IMF, Labor, and the Korean Way

In Korea, although the labor force contributed to the modernization of the country's economy during the 1960s, the rapid industrialization has constantly oppressed and strictly controlled Korean labor. Government favoritism during the 1960s emphasized large export businesses and neglected the Korean labor force, and both large businesses-called the chaebol-and the government suppressed labor unions. Later, the 1987 labor revolts demonstrated the need for better labor-management relations. However, labor has not developed alongside the rest of the Korean economy.

In the recent economic crisis, layoffs, low sales, and declining production have had an impact on Korean labor. The financial trouble in South East Asian affected the chaebol and triggered the Korean crisis. Economic realities and the conditions attached to the International Monetary Fund's (IMF) aid are forcing Korea to change its way of doing business. Although the IMF has restored the confidence of foreign investors in Korea, and assisted in renegotiating Korea's foreign loans, its financial reforms have forced restructuring of the chaebol. Causing layoffs and higher unemployment rates, foreign influences like the IMF have been molding the Korea into an "ideal" free-market capitalist economy in which investors have the most power and Korean labor is exploited in the name of economic success. However, Korea has historically had a more sheltered and controlled economy, and Korean labor has not experienced a large scale depression. Deregulating Korea to make it a completely free market economy is unnecessary and can cause more labor problems.

Beginning in the early 1960s, the Korean government brought about the country's industrialization through tight economic controls. After the Korean War, Korea freed itself from Japanese colonialism and embarked on its industrialization (Pak 80), transforming the country's agrarian economy into an industrial one over a period of three decades by actively managing economic development through governmental agencies and favorable legislation (Pak 81).

In general, the government's role in Korea's industrialization has been a good counterexample to the "superiority" of a laissez-faire economy (Crotty [1998a] 43). Rather than relying on the fickle greed of capitalists, the government used incentives to foster cooperation with business which allowed a coordinated and rapid economic development. By the 1980s, Korea had surpassed Malaysia, Thailand, the Philippines, Argentina, Brazil, and Mexico in economic terms (Pak 78). The government's excellent management of the economy avoided the boom-bust cycle (Vogel 116), but, in the process, social development has taken a secondary role to economic success in Korea. Specifically, the quick modernization left the Korean workforce with less labor protection, welfare, and unemployment programs.

The chaebol provided the capital and the leadership necessary to quickly expand into new industries and continue the Korean boom. Resembling the Japanese zaibatsu conglomerates, the chaebol "are controlled by a key family through direct and indirect ownership" (Pak 88). Sejin Pak, a lecturer at the Center for Asian Studies at the University of Adelaide, classifies the structure of these companies as a patriarchal and not a militaristic hierarchy, each having "a central planning office composed of top managers," but also a the founder who "has absolute decision-making authority" (Pak 88). Workers are excluded from the decision-making process, and the top-down corporate structure inhibited a partnership between workers and the company.

Although workers initially supported their government's plans for industrialization, they would later criticize it for being too supportive of big business. During the 1960s and 1970s, President Park promoted the rapid development of an export economy in the hope that Korea could become self-reliant (Pak 82). Under the slogan, "Korea, Inc.," the government thought that Korea should industrialize as one "company" (Pak 82), and to that end, it helped finance the exporters and enacted favorable legislation. To make it easier to sell goods overseas, "the government sent trade missions to numerous countries to obtain trade agreements" (Pak 83). The workers, however, did not have the same incentives to start their own small businesses and join the growing economic boom (Pak 86).

To attain this rapid rate of growth, Korea's labor force worked at low wages, which allowed exporters to sell their goods competitively overseas. To ensure that Korean companies would be sheltered while they were small and vulnerable, the government regulated "the import of completed goods [through] tariff and non-tariff barriers" (Pak 83) . The government wanted large companies so that economies of scale drove down costs and allowed Korean companies to be competitive overseas (Gobat 10). Because Korea's economic success depended on its ability to export goods, having low production costs made it profitable to export.

