Is Korea climbing back from economic collapse?

Strikes and Daewoo's near-bankruptcy undermine its political and financial turnaround.

Published July 29, 1999 4:00PM (EDT)

As South Korea continues its shaky climb back from the economic collapse of late 1997, widespread strikes combined with a stock market rebound tell the two sides of the country's story of recovery.

Until last week, soaring share prices have seemed to signal the beginning of the end of the economic disaster that hit Korea in November 1997, as foreign capital fled and the International Monetary Fund imposed harsh conditions for aid. The fragility of that rosy scenario became evident on July 19, when Daewoo -- one of Korea's biggest conglomerates -- narrowly avoided bankruptcy by pledging $8.6 billion in assets to persuade lenders to roll over debts it could not pay. Daewoo's crisis spread to the financial sector, then led Korea's stock market to plunge by more than 10 percent in two days.

Yet even as pundits were cheering the earlier stock run-up and forecasts of as much as 7.5 percent growth for this year, strikes since late April at subways, hospitals, auto plants, television networks and many other workplaces tell a different story.

The strikers, like many Korean workers, fear that whatever recovery is under way will not benefit them soon enough, and that they may still face more job insecurity or layoffs as the government -- under pressure from the IMF and international money managers -- pushes Korea's big, diverse corporate conglomerates to reorganize and trim their payrolls. More fundamentally, many believe the system that lifted Korea from abject poverty into the club of rich nations in a few decades needs drastic change, and they want ordinary Koreans like themselves to have a voice in deciding the country's direction.

Virtually nobody in the country wants to preserve the old Korean model intact. Whatever its economic successes, it was also undemocratic, repressive and corrupt. But there are strikingly different ideas about reform in Korea. Some government officials are pushing modest changes toward a Japanese-style system that would preserve strategic relationships among the groups of companies known as chaebol and government. Big business, of course, favors greater deregulation of the conglomerates.

Among advocates of more thorough change, the debate is between the American model of free market fundamentalism (pushed by the IMF, Washington and global financiers) and a more democratic model drawing on experiences ranging from European social democracy to American employee stock ownership plans (favored by unions and most of the citizen democracy movement).

The choices Koreans make in the next few years will not only shape their country's future but could have a ripple effect throughout Asia, including China, since Korea's success has been a touchstone for government policies in many other countries.

It has been far too easy for many Americans to see the Asia crisis as proof that the "Asian model" of developmental capitalism has failed and that the only alternative is to become like America as fast as possible. Despite the ubiquitous Kentucky Fried Chicken and other American fast food signs in downtown Seoul, the average Korean does not want an American-style, individualistic, winner-take-all society. Korea has rushed to prosperity with a more collective strategy, and there is still a strong sense of both familial and social responsibility for others.

The Korean model was flawed, of course, mainly because it was so undemocratic. The country's great leap forward since the 1960s came as a result of the government, always under heavy military influence, holding down workers while channeling loans (often at negative interest rates) to the chaebol, big, family-controlled, cross-subsidizing conglomerates of disparate industries. The chaebol, like Hyundai, Daewoo, Samsung and Lucky-Goldstar (now LG), were expected to develop modern industries -- especially steel, auto, machine tools, chemicals, shipbuilding and electronics -- that could meet and beat Japanese, American and European firms in the world market. The new corporate oligarchies in turn pumped millions of dollars back to the bank accounts of political and military leaders. With the always tense relations with the North ready as a rationale, they suppressed human rights, democracy and workers, whose low wages gave Korean chaebol an edge.

New worker protests against harsh conditions swelled the democracy movement in the 1970s, then exploded in 1987 with a wave of strikes and organizing. As unions finally won a share of prosperity for workers, many light manufacturers -- like contractors for American sport shoe companies -- fled to lower-wage Indonesia, Vietnam and China. Korea was succeeding in its drive for world prominence in advanced, heavy manufacturing, but the chaebol were also running up huge debts.

Meanwhile, the government -- essentially in the hands of the military after a 1979 coup -- had been losing legitimacy, and the democracy movement was gaining strength. In 1992 longtime oppositionist Kim Young Sam was elected president by compromising his democratic principles, but he also surprised many Koreans and foreign observers by bringing his two predecessors to trial for their coup and corruption. He also opened Korea more to global capital, which rushed in, then rushed out in 1997 as the Asian crisis unfolded and as global overcapacity and weak prices weakened some chaebol and their Korean bankers.

By insisting on high interest rates and new government austerity as a condition for a financial assistance, the International Monetary Fund plunged the Korean economy further into recession. While the IMF insisted on reform of the chaebol, the main victims were employees of small and medium-sized businesses, which couldn't get credit and lost domestic markets.

