From Catch-up to Convergence? Re-casting the Trajectory of Capitalism in South Korea

Abstract

This paper raises a fundamental question with regard to the trajectory of capitalism in Korea, whether Korea is still "fast-following" developed countries and on-track to converge with their economic systems, or continues to forge a unique development path different from that of the mature capitalist economies. In an explorative effort to answer this question, this paper compares the key outcome variables of the Korean economy with those of other economies by taking the variety of capitalism (VoC) perspective. Existing evidence may point to the possibility of Korean capitalism converging with a U.S.-and U.K.-style liberal market economy (the so-called "Anglo-Saxon" economy) in terms of slow-down of growth, rising unemployment, and higher income inequality, despite the differences in several underlying institutions, such as the national innovation systems and corporate governance and ownership. The driving forces for convergence seem to be the ongoing trend of financialization and the rise of shareholder capitalism, which is perceived to be the cause of low investment and high inequality. This paper is one of the first calls to consider a switch from the existing "catch-up and post catch-up" framework to the new "catch-up and convergence" framework when assessing the past, present, and future capitalism in South Korea.

Compressed development, decompression, and diverging convergence in South Korea: which varieties of capitalism in contemporary Korea?

“…This is due to enduring historical legacies and path-dependences associated with institutional inertia and vested interests. On the one hand, the driving forces for convergence appear to be ongoing financialization and the rise of shareholder capitalism, which are perceived as the causes of low investment and high inequality (Lee et al 2020). On the other hand, the majority of the largest firms in Korea continue to be family-controlled chaebols, and family and kinship linkages remain an important factor in contemporary in Korea (Ha 2023).…”

From Catching Up to Convergence of the Latecomer Firms: Comparing Behavior and Innovation Systems of Firms in Korea and the US

“…With its dramatic political and economic transformation since the end of colonial rule by Japan in 1945, Korea is now regarded as an exceptional latecomer country that has established itself as a full-fledged democratic market economy. However, this process has not been even in the sense that the country experienced decades of political authoritarianism and a government-led economy [1-3] as well as the 1997 financial crisis [4,5]. Korea's achievement is often encapsulated in the term "catching up," which is derived from Abramovitz's seminal article [6], "Catching-up, forging ahead and falling behind."…”

“…If these challenges become permanent features of Korea, then it signals the end of East Asian capitalism or 'East Asian miracle' [8], which is characterized by high growth and low inequality; instead, a convergence toward the Anglo-Saxon capitalism characterized by low growth and high inequality is anticipated [9]. Accordingly, the time has come to switch our focus from the past catch-up and post-catch-up frameworks to the new and futuristic focus on the convergence and divergence framework [5].…”

“…Particularly, opening to foreign investment led to considerable exposure to the influence of foreign investment capital, especially the U.S. investment capital, which pursues shareholder value. For instance, shares of foreign stockholders skyrocketed from less than 3% to 40% in the post-crisis period, which implies the possibility of increasing voices of foreign investors in matters related to management decision-making [5,24]. Actually, Kim and Cho [24] confirms a negative relationship between the foreign shares and firm's fixed investment.…”