Eventually, the government's economic authoritarianism caused labor revolts in 1987. Korea's workforce "made economic demands [... and] wanted to change the authoritarian style of labour management" (Pak 102). With the subsequent wage increases, companies could no longer compete with foreign labor. Before 1987, the companies had used the formula: low cost labor leads to inexpensive exports and larger profits. Korean labor had not been viewed as an asset but as a competitive advantage. In contrast to Korean management, Japanese managers, during their own labor conflicts, "had already reached a consensus that they could not have rapid growth without the active participation of workers and their representatives" (Vogel 95). The Korean system, however, did not develop cooperation between workers and employers. Nonetheless, Korea's economy grew to the point where it became a significant player in global trade (Vogel 110-111).

David Lindauer and Ezra Vogel, professors at Wellesley and Harvard Universities respectively, have studied the attitudes of Korean workers. In the 1960s, the government had retained control over laborers and prevented strikes by establishing one large union, the Federation of Korean Trade Unions (FKTU) (Vogel 97). The workers' experiences during the Korean War and previous colonial occupation had shown how "weak" their country was, but the idea of "Korea, Inc." suggested to the laborers that hard work would strengthen the nation (Vogel 99, Pak 82). For this reason, workers often "sacrificed" over 60 hours a week to help their country industrialize (Vogel 119). Therefore, cooperation did not need to develop between workers and their managers.

By 1980s the chaebol had become large independent businesses and were no longer puppets of the government (Pak 99). They had their own economic planning divisions and research groups. Chun's regime thought that the chaebol had too much economic power and sought to reduce it by limiting their credit (Pak 96), but the chaebol, in turn, strongly lobbied the government and stopped the reforms. The workers were caught in this power struggle between the chaebol and the government.

As company shareholders gained wealth, economic distinctions began to form; in particular, the gap between white-collar and blue-collar workers widened. Because of the traditional Korean patriarchal social structure, managers felt that they deserved respect and tended to look down upon common laborers. Management's condescending tone caused discord between the workers and their employers (Vogel 112), and during the industrialization of the 1970s, labor unions were systematically suppressed. The government appointed the top officials of the FKTU and quelled potential strikes in the unions (Vogel 102). Without an effective union, workers had no means of addressing working conditions or wages. By the 1980s, workers began questioning their belief in national security and "sacrifice" (Vogel 104).

Such questions led to the 1987 labor revolts, which called for a democratic government, independent unions, higher wages, and better working conditions. Labor tensions had been allowed to develop and were exacerbated by the suppression of unions by the government and chaebol. Workers "had had no avenue for expressing their grievances" (Vogel 107). Because of their anger generated by the chaebol's treatment of workers, protesters staged demonstrations with increasing frequency. At one of these protests in front of Seoul's East Gate, Chun Tae-Il "held a copy of the 1953 labor law in his hands and burned himself to death" (Vogel 103). If unions had developed earlier, the labor issues could have been addressed peacefully because workers would have been able to freely address their complaints at the bargaining table.

Just as rapid growth left labor unions languishing, it also encouraged the large loans which caused the recent economic crisis. The chaebol had borrowed extensively from foreign banks and started to fall when the South East Asian economic crises began (Crotty [1998a] 43). By borrowing from foreign banks, the chaebol financed new ventures, but when other South East Asian companies were not able to make timely payments, the chaebol did not have enough cash to make payments on their own loans. In short, these loans had allowed for rapid growth by funding new ventures and factories, but also brought about an economic crisis.

The Hanbo chaebol's bankruptcy in 1997 marked the beginning of the crisis in Korea (Gobat 21). The string of bankruptcies following Hanbo's collapse made it obvious that international aid was required to prevent the Korean economy from folding and causing a global economic calamity. Western news reports, however, focused on the global and U.S. impact of the crisis instead of the human costs in Korea (Economist 65). While rapid intervention prevented the Korean crisis from affecting the U.S. and other world economies, the terms of the international aid have coerced Korea to open its markets and to allow foreign investors more control over Korean companies. Although the relief package will help the chaebol get back on their feet, the IMF economic reforms attached to the aid force corporate and economic restructuring and will hurt the Korean workforce (Schuman A1). Michael Schuman, in his Wall Street Journal article, describes the impact of the crisis on small businesses. His article details the experiences of Mr. Lee who saw his business dwindle and was forced to close his supermarket in Seoul. It had become financially more favorable for him to return to his hometown and farm. In breif, the Asian economic crisis has caused the large chaebol to slow down which has, in turn, caused closures of small businesses like Mr. Lee's supermarket (Schuman A1). The local factory workers who had patronized the supermarket had been fired; thus shutting down the production lines affects local businesses as well as the chaebol's former employees.

