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

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  • Kang-Kook Lee
  • James Crotty

Abstract

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

Suggested Citation

  • Kang-Kook Lee & James Crotty, 2001. "Economic Performance in Post-Crisis Korea: A Critical Perspective on Neo-Liberal Restructuring," Working Papers wp23, Political Economy Research Institute, University of Massachusetts at Amherst.
  • Handle: RePEc:uma:periwp:wp23
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    References listed on IDEAS

    as
    1. Kim, Woochan & Wei, Shang-Jin, 2002. "Foreign portfolio investors before and during a crisis," Journal of International Economics, Elsevier, vol. 56(1), pages 77-96, January.
    2. Marie Bohatá & Martina Pechová, 1999. "řízení a správa společností [Corporate governance]," Politická ekonomie, Prague University of Economics and Business, vol. 1999(5).
    3. Franklin Allen, 2001. "Financial Structure and Financial Crisis," International Review of Finance, International Review of Finance Ltd., vol. 2(1&2), pages 1-19.
    4. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    5. Mr. Eduardo Borensztein & Jong-Wha Lee, 1999. "Credit Allocation and Financial Crisis in Korea," IMF Working Papers 1999/020, International Monetary Fund.
    6. Joon-Ho Hahm & Frederic S. Mishkin, 2000. "Causes of the Korean Financial Crisis: Lessons for Policy," NBER Working Papers 7483, National Bureau of Economic Research, Inc.
    7. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    8. Kumar, R. & Debroy, B., 1999. "The Asian Crisis: an Alternative View," Papers 59, Asian Development Bank.
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    Cited by:

    1. Kang-Kook Lee, 2023. "James Crotty’s Advice to Koreans," Review of Radical Political Economics, Union for Radical Political Economics, vol. 55(4), pages 701-706, December.
    2. Kang-Kook Lee & James Crotty, 2004. "Was the IMF's Imposition of Economic Regime Change Justified? A Critique of the IMF's Economic and Political Role in Korea During and After the Crisis," Working Papers wp77, Political Economy Research Institute, University of Massachusetts at Amherst.
    3. James Crotty & Kang-Kook Lee, 2005. "From East Asian “Miracle” to Neo-liberal “Mediocrity”: The Effects of Liberalization and Financial Opening on the Post-crisis Korean Economy," Global Economic Review, Taylor & Francis Journals, vol. 34(4), pages 415-434.
    4. Chung Lee, 2005. "The Political Economy of Institutional Reform in Korea," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 10(3), pages 257-277.
    5. Víctor Ramiro Fernández & Matthias Ebenau & Alcides Bazza, 2018. "Rethinking Varieties of Capitalism from the Latin American Periphery," Review of Radical Political Economics, Union for Radical Political Economics, vol. 50(2), pages 392-408, June.
    6. Kross, Karmo, 2013. "Developmental welfare capitalism in East Asia with a special emphasis on South Korea," Discourses in Social Market Economy 2013-05, OrdnungsPolitisches Portal (OPO).

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    Keywords

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