Dominant Capital and the Transformation of Korean Capitalism: From Cold War to Globalization Hyeng-Joon Park A dissertation submitted to the Faculty of Graduate Studies in partial fulfilment of the requirements for the degree of Doctor of Philosophy Graduate Program in Political Science York University Toronto, Ontario June 2013 © Hyeng-Joon Park, 2013 Abstract 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 chaebols, 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-chaebol nexus, is a better way for Korean society. 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 commodification 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 creorder of Korean society. Second, it argues that globalization has incorporated Korea’s dominant capital into the global structure of absentee owners iv through the trans-nationalization of ownership and accumulation. Lastly, it argues that the reduction of green-field investment, relative to the pre-1997 period, is to be explained by the shift of the regime of differential accumulation. v Acknowledgements The owl of Minerva spreads its wings only with the falling of the dusk. - Hegel, The Philosophy of Right While writing this dissertation, Hegel’s words were a great consolation to me, who have spent 10 years wrestling with this project. My greatest debt is owed to Jonathan Nitzan, my supervisor. Without his support and friendship, I could not have finished a PhD dissertation. I sincerely appreciate his patience with the sluggish development of my research and his excellent supervision. Jonathan has helped me have a new perspective on how capitalist society works. He has provided me with more than just the theoretical tools that I have adopted for my dissertation. His worldview and theoretical framework have enabled me to escape from any intellectual dogma and conceit. The debt I owe to Jonathan is beyond description. I would also like to thank Gibin Hong, a long-time friend and colleague. The many intellectual conversations I have had with him have helped me expand the scope of my intellectual domain. In addition to Gibin, I would like to say thanks to Nakjung Kim and Jongchul Kim. I will never forget the time we spent together at York University. Finally, I must thank my family for their unwavering support. My wife, Eunhee, and our two lovely kids, Hansol and Hansaem, have given me a great deal of hope and encouragement to finish my PhD. I owe a special debt of gratitude to my mom for her unconditional love. I can never thank her enough. vi Table of Contents Abstract iv Acknowledgement vi List of Figures xi List of Tables xiii 1 Introduction 1 The Social Background 3 Dominant Paradigm: developmentalism and the depoliticization of 7 production Development Theory 10 The Limits of Development Theory 14 Outline of the Dissertation and Major Arguments 17 A New Approach to Development from the Viewpoint of 18 Power The Establishment of the Capitalist Social Order: The Era of 20 State Capitalism The 1997 Crisis and the Restructuring of Power 22 The Transformation of Korean Capitalism in the Post-1997 24 Period 2 New Approach to Development: The Viewpoint of Power 27 Marx’s Attempt to Grasp the Nature of Capitalist Power 29 Shortcomings of Marx’s Theory of Capital 33 Paradigm, Normal Science, and Anomaly 34 vii The Bifurcation of Politics and the Economy 38 The Power Theory of Value 40 Exploitation and Accumulation 44 Differential Accumulation 45 Regimes of Capital Accumulation 49 The Mutual Transformation of the State and Capital 51 The Trans-nationalization of Capital 55 No Reductionism 59 3 The Establishment of the Capitalist Social Order: The Era of State 61 Capitalism Industry and Business 62 Korea’s High Economic Growth 63 The Shift from Development to Power 65 Centralization and Trans-nationalization 66 The Centralization of Capital 67 The Trans-nationalization of Capital 72 The Emergence of Distributional Coalitions in the Postwar Era 75 The Transfer of Power 76 The Redistribution of the Seized Assets and the Formation of 78 a Distributive Coalition Opportunities in Chaos 81 A New Corporate-State Coalition 87 The Iron Fist and the Invisible Hand 89 The Autonomy of the State? 