat in the election resulted from (1) its failure to propose appealing policies (2) inflation, and the enforcement of the VAT system and (3) a harvest failure. Regarding political and economic backgrounds in which the stabilization policy was introduced, refer to Ch’oe Pyông-sôn (1989:34), Haggard and Moon (1990:218–19). On the history of the stabilization policy, refer to Economic Planning Board (1982:193–203). As for the detail of the law, see Yi Sông-hun et al. (1989:42–5), Chang Ha-Joon (1993:142). This incident is worth noting in that it was the largest bill fraud incident in Korean history, a conspiracy between high ranking government officials and politicians. Because of this incident, the need for a ‘real name financial transaction system’ came to be strongly raised. The four banks are Hanil (1981), Cheil (1982), Sôulsint’ak (1982), and Chohûng (1983). The Sang’ôp bank had already been privatized in 1972 (Bank of Korea 1990:167). An interview (January 1993) with Mun Hûi-gap, President Roh’s chief economic secretary. According to Mun Hûi-gap, it was clear that Roh intentionally held himself aloof from economic matters at the beginning of the Sixth Republic. Once, Roh had asked Mun to give him private economics lessons regularly, but he soon revoked it. Mun was told that somebody (probably other advisers) had advised Roh to entrust economic decisions to technocrats rather than to make them himself. Originally, the term ‘the free market system’ connotes free competition amongst economic actors, deregulation, liberalization and so on. However, in the campaign promise, the term implied, in effect, the reduction of the government’s support of the chaebôl. The rates of wage increases during 1988–92 were as follows: 1988:22.9 percent, 1989:24.9 percent, 1990:20.5 percent, 1991:16.9 percent and 1992:16.2 percent. The Readjustment Corporation is a government institution which disposes of real estate entrusted to the government or the court of justice. The 8 May measures were considered to have greatly contributed to a decrease in real estate prices. According to a report of the Office of Bank Supervision and Examination, the rate of house price increases fell from 21.1 percent in 1990 to −5.0 percent in 1992, and the rate of land price increases also decreased from 32.0 percent in 1989 to −1.3 percent in 1992. (Tong’a Ilbo, 30 June 1993).

5 THE SOURCES OF STATE AUTONOMY 1 By comparison, the percentage of the bills proposed by the executive was 54 percent (Kim Yông-gu 1991:151). 2 An interview with an expert adviser of the Democratic Liberal Party, 1992. 3 After Kim Young-sam became the President in 1993, the Democratic Liberal Party stopped recruiting expert advisers from among government officials. Instead, those positions were filled with professional party officials. 4 The Federation of Korean Industries emulated the Japanese keidanren in respects of function and purpose of the organization. Keidanren is also the most influential interest group and, at the same time, the largest source of political funding in Japan. 5 An unpublished source of the Democratic Liberal Party. 6 Concerning the data on Chun and Roh’s political funds, see Cho Kap-che (1992), Chosôn Ilbo, 19 December 1995 and 13 December 1996.

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7 An interview with a financial officer of the Democratic Liberal Party; Mun Hûi-gap (1992:232), Hô Hwa-p’yông (1991). 8 An interview (January 1993) with Mun Hûi-gap, Roh’s former head economic secretary. 9 An interview (January 1993) with Mun Hûi-gap. He argued that the authority of the head economic secretary became less powerful under the Roh regime, in comparison with that under the Park and the Chun regimes, because Roh managed the economy less directly than Chun and Park had done. The head economic secretary’s power was, his argument goes, directly proportional to the President’s interest in the economy. Mun’s argument is supported by another study. According to Chông, Roh’s administrative style showed a marked difference from that of Chun. While Chun tended to bear the responsibility for the economic policies he authorized, Roh was inclined to evade a straight involvement in economic affairs. He entrusted the decisive power to his economic secretary and competent authorities in establishing and implementing economic policies and, at the same time, asked them to assume the responsibility for results (Chông Chông-gil 1992:159). 10 Prior to the establishment of Park Chung-hee’s Yushin regime, the first presidential economic secretary held the rank of minister. During the Yushin and the Chun regime period, the post was held largely at the level of vice-minister or assistant minister. Under the Roh regime, it was again elevated to the minister level. 11 An interview (January 1993) with Mun Hûi-gap; article 3 of the regulation on the Economic Ministers’ Meeting. Participants of the economic ministers’ meeting were the Ministers of the Economic Planning Board, Foreign Affairs, Finance, Commerce and Industry, Agriculture, Forestry and Fisheries, Energy and Resources, Construction, Health and Social Affairs, Labor, Transportation, Science and Technology, and Communication. Also, the cabinet members whom the Prime Minister appointed or who were associated with the items to be discussed, could join in the meeting. 12 Kim Kwang-ung (1991:88) gives the following figures:

1960 1965 1970 1975 1980 1985 1989 Number of 237,476 305,316 417,348 478,562 596,431 670,637 781,346 officials Per 1,000 persons 9.5 10.6 13.3 13.8 15.9 16.6 17.0 Under the Chun regime, the presidential economic secretariat consisted of the head economic 13 secretary, the financial-economic secretary, the economic planning secretary, the secretary of science and technology, the secretary of national development and the secretary of agriculture and fisheries. Under the Roh regime, it was composed of the industrial secretary, the financialeconomic secretary, the secretary of social welfare, the secretary of social infrastructure, the secretary of national development, the secretary of agriculture and fisheries and the secretary of economic survey. 14 At the same time, the reduction of the bureaucrats’ authority implies the infringement of their interests. For instance, the strongest objection to the enforcement of the local self-government system was raised by the bureaucrats of the Ministry of Home Affairs. If the system were put in force, the Ministry of Home Affairs would have to abandon its right to appoint 15 governors (tojisa), 68 mayors (sijang), 136 county magistrates (kunsu), 70 ward chiefs (kuch’ôngjang), 177 town headmen (ûpchang), and heads of 1,258 myôns. The President and the ruling party could not ignore their position, because they needed bureaucratic support to win the elections Yi Hûng-hwan (1992:12–14). 15 The Monetary Board consists of nine members: the Minister of Finance, the governor of the Bank of Korea, one member recommended by the Minister of the EPB, two members recommended by financial institutions, two members recommended by the Minister of Agriculture, Forestry and Fisheries, and two members recommended by the Minister of

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Commerce and Industry. The chairman of the committee is ostensibly the Minister of Finance, but it is actually chaired by the Governor of the Bank of Korea in accordance with custom. Formally, it is a sub-organization of the Bank of Korea. However, in actual fact it superintends the central bank (Bank of Korea Act: articles 7–21). 16 The Office of Bank Supervision and Examination is a sub-organization of the Bank of Korea (Bank of Korea Act: articles 28–35).

