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Korea’s Chaebol: Problems of Governance

Korea’s Chaebol: Problems of Governance. John Ohnesorge University of Wisconsin Law School February 16, 2004. “Korea, Inc.”. Authoritarian politics High-speed, export-oriented growth Blurred line between State and private sector Questionable role for law

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Korea’s Chaebol: Problems of Governance

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  1. Korea’s Chaebol: Problems of Governance John Ohnesorge University of Wisconsin Law School February 16, 2004

  2. “Korea, Inc.” • Authoritarian politics • High-speed, export-oriented growth • Blurred line between State and private sector • Questionable role for law • Constitutional law, individual rights • Administrative law • Judicial independence

  3. 1987 Democratization • New Constitution • Constitutional Court created (Kukje case) • Democratic Presidential Election (Roh) • Legal reforms (especially under President Kim, Yong-Sam) • Administrative Law • Anti-corruption

  4. 1997: Asian Financial Crisis • “IMF Crisis” to Koreans • Korean Won collapses • Stock market collapses • Debt crisis • IMF Loans required, come with demands for change • Higher interest rates (bankruptcies; unemployment) • Deregulation; liberalization • Reform/rejuvenate dormant bankruptcy law • Allow foreign investment in financial sector • Foreign Interests Reflected in IMF demands?

  5. Korea’s Response (5 years) • IFIs: “Don’t try to export your way out!” • Korean response: Export, export, export • Growth returns • Repay IMF loans • Rationalize Chaebol (“Big Deal” program) • Adjust to new structural realities • More liberal financial system • Greater foreign presence • More rights-oriented society

  6. Chaebol in “Korea, Inc.” • Readings: Woo and Lee (West “Megafirms”) • Developmental Function? • Political Function? • Who Governed the Chaebol? • Shareholders? (which shareholders?) • Product Markets? (local v. export) • Financial markets? • Banks? • Government?

  7. Chaebol and 1987 • Reading: West • How has democratization affected Chaebol? • What is Jim West’s assessment of the Kukje case? • What are implications of Kukje for Korean governance?

  8. Chaebol and the IMF Crisis • Can they be blamed? • Non-transparent bookkeeping? • Too much debt? • Debt cross-guaranteed w/in Chaebol? • Too much political influence, block reform? • Management too personalistic, not “Market rational”?

  9. Chaebol and Corporate Governance • Reading: Kim & Kim • What’s wrong with corporate governance of the Chaebol? • What is PSPD, and what are its goals? • What is overall change sought in corporate governance? • Pros and/or Cons of PSPD agenda? • Challenges to Korean political system?

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