The IMF crisis hit just as Korean presidential elections were under way in late 1997. Kim Dae Jung, a veteran democracy movement leader who was jailed and nearly killed by earlier governments, initially hinted at opposing IMF conditions, then backed off. While his victory at the time seemed a culmination of decades of campaigning for democracy, even many of his supporters have already grown deeply disillusioned. Park In Sang, president of the Federation of Korean Trade Unions (FKTU), the more moderate of two labor federations, had endorsed Kim. Despite his disappointment with him, however, he worries for the future of democracy in Korea if Kim fails. Yet other erstwhile sympathizers think Kim has abandoned his principles too much to justify even defensive support. "Democratization is gone," lamented Kim Min-Young, chief coordinator for People's Solidarity for Participatory Democracy, a major citizen group. "It's all over."

In the eyes of his critics, President Kim has become a captive of the IMF, international money managers and the inherited government bureaucracy. Kim has made a few friendly gestures toward labor and citizen groups, most notably by including both the FKTU and the more radical breakaway labor federation, the Korean Confederation of Trade Unions (KCTU), in a Tripartite Commission with business and government to respond to the crisis and reform the economy. He also expanded slightly the country's still very modest social safety net as official unemployment jumped to more than 8 percent (the unions say it's more than 20 percent). As unemployment more than tripled normal levels, even workers with jobs faced deep pay and benefit cuts, longer work hours and new insecurity (now half of all Korean workers are classified as "temporary"). Employees at small companies, especially women workers, have been hit hardest.

Since then the KCTU and the FKTU withdrew from the Tripartite Commission, arguing that the government was still pushing anti-labor proposals and failing to secure meaningful concessions from the chaebol. Citizen groups are equally unhappy. For months the plaza and streets in front of Myongdong Cathedral, the refuge of anti-government protestors since the 1970s, have been filled with human rights demonstrators, hunger strikers, angry unionists, university students and other critics. Although Kim has released some longtime political prisoners and tried to open a dialogue with the unpredictable government in the North, human rights organizations condemned his proposed rights commission as weak and lacking independence.

Other groups are pressing for increased shareholder rights to challenge the dominance of the chaebol by their founding families. While there is still deep anger at the IMF, which is being sued by bank workers for turning a short-term chaebol problem into a national catastrophe, there is also widespread anger at the chaebol as the source of Korea's problems. "We never borrowed a single dollar," said Rhee Chol Soon, director of the Korean Women Workers Association. "Who did? Big chaebol. And now we have to pay it back. If they keep asking for these things [such as austerity for workers], one day society will explode." Chaebol owners had hoped that recovery would spare them from reform, but now the Daewoo crisis will give reformers of all stripes new ammunition.

Citizen and labor groups share with the IMF and global money managers a desire to make the secretive chaebol more open, more professionally managed and less pampered with special deals from government, but unlike narrow free-market enthusiasts, they want business to be more accountable to its workers and Korean society, not just to capital markets. Some reformers would preserve the close relationships among businesses and banks that have been a hallmark of Asian "relationship capitalism" but make the relationships somewhat more transparent and formal, as with the Japanese keiretsu. But others, like the KCTU, want to break up the chaebol into independent businesses.

Even unions endorse more accountability to shareholders as a way of thwarting "chaebol tyranny," though many observers have noted that Korea's corporatist deal between chaebol and the state has permitted business to take a long view and not be subjected to American-style short-term pressures of flighty investors. Unions and citizen groups, however, are most interested in increasing the voice that workers have in corporate decision-making, either through worker ownership, stronger bargaining power or a kind of co-determination with management (in the manner of Germany and other European countries).

In the near term, labor and citizen groups want to prevent further layoffs. They want to reduce the standard work week from 44 to 40 hours, with no reduction in pay, in order to create jobs, stimulate the domestic economy and increase workers' leisure. After a late summer slowdown in strike activity, demands for shortening the work week are likely to accelerate. "We can accept some level of job reduction," said Yoon Young-Mo, international secretary of the KCTU, "but it can only be legitimized if there is a general change in the ownership structure and the management of the chaebol. If the same people are in charge with monopoly and autocratic control while shedding jobs, that's not acceptable."

Last month, Kim pledged to union leaders that he would support their demand for full participation in corporate restructuring decisions. A crisis erupted in June when, in a drunken moment of candor, one of his ministers admitted that the government had instigated a strike at a state-run mint and printing enterprise late last year in order to crush the union and demonstrate its anti-labor bona fides. Kim agreed to release the jailed unionists and to stop the longstanding practice of addressing major strikes through the state national security commission (which has heavy representation from the police, army, Korean CIA and prosecutors).

If the movement that brought Korea out of the old repressive era can succeed in bringing more democracy to government and the workplace, then a much more potent and appealing alternative Asian model of advanced capitalism could emerge on the Korean peninsula. The crisis of the past two years has sharpened the conflict over Korea's future. Whatever the repercussions of Daewoo's near-bankruptcy, neither a renewed crisis nor economic recovery is likely to suppress the fundamental debate now under way.

By David Moberg

David Moberg is a senior editor at In These Times and a fellow at the Nation Institute.

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