6 LIBERAL-PLURALISM, NEO-MARXISM, CORPORATISM AND STATE-CHAEBÔL RELATIONS 1 It is rather similar to Offe’s theory in that it put an emphasis on the state’s direct intervention in the economy. See Block (1977: fn. 3), Carnoy (1984:130–1). 2 Available data on frequencies of labor strikes is as follows:

1980 407

1981 186

1982 88

1983 98

1984 113

1985 256

1986 276

1987 3,749

1988 1,873

Source: Ministry of Labor On the other hand, ‘pluralism can be defined as a system of interest representation in which the 3 constituent units are organized into an unspecified number of multiple, voluntary, competitive, non-hierarchically ordered and self-determined (as to type or scope of interest) categories which are not specially licensed, reorganized, subsidized, created or otherwise controlled in leadership selection or interest articulation by the state and which do not exercise a monopoly of representational activity within their respective categories’ (Schmitter 1979:15). 4 Kim Yông-nae (1986:81), Kim Ho-jin and Yi Kang-ro (1991:30), and the source of the Japanese case is Pompel and Tsunekawa (1979:245). 5 Stepan derives the concept of corporatism from organic statism. He explains: ‘Organic statism is a normative approach to politics that can also be formulated as an abstract model of governance. No modern state in its actual state/society relations has approximated pure organic statism…[and] corporatism refers to a particular set of policies and institutional arrangements for structuring interest representation…. While organic statism and corporatism refer to different things, organic statism is sometimes connected as a guide to corporatism policies, more often as a rational, and frequently as a combination of guide and rationale’ (Stepan 1978:46).

7 ALTERNATIVE MODERNITY AND STRONG STATE AUTONOMY 1 Of course, the term, ‘the modern state’ does not always indicate only the classical liberal state. We find no reason for denying that one-party socialist (e.g. the former Soviet Union and Eastern bloc countries and China) and authoritarian fascist (e.g. Italy, Germany and Spain of the early twentieth century) states are also types of the modern state. The pure types of modern government are rare’, see Hawthorn (1993b), Hall and Gieben (1992:89), Anderson (1986:11– 17). 2 These phenomena are empirically supported by studies on the political culture of the Koreans. Yi Chi-hun (1982) summarized the seven characteristics of the Koreans’ political culture in his analysis of twenty-eight studies on the political culture conducted between 1961–81: authoritarianism, civil ethic, non-individualism, alienation, factionalism, insubordination and nationalism. Also amongst pioneering studies of political culture are Almond (1956), Pye and Verba (1969). 3 Here, I perceive the term ‘structure’, in general, three ways, although it retains numerous different meanings. First, in the Marxist view, it implies ‘the method of contradiction’. This

Notes

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9 10

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emphasizes conflict, and is dialectical. Second, in Durkheim’s view, it implies ‘the method of equilibrium’. This emphasizes equilibrium, and is functional. In this context, structure is regarded as ‘relations of interaction which compose organizations or collectivities’ (Durkheim 1983). Third, in the realm of linguistics, it is understood as systems of generative rules and resources. For instance, grammar is a structure of language. In this research, the term ‘structuralism’ mainly indicates Marxist (dialectical) structuralism and Parsonian structuralfunctionalism. The former is regarded as an economic structuralism in that Marx emphasized the rule of economy, i.e. a system of productive relationships affecting class consciousness. On the other hand, the latter is regarded as a normative structuralism in the sense that it sees society as consisting of three levels of structure, ‘culture’, ‘social system’ and ‘personality’, with each of these structures interacting reciprocally, see Apter (1978: ch. 12). Regarding the third position, see Giddens (1993:195–223). In the meantime, for more criticisms of structural theorization see Hawthorn (1991). Confucian Analects, Book 3: Pa Yih, ch. 19, translation from Legge (1893:161). The Work of Mencius, Book 1: King Hui of Liang, pt. 1, ch. 1, translation from Legge (1861:2– 3). Confucian Analects, Book 12: Yen Yuan, ch. 1, translation from Legge (1893:250) Confucian Analects, Book 15: Wei Ling Kung, ch. 21, translation from Legge (1893:303). Confucius’s emphasis on moral values is well reflected in the following anecdote: ‘Fan Ch’ih requested to be taught husbandry. The Master said, “I am not so good for that as an old husbandman.” He requested also to be taught gardening, and was answered, “I am not so good for that as an old gardener.” Fan Ch’ih having gone out, the Master said, “A small man indeed, is Fan Hsu! If a superior love[s] propriety, the people will not dare not to be reverent. If he love[s] righteousness, the people will not dare not to submit to his example. If he love[s] good faith, the people will not dare not to be sincere. Now, when these things obtain, the people from all quarters will come to him, bearing their children on their backs;—what need has he of a knowledge of husbandry?’ (Confucian Analects, Book 13: Tsze-Lu, ch. 5, translation from Legge 1893:264–5). According to Skinner, the modern state is one in which personal rule by the monarch is replaced with impersonal rule by the law (Skinner 1989:105–6, 120–1). After the Grand (Genghis) Khan merged China, he governed China through a dyarchy of Mongol tribal and Chinese bureaucratic institutions. Neo-Confucianism was suggested as the ideological basis for his state by Hsu Heung in the thirteenth century. It also greatly influenced the governing system of Koryô, and gave rise to the emergence of the literati (sadaebu) in the last era, see Bary and Haboush (1985). Indeed, the State Council was regarded as a barrier restricting the monarch’s power. King Sejo (AD 1455–68) had once abolished the State Council, to weaken the authority of the higher bureaucrats and tighten his personal control of the government, see Han Woo Keun (1970:213). The assumption that regionalism exercises a significant influence in Korean society is empirically proved. Between 1964–86, i.e. under the Park and the Chun regimes, ministers who come from Kyôngsang province, where both Presidents were born, accounted for 31.3 percent of the total number of cabinet members (by contrast, Chôlla province: 14.1 percent, Seoul: 10.2 percent). Such regional imbalance was not improved under the Roh regime, i.e. during 1988– 93. Then Kyôngsang province still accounted for 35.8 percent, whereas Seoul and Chôlla province accounted for 16.0 percent and 10.4 percent respectively (Kim Kwang-ung 1991:61– 3; Han’guk Ilbo, 20 February 1993). Additionally, according to the result of a questionnaire survey of government officials’ behavior, 35.7 percent of them believed regional affiliation, alumni relationship and kinship were the most decisive factors to affect their promotion (Chosôn Ilbo, 20 February 1993). Meanwhile, as for kinship or local ties within the Korean chaebôl, see Kim Kwang Chung and Kim Shin (1989), Biggart (1990), Whitley (1990).

