5 - The Origins of Capitalist Economic Organization

Summary

Why do business groups in South Korea and Taiwan, as well as the organization of economies in which they are embedded, differ from each other? Why should Korea have moved along a path toward an economy where so much production, especially in the export sectors, is concentrated in only a small number of vertically integrated chaebol? Why should Taiwan have taken a very different path, one where business groups firms assemble parts made by unaffiliated firms or where they occupy upstream and service niches in an economy pulled along by downstream demand, mainly from small and medium-sized firms? In the language of our model, why was the “high concentration” equilibrium set selected in Korea and the “low concentration” set selected in Taiwan? The answers to these questions are the subject of Part II.

In the opening chapters of this book, we covered a number of answers that various writers have given to explain the presence of business groups, rather than the differences among them. These answers usually represent one or a combination of either strong-state, market-failure, or institutional explanations. Although we do not deny the importance of political policies or of problems with capital markets in developing economies, we believe that such factors should be seen as proximate causes, as occurrences or events that trigger economic changes, often extremely important ones, without actually dictating the organizational medium of that change.