Kangkook Lee in Phenomenal World:
The South Korean economy is widely seen as the paragon of the East Asian miracle, characterized by its rapid economic growth and a fairly equal income distribution. The country continued its upward growth trajectory even in the aftermath of the 1997 financial crisis, emerging as a global leader in manufacturing semiconductors, automotive, and batteries. But the South Korean economic outlook has proven far less hopeful since the dawn of the twenty-first century. Income inequality began to rise in the early 2000s, and Korea now is home to the lowest birth rates and highest suicide rates in the developed world. In 2017, President Moon Jae-In attempted to change course, introducing a progressive income-led growth strategy. Through more active state intervention, the policy focused on increasing household consumption and promoting aggregate demand. Five years into its government, however, the administration lost its leadership and was replaced by the current conservative government of Yoon Suk Yeol. Keynesian wage-led growth has been replaced with trickle-down economics, with poor prospects for growth and redistribution. What went wrong? Examining the trials and tribulations of South Korea’s experiments with income-led growth reveals important implications for fiscal policy and the enduring influence of austerity.
Reversing the miracle
In 1997, foreign capital flowed rapidly out of East Asia, beginning from Southeast Asian countries that had high foreign debt and vulnerable economic fundamentals. Korea was no exception: its corporate sector had made substantial debt-financed investments, and its economy had lots of foreign short-term debt. Across the West, the crisis was explained as the result of crony capitalism and political interference in market processes. Grossly overlooked were the reckless financial openings and government retreat from economic management since the 1990s.
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