What were some of the social consequences of economic globalization in South Korea?

Chapter 16 By Virginia S. Fleming

“South Korea achieved a new political economy favorable to modernization with the help of a colonial era infrastructure left by Japan, then the superpower support of the United States, while the north stagnated under a repressive communist dictatorship.”

In South Korea, the postwar social contract walked alongside labor market

protection until the 1980’s.

The Asian financial crisis in the 1990’s required South Korea to restructure its economy to cope with the crisis as well as the challenges of globalization.

But there were consequences…

The Push for Globalization

Factors that led to the financial crisis include:

o Low profitabilityo High corporate debto Non-performing loanso Banking failureso Little or no monitoring systemo Little regulationo Heavy reliance on short term loanso International financial instability

IMF ‘Conditional’ bailout

The economic rescue package for South Korea - led by the International Monetary Fund - is the biggest ever at $57 billion. 1

Faltering Social-Insurance Coverage Expansion

The funds received by South Korea from the IMF for their economic bailout came with strings attached.The government of President Kim Dae Jung tried to please both citizens and the IMF and initially attempted to balance labor market deregulation while simultaneously strengthening social safety nets.

Unfortunately, employment flexibility and more temporary workers won out over protective measures for workers.

Social Compromise

Management transparency and corporate restructuring would improve the financial structure and promote competitiveness

Labor market flexibility would give managers more leeway when it came to terminations

Policies to expand employment insurance, unemployment, job creation, business subsidies, public employment, vocational training, and re-hiring requirements would promote employment stability and combat unemployment

Enhancement of labor rights to allow for workplace associations, unionization, and political participation

Social Security extension to guarantee wages, and provide coverage for nonregular workers.

Labor Casualization Laws

ReasonsGlobal integration

Short term gain

Easier layoffs for employers

Multi-tier contracts

ConsequencesPolitical intrusion

Trade agreements Social disruption

Massive flight of capital Plummeting currency Bankruptcies Worker strikes Unemployment Poverty

Neoliberal Reform Mandates

Macroeconomic Stabilization Measures: Reduce government spending Raise taxes Cutback government services Structural Adjustment Measures: Open markets quicker – liberalization of capital markets Fix banking system quicker Deregulate foreign buyout

Consequences

Market expanding structural loans and institutional reforms put in place to achieve flexibility and short term gain undermined the long term economic security of workers in South Korea, created a huge “obstacle to the materialization of a mature Welfare State,” and left the government to feel “compelled to abandon labor market protection in the name of its flexibility.” 3

• Less generous unemployment insurance - Benefits - Payments - Qualifications• Wider earnings dispersions• Lower levels of unionization and wage bargaining• Fewer restrictions on hiring and firing• Less vacation pay and other non-wage labor costs

Questions

1. In the push for globalization, what are some of the factors that led to the Asian Financial Crisis?

a. High profitability and low corporate debt b. Low profitability and high monitoring system c. Little regulation and high corporate debt d. None of the above2. The IMF’s rescue package for South Korea was the biggest ever at ___? a. $ 17.2 billion b. $ 37 billion c. $ 48 billion d. $ 57 billion3. The Tripartite Commission’s Social compromise to overcome the economic crisis

included: a. Management transparency b. Labor market flexibility c. Labor rights enhancement d. All of the above4. In the push for globalization, explain the deception found in the pursuit of South Korea’s

social safety nets.5. Explain the problem of contribution evasion in Kim Dae Jung’s social insurance

coverage.

References

BBC News Special Report - South Korea: How the IMF deal works - http://news.bbc.co.uk/1/hi/world/analysis/36736.stm

Getting Globalization Right, The Dilemmas of Inequality, by Joseph S. Tulchin and Gary Bland, 2005

World Poverty, Global Inequality and the Modern World System, Harold R. Kerbo, 2006

Photographs from www.nationalgeographic.com