In the future, it is possible that the chaebol will slowly weaken as the second generation of family leaders take power (Pak 113). Additionally, the IMF reforms may also cause the chaebol to lose their economic power (Crotty [1998a] 43). For these reasons, many Korean workers have welcomed some of the IMF reforms as ways to erode the power of the government and the chaebol (Crotty [1998b]). However, the IMF reforms have continued to stimulate class stratification because they encourage the chaebol to conduct layoffs, which will consequently increase unemployment. With higher unemployment, labor unions do not have as much bargaining power and are not able to effectively represent their members.

Unlike the FKTU, the Korean Confederation of Trade Unions (KCTU) is currently protesting the IMF reforms. Recently, the KCTU took over a Hyundai Motors factory to protest the impending layoff of 2,000 workers (Crotty [1998b]). President Kim called riot police to surround the factory, but the KCTU told the workers to hold their ground. After a tense stand-off, the strike was finally resolved through a government-brokered agreement. Because of its long history of low unemployment rates, Korea has not needed government welfare or other social services; thus being fired now is more threatening to a family in Korea than one in the U.S. Through strikes and demonstrations, the KCTU hopes that the meddling in the Korean economy will end and that their worker's jobs will remain secure, but unlike in the 1987 demonstrations, support for the KCTU is currently weak (Crotty [1998b]).

One of the reforms the IMF is pushing is transparent and reliable financial statements (Gobat 23). By adopting transparency measures, the IMF hopes to allow investors more oversight in company operations. With additional eyes watching over Korean corporations, the IMF claims that the investors should be able to prevent future economic problems. At the same time, however, foreign companies can merge with Korean chaebol and downsize, leaving Koreans unemployed. Jeanne Gobat, writing an IMF document on Korean economic issues, calls for "a new paradigm [...] to achieve the next phase of dynamic growth" (Gobat 29). She justifies this in part by claiming that the "past model of government-directed industrialization [...] contained inherent flaws and is no longer suited to Korea as an advanced economy in globalized markets" (Gobat 29). However, it is debatable whether or not Korea's system is flawed since it brought about the rapid industrialization of the country. No other country has been able to attain Korea's growth while avoiding inflation and recessions.

The IMF demands seem to mirror the threats and blackmail that drove the initial opening of Eastern economies in the 19th century. Sucheng Chan, Professor of East Asian Studies at Berkeley, wrote that East Asian countries were opened to Western trade by the threat of "the potential disaster" that would befall them if they "refuse[d] to abide by [Western economic trade] treaties" (Chan 9). Today, the IMF is forcing Korea to comply with their reforms under a similar threat of economic ruin.

Because Korean companies will no longer be controlled exclusively by domestic investors, the government will have less power to step in when there are management and fiscal issues. An article in the Economist criticized the IMF, claming that "it is by no means proven that such sweeping changes are critical to the IMF's main purposes, which are maintaining international economic stability and helping countries overcome an immediate lack of foreign reserves" (Economist 65). In particular, financial aid alone would have stabilized the Korean economy without further reforms. The banking and financial reforms demanded could have been postponed until the economy stabilized and care could have been taken to make sure the reforms were done correctly. Studying third-world economies at York University in Toronto, Gabriel Kolko writes that the "IMF 'structural adjustment' programs [...] perpetrate and even intensify poverty" (Kolko 20). In the Korean economic crisis the IMF emphasis has been on reducing the payrolls of the chaebol. The layoffs caused by the restructuring of the Korean economy and its companies will further exacerbate labor tensions and will erode the recently gained power of the Korean labor unions.

To the IMF, labor concerns have been secondary to international politics and economics. Because the international organization must solicit wealthy nations to refill its coffers, the U.S., European nations, and Japan have significant influence on IMF policies. In particular. the IMF economic reform programs in developing nations seem to help first-world investors and companies make larger profits. Writing in Newsweek, Joshua Ramo claims "that Rubin, Greenspan, and Summers-and their henchmen at the International Monetary Fund-have turned nations like Malaysia and Russia into leper colonies [...] making life hellish in order to protect U.S. growth" (Ramo 36). By protecting the U.S. economy and opening foreign markets, the IMF can hope for future contributions, since American banks can profit and will be even more willing to collude with the IMF in the future.

