The idea of transforming the chaebol into “specialized” industrial conglomerates with four or five “core areas” of production through swap-ping secondary “unrelated” businesses with other chaebol groups similarly traced its origin to Chun’s 1985 policy that required the chaebol to sell their unrelated businesses before entering a new product market.10 The May 1990 measure that prohibited the chaebol from purchasing large land parcels as well as entering “unproductive” industrial sectors11 also echoed Chun’s September 1980 measure.12 Roh briefly toyed with the radical
“public concept” of land in 1991 to place a ceiling on land ownership by big business, to levy special taxes on “unearned incomes” from real estate speculation, and to order the sale of idle land with a threat of credit reduction, tax investigation, and expropriation, but even this did not imply a paradigmatic shift in policy for the chaebol. The public concept of land was brought into policy to hold down land prices and channel capital into more productive business fields.13 As such, it only represented a strengthening of the traditional industrial policy to force the chaebol to focus on main businesses, not a search for alternative forms of business organization.
The idea of substituting the threat of exit for state-brokered, -coordinated, and -subsidized business swaps reappeared during Kim Young-sam’s presidency (1993–1998) under the 1993 policy of “sectoral specialization.” Under the policy, each of the top chaebol groups chose six or
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seven of its affiliate firms operating in two or three “core sectors” as its
“lead companies,” on the understanding that the state would lift restrictive regulations on bank loans for these companies in return for their restraint on issuing new loan guarantees to other affiliate firms. The outcome was anything but specialization. As in the case of Roh’s main firm policy of 1991,14 the lead company policy of Kim Young-sam worsened moral hazards and fueled corporate expansion. Lured by the promise of financial privileges, the top thirty chaebol registered a total of 112 affiliate firms as their lead companies in January 1994. Moreover, because the South Korean economy was reclassified from having 73 to having 15 industrial sectors under the lead company policy, the chaebol faced no real constraints on their options for corporate expansion, as their horizontal diversification and vertical integration within the chosen sectors were by definition acts of corporate specialization.15 Even this loose policy of specialization collapsed when the Samsung Group successfully lobbied in December 1994 to establish an integrated passenger car plant in Pusan—a regional support base of the then-ruling Democratic Liberal Party. The president approved Samsung’s entry into the automobile industry with his eye on winning the 1996 National Assembly election, although the decision brought down the minimal restriction his lead company policy had set on entry into noncore sectors.
It was only the Asian financial crisis, coupled with the presidential election of “progressive” Kim Dae-jung (1998–2003), that forced South Korea to give up Park’s idea of state-brokered, -coordinated, and -subsidized business swaps and to tackle the root cause of the chaebol groups’ entrapment in moral hazards by packaging financial, corporate, and labor reforms as integrated measures of system restructuring. The state now wore the hat of regulator rather than that of modernizer and oversaw asset revaluation, debt prioritization and rescheduling, injection of new working capital, and management and ownership change in both financial and corporate sectors in a typically dirigiste South Korean way,16 setting a 200
percent upper limit on debt-equity ratios for the chaebol in February 1998
through administrative guidance. By July 1999, nineteen of its original thirty merchant banks were shut down, twenty-six commercial banks consolidated into twelve through M&As and liquidations, and eighteen investment trust companies streamlined into four, while a flurry of legislative activism developed market exit mechanisms, including a public asset management company, bankruptcy laws, M&A markets, prudential regulations, and the lifting of legal upper ceilings on foreign ownership in equity, bond, and money markets.17 The prolonged systemic crisis also ended up dissolving Daewoo and splitting the Hyundai Group by 2000, thereby
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burying South Korea’s myth of taema pulsa (the big never die),18 as well as its state elite’s hope for bureaucratically engineered and politically safer schemes of corporate rationalization. The failure of South Korea’s two largest chaebol persuaded the survivors to become more cost-conscious and slimmer agents of economic growth.
