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

James Crotty ; Kang-Kook Lee

Professor, Department of Economics, University of Massachusetts, Amherst, MA 01003, Tel: +1-413-545-2768 crotty@econs.umass.edu
Graduate Student, Department of Economics, University of Massachusetts, Amherst, MA 01003 kklee@econs.umass.edu

JEL Classification: E52, F31

Abstract

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

Keywords:

Globalization, Korean crisis, Neoliberalism, Economic restructuring, Korean economic model

Acknowledgments

We are grateful to Jim Boyce, Ha-Joon Chang, Bob Pollin, Mohan Rao, and anonymous referees for helpful comments on an earlier draft. Jim Crotty would like to thank the Ford Foundation and the Political Economy Research Institute at the University of Massachusetts Economics Department for their support of his work on the emerging neoliberal global economy.

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