90 An Alternative Understanding: The State Cocoon Thesis 93 Differential Accumulation under the Dictatorship 96 Development and Sabotage 96 External Breadth 97 Foreign Capital 103 Establishing Differential Capitalization as the Pattern of Social 107 Order viii 4 The Crisis and the Restructuring of Power 110 Revisiting the 1997 Crisis 113 The Calm Before the Storm 114 Two Rival Mainstream Analyses 116 Both Right and Wrong 118 An Alternative Approach to the 1997 Crisis 120 Differential Accumulation in Korea 122 The Limits of External Breadth 123 Class Struggles 129 The Global Context 134 The Active Response to Neo-liberal Globalization 141 The Declaration of a Globalization Strategy 142 The Reform Plan 144 Liberalization for Dominant Capital 145 The Chaebols’ Entry into the Financial Sector 147 An Asian Big Fish in a Small Pond! 152 5 The Transformation of Korean Capitalism in the Post-1997 156 Period: Capitalization and Trans-nationalization Controversies Over the Nature of the Post-1997 Restructuring 159 Understanding Polarized Growth from a Power Perspective 162 The Resurrection of Korea’s Dominant Capital 165 Differential Accumulation in a “Low-growth” Economy 167 The Transformation of the Regime of Differential 170 Accumulation The Transition to Market Capitalism 173 The Trans-nationalization of Korean Dominant Capital 174 The Trans-national Fusion of Vested Interests 179 Two-Way Flows of Capital 180 The Shift of Focus from Interest to Dividends 182 All About Differential Accumulation 183 The Free Market, the State, and Social Polarization 189 Increasing Social Inequality 189 The State and the Dual Political Economy 191 ix Polarization within the Working Class 195 6 Conclusion 199 Databases & References 211 x List of Figures Figure 2.1 Marx’s General Framework for the Study of Social 29 Formations Figure 2.2 Nitzan and Bichler’s Framework for the Analysis of 41 Accumulation Figure 2.3 An Example of the Analysis of the Differential Power of 49 Capital and Differential Accumulation Figure 3.1 Korea’s Relative GDP Growth 63 Figure 3.2 The Concentration of Social Wealth 66 Figure 3.3 The Distribution of Net Profits 68 Figure 3.4 The Trans-nationalization of Korea’s Corporate Universe: 73 Domestic and Foreign Market Capitalization Figure 3.5 Outward and Inward Foreign Direct Investment 74 Figure 3.6 Hyperinflation in Korea in the Aftermath of the Korean War 79 Figure 3.7 The Rapid Expansion of the Samsung Group 86 Figure 3.8 Differential Analysis of National Development 90 Figure 3.9 Average Firm Size in Korea 97 Figure 3.10 Differential Profits 99 Figure 3.11 Korean Growth Trends 101 Figure 3.12 Average Number of Employees in Korea 102 Figure 3.13 Foreign Capital Inflows and Domestic Savings 104 Figure 3.14 The Evolution of Exports 105 Figure 4.1 Real GDP Growth 114 Figure 4.2 Shock Waves of Currency Instability 115 Figure 4.3 The Increase in Financial Vulnerability 119 Figure 4.4 The Limits of External Breadth 124 Figure 4.5 The Declining Corporate Share of National Income 125 Figure 4.6 Korea’s Dominant Capital in Difficulty 126 Figure 4.7 Downward Pressure on Profit per Employee 127 xi Figure 4.8 The Explosion of Labour Militancy 130 Figure 4.9 Wages and Operating Income in the Manufacturing Sector 131 Figure 4.10 The Rapid Liberalization of Imports 137 Figure 4.11 Korea’s Balance of Payment and the Change in the Exchange 140 Rate Figure 4.12 Net Inflows of Foreign Capital 146 Figure 4.13 The Demise of State-directed Capital Allocation 148 Figure 5.1 Business and Industry 163 Figure 5.2 Capital Income and Economic Growth 167 Figure 5.3 The Aggregate Concentration of Corporate Profits 168 Figure 5.4 The Differential Concentration of Corporate Profits