Notes

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14

15

16 17 18 19

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Meanwhile, as for factional struggles amongst bureaucrats of the Yi dynasty see Lee Ki-baik (1984:204–9, 223) and Reischauer and Fairbank (1960:437–44). In the context of Confucian patrimonialism, ‘morality-intellect is not only sufficient to legitimize political authority, but it is necessary to legitimize it. Conversely, the legitimization of political authority is also both a necessary and sufficient role of morality-intellect. Consequently, intellect-morality not only entitles its bearers to intimate association with the political authority, but also makes it mandatory that they establish this intimate association. In this sense, the rule fulfilled by technicians including civilian and military technocrats cannot be justified in the Confucian patrimonial society. Since technicians are not necessarily masters of morality-intellect, but only masters in the preservation of non-moral-intellect, technicians must be subordinated to those who are the masters of morality-intellect and must never be placed in decision-making posts.’ In debating the characteristics of the bureaucracy of Koryô and the Yi dynasty, the patrimonial theory is also strongly maintained on the following grounds: the personal and the public rights of the monarch were not precisely distinguished; bureaucracy was, in effect, dominated by secretarial offices, and practical political power was seized by royal clans; although bureaucrats were openly selected by qualification exams, and promotion was decided by the merit system, their educational and family backgrounds were still important in the decision, and special employment by ancestors’ meritorious deeds (ûmsa) was enforced; decision-making was, in practice, held by high-ranking officials, and a chain of command did not develop well; and not only were heads of bureaucratic organizations, in effect, under the direct control of the monarch, but also organizational differentiation was imperfect (O Se-dôk 1978:448–50; Pak Pyông-yôn 1990:21–3, 28). Since both positions commonly support the existence of a strong bureaucratic power in the Yi dynasty, the theoretical relevancy of them does not have to be discussed here. However, in the sense that the Confucian bureaucratic theory provides us with a more detailed explanation of the Yi dynasty’s bureaucracy, I will use this position to deploy my argument. Meanwhile, as for the debate on the aristocracy and the patrimonial bureaucracy of Koryô, see Kim Ui-gyu (1985). As the importance of the law was treated relatively lightly, while the bureaucratic position in which one could assist the monarch’s moral practice was highly esteemed, the technical position dealing with the law and institutions was disdained. This, however, does not mean that the legal system was entirely ignored (Son Mun-ho 1990:71; Pak Pyông-yôn 1990:84). This also contrasts with the Western absolutist state where ‘a new stratum of legal honoratiores’ was created by the reception of Roman law to cope with the intrinsic need for the administration of justice (Weber 1978:853). The Doctrine of the Mean, ch. 28, translation from Legge (1893:424), Kim Man-gyu (1982:55– 6). The Five Classics are: 1—the book of odes; 2—the book of documents; 3—the book of changes; 4—the record of rites; 5—the spring and autumn annals. It is generally agreed that the Koreans’ social character and the system of values are significantly based on familism (Ch’oe Chae-sôk 1976; Yun T’ae-rim 1984; Kim T’ae-gil 1982). In the 1960s and 1970s, studies on the military’s political interventions in Latin American countries tended to maintain a system/structural approach. Under this approach, emphasis used to be laid on socio-political crises or the weakness of civilian regimes rather than on the internal conflicts within the military. The military were regarded as a substitute for the default of politics, and soldiers were considered reasonable and rational beings, see Stepan (1973:47– 65; 1971), Lieuwen (1964), Nordlinger (1977), Needler (1975), Sundhausen (1982), Fitch (1977). However, these system/structural perspectives reveal many problems in the explanation of coups in African states. Decalo (1976) and Luckham (1971) reported that the main motivations of coups in African countries were soldiers’ personal fears and conflicts between

Notes

20

21

22

23

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races/regions, and military coups were normally waged by cliques or factions of soldiers. Their coups were not representative of the military’s political position as a whole. Under the Japanese colonial rule, some Korean young men served in the army of Manchukuo, the puppet state established in Manchuria by Japan, as officers or non-commissioned officers, as well as in the Japanese army. Most of them were graduates of the Manchurian Military Academy. Oustanding officers of the Manchurian Army or cadets of the academy were transferred to the Japanese Military Academy for further education. After Liberation, they joined the foundation of the Korean military, and formed a powerful faction. Park Chung-hee was also a graduate of the Manchurian Military Academy. After finishing the preparatory course of the academy, he was transferred to the JMA as a 57th class cadet (Han Yong-wôn 1984:37). The Kwangbok Army and the Chinese Army: Japan forcibly disbanded the Korean military in 1907 under the pretext of saving the national budget; so Korean soldiers exiled themselves to Manchuria and set up military organizations. After the annexation of Korea by Japan, liberation activists joined the Government of the Korean Restoration Army (Taehan Kwangbokkun Chôngbu), established in the Russian coastal area in 1914, and carried out raids against the Japanese army in Manchuria and Siberia. When the Korean Provisional Government was established in Shanghai in 1919, military personnel of the Provisional Government were entrusted to Chinese military institutions and, thereafter, some of them served in the Chinese Army. The Chiang Kai-shek government began active support of the Korean Provisional Government after Yi Pong-ch’ang attempted to assassinate the Japanese Emperor by hand grenade and Yun Pong-gil killed or wounded a number of high-ranking Japanese military officers by setting off a bomb in Shanghai in 1932. A total 178 members of Ûiyôldan (Korean exiles in China who carried out terrorist activities against Japan) and 104 Independence Army soldiers were trained through officer training courses and the Central Military Academy, respectively. With the outbreak of the Sino-Japanese War (1937), Ûiyôldan and the Independence Army officers joined the Chinese Army. Meanwhile, after the Provisional Government moved to China’s wartime capital Chungking, the Kwangbok Army (the Restoration Army) was regularly organized on 17 September 1940, and put under the command of the Provisional Government. This force conducted military operations against Japan in association with Allied armies. After the liberation, however, the Kwangbok Army and the Chinese Army officers failed to take the initiative in building up the Korean military, as the American Military Government preferred more experienced and better educated ex-Japanese and ex-Manchurian Army officers (Yi Sôn-gûn 1973:373–4; Han Yong-wôn 1984:43–5; Lee Ki-baik 1984:366). The Japanese Military Academy faction: Following the annexation of Korea by Japan, about fifty-four Korean cadets were educated in the JMA. Most of them had served as Japanese Army officers until Korean Liberation. (Yi Ki-dong 1984). They had been regular Japanese officers, and were well-trained military professionals. Thanks to their outstanding capabilities, they had been particularly favored by President Rhee up to the time of the Korean War (Han Yong-wôn 1984:49–66). However, after the General Yi Chong-ch’an incident, they were checked by President Rhee. The Manchurian Army faction: As the power of ex-JMA officers increased, President Rhee, who chose them as an alternative to check the ex-Kwangbok Army officers supported by Kim Ku (Rhee’s political rival and the President of the Shanghai-based Korean Provisional Government), came to be wary of the expansion of their influence. He needed to check the JMA faction, and consequently supported ex-Manchurian army officers. As a consequence, they were able to almost completely monopolize the position of Army Chief of Staff from 1952 to 1958 under Rhee’s protection. A total of forty-four Korean cadets were educated in the Manchurian Army Officer School, and they all served in the Manchurian Army (Kim Se-jin 1971:108–9; Han Yong-wôn 1984:209–10; Kim Yun-gûn 1987:31–4; Chang Ch’ang-guk

