Korea's Economic Crisis and Cultural Transition toward Individualism

Ho-Chul Lee and Mary P. McNulty

ESRI Discussion paper series from Economic and Social Research Institute (ESRI)

Abstract: Despite many analyses of the causes of Korea's 1997 financial crisis three questions still remain: 1) Why did a healthy-looking Korean economy come to a crisis so suddenly? 2) Why did the Korean economy get worse despite the announcement of bailout programs? and 3) Why could Korea succeeded in implementing reform plans so quickly? This study re-examines the causes of the Korean crisis from a cultural point of view and analyzes evidence of cultural transition. The answers to these three questions are closely related to public attitudes. Korea's system of mutual support and guarantees that emphasized solidarity among firms proved to be a vulnerability. When companies ran into financial difficulty, the tradition of sharing burdens set off a chain of bankruptcies that spread throughout the economy. Before the crisis the Korean government had already prepared reform packages, including financial and labor market reforms, but failed to garner sufficient support to have them enacted. Reform plans could be implemented so promptly after the crisis because they were ready. Inflexibility of markets, including no layoffs, the seniority system, and corporate cross-guarantees, reflected cooperative/collectivist values that contributed to weaknesses in labor and financial markets. Compared to Western societies, East Asian culture is closer to cooperativism/collectivism than individualism. East Asia's traditional culture historically originates from the philosophies of egalitarianism and familism under the logic of harmony. The extremely cooperative/collectivist attitudes that are not consistent with the growing global culture contributed to the amplification of Korea's financial crisis. After the crisis Korea increasingly moved to more individualistic approaches to reassure foreign investors, maximize the vitality of the market mechanism, and reflect the growing individualism of Koreans. Highly cooperative/collectivist manners are not entirely compatible with the global market that requests a new balance between traditional cooperative/collectivism and western-style individualism.

Pages: 57 pages
Date: 2003-10
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Citations: View citations in EconPapers (2)

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