In other words, Kim Dae-jung’s politics of system restructuring did not dismantle the chaebol. On the contrary, the survivors of debt restructuring were reformed chaebol with new patterns of behavior. The sight of their weaker brethren collapsing under massive nonperforming loans unambiguously signaled that South Korea was entering a brave new era, where the chaebol could not fall back on a state rescue operation in times of corporate distress. Consequently, the survivors adopted new patterns of behavior while retaining much of their chaebol organizational characteristics of family ownership, cross-shareholding, and an imperial structure of decision making. The new chaebol was more obsessed with cash flow than with sales growth, less prepared for bold risk taking, and more wary of the threats of hostile takeover, becoming slimmer in structure, conservative in finance, cautious in market entry, but still organizationally centered around the owner family. The change of behavior was nowhere more visible than in its massive piling up of retained earnings,19 once it succeeded in reducing bad loans and liquidating losing businesses. The banks changed too, but not in the direction of policy objectives. Whereas the state hoped for a rebirth of the South Korean banks as genuine financiers that made loans on the basis of an objective assessment of a borrower’s future streams of cash flow as well as its capabilities of risk management, the banks that emerged out of the shock of debt restructuring were risk averse rather than carefully risk calculating banks. They recovered financial solvency after a massive injection of public money, but lacking expertise and experience in risk management, they focused on South Korea’s relatively safe household markets, with real estate taken as collateral.20 And with these transformations of the chaebol and banks, South Korea shed the worst forms of moral hazard but also graduated from hypergrowth.
The Political System
For almost three decades after Park’s death there were struggles between a political elite aiming to maintain the political system Park created and those determined to create a more democratic and open country. When the opposition’s hope for an early victory over dictatorship vanished in May 1980, the year after Park’s death, with Chun Doo-hwan’s military
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coup d’état, those opposed to Chun—and by extension, Park—nevertheless sought to build their base of support and take advantage of opportunities. Park’s rule had been at the center of political contention ever since Park overthrew the democratically elected Chang Myôn in May 1961. The debate became even more heated after Park’s death.
When Park was assassinated, the coalition that supported Park’s authoritarian developmental coalition first rallied behind Kim Chong-p’il and after May 1980 behind Chun Doo-hwan. They dominated the political scene until June 1987, when the democratic breakthrough irreversibly terminated their monopoly of political power. The survival of the protagonists of the Park era did not mean that the system of political rule and the patterns of economic growth after 1979 were unchanged by the powerful forces of democratization and globalization. The three decades after Park’s demise witnessed the spirit of reform spread incrementally to all corners of South Korean society, and the cumulative effect was nothing less than a systemic transformation. The protagonists of the Park era survived because they adapted to the forces of democratization and globalization by adopting new ideas, opening up new linkages to society, and experimenting with new forms of organization. Various factions of the Park coalition for development p
layed a game of party mergers, splits, and cooperation with opposition politicians and chaeya dissidents in order to maximize their power.
In the course of political transformation, elections became the “only game in town.” Even Park had had to face elections and to accomplish this he put together a strategy of regionalist agitation, ideological mobilization, and money politics as a basis for building a broad ruling coalition.
Initially, the strategy worked extremely well. Syngman Rhee’s fall in 1960
had meant the demise of his staunchly anticommunist northern natives. In their place, Park forged a cohesive power elite21 as well as a loyal mass following early in his political rule by favoring his fellow Kyôngsang natives.