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1984:22). 24 The Manchurian faction further split into two factions. Among ex-Manchurian army officers, General Paek Sôn-yôp and General Chông Il-kwôn were appointed either Chairman of the Joint Chiefs of Staff or Army Chief of Staff by President Rhee. General Paek formed the Northwest (P’yông’an) faction, and General Chông formed the Northeast (Hamgyông) faction. President Rhee manipulated them to check each other, and both of them reinforced their factions with subordinates from the same regions (Kim Se-jin 1971:63). 25 The Korean Military Academy (KMA) is the Korean counterpart of Sandhurst in the UK and West Point in the US. There were ten classes in the irregular KMA system. From the eleventh class, the KMA became a four-year college-style regular military academy, emulating West Point. The ‘class’ means the alumni group of each education period. It is irregular in the sense that the educational curriculum was not officially fixed. Some classes stayed in the academy for a few weeks, and others classes for a few months, depending on their previous military career. 26 Among them, 367 soldiers were killed in the Korean War, and thirty-five were reported missing (Yuksa Samsimnyônsa P’yônch’an Wiwônhoe 1978:105; Lovell 1975:174). 27 About their psychological dissatisfaction and frustration, see Han’guk Kunsa Hyôngmyôngsa P’yônch’an Wiwônhoe (1963:191). 28 Probably, Park believed that the political power had to be concentrated on the President himself rather than divided. In his own book, he argued ‘our factionalism, exclusionism and special privilege consciousness which abet national disunity, all are direct derivatives of the feudal caste system and mandarin bureaucracy of the Yi dynasty’ (Park Chung-hee, Country’s Path 9, cited in Kim Joungwon A. 1975:13–14.) Obviously, he had an extremely negative idea of the factional struggles in the Yi dynasty and, thus, seemed strictly to control the bureaucracy with strong presidential power. 29 The heavy/chemical industrialization was initiated for a security rather than an economic reason. It is well proved by a memorandum written by ex-government officials involved. Mun argues that it was originally devised for political/military reasons, i.e. to self-supply heavy armaments. The deepening of industrial structure was somewhat incidental (Mun Hûi-gap 1992:259). As for the role of the presidential secretariat (particularly, O Wôn-ch’ôl, the Deputy Head Economic Secretary) and the EPB, in an initial stage of the fostering of the munitions industry and heavy/chemical industrialization, refer to Kim Chin (1992). Woo also argues that the Korean industrial deepening of the 1970s was unthinkable without the security threat, real and perceived, from outside (1991: ch. 5). 30 Concerning critics on the deepening assumption of the BA model, see Hirshman (1979), Sera (1979), Kaufman (1979), Pak Kwang-ju (1985). 31 During 1966–70 and 1971–74, average annual GDP growth rates of South Korea were 11.2 percent and 10.4 percent respectively (Chen 1979:10). 32 Members from other than Kyôngsang province were extremely few (interview with General Kang Ch’ang-sông, ex-commander of the DSC). 33 An interview with General Kang Ch’ang-sông, ex-commander of the DSC. He unveiled Hanahoe for the first time through the investigation of the so-called ‘General Yun incident’. Yun was the commander of Capital Garrison Command. President Park mistakenly believing that General Yun had conspired in a coup, purged ten officers including three generals, in 1973. 34 For instance, Brigadier-General Son Yông-gil of General Yun’s clique, the eleventh graduate class of the KMA, was discharged owing to this incident (an interview with General Kang Chang-sông).

Bibliography Chosôn Ilbo Chung’ang Ilbo Han’guk Ilbo Han’gyôre Sinmun Maeil Kyôngje Sinmun Munhwa Ilbo Sôul Sinmun Tong’a Ilbo

NEWSPAPERS Chosun Daily Newspaper Joongang Daily Newspaper Hanguk Daily Newspaper Hangyore Newspaper Maeil Economic Newspaper Munhwa Daily Newspaper Seoul Daily Newspaper Donga Daily Newspaper

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Balassa, Bela (1982) Development Strategies in Semi-industrial Economies, Baltimore, MD: Johns Hopkins University Press. Bank of Korea (1981, 1985, 1988, 1991) Kiôp kyông’yông punsôk (Financial Statements Analysis), Seoul: Bank of Korea. ——(1990) Han’guk ûnhaeng sasimnyônsa (The Forty Years’ History of the Bank of Korea), Seoul: Bank of Korea. Bary de, W.Theodore and Haboush, Ja-Hyun Kim (eds) (1985) The Rise of NeoConfucianism in Korea, New York: Columbia University Press.

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Index Additional Punishment Law on Specific Crimes 73 Agency for National Security Planning (previously KCIA) 86, 168 Ahn Byung-joon 131 Almond, G. 6, 8, 178 alternative-modernity 17, 124–5, 156, 160; and Confucianism 125, 126–34; influence of 169; and introduction of Western-liberal-modern institutions 125; reinforcement of through political events 134–51; and state-society relationship 151–4 American Office of the Property Custodian (AOPOC) 22 Amsden, A.H. 1, 155, 171, 172 Anderson, J. 178 Anglo-Japanese Alliance (1905) 135 Apter, D. 10 Aristotle 131 Army Counter Intelligence Corp (CIC) 138 Arrow incident 119 autonomy see state autonomy Balassa, B. 171 Bank Act (1994) 20, 49, 94 Bank of Korea 38, 51, 52, 53, 58, 90, 94, 175, 177 Bank of Supervision and Examination 74 banks 19; and 28 June interest rate lowering incident 89–90; chaebôl expansion into 40–1; influence on 94; loans by 23, 25, 37–9, 49–50, 69, 102, 173, 174; power of 94; privatization of 58, 94, 102; and privileged access to loans of 24; role of 20; and state intervention 165; support for small and medium size enterprises 52–3 Bary, W.T.de and Haboush, Ja-Hyun Kim 179 Becker, C. 11, 115 Beetham, D. 11, 115 Bhagwati, J. 171 Biggart, N.W. 1, 179 Blackwell Encyclopaedia of Political Science 8 Block, F. 9, 104–6, 177 Buddhism 117, 118 bureaucracy 130–1, 136, 179–80, 182

