A Lesson for Europe: The Controlled Demolition of South Korea’s Burgeoning Independence in the Late 1990s.

In the years from 1960 to 1997, the South Korean oligarchic elite (many of which had been collaborators with the Japanese occupation regime) had developed a highly successful developmental state capitalist model very much like Japan, which was aided by the economic stimulus created by the Vietnam War and Japan’s bourgeoisie’s decision to use South Korea as a major offshoring destination for its low value-added activities as its industries moved up the value chain. During this period, a large middle class was created as real wages rose and income inequality remained relatively low.

In 1960 the de facto dictator Syngman Rhee (1948 to 1960), who had happily served the Japanese against his own nation’s people during WW2 and was responsible for the murder of at least 100,000 left-wing political opponents in the run up to the Korean War, was overthrown in the April 19^th Revolution. After a period of instability, a new dictator crushed the opposition and took power and ruled from 1961 until his assassination in 1979; Park Chung Hee.  The result of this assassination was simply another coup, and another dictator who ruled until 1987; Chun Doo-hwan. Further protests that could not be suppressed forced the ruling elite to hold elections, with their candidate winning with a narrow lead. Only in 1997 did the opposition candidate win the presidential election to bring true democracy to South Korea, Kim Dae-jung, who served from 1998 to 2003. Kim had survived an attempted assassination by the South Korean security services in 1973, later imprisonment, and then a sentence of death by the Chun regime. His election was aided by the Asian Financial Crisis that engulfed South Korea.

Under the rule of the South Korean oligarchic elite, the US had an unswerving military vassal backed up by its occupation force of 28,500 troops and the reporting of the South Korean military to US military leadership rather than the South Korean head of state. The problem for the US was that the South Korean economy was becoming too successful in generating world-class competitors to US corporations, such as Daewoo, LG and Hyundai. Kim’s survival had been due to repeated interventions by the US, and he had spent time exiled there (teaching at Harvard) and in Japan. Although he came across as a candidate that promised a new beginning for South Korea, he in fact became the agent of South Korea’s economic and financial subjugation – becoming known as the Neoliberal Revolutionist. Instead of utilizing exchange controls as Malaysia had to limit the impact of hot money capital flight, he fulsomely implemented the IMF agenda which seemed designed to destroy the highly successful South Korean development model. Malaysia’s President Mahathir actually had to fire his own hand-picked successor, who turned out to be an all too willing US comprador, to keep Malaysia protected from US economic subjugation.

Additionally, the South Korean leader went out of his way to encourage foreign ownership of important South Korean assets, resulting in foreign investment exceeding that of the previous four decades in 1998 and 1999; a move which represented a ceding of economic sovereignty. Paralleling the policies of Lula in Brazil, Kim implemented expanded social support payments and services while carrying out a fundamental liberalization of labour markets. Paralleling Obama’s refusal to punish the members of the Bush administration for their war crimes, Kim pardoned previous dictators in the name of “national unity”. At a time when the US saw China as just a great place to make money, Kim also improved relations with North Korea. Since his term ended, South Korea has been ruled either by “neoliberalism with crumbs” Lula types or by outright “neoliberalism in your face” types; very much paralleling Brazil. The current president, Yoon Suk Yeol, is a socially conservative militarist who is fully subservient to US foreign policy and seen as pro-Japanese; he has been referred to as K-Trumpism. The nationalist developmental oligarchy has been turned into a full US vassal oligarchy and the South Korean competitors to US corporations tamed, or even destroyed in the case of Daewoo. And it all started with the Asian Financial Crisis of the late 1990s, which the US utilized to bring a rising South Korea back under its thumb. Just as the US is doing now with Europe with the Ukraine War, a crisis is always an opportunity for the US Mafia-State to reassert its dominance.

The Asian Financial Crisis started in Thailand in 1997, as a huge investment bubble driven by vast amounts of foreign short-term capital inflows and exacerbated by loose governance, corruption and a fixed exchange rate, burst. The capital flows rapidly reversed creating a currency crisis for Thailand, and then Indonesia, Malaysia and South Korea. Malaysia was highly criticized in the West for answering the crisis with capital controls, which allowed time for the country to manage the crisis without doing significant damage to the national economy. A strategy later successfully followed by Iceland, which was also heavily criticized by the West. In the case of Iceland, the population had to overthrow the government, and even then it was only the President’s rejection of the abject compradoring of the political class that rescued the population from the EU demanded multi-decade debt servitude required to pay for the rescue of European depositors in Icelandic foreign bank branches.

Western criticisms stemmed from the fact that both Malaysia and Iceland stopped the crisis from being taken advantage of by the West to buy up their economies on the cheap and enforce policies that would destroy their developmental economic structures. China was also protected through the non-convertibility of its currency and that the vast majority of foreign investments in China were in physical capital such as factories rather than financial securities.

In South Korea, as I noted above a new president came into power who seemed to be more a US/Western operative, a comprador, rather than one who would act in the nation’s best interests. We do have to remember that he had been repeatedly saved by the US authorities, and that South Korea was not just occupied by US troops but that the head of those troops was also the head of the South Korean military. The International Monetary Fund put forward policies seemingly designed to destroy local corporations and/or drive down their prices to levels mouth-wateringly appealing to Western investors who were freed to buy up large and strategic chunks of the economy. Instead of capital controls, government spending was to be rapidly sashed, and interest rates driven up aggressively, both of which would deepen the economic slump and drive otherwise solvent companies into insolvency; all to “restore investor confidence”. The result was of course that the values of South Korean assets were driven down far below what they were rationally worth in longer time frames, at the very time that controls on foreign investment were removed. One result was the utter collapse of the world-competitive conglomerate Daewoo with its bankruptcy forced breakup and its car division being sold off to General Motors. Kia Motors also had to be rescued through takeover by Hyundai. Many financial institutions were also taken over by foreign corporations, such as Korea First Bank by the US Newbridge Capital. At the same time, the structures of the development state were removed through a “liberalization”.