Against his regionalist bloc stood the Chôlla natives, whose stake in top executive posts fell below their population share by 8.7 percentage points during Park’s rule. To tighten his grip on power, Park filled strategically critical political posts through his control over elections, legal procedures, intelligence, and military power, mainly with the natives of his Kyôngsang region. The regional composition of the South Korean business community also changed visibly under Park, as he discriminated against northern chaebol during his military junta years and against Chôlla chaebol after the restoration of electoral politics in 1963. With foreign capital entering en masse after 1963 and loan rates falling below deposit rates in 1965, Park had the powerful instrument he needed to reorganize the business
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community around Kyôngsang chaebol. The Ssangyong and P’anbon chaebol, each launched by a Kyôngsang native, newly entered the ranks of South Korea’s top ten chaebol only four years after Park’s coup d’état, making Kyôngsang natives a majority in that elite group.22 By 1979, the northern chaebol had all dropped off the list. Equally critical, only once, in 1965, did a Chôlla entrepreneur find his name listed among South Korea’s ten largest industrialists.23
In addition, Park added a mass component to his regionalist coalition strategy early in his rule. To build up a stable electoral constituency as well as to exploit backward and forward linkage effects, he opted to house factories and plants of related industries in a few geographically compact industrial complexes. In 1962, Park chose Ulsan-Mip’o of North Kyôngsang Province as a center for his strategic heavy and chemical industries. By the time he died, Park had constructed seven more national industrial complexes, four of which were located in his Kyôngsang region, whereas the rival Chôlla region hosted only one, in its Yôch’ôn–Kwangyang area.24
Among the four largest industrial complexes, as measured by employment, three resided in the Kyôngsang region.25 By locating industries linked to each other at different points in the chain of production together on South Korea’s southeastern Kyôngsang shores, near Japanese suppliers, consumers, technology licensors, and investors, Park secured the synergy effects of transnational ties and linkages as well. There emerged a dense cross-border network of production,26 with Japanese “lead” companies outsourcing some of their business activities to South Korean subcontractors, suppliers, distributors, or service providers much along the “flying geese”
model of regional division of labor and thus helping South Korea’s search for export markets. However, by backing the Kyôngsang region in intra-elite as well as mass struggles over political and economic resources, Park alienated rural Chôlla voters so that they joined urban Seoul dwellers in opposing his political rule, beginning with the 1967 presidential and National Assembly elections. This Chôlla-Seoul axis was to find its vehicle in 1971 when Kim Dae-jung of the Chôlla region ran a presidential race against Park. Chôlla voters remained even more united behind Kim Dae-jung after his abduction from Tokyo by KCIA agents in 1974, taking his experience as their own.
To put Park on the defensive even more, the Kyôngsang region also showed signs of an internal split under the forces of “mini” regionalism.
Ironically, much of the split was Park’s own doing. Certainly, Kim Young-sam, born in Kôje, an island near Pusan in South Kyôngsang Province, became the opposition New Democratic Party (NDP) leader on his own credentials when Yu Chin-san died in April 1974; he boasted of the ability
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to get the votes in Pusan, South Korea’s second-largest city and traditionally the rival to Taegu, a northern Kyôngsang city near Park’s home. However, it was Park’s political crackdown in 1979 that awakened Pusan and other parts of South Kyôngsang Province to their own mini regionalism, with Kim Young-sam as the symbol and the instrument of their ambition.
When YH workers staged a protest at the NDP headquarters in August 1979, Kim Young-sam as the party’s president sided with the workers in unambiguous ways, thus developing the image of a defender of labor rights. Park hit back by instigating a court order to suspend Kim Young-sam’s duties as the NDP president in September, only to see Kim Young-sam heighten his struggle with a call for “peaceful regime change”27 and pressure on the United States to oppose the yushin regime.28 The Democratic Republican Party (DRP) legislators expelled Kim Young-sam from the National Assembly in early October on Park’s order,29 but the crackdown only triggered mass protests in Kim Young-sam’s home province and Park’s declaration of martial law over Pusan and a garrison decree over Masan, followed by the dispatch of marine and airborne military units.30
Like Kim Dae-jung’s 1971 presidential election and 1974 abduction from Tokyo, the events of 1979 made South Kyôngsang Province identify with Kim Young-sam.