Index

184

capitalist class 173 Cardoso, F. 171 Carnoy, M. 177 Catholicism 119 chaebôl: aggregate concentration of 30–2, 65–7; background 18–20; and banks 24, 37–9, 40–1, 69, 94; and business specialization 159, 160; and commercial law 53; competition amongst 104–5; criticisms of 29–30, 44–5; and dispersal of ownership 159–61, 162, 164; during the Park regime 24–8; economic restrictions 46–53; effect of deregulation/ intervention policies on 59–65; effect of stabilization/deregulation policies on 53–9; financial situation of 27–8, 36–7, 48–50, 69, 70; growth of 27–8, 29, 173–4; importance of 30; influence of 10, 81, 84–5; investment by 31–2, 67, 104; market concentration/ domination of 34–5, 44–5, 68; mutual contribution between member companies 31, 32; octopus-leg-like diversification of 2, 159; origins of 21–4; ownership of 35–6, 68–9; politicization of 41–4, 72–4, 81–5; regulation of 46–77, 103, 165–7; and selective allocation of aid funds/ materials by government 23–4; and sources of capital accumulation 21–2; and speculation in real estate 39–40, 50, 69, 71; subjugation of 97; unrelated diversification of 31–2; and vested (repatriated) property disposal 22–3; see also state-chaebôl relationship Chang Ch’ang-guk 181 Chang Ha-Joon 5, 171, 175 Chang Myôn 21, 139, 143, 146 Chang Tal-jung 140 Cheil Bank 74, 171, 175 Chen, E.K. 182 Chiang Kai-shek 180 China 119, 120, 121, 122, 132, 179 Ch’ing dynasty 119, 120, 121, 122 Cho Kap-che 148, 176 Cho Mun-boo 5, 6, 86 Cho Sun 64 Cho Tong-sông 18, 31, 32, 173 Choe Byung-yul 108

Index

185

Ch’oe Chae-sôk 180 Ch’oe Chong-hyôn 163 Ch’oe Pyông-sôn 55, 172, 175 Chohûng bank 175 Choi Byung-sun 172 Choi Jang-jip 110, 112 Choi Kyu-ha 149 Chông Chông-gil 63, 86, 91, 176 Chông Chu-yông 3, 29, 42, 43–4, 72, 105, 128, 161 Chông Il-kwôn 181 Chông Kôn-yông 56, 57 Chông Ku-hyôn 31, 32, 93 Chông Mong-hôn 72 Chông Sûng-hwa 148–9 Chosôn see Yi dynasty Chosôn Ilbo 83, 165, 176, 179 Chu Chong-hwan 31 Chun Doo-hwan 1–4, 8, 12, 30, 41, 42, 44, 46, 54, 55, 56, 58–9, 60, 61, 64, 65, 71, 73, 74, 77, 80, 81, 82, 84–6, 88, 89, 90, 91, 95, 97, 101, 103–6, 107, 110, 146, 151, 153, 155–6, 157, 161, 162, 167, 171, 176, 177, 179; military coup (1979–80) 147–9; see also Fifth Republic (Chun regime) Chung Lee 102 Chung Young-Iob 21, 22, 23, 38, 173, 174 Chung’ang Ilbo 40, 84 Chung’ang Sôn’gô Kwalli Wiwônhoe 81 Chungsogiôp Hyôptong Chohap Chung’anghoe 53 Citizens’ National Bank 52 Civilian Advisory Committee for theRelaxation of Administrative Regulations 92 Clark, C. and Chan, S. 6 Cold War 5 Cole, D.C., and Lyman, P. 140; and Park, Yung Chul 172, 173 Collier, R.B. and Collier, D. 107 Commercial Bank of Korea 24 Commercial Law 53 Committee for Administrative Reforms 158 Committee for the Relaxation of Administration Regulations (1990) 59 Committee for the Relaxation of Economic-Administrative Regulations 158 Commodity Price Stabilization and Fair Trade Act (1976) 56 Confucianism 16, 152, 153, 178–9; collapse of 118–24; and concept of interest 126–8; as family state 133–4; hierarchical state order based on ethical wisdom 131–3; ideal of 117–18; moral authority of scholars of 128–31 corporatism 106, 126, 156; as culturalcontinuity 111; inclusionary/ exclusionary 110, 111–12; as organic statism 109–12; as political structure of integrating producer groups 112–13;

Index

186

as system to link interest groups to state 107–9 Cumings, B. 16, 172 Daewoo 44, 74 Dahl, A.R. 99 Dai-Ichi Kangyo 20 Decalo, S. 180 Defense Security Command 86, 97, 168 democracy 11–13, 15, 60–1, 62, 96–7, 116–17, 161, 163 Democratic Justice Party (DJP) 12, 52, 59, 61, 64, 79, 83, 104, 134, 150–1, 153 Democratic Liberal Party (DLP) 64, 77, 79, 81, 151, 157, 176 Democratic Party 139 Democratic Republican Party (DRP) 140 Designation of Unfair Trade Behaviors in Subcontracting 47 Deuchler, M. 118, 132 Deyo, F.C. 4, 172 Disposal of Enemy Property 22 Doner, R. 14, 172 Dongguk 32 Doosan 40 Dore, R. 16, 172 Downs, A. 100 Dunleavy, P. and O’Leary, B. 99 Dunn, J. 6, 11, 115 Durkheim, E. 178 Economic Planning Board (EPB) 47, 55, 58–9, 63–4, 88, 90, 96, 158, 162, 163, 165, 168, 175 economic/industrial policies; analysis of 53–65; and attempt at stabilization 54–5; and decision-making 10, 78, 79–81, 86, 88, 91–2, 96–7, 167; and deregulation 2, 55–7, 59, 102, 157–8, 165, 166; and economic depression 61–3; establishment of 57–9; and fair trade system 46–8, 164; and fostering of high value-added industries 63; as growth-centered 54; implementation of 81, 91, 96–7, 167; and intervention 59–60; and loan/payment guarantee management system 48–50; and political funding 83–5; and re-establishment of government’s authority 63–5; and regulation through institutional methods 158–9; and stabilization process 54–5, 59 Election Act 162 Evans, P.B. 7, 171, 172; et al 172 Fair Trade Act see Monopoly Regulation and Fair Trade Act Fair Trade Commission (FTC) 47, 48, 67, 68, 158, 159, 163, 166 Fair Trade Commission and Korea Development Institute 30, 47, 48, 55, 65, 67, 68

