6 - The Korean economy: the human factor

Summary

The South Korean economy has substantively been transformed into a neoliberal one since the early 1990s. Particularly after the 1997 economic crisis, the neoliberal reform packages introduced by the IMF and implemented by the Kim Dae-jung government, ironically in an old-fashioned developmental, top-down manner, significantly accelerated the neoliberal transformation, not only in the industrial and financial sectors but also in the entire society. This chapter will cover several “softer” indicators concerned with the well-being of the Korean society during and after the neoliberal transformation, particularly the impact of ageing, human capital, welfare, education, intergenerational issues and other national characteristics related to the South Korean economy, which often determines the fundamental source of economic competitiveness and challenges ahead. Before delineating the changes through numerous socio-economic indicators, including economic status, demographic composition, welfare expansion, educational spending, immigration statistics and inequality indices, the overall economic changes before and after the economic crisis will be presented.

RECOVERING FROM THE CRISIS

While the origins of the Asian financial crisis of 1997 are still debated, it is a general consensus that its outbreak is largely a function of a blend of international and domestic factors (Winters 1999: 79; see also Corsetti, Pesenti & Roubini 1999). The fundamental international factor (see Radelet & Sachs 1998) in Korea was the gradual and significant increase of unregulated capital mobility since the early 1990s due to financial liberalization (see Table 6.1). The large fraction of foreign debt was in the form of short-term, unhedged, foreign-currency-denominated liabilities. The sudden exodus of capital and denied renewals of matured loans (i.e. “investor panic”) triggered by the series of currency crises that started from Thai Baht and Indonesian Rupiah finally depreciated the Korean won substantially, resulting in the rapid depletion of asset reserves of the BOK down to just $2 billion in November 1997. It was like, as Sachs notes, “shouting ‘fire’ in a theater, […] a panicked withdrawal of short-term loans by nervous creditors can immediately lead to illiquidity of the debtors and then to bankruptcy, even if the debtor is fundamentally sound” (1998: 104–5).