The system of regionalist elections, then, eventually worked as much against as for Park by driving each of South Korea’s major regions or sub-regions to coalesce around one or another native political leader to vie for power at the national level. In spite of the spread of regionalism, however, it is important to note that regionalism’s grip on South Korean party politics was not as strong as it would come to be after the demise of the yushin regime, and that it was the political choices of Park’s successors that made regionalism the primary cleavage of party politics and the central organizing principle of the South Korean political parties. As late as 1978, on the basis of deep anti-party sentiments pervading South Korean society, independent candidates won 28.1 percent of the vote, up 9.5 percentage points from the 1973 National Assembly election.
In Kim Dae-jung’s native South Chôlla Province and Kim Young-sam’s home South Kyôngsang Province, the outcome of the 1978 National Assembly elections contradicted the myth that South Korean party politics was under the unbreakable influence of regionalism even more by the end of Park’s political rule. The DRP took 8 of the 10 first places in South Chôlla Province, and the NDP none of the 9 first places in South Kyôngsang Province.31 That Yi Ch’ôl-s¤ng from Chônju, North Chôlla, tried to lead the NDP into accepting Park’s yushin and pursuing “reform through participation” as a “centrist integrationist” between September 1976 and May 1979, in opposition to Kim Dae-jung’s “radical” chaeya
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position of democratic struggle, moreover, should caution us against interpreting North Chôlla Province’s award of 4 of the 12 National Assembly seats to the NDP in 1978 as a vote for Kim Dae-jung. They might have been as much a vote for Yi Ch’ôl-s¤ng as for Kim Dae-jung. In other words, Kim Dae-jung and Kim Young-sam came to enjoy unswerving loyalty from their respective regions only after Park died in 1979, or, more accurately, only after Chun Doo-hwan’s repression of the Kwangju Democratic Uprising in 1980 irreversibly split the Chôlla from the Kyôngsang region and threw the northern and southern parts of the Kyôngsang region into a family feud.
It was the leaders of the post-Park era who groomed regionalism into the principal basis for political organization in South Korea. The most critical and tragic turn of events that made regionalism the main recipe of political struggle occurred in 1980, when Chun Doo-hwan led a bloody repression of political protests in Kwangju. Before the Kwangju Democratic Uprising, Chôlla v
oters had been a house divided, some backing the centrist Yi Ch’ôl-s¤ng, others the dissident Kim Dae-jung, and still others the modernizer Park. After the military massacred the “citizen army”
making its last stand in the capitol building of South Chôlla Province on May 27, the voters of both northern and southern parts of the Chôlla region lined up uniformly behind Kim Dae-jung as the personification of Kwangju’s hopes and anguish, as well as progressive ideological ideals. This deep hostility against Chun Doo-hwan’s military coalition of Kyôngsang origin also metastasized into a culture of mutual distrust between Kim Dae-jung and Kim Young-sam, when “progressive” Kim Dae-jung broke away from “moderate conservative” Kim Young-sam’s New Korea Democratic Party to launch a separate presidential campaign in 1987, the outcome of which was the victory of Roh Tae-woo, Chun Doo-hwan’s handpicked successor, in a four-way presidential race. Then, in 1990, under the banner of conservative unity, Kim Young-sam merged his forces with the heirs of the authoritarian yushin and the Fifth Republic (1980–1988) and the regional leaders of the Ch’ungch’ông region and North Kyôngsang Province—Kim Chong-p’il and Roh Tae-woo, respectively—in order to isolate progressive Kim Dae-jung of the Chôlla in a bid for presidential power in 1992. The break and merger of 1987 and 1990, criticized as acts of betrayal by Kim Young-sam and Kim Dae-jung respectively, transformed their provincial homes into mutually unforgiving rivals.
After the 1987 democratic breakthrough, it was the combination of regionalism and progressive-conservative ideological conflict that gave South Korean party politics its basic contours and parameters. The Chôlla gave Kim Dae-jung between 83.5 and 97.3 percent of its votes in the post-
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