Index

187

fair trade system 2, 46–8, 53, 56, 58, 159, 164, 166; regulations on collaborative activities 47–8; regulations on combination of enterprises 47; restriction of concentration of economic power 48 Federation of Korean Industries (FKI) 27, 43, 46, 75–7, 81, 85, 93, 176 Federation of Korean Trade Unions (FKTU) 108 Fei, J. and Ranis, G. 171 Fifth Republic (Chun regime) 12, 41, 63, 149; stabilization and deregulation policies of 53–9; see also Chun Doo-hwan Fitch, J.S. 180 Five Year Economic Development Plans (FYEDPs) 25, 27, 63 Fourth Republic (Yushin regime) 12, 24, 27, 63, 134, 153, 176; establishment of 144–7 free market system 61, 175 Fuji 20 Fukuyama, F. 117 Galenson,W. 171 General Electric 166 General Motors (GM) 166 General Yun incident (1973) 182 Gereffi, G. 172; and Wyman, D. 171 Gerlach, M. 19, 20, 85 Gerschenkron, A. 171 Giddens, A. 178 Gold, T.B. 171, 172 Gourevitch, P. 172 Government of the Republic of Korea 158 Guiding Principles of the Nation 122 Haggard, S.; and Cheng, Tun-jen 172; and Moon Chung-in 6, 171, 172, 175 Hahm Pyong-Choon 131, 132, 134, 136 Hall, J.W. 11, 45 Hall, P. 46 Hall, S. and Gieben, B. 116, 178 Han Sung-jo 133 Han Woo Keun 120, 179 Han Yong-wôn 141, 180, 181 Hanahoe (Society of One Mind) 12, 147–9, 182 Han’guk Ilbo 31, 73 Han’guk Kunsa Hyôngmyôngsa P’yônch’an Wiwônhoe 182 Han’guk Kyôngje Sinmun 94 Han’gyôrye Sinmun 34 Hanil bank 175 Hattori, T. 18, 19, 20, 173 Hawthorn, G. 11, 15, 115, 178 heavy/chemical industry expansion policy 27–8, 54, 97, 145, 182

Index

188

Heclo, H. 172 Held, D. 11, 115, 126 Hirshman, A. 171, 182 Hitachi 166 Hô Chông 21 Hong Sung-gul 6 Hong Tôk-ryul 18 Hsu Heung 179 Hui of Liang, King 126 Hwang Chong-sông 6 Hyundai 3, 42–3, 72–3, 74, 94, 105, 128, 161, 165 Hyundai Electronics 72 Hyundai Merchant Marine 72 Hyundai Motors 166 Ikenberry, G.J. 6 Im Chong-ch’ôl 22, 24 Independence Club 123 Independence newspaper 123 Industrial Bank of Korea 52 Industrial Development Law (IDL) 56 industrial policies see economic/ industrial policies institutions: as centralized, integrated, powerful and interventionist 15–16; economic and political 15; introduction of Western-liberal-modern state 125–6; as support for small and medium size enterprises 50–2 interest, concept of 126–8 interest groups 10, 11, 12, 97; and interest representation 107–8; and the state 81–5, 100–1 Jacobs, N. 1, 126, 127, 130 Janelli, R.L. 20, 125 Japan 115, 117, 122–4; colonial rule of 21, 135–7, 180 Japanese Army 140–1, 142 Japanese Military Academy (JMA) 140, 141, 142, 180, 181 Japanese Student Corps 142 Japanese Volunteer Corps 142 Jessop, B. 103 Johnson, C. 16, 115, 172; et al 171 Jones, L.P and SaKong, Il 1, 19, 21, 24, 26, 85, 88, 92, 143, 171, 172, 173, 174 Jung Ku-Hyun 172 Kahn, H. 16 Kang Ch’ang-sông 182 Kang Ch’ôl-kyu et al 30, 34, 41, 175 Kang Kyông-sik 57, 89, 90 Kang Min 172

Index

189

Kanghwa Treaty (1876) 120, 121 Katzenstein, P. 172 Kaufman, R. 182 Kautsky, K. 101 keidanren 176 keiretsu 19–20, 85 Kernell, S. 6 Kia 40 Kim Chae-ik 57–8, 90 Kim Chin 182 Kim Chong-in 60, 64, 90 Kim Chung-ung 55 Kim Dae-jung 61, 144, 149, 151 Kim Eun Mee 172 Kim Ho-jin and Yi Kang-ro 107, 108, 177 Kim Hong-jip 122 Kim Hyung Kook and Geisse, G. 172 Kim Jong-pil 143, 151 Kim Joungwon A. 139, 143, 147, 182 Kim Ku 181 Kim Kwang Chung and Kim Shin 179 Kim Kwang-ung 143, 176, 179 Kim Man-gyu 180 Kim Se-jin 142, 181 Kim Seok Ki 20, 21, 23, 26, 27, 28, 30, 31, 38, 39, 69, 173 Kim Sông-ik 59 Kim T’ae-gil 180 Kim Tong-ha 141 Kim Tong-wôn 39 Kim U-jung 44, 74 Kim Ui-gyu 180 Kim Yông-gu 79, 176 Kim Yông-nae 110, 177 Kim Young-sam 61, 82, 149, 151, 176; political/economic reforms of 157–60; and securing of autonomy 160–7 Kim Yun-gûn 181 Kohli, A. 9, 172 Kojong, King 120, 121, 123 Kongboch’ô 69 Kongjông kôrae yônbo 19, 67 Kongmin, King 118 Kong’ôp Paljôn Simûihoe 64 Koo, H. 172 Korea Central Intelligence Agency (KCIA) 124, 140, 149 Korea Development Institute (KDI) 79–80, 96 Korea Economic Research Institute 81, 92 Korea Exchange Bank 53, 72 Korea Institute for Economics and Technology 96 Korea Long Term Credit Bank 52 Korea Trade Association 43 Korea Trade Union Congress (KTUC) 108

Index

190

Korean Army 142 Korean Chamber of Commerce 43 Korean Federation of Small Businesses 43 Korean Military Academy (KMA) 12, 142, 148, 181 Korean National Assembly 79 Korean Restoration Army 180, 181 Koryô period 117, 118, 130, 179–80 Krasner, S.D. 10, 172 Kreuger, A.O. 171 Krugman, P. 115 Ku Cha-kyông 84 Kuk Min-Ho 173 Kukche 2, 73, 94, 101, 105, 133, 152, 171 Kwangju movement 150 Kwôn T’ae-u 94 Kyôgje paeksô 57 Kyôngbu (Seoul-Pusan) 88 Kyôngje paeksô 62 Kyông’yông Nûngnyul Yôn’guso 31, 32, 73 labor: and decision-making procedure 107; policies for 105–6; rights of 103; strikes by 60, 146; unions 99, 108, 110; wages of 60, 62, 175; welfare policies for 108 Lal, D. 171 Latham, E. 99 Latin America 4, 15, 111, 145, 180 law 53, 131–2, 134, 136, 180 Lee Chung H. 7, 172 Lee Ki-baik 117, 120, 121, 129, 136, 179 Lee Yeon-Ho 140 Legge, J. 180 Lehmbruch, G. 109 Liberal Democratic Party (Japan) 5 Liberal Party (Korea) 138–9 liberal-pluralism 98–101, 156 Lieuwen, E. 180 Lim Hyun-Chin 171, 172 Lim Youngil 171, 172 Linz, J. 109, 111 Little, I. 171 loan and payment guarantee management system 48, 53, 104, 155, 164; major correspondent banks’ agreement system 48–9; and real estate restrictions 50; rules on conglomerates 49–50 Local Self-government Act (1994) 13, 162 local self-government system 177