The documentary below covers the development and collapse of Daewoo. The brutalist tactics of its hard driving founder-boss, both against his own staff and competitors, are very reminiscent of the US Robber Barons during the rapid industrialization of the late nineteenth century. The nationalism and conformity shown in the documentary are also very reminiscent of the US in the 1950s; the heyday of increasing US wages and living standards. The Chaebol (Korean conglomerates) were heavily indebted and over-extended but this would have been manageable without the deep depression caused by the brutal government spending cuts and raising of interest rates; exactly opposite to the policies followed by the US and EU themselves during the 2008 GFC and the 2020 COVID crisis. Structural adjustment for the non-Western nations, but never for the West itself. South Korea was starting to encroach on US, Japanese and other Western bourgeois interests before it was subject to the planned demolition of the Washington-based IMF Structural Adjustment policies.

Many Western economists criticize the indebtedness of the Chaebol and the way in which the they were run, as well as their closeness to the South Korean state, while hypocritically ignoring the repeated massive bailouts of banks by Western governments and the huge subsidies that have been repeatedly used to bailout US automobile and other companies. In addition, the huge hidden subsidy that is the US defence department budget that delivers massive profit margins to many US corporations, including Boeing. Also, the huge National Institutes for Health subsidies for the US pharmaceutical industry.

Before the Asian Financial Crash and IMF-driven controlled demolition of South Korean economic independence, from 1960 to 1997, the country’s economy grew at a rate of close to 10%. From 1998 to the present day it has averaged about 4%, and more like 3% in the past decade. At the same time, helped by the labour market deregulations, income inequality has greatly increased. As the East Asia Forum surmises:

By the early 1990s, South Korea’s middle class had expanded vigorously, with as much as 70 per cent of the population identifying themselves as belonging to the middle class.

But this began to change in the mid-1990s. The major turning point was the Asian Financial Crisis that arrived in South Korea in 1997 … While the majority of working people suffered tremendously, those who possessed financial resources took advantage of credit-scarce market conditions and came out of the crisis richer than before.

So, economic inequality increased noticeably during and after the crisis. South Korea’s average Gini coefficient — a measure of inequality — for 1990–1995 was 0.258, but with rising inequality its coefficient increased to 0.298 in 1999, two years after the onset of the financial crisis. It continued to increase, reaching 0.315 in 2010.

The major sources of increasing income inequality are closely related to … the neoliberal reform of the labour market [that] produced a sharp cleavage between regularly employed workers on standard contracts and irregularly employed workers (those who are limited-term, part-time, temporary or dispatched). The latter group increased from 27.4 per cent of the working population in 2002 to 34.2 per cent in 2011. This means that approximately one third of South Korean workers suffer from insecure job conditions, receiving only around 60 per cent of regular workers’ wages with no medical insurance, severance pay or company welfare subsidies … Finally, in South Korea, as in most societies, wealth inequality is much larger than earned income inequality. In 2012, the top 10 per cent of the population possessed 46 per cent of the country’s total wealth. The bottom 50 per cent possessed only 9.5 per cent.

Hence the movie Parasite that so resonated with South Korean and other audiences:

And Squid Game, reflecting the increasingly dog-eat-dog dystopian South Korean reality:

With the Ukraine War, the US Mafia-State has managed to get away with destroying a major piece of European infrastructure (the Nordstream 2 pipeline), manipulate Europe to reject cheap Russian fossil fuels and replace them with much more expensive US and Middle Eastern ones, and force Europeans businesses to give up on Russian opportunities (which have been happily taken advantage of by domestic, Chinese, and other businesses), while aligning European foreign policy perfectly with the US anti-Russia (and increasingly anti-China) foreign policy.

The result will be a deindustrialization of Europe due to the greatly increased energy costs, and its vassalization by the US. Europe will not be allowed to get too uncomfortably close to Russia and China, instead it must be hobbled and made dependent. The US occupation troops will be increased, and for the working and lower middle classes the future of Europe will look very much like the past twenty-five years in South Korea. Helped along by leaders who seem to be more ready to serve their US masters than their own citizens, many following their education by the World Economic Forum and other institutions of US domination. The future for the majority of Europe’s citizens may look something like this:

In the 1980s and 1990s, the US Mafia-State launched an economic and financial war upon Japan to destroy the competitiveness of its technology industries (memory chips, consumer electronics) and stem the tide of Japanese cars taking over the US market. A major part of this was the Mafia-State allying itself with the Japanese central bankers in a takedown of the Japanese development state and its core institutions; the Ministry of Finance and MITI. The Japanese central bank emerged triumphant, and neoliberal leaders took over in Japan, and the Japanese economy has paid the price now for three decades; there are always ready traitors available for the Mafia-State to ally itself with and that is why independent states such as Russia, China and Iran must always be on the look out for such traitors. The documentary below covers the controlled demolition of the Japanese development state, as well as Asian Financial Crisis and the way in which the European Central Bank has operated. The US Mafia-State only believes in open competition when it benefits the US oligarchs, otherwise it will use whatever tools are necessary to destroy the opposition.

The Central Bank and the financial system in general must never be “independent” as all that means is that it is independent of oversight by the people, allowing it to be completely controlled by domestic or foreign oligarchs for their own benefit.