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A silver lining in Korea's economic crisis? Perhaps, say democracy scholars

Korea, known these days as one of the world's biggest debtor nations, actually invests more abroad than it gets from other countries in foreign direct investment.

That seeming contradiction was presented by Eun Mee Kim, a southern California sociologist spending this academic year at a Korean university, at a conference on Korea's future held at the Hoover Institution Jan. 8 and 9.

Kim, a professor at the University of Southern California and the author of a recent book on collusion and conflict of interest in Korea's industrial development, said she was surprised to discover that the nation's largest chaebol, or family-run conglomerates, invest abroad about double the amount that Korea takes in the form of direct investment from other countries. The biggest chaebol, led by Daewoo, Hyundai and Samsung, are building automobile, semiconductor and appliance factories in places as diverse as Uzbekistan, the United States, England and China, she said. Their U.S. activities may be a response to the North American Free Trade Agreement, while the investment in Asia most likely reflects the conglomerates' desire to find cheaper wages in the future as well as to expand sales in new or growing markets.

"It will be interesting to see whether the chaebol can withstand the financial crisis," she said, "and come out as global corporations that can compete in the next century."

The conference, co-sponsored by the Korea Foundation, focused on how the economic crisis will reshape democratic politics and government. Hoover Senior Fellow Tom Henriksen will edit the conference papers into a book to be published by the Hoover Institution Press later this year.

American-born scholars have been generally more optimistic about the future of Korean democracy than their Korean-born counterparts, a difference that may be more rhetorical than substantive, said Doh C. Shin, a professor at the University of Illinois-Springfield who was born in Korea. Americans historically have tended toward optimism, he noted, while Koreans tend toward skepticism. Shin called Koreans "the Irish of the Orient" in the way they draw a certain pleasure and solidarity from "shared mishaps."

Kim's research on the far-flung investments of the chaebol drew a wide-range of reactions. Henry Rowen, a senior fellow at Hoover and director of Stanford's Asia/Pacific Research Center, said he found himself in the uncomfortable position of defending the chaebol against the world's growing disdain and some of the reforms suggested to curb their appetite for capital. But Hoover Research Fellow Ramon Myers and Keunkwan Ryu, a Seoul National University economist who is a visiting professor at Stanford this year, questioned the conglomerates' business acumen.

In its Dec. 5 agreement with the International Monetary Fund for emergency loans, the Korean government agreed to ban chaebol member firms from making loan guarantees to each other and agreed to stop interfering in their bankruptcy cases, Professor Kim said. President Kim Young Sam tried but failed to institute similar reforms to limit the conglomerates' economic dominance and to make their financial condition more public, she said, and many people now believe that "the failure of the Kim administration's chaebol policy directly contributed to the current financial crisis."

Korea may need laws comparable to U.S. anti-trust laws to break up the market power of the dominant conglomerates, Rowen said, but he questioned the wisdom of forbidding them to make loan guarantees to each other or of President Kim's past proposals to make them separate their managers from owners and to divest of some of their businesses.

The chaebol could not have invested so much abroad without their massive debt accumulation, Rowen conceded, "but that reflects an error by the government" rather than the companies. "I believe the chaebols' abilities to sell products worldwide is evidence of the competence and strength of these companies," he added. "They haven't made money but they sell very competitive products. . . . An industrial structure than can do that is not so bad."

Myers said the conglomerates' investments were so poor that they could have made more last year by investing in government bonds, and Ryu said the problem was partly that the family owners of the conglomerates were not owners "in the Western sense." Owning sometimes only 10 percent of the conglomerate but managing it as if they owned 100 percent, the families had the incentive to borrow as much as possible, Rye and Kim said. Because they are huge employers, they know that the government is afraid to let them collapse and would instead force the public treasury to absorb their losses.

Many conference participants agreed that because of the economic crisis, President-elect Kim Dae Jung should find it easier to reform such practices. However, because his party will be a minority in the new national assembly, some of the scholars said they fear that he will become frustrated and resort to authoritarian means of governing, as past presidents have done, rather than to building coalitions. The current lame-duck president, who came in as a reformer, failed in the second half of his term to institute reforms partly because he was too ambitious and authoritarian in his methods, said Young Jo Lee, a professor of international relations at Kyung Hee University.

"Perhaps the way the future leader manages the crisis will be more important than the economy" in forming Korean public opinion, said Chae-Jin Lee, director of the Keck Center for International and Strategic Studies at Claremont-McKenna College. Korean voters in the past have voted with their pocketbooks, Lee said, but are more likely to pay attention to political methods as a result of assessing the causes of the current economic crisis.

Stabilizing democracy

Conference participants were mostly political scientists and sociologists who study either Korea or the more general subject of transitions to democracy. Increasingly, they have realized that elections do not make a democracy. A democracy only gradually becomes consolidated and institutionalized ­ the process took decades in the case of the United States, noted David Brady, a Stanford and Hoover political scientist. Consolidation is considered complete when people with political ambitions see democracy as "the only game in town" ­ that it is not possible or desirable to overthrow the elected government or peaceably reinstitute authoritarian practices after being elected.

Institutionalization is a more confusing buzzword. Some conference participants used it to refer to the stable existence of democratic organizations such as a representatively elected national assembly or an uncensored press. Korea has many of these institutions already. Increasingly, however, academics apply the term institutionalization not to the establishment of organizations but to the existence of formal and informal rules, cultural practices and values that influence how organizations operate, Myers said. Those with this view do not consider democracy to be on a firm footing until the people actively engaged in politics and the majority of the public expresses consistent opposition to authoritarian methods.

Korean opinion polls and other analyses offered at the conference indicate that Korea's democracy is neither consolidated nor institutionalized, although it has moved substantially in that direction in recent years. The Dec. 18 election, for instance, was the first truly open contest for president, and for the first time, voters chose a candidate from an opposition party to the existing government. The national assembly has yet to show any real independence from the president, however, even though the constitution grants it more autonomy, said Chan W. Park, a professor from Seoul National University who is at Duke this year.

"Political scientists generally agree that political parties are absolutely indispensable" to a working democracy, in order to link mass opinion with policy decisions in the elected legislature, said Hoover Senior Research Fellow Larry Diamond, currently on leave to study democratic institutions in Taiwan. Unlike Taiwan, which has had one dominant party since the 1940s, Korean parties come and go so fast that voters can develop no loyalty to them, he said.

Each candidate for president has tended to form a new party that is loyal to him personally, rather than to an ideology or policy prescriptions. Past presidents and the one just elected owe their election victories to their home regions because of fierce regional loyalties. In the last presidential campaign, candidates adopted U.S.-style television campaigning, adding to the personal cult nature of Korean politics, several speakers said.

The military, which mounted a coup to overthrow Korea's first attempt at democracy, appears to be less of a political factor now, several speakers said. Public opinion polls show that most Koreans consider the news media to be more powerful than the military.

Regional loyalties may stem from strong kinship values in Korea, said Francis Fukuyama of George Mason University, the author of a controversial 1989 essay, "The End of History," and a surveyor of values globally. Koreans hold more diverse social and political values than Western Europeans, he said, and are less respectful of authority than other Asians, perhaps because of regionalism and their colonial history. Their willingness to stage protests and criticize their national government, he said, is a "hopeful sign" for democracy.


By Kathleen O'Toole

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