Exposed to the world, the Korean economy will be more vulnerable to the fluctuations of global markets. While allowing foreign investments makes it easier for Korean companies to raise capital, but at the same time, outside investors wield great external influence on Korea. Commenting on the influence of the foreign investments, Pak mentions that until now, Korea has managed foreign capital effectively. The nation has avoided "the danger of becoming subordinate to [foreign investors]" (Pak 113). Until now, the active governmental regulation has protected the Korean economy, allowing it to blossom without foreign interests trampling it. Reviewing the transitions that are taking place with the IMF intervention, Charles Lee and Michael Vatikiotis write in the Far Eastern Economic Review that "[n]ot long ago, analysts say, there would have been a national outcry if so many Korean firms had been allowed to fall into foreign hands" (Lee 51). When the crisis hit, "it was a duty [for Koreans] to patronize [businesses] that kept their earnings in Korea" (Lee 51). However, motivated by the IMF reforms, Korean President Kim Dae Jung has pushed "a new foreign-investment promotion law through the national assembly" (Lee 51). Koreans could soon find themselves working for foreign companies. Larry Summer, Deputy Secretary of the U.S. Treasury, remarked that "[global] capital markets pose the same kinds of problems that jet planes do. They are faster, more comfortable, and they get you where you are going better. But the crashes are more spectacular" (qtd. in Ramo 39). Korean labor may be exposed to further global economic crises, but, this time, their government will not be able to help them.

Vogel states, "No nation has made the transition to a fundamentally different pattern of labor relations quickly and easily, without some years of unrest and groping. Britain, the United States, and Japan all went through periods of turmoil accompanied by violence and bloodshed" (Vogel 94). Korea's economic development, although it is surprising and dramatic, has come with the price of less-developed labor relations. The combined effects of the chaebol, government and international investors have prevented better labor and management paradigms to be set in place, and the current IMF reforms seem to indicate that, once more, labor will be displaced with regard to economic power in Korea.

Works Cited

Chan, Sucheng. Asian Americans: An Interpretive History. Boston: Twayne Publishers, 1991.

Crotty, James and Gary Dymski. [1998a] "The Korean Struggle." Z Magazine 11:7/8 (Jul. - Aug. 1998): 42-45.

Crotty, James and Gary Dimski. [1998b] "Can the Korean Labor Movement Defeat the I.M.F?" Dollars & Sense 0:220 (Nov. - Dec. 1998): 16 pgs. http://www.melvyl.ucop.edu in the Magazine & Journal Articles database; search for James Crotty as the author (Feb. 15, 1999).

Economist. "New Illnesses, Same Old Medicine." 345:8047 (Dec. 13, 1997): 65-66. The Economist publishes all of its articles anonymously.

Gobat, Jeane. "International Monetary Fund." Republic of Korea - Selected Issues. 1998. http://www.imf.org/external/pubs/ft/scr/1988/cr9874.pdf (Feb. 15, 1999). Cited by page number.

Kolko, Gabriel. "Ravaging the Poor: IMF Indicted by its Own Data." Multinational Monitor 19:6 (June 1998): 20-23.

Lee, Charles S. and Michael Vatikiotis. "Open Sesame." Far Eastern Economic Review 161: 52 (24 Dec. 1998): 51.

Pak, Sejin. "Emergence and transformation of the South Korean model." Emerging Economic Systems in Asia. Ed. Kyoko Sheridan. St. Leonards, Australia: Allen & Unwin, 1998. 78-115.

Ramo, Joshua Cooper. "The Three Marketeers" Time 153:6 (Feb. 15, 1999): 34-42.

Schuman, Michael. "Driven by Recession, Koreans Rediscover Life on the Farm - Mr. Lee Owned a Seoul Store; Now, He and His Family Make Do by Raising Pigs." Wall Street Journal 89:126 (29 Dec. 1998): A1, A8.

Vogel, Ezra F. and David L. Lindauer. "Toward a Social Compact for South Korean Labor." The Strains of Economic Growth: Labor Unrest and Social Dissatisfaction in Korea. Eds. David L. Lindauer et al. Cambridge, MA: Harvard UP, 1997. 93-122.