Korea's State-Business Partnership and the Growth of Chaebols

Abstract

The state-business relationship in the 1960s and 70s was a vertical one where the state led the private sector. The government made the plan, provided the necessary resources, and later evaluated the performance of the entrepreneurs who executed the plan. In the 1980s, however, the relationship changed into a horizontal one where neither of the two dominating the other. This was partly due to the neo-liberal policy stance adopted by the new government and partly due to Chaebols’ economic power that strengthened over time. With farmland reform (1950) and the Korean War (1950-1953), the private sector in Korea was virtually non-existent in the 1950s. Six decades later, in 2011, the picture looks very different. Many Korean firms are now major players in the world economy. I find three factors behind this accomplishment: (i) support from the state as an input factor, (ii) export-oriented growth as a disciplining factor, and (iii) government’s effort to refrain from expanding the public sector.

Keywords: economic history, economic development, trade policy, industrial policy, state-business relationship, Chaebol, private-sector development, Korea

JEL Classification: N15, N25, N45, N65, N75, N85, O2, O53