Cornell Studies in Money. Ithaca: Cornell University Press, 2016. xii, 221 pp. (Tables, figures.) US$24.95, paper. ISBN 978-1-5017-0310-2.
There is a large amount of literature on the South Korean developmental state, which is widely acknowledged as the driving force behind Korea’s economic success story from the 1960s until the 1990s. While this period is relatively well researched, we still lack a good understanding about what happens to developmental states when countries like Korea advance into developed OECD economies. In particular, since the Asian financial crisis of 1997 and 1998, it has often been argued that the developmental state is dead and has been replaced by a neoliberal regulatory state. This occurred either because the developmental state became dysfunctional or by imposition from a “Wall Street-Treasury-IMF complex.” In her book, Developmental Mindset Elizabeth Thurbon offers a powerful critique of such “declinist accounts” and shows that studying the developmental state remains not just important in order to draw lessons for countries in the Global South but also for our understanding of contemporary capitalism in East Asia.
She argues that declinist accounts that see Korea converging to a US-style market-oriented capitalism draw wrong conclusions because they focus on specific institutions and policies of the developmental state. From her perspective, the developmental mindset was contested in particular during the Kim Young-sam administration from 1992 to 1997 but was since then revitalized under the pressure of crisis, global competition, and financialization. While she probably overrates the weakening of the developmental mindset under Kim Young-sam, her investigation of the policies and institutions based on the developmental mindset since 1997 are an important contribution, lucid and well researched. She persuasively shows that the Korean state remains strongly interventionist and uses a state-owned developmental bank (“financial activism”) to achieve techno-industrial upgrading and to remain export competitive.
Her idea-centred investigation of the developmental state in Korea offers important new insights but her perspective also leaves some blind spots and open questions that I hope will provoke a revival of the debate on the developmental state. First, the strength of focusing on the developmental mindset of the political elite is that it allows us to identify continuity even when there are substantial changes in institutions, policies, and the political orientation of governments. This strength, however, comes at the expense of clarity regarding what the developmental state is about, and underestimates the dynamic of state-economy relations. Ideas and goals matter but they only become relevant if they are embedded in an enabling institutional framework and correspond with a political and economic reality. There were and are many leaders in the developing world with a developmental mindset but only a few countries, including Korea, have actually succeeded in advancing to the status of a developed country.
Second, what enabled the developmental mindset in Korea since the 1960s was the coalition of state and business, in particular the chaebol, at the expense of labour and democracy. In this coalition the state formulated five-year development plans, providing subsidized loans and protection from international competition. Since the 1980s, democratization and globalization have gradually but substantially undermined this old developmental state. I agree with Thurbon that this did not imply a declining role for the state and a transformation to a pure liberal regulatory state. On the contrary, government spending is ever-expanding, and the state remains strongly interventionist and pro-business. At the same time, changes have been substantial. Instead of providing long-term plans and strategies for industrial development that would force the large private companies to invest, the state has become largely reactive by playing a supporting role for the private sector. While in the past state-controlled banks financed big conglomerates’ expansions into new industries, now large amounts of funds by state-owned developmental banks go into struggling old industries such as shipbuilding or SMEs squeezed by the big conglomerates. Fiscal stimulus packages after 2008 were largely used for infrastructure and channelled towards construction companies struggling with over-capacity. One of the strongest parts of the book is Thurbon’s investigation of government initiative and support for new industries under the IT-839 initiative of President Roh Moo-hyun (2002–2007) and the green growth agenda of his successor Lee Myung-bak (2007–2012). It is true that the developmental mindset remains strong and the state remains central in economic and societal coordination. However, what Thurbon describes seems to be the emergence of a new form of a developed, non-liberal capitalism with a strong corporatist state and not the rebirth of the old developmental state. If the developmental state is really reborn, she leaves the question “reborn as what?” for future debate.
Third, Thurbon makes a conscious choice not to discuss the limits and the problems of a developmental mindset for a developed country such as Korea. I think this choice is problematic because many of the cases of state and financial activism she describes are today seen as failures in Korea. Recent governments have consistently promised and failed to deliver a return of the high economic growth rates of the past. The prevailing ideology that growth and industrial development can solve all economic and social problems has become a major handicap for Korea’s development into a more democratic, just, and environmentally sustainable society. Even during the discussed green-growth initiative the objective was primarily growth and not ecological sustainability.
In sum, Thurbon’s new book is a welcome revitalization of the important discussion on the developmental state and improves our understanding of a distinct and path-dependent model of state-led capitalism that is emerging in East Asia. Her focus on the developmental mindset of the political elite is an important contribution to this understanding while at the same time raising many new questions for future debates. She offers a very compact and readable analysis while providing a strong narrative that would not fit into a standard journal article. I strongly recommend this book for all scholars and students of development as well as those curious about Asian capitalism and its spirit.
Thomas Kalinowski
Ewha Womans University, Seoul, South Korea
pp. 837-839