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After the 1997 financial crisis, the neo-liberal restructuring of the Korean political

economy accelerated dramatically. While there is a general consensus that the reform

has had negative consequences for Korean society, heated debates continue over the

culprits of the 1997 crisis and the changes that followed in its wake. Major opinions

have largely coalesced into two opposing camps: one, finding the cause in cronyism

and the anachronistic management of the Korean , advocates market-centred

economic reforms; the other, attributing the cause to the “unproductive” nature of

foreign financial capital, suggests that the restoration of statist development model, in

which the economy is led by the state- nexus, is a better way for Korean


The main reason for the asymmetry between the “progressive” critiques and

“conservative” solutions of these two theoretical camps lies in their misunderstanding

of the way in which power evolves in capitalist society. Their theories, which are

premised on the dichotomy between “politics” and “economics,” are blind to the

mutual transformation of capital and the state—to the historical changes in the nature

of these institutions through the of power.

The central assumption of this dissertation is that it is necessary to understand

the mutual transformation of capital and the state and the evolution of the capitalist

ruling class in order to grasp the nature of the post-1997 social restructuring. For this

purpose, it adopts Nitzan and Bichler’s perspective of capital as power. From this

perspective, situating our understanding of the 1997 crisis and the post-crisis

restructuring in the context of the half-century-long evolution of capitalist power in

Korea and the transformation of the regimes of differential capital accumulation, this

dissertation makes three interrelated arguments.

It argues, first, that the post-1997 restructuring firmly entrenched capitalization

as the of Korean society. Second, it argues that globalization has

incorporated Korea’s dominant capital into the global structure of absentee owners

Page 116


aid and loans. It was very significant for the US in its confrontation with the USSR to

establish a firm security alliance in East Asia that would incorporate Japan and South

Korea. The US took part in the Korean War, sacrificing about 40,000 soldiers. In the

wake of that war, it kept providing not only military assistance but also economic

support to the Korean government.

Figure 3.13 Foreign Capital Inflows and Domestic Savings

Note: “GDI” stands for “Gross Domestic Investment,” which is also called
“Gross Capital Formation.”

Sources: World Development Indicators for GDI and GDS; Korea Statistical
Yearbook (each year) for foreign aid and loans.

It also helped keep the Korean dictator in power by giving his government political

and diplomatic support. For example, the US played an important role in restoring

Korea’s relationship with Japan (S. G. Park, 1998: 50). The Korean government

received about $1 billion from the Japanese government in reparations for Japanese

colonial rule. Part of the money was embezzled by the ruling party and spent on

“political activities”; the rest of it was spent building industrial facilities like Posco,

which has become one of the world’s largest steelmakers. The restored diplomatic

relationship with Japan enabled Korea to develop an export-oriented industrialization

strategy characterized by triangular trade: capital goods were imported from Japan,

Korean capitalists used these capital goods to assemble or manufacture consumer

goods, and the finished goods were exported to the US market.

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This triangular trade enabled Korea to achieve rapid growth in exports, which,

in turn, boosted the economy as a whole. The ratio of export to GDP had grown from

3 percent in 1960, to 40 percent in 1987 (World Development Indicators). Figure 3.14

shows that, between1971 and 1987, the total amount of exports expanded by a factor

of 37. Yet these amazing growth rates of total exports are dwarfed by the

performance of dominant capital. As illustrated in Figure 3.14, during the same

period, the exports of the Samsung and LG Groups rose by a factor of 1,065. The

state’s export-oriented policies were applied in a highly differential manner, and that

differential application boosted the fortunes of dominant capital relative to the

average. For example, differential export subsidies, based on a dual exchange rate,

made dominant capital—but not lesser capitals—price competitive in international

markets. Government subsidies to exporting companies accounted for 58.7 percent of

every dollar earned abroad in 1963; 23.4 percent in 1965; 37.9 percent in 1970; 31.4

percent in1975 (I. J. Seo, 2003: 88). On top of these subsidies, exporting firms were

also subsidized with a tax reduction on every dollar earned abroad.

Figure 3.14 The Evolution of Exports (current $US, rebased 1971=100)

Note: Series are expressed as five-year moving averages.

Sources: Samsung, 1998; LG, 1997; World Development Indicators for Korea’s

The political economic relationship between Korea and the US was further

consolidated during the second half of the 1960s, when the US called for Korea’s

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