Index

191

Locke, J. 116, 126 Lotte 40 Lovell, J.P. 181 Luckham, R. 180 Lucky-Goldstar 84 Luedde-Neurath, R. 92, 171, 172 McLennan, G. 98 MacPherson, C.B. 100, 116 Malloy, J. 110 Manchurian Army 140–1, 181 Manchurian Military Academy 180 Mann, M. 8, 116 March First Movement (1919) 136 Mardon, R. 172 Marx, Karl (Marxism) 10, 29, 101, 134, 178 Mason, E.S. et al 38 Mencius 126–7, 129, 132, 178 Michell, T. 172 Migdal, J.S. et al 5, 6, 8, 172 Miliband, R. 9, 101, 102 military interventionism 140, 180 Military Language School 142 Military Purification Movement 141, 143 Min Pyông-gyun 48, 49, 50, 69 Min, Queen 120, 121, 122–3 Ministry of Agriculture and Fisheries 55 Ministry of Commerce and Industry (MCI) 55, 58, 64, 96, 168 Ministry of Finance 58, 64, 83, 94 Ministry of Finance and Economy (MOFE) 158, 160, 162, 164, 165 Ministry of Home Affairs 53, 177 Ministry of Information and Communication 164 Mitsubishi 19, 45, 173; Friday Club 20 Mitsui 19, 45 modern state 178, 179 Monetary Board 94, 102 Monopoly Regulation and Fair Trade Act (1980) 29, 46–8, 56, 68, 77, 85, 93, 155, 160; amendment (1987) 32, 67 Moon Chung-in and Prasad, R. 5 moral values 178–9 morality-intellect 130, 179 Morikawa, H. 18, 19, 173 Morishima, M. 16 Mun Hûi-gap 39, 64, 83, 175, 176, 182 Munhwa newspaper 43 Myrdal, G. 9, 10 National Assembly 91, 102, 104, 139, 143, 149, 150–1, 163 National Assembly Act 79 National Code 131

Index

192

National Conference for Unification (NCU) 147 National Tax Administration Office 83, 90 Needler, M.C 180 neo-Confucianism 129, 179 neo-Marxism 101, 156; state as guardian of dominant class’s interests 101–2; state as ideological-repressive machine 102–4; state as mediator 104–6 New Democratic Party (NDP) 54, 64, 153 New Democratic-Republican Party (NDP) 52, 134 New Economic Plan (1993) 157 New Korea-Japan Agreement (1907) 135 newly industrialized countries (NICs) 8, 13 Nixon, R. 144 Nordlinger, E.A. 10, 74, 172, 180 North, D. 172 North Korea 144 Notice on the Designation of Unfair Trade Behaviors in Subcontracting 47 O Se-dôk 179 O Wôn-ch’ôl 182 O’Donnell, G.A. 16, 145 Office of Bank Supervision and Examination (OBSE) 40, 65–6, 72, 94, 102, 175, 177 Office for Extraordinary State Affairs 120 Office of National Tax Administration 40, 53, 72, 86, 94, 168 Oilyuk Hyôngmyôngsa P’yônch’an Wiwônhoe 141, 143 Okimoto, D. 6, 172 Ôm Chi-do 60 Ôm Yong-sôk 54 Önis, Z. 171 Opium War 119 Oppert (German adventurer) 119 organic statism 177–8 Organization for Economic Cooperation and Development (OECD) 158, 164 Paek Nak-ki et al 72 Paek Sôn-yôp 141, 142, 181 Paek Tong-nim 148 Paek Wan-gi 131 Pak Che-ga 119 Pak Chong-ch’ôl 12, 60 Pak Chong-gyu 148 Pak Kwang-ju 11, 143, 182 Pak Myông-ho 54 Pak Pyông-yôn 86, 128, 129, 179, 180 Palais, J. 129, 130, 132 Panitch, L. 112–13 Park Chung-hee 1, 2, 11, 18, 19, 24–7, 29, 42, 49, 50, 54, 55, 65, 74, 81, 84, 88, 91, 107, 110, 134, 137, 146, 148, 151, 155, 176, 179, 180, 182; military coup (1961) 139–44; see also Third Republic (Park regime)

Index

193

patrimonial tradition 1, 130, 179 Peaceful Democratic Party 52 People’s Conference for National Unification (1980) 12 Pike, F. 110 pluralism 126, 177 Poggi, G. 8, 115, 116 Pohang Steel Corporation 28, 88 Polanyi, K. 166 policy network theory 167 Political Fund Act 162 Pompel, T.J. and Tsunekawa, K. 177 Porter, M. 6 Poulantzas, N. 9, 102–3 President: power of 114; unofficial contributions to 84; will of 86, 88–90, 96–7, 163, 168 Presidential Election Act 73 Promotion of Purchasing Small and Medium Size Enterprises’ Merchandise Act (1981) 51 Protectorate Treaty (1905) 123–4 Pusan political turmoil (1952) 134, 137–9, 153 Pye, L. and Verba, S. 178 Rationalization of the Subcontract System Act (1984) 51 Readjustment Corporation 71, 90, 175 real estate: disposal of 22–3, 49, 175; and 8 May disposal measure 50, 90, 175–6; speculation in 2, 60, 69, 71 regionalism 130, 179 Reischauer, E. and Fairbank, J. 179 Repatriated Property Liquidation Law (1949) 22 Republican Party 54 Rhee Syng-man 21, 23, 24, 26, 134, 137–9, 153, 181 Rodgers, J. 120 Roh Tae-woo 3–4, 8, 12–13, 30, 42, 46, 52, 59–61, 62, 64–5, 69, 71, 73, 74, 77, 81, 82, 84–6, 88, 90, 91, 95, 97, 101, 103–6, 134, 149, 151, 155–6, 161, 162, 167, 175, 176, 177; see also Sixth Republic (Roh regime) Royal Lecture 130 Sabine, G. and Thorson, T. 11, 115, 132, 133 Saganwôn 130 Salzman, H. and Comhoff, G.W. 95 Sampson, A. 16 Samsung 19, 32, 40, 73, 165 Samsung Electronics 166 Samuels, R, 14 Sanggongbu 51, 53 Sang’ôp bank 175 Sanwa 20 Schmitter, P.C. 107, 108–9, 177

