State capacity and public sector reforms in post-crisis Korea

This chapter discusses the public sector reforms introduced in the Republic of Korea (hereafter Korea) after the financial crisis in 1997. It argues that, in spite of the adoption of the neo-liberal approach of ‘new public management’ (NPM) to revamp the bureaucracy, there has been little de-bureaucratisation or rolling back of the state. Instead, state influence remains strong and has been extended to institutional linkages with societal groups. The state continues to play a key role, not only in the formulation of policies, but also in the coordination of the societal actors whose support has been essential for Korea’s structural reforms. The problem faced by Korea at the time of the financial crisis was inadequate state capacity rather than over-involvement. In the previous two decades, the declining power of the state, partly as a consequence of its collusion with big business and partly because of the rise of civil society, led to situations where its capacity to act effectively had become severely circumscribed. The financial crisis loosened the influence of business and, in some respects, weakened labour whose attention was increasingly focused on the issue of unemployment. The crisis thus provided the state with an opportunity to re-align its own power position relative to business and labour. In addition, Korea’s dependence on the IMF for a financial recovery package gave important support to the state for a reform programme. Given the imperative of economic austerity, both business and labour groups were more disposed to make compromises. The state, in consequence, was able to facilitate cooperation among the major groups and reach consensus with their leaders on the painful restructuring which became inevitable after the crisis.