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The Shrimp that Became a Tiger

Transformation Theory and Korea’s Rise After the Asian Crisis

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Bernhard Seliger

South Korea underwent a dramatic change in the last one and a half decades, from being considered a «tiger in trouble» in the wake of the Asian crisis to a showcase of economic development. The judgment of 1998 was itself a complete reversal of the previous enthusiastic reviews of world record-high growth for several decades, from the 1960s to the 1990s. Korea, once considered a shrimp between two mighty whales, Japan and China, veritably made a jump to become a tiger. And, after the steep decline of 1998, this tiger again showed its claws. This book deals not with the causes of the crisis in retrospect, but rather with the implications for the development of a new economic model in South Korea. It argues that the crisis and the following institutional change can best be understood by applying the theory of economic transformation.

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PART 1 THE INSTITUTIONAL CHALLENGE AND THE TRANSFORMATION OF TRANSITION THEORY

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33 Chapter 2: Toward a More General Theory of Transformation 2.1 Introduction The scientific interest in studying problems of transformation of economic sys- tems posed a major challenge for economic science after the revolutionary events of 1989 and 1990. As transition in CEE began, economic science (especially the neoclassical mainstream) was accused of having neglected systemic changes in favour of more and more exact mathematical formulations of equilibrium model economies. Afterwards, the study of changes of economic systems became central to new research programmes, journals and even institutes.2 To give a complete bibliography of “transition studies” and “transformation studies” is no longer possible.3 The problems studied are not confined to the concrete transitional phase from a centrally planned to a market economy, since “when stabilization, liberalization and privatization is mastered, transition is over. But transforming the system, as EU countries know only too well, is a never-ending process.”4 Nevertheless, the main focus of transition studies were the former centrally planned economies in CEE and Asia (Schulders, 1998). In spite of this obvious interest in transition, the development of a scientific dis- cussion on economic transition was often met with uneasiness (Horne, 1995: 25; Angresano, 1996: 474-477; Shleifer, 1997; Herrmann-Pillath, 1998a; Hermann- Pillath, 1999a; Polterovich, 1999). The uneasiness starts with the lack of clarity in defining transition and transformation, especially as separate from evolution of economic systems. Also, there is no consensus on whether transformation is an organized or a spontaneous process, how far cultural factors account for trans- formation,...

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