Index

194

Schumpeter, J.A. 34, 100 Sejo, King 179 Seoul District Public Prosecutor 73 Sera, J. 182 Seven Star Society 148 Shanghai communiqué 144 Shin, R. 172 SIANAMOS 110 Silla 117 Sin Kûm-sik 80 Sin Myôn-sun 138, 139 Sino-Japanese War (1937) 122, 181 Sixth Republic (Roh regime) 12, 42, 149–50, 175; deregulation and intervention policies of 59–65; see also Roh Tae-woo Skinner, Q. 115, 179 Skocpol, T. 10, 172 Small and Medium Size Business Coordination Act (1982) 51 small and medium size enterprises 18, 33–4, 45, 69, 162; absorption of 45; defined 175; expansion of 103, 155–6; modernization/internationalization of 52; support systems for 50–3, 71–2, 164; tax exemption/administrative aids for 53 Smith, A. 116 Sô Chae-p’il 123 Sô Kwan-mo 173 Society of One Mind see Hanahoe Sôk Chong-sôn 143 Son Mun-ho 180 Son Yông-gil 182 Song Pyông-nak 29 Sôul Kyôngjesinmun 166 Sôul Sanggong Hoeûiso 45 Sôul Sinmun newspaper 149 Sôulsint’ak bank 175 Special Law for the Disposal of Illicit Wealth Accumulation (1961) 25 Special Measure on the Stabilization of Structural Adjustment Act (1989) 52 Standing Committee for Emergency National Security Measures (SCENSM) 2, 12, 55, 57, 150 state: analysis of policies of 53–65; as authoritarian 12, 109, 111–12, 113, 131, 132–3, 167, 172; autonomy of see state autonomy; as corporatist 106–12; defined 172; democratization of 10–13, 15, 60–1, 74; economic/ industrial policies of 46–53; extra-formal institutional aspects of 169–70; as guardian 9; hierarchical 131–3; as ideological machine 9;

Index

195

as interventionist 60, 93, 99, 165, 171; as liberal 116–17; as liberal-pluralist 98–101; as neo-Marxist 101–6; neo-mercantile strategy of 10–11; as patriarchal 96, 163, 167; policy-implementation procedure 65–77; as political form of social power 8; political funding for 81–5; as prescriptive 171–2; regulation through window guidance 165; as regulator 155 state autonomy 3–4, 7, 9–11, 14–15, 98, 110, 116; in alternative-modern state 167–70; analysis of 14–15; changes in 10, 11; degree of 10–13, 14, 15; and democratization 96–7; embedded in internal/external networks 7; evaluation of 9, 74–7; and expansion of power of the executive 85–6, 91–2; and government officials 90–6; and interest groups 81–5; and party/ assembly members 79–81; and political integrating power 160–7; sources of 78–97; strength of 14–15, 65–74, 151, 153, 156, 167–9; support for 10; through extra-formal institutional factors 163; through moral credentials 160–2; through political power 162–3, 163; and will of the President 86, 88–90 state-chaebôl relationship 152–4; changes in 25–8, 59; conflict and tension in 3; explanations of 8–16, 13–14; hierarchical 15, 101, 114, 163, 164, 169; as interventionist 165–7; Marxist interpretation of 29; patrimonial 1; regulatory 1–3; since 1996 159–60; under Chun and Roh regimes 155–6; under Kim regime 157–9; see also chaebôl state-led strategies: criticised 5–6; as successful 4–5 state-market relationship 15 state-society relationship 169; alternative-modern factors 124–3 5, 151–4; amicability and conflict in 14;

Index

196

and Chun Doo-hwan’s military coup 147–9; Confucian 117–18; and corporatism 8, 14; and establishment of Yushin regime 144–7; explanation of 114–17; and forced westernization 118–24; as hierarchical 4, 163; and internal organization theory 7; as interventionist 6–7; and Japanese colonial rule 135–7; and liberal-pluralism 8, 10, 14; and Marxism 8, 10, 14; and merger of political parties 149–51; and network theory 7–8; and Park Chung-hee’s military coup 139–44; and Pusan political turmoil 137–9 Stepan, A. 9, 109–12, 147, 177–8, 180 Stock Exchange Act (1994) 159 Strange, S. 6 structuralism 125, 178 Suh, J.J. 95, 102 Sumitomo 19; White Water Club 20 Sundhausen, U. 180 Sungjoo Han 140 Sunkyung Group 163 Support System of the Small and Medium Business Structural Adjustment Fund (1988) 51 Taehanjeguk (Great Han Empire) 123 Taewôn’gun 119–20, 121 Taft-Katsura Agreement (1905) 135 Taisho era (1912–26) 11, 45 Third Republic (Park regime) 24, 26; see also Park Chung-hee Tocqueville, A.de 100 Tong’a Ilbo newspaper 40, 149, 152, 176 Tong’a Yôn’gam 55, 90 Tonghak 119; rebellion 122 Trade Union Law 108 Trimberger, E.K. 172 Truman, D.B. 99 United Democratic Party (UDP) 52, 64, 134, 151, 153 United People’s Party (UPP) 3, 29, 42, 43, 72, 73, 174–5 Wade, R. 13, 92, 117, 171, 172 Wallerstein, I. 9 Weber, M. 1, 10, 115, 128, 130, 172, 180 western modernity 134, 138 White, G. and Wade, R. 4

Index

197

Whitley, R. 179 Wiarda, H.J. 110–11 Williamson, O.E. 7 Winkler, J.T. 109 Woo Jung-en 92, 166, 172 World Trade Organization (WTO) 158, 164 Yanaga, C. 85 yangban 118–19, 122 Yi and Chang Bill fraud (1982) 56 Yi Chang-gyu 55, 58, 90 Yi Chi-hun 178 Yi Ch’ôn-p’yo 49 Yi Chông-bok 146 Yi Chong-ch’an 141, 181 Yi Chông-hûi 108 Yi Chong-ok 148 Yi Chu-il 141–2 Yi dynasty (Chosôn) 21, 85, 115, 117, 118–20, 123, 124, 125, 126, 128–31, 129–31, 132, 133, 135, 136, 137, 143, 179–80, 182 Yi family 19 Yi Han-nyôl 12, 60 Yi Hûng-hwan 177 Yi Jin-ûi 149 Yi Kap-sông 137 Yi Ki-dong 181 Yi Ki-t’aek 144 Yi Kyu-ôk 32, 34; and Yi Chae-hyông 40, 41, 44, 68; and Yi Sông-sun 44 Yi Pong-ch’ang 181 Yi Si-yông 137 Yi Sôn-gûn 181 Yi Sông-gye 118 Yi Sông-hun et al 175 Yi Sûng-yun 60 Yim Hyôn-jin and Paek Un-sôn 172 Youth Corp 139 Yu Ch’ang-sun 85 Yu Kwang-ho et al 22, 23, 28 Yuksa Samsimnyônsa P’yônch’an Wiwônhoe 140, 181 Yun P’il-yong 148 Yun T’ae-rim 127, 180 Yushin regime see Fourth Republic zaibatsu 11, 18–19, 20, 45, 173 Zhao, Q. 5 Zhou Enlai 144

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