Follow the Leader: America’s Near Half Century of Decline and its Implications for South Korean Neo-Liberalism

(Source: Al Jazeera)

by Kevin Nugent/Love and Rage

In a 2002 episode of the Simpsons, Homer exclaimed, “Canada? Why should we leave America to visit America Junior?” Canada is sometimes the butt of this quasi-derogatory joke for the perception that it copies the United States’ economic and political cultures. After living as an American expat in South Korea and following Korean politics, I suspect the term “America Junior” may more aptly be applied to my new country of residence. In truth, Canada is more accurately described as a sibling of Europe, while South Korea seems more eager to mirror the actions of its western big brother.

The parallels between the United States and South Korea are actually quite striking. Both began their modern eras in periods of war and severe distress; a pair of World Wars and the Great Depression for the United States, and the Korean War, also known as “Six-Two-Five” locally, for South Korea. Similarly, the post-war periods of both countries were characterized by social upheaval and political reforms, leading to a decade or so of relative prosperity thereafter. America’s social movements included those for civil rights, reduced military conflict abroad, and sexual liberation in the 1950s and 1960s. South Korea’s political metamorphosis took the form of democratization and unionization campaigns in the 1970s, which led to the Gwangju Massacre in 1980, the June Democratic Uprising of 1987, and ultimately the end of authoritarian rule in South Korea.

Over the last four decades, however, the United States has begun to upend the economic progress it had made by instituting neo-liberal reforms, namely giving political preference to the business class, engaging in dramatic austerity measures, privatizing public services, crushing unions and collective bargaining rights, and reducing barriers to international trade. Unfortunately, South Korea seems to be headed down a similar path, as the country has begun enacting policies similar to those that have severely damaged the American middle class. South Koreans will likely see the same increase in economic inequality and socio-economic tensions that the United States has experienced since the mid-1970s. Some argue that it has already begun.

1900-2015: The “American Century” and Beyond

The United States experienced a great deal of hardship at the start of the 20th century. World War I, the Great Depression and World War II cemented a feeling of trauma within the people now referred to as the “Greatest Generation.” Following World War II, America went through an era of radical social change, namely the end of legalized segregation with the rise of the Civil Rights movement, as well as the push for peace, love and sexual freedom. The economy was strong, and the benefits of economic growth were widely distributed, rather than concentrated at the top. There was good reason to be optimistic about the future of American progress in the 1960s, though most were unaware of what was to come.

In the early to mid- 1970s, neo-liberal globalization began to take hold, resulting in a dramatic shift in where American goods were produced and how American workers were expected to earn a living. President Nixon traveled to China in February 1972 and began loosening trade restrictions with the country that had been built up over the course of the Cold War. On January 1, 1979, President Carter signed the ‘Joint Communiqué of the United States of America and the People’s Republic of China,’ which officially normalized relations with China and further reinforced the significant impact China would have on the future of the American economy. Due to the cheap labor, weak labor protections and lax environmental protections in China (and places like it around the world), Americans jobs began to be outsourced at a rapid pace.

Neo-liberal administrations, from Reagan to Clinton to the Bushes and Obama exacerbated economic changes by giving preferential treatment to the wealthy, weakening financial reform, attacking unions, and squeezing or privatizing social programs. President Reagan famously defeated the National Air Traffic Controllers Association in 1981, signaling the end of political support of unions at the federal level. Between 1980 and 2013, the percentage of Americans affiliated with unions slipped from 21% to only 11%, a drop of nearly 50%. During the same period, Reagan promoted the notion that government is the main source of societal problems, thus clearing the way for financial deregulation, budget cuts and reductions in taxes for the wealthy. Presidents Reagan and Clinton were both major players in the dismantling of a great deal of Depression era financial and banking regulations like Glass-Steagall, and filled their administrations with lobbyists and representatives of the business class.

Beginning around the late 1980s, protectionism was abandoned in favor by various free trade agreements, with one of the most notorious being the North American Free Trade Agreement signed by President Clinton. NAFTA, as it is commonly known, has undercut the American workers’ ability to compete internationally and has allowed good paying American jobs to be outsourced to places with substandard environmental controls and little to no unionization. Today, President Obama seems increasingly determined to pass the next major free trade agreement, the highly controversial Trans-Pacific Partnership.

Austerity has also been a common policy mechanism in the United States in recent decades. The Reagan administration tightened the screws on Social Security in the 1980s by cutting benefits and raising the retirement age. With the help of President Clinton, House Speaker Newt Gingrich’s 1994 ‘Contract with America’ significantly reformed entitlements like welfare and made the poor more vulnerable to changes in the economy, like globalization and automation. A wide range of austerity measures have been imposed on the American people in recent years, including cuts to education and tuition supports, public healthcare and wellness programs, food stamps, and many other programs utilized by the poor and middle class.

In summation, the mid 1970s marked the beginning of end of the post-war economic boom. No longer would an American family be able to get by on a single income. Women increasingly entered the workforce as their husbands’ take home pay stagnated or fell relative to the rising cost of living. Families took on increasing amounts of debt and worked longer hours to maintain the same standard of living that they had enjoyed for years. The combination of reduced government tuition funding and skyrocketing tuition rates resulted in college graduates leaving school tens of thousands of dollars in debt, and entering into an increasingly dire jobs market. While neo-liberalism has been a boon for the American CEO, it has been disastrous for the American worker.

1950-1987: The End of Authoritarian Rule in South Korea

Like the United States, Korea began life in the modern era in a time of extreme trauma and violence. The scars created by the Korean War are a lasting reminder of the Cold War, as the border between North and South Korea is essentially the last major geopolitical manifestation of our passive battle against the Soviet Union. It might be said that South Korea is still living under a mild state of cold war, ever aware of the constant threat of an incursion with its nuclear neighbor to the north.

After the end of the Korean War, South Korea experienced a period of social rebellion in the 1970s and 1980s. In 1972, South Korea found itself under an authoritarian leader who had dissolved its National Assembly and instituted a new constitution. The new system of governance, which did away with previous presidential term limits and granted the president a suite of new powers, was approved by a pseudo-referendum; a full 92.3% of the people supposedly supported the new constitution, which in reality is highly implausible. This presidential power grab contributed to the push for democratization, led primarily by students and laborers.

In 1979, five years after the president has dissolved the National Assembly, authoritarian control was still in place and often included state-planned labor that paid little and required long hours. This type of harsh, state-sponsored working environment was sometimes enforced by physical violence and was a significant factor leading to the democratic revolts in the spring of 1980. On May 17 of that year, a state of martial law was declared to quell a popular revolt against the overbearing sitting government. Students gathered outside the shuttered Chonnam National University to protest conditions under which they were expected to live, work and study. When word got out, the resistance quickly snowballed across the country. In an event now known as the Gwangju Massacre, the military opened fire on protesters on May 21, killing hundreds, if not thousands, of protestors (the total number of casualties is still disputed). Unfortunately, South Korea wouldn’t free itself of authoritarian rule for another seven years.

On June 10, 1987, another round of pro-democracy protests began to spring up in South Korea. Later labeled the June Democratic Uprising, the protests began when President Chun Doo-Hwan announced his successor without the democratic input that had been promised. Students, religious groups, organized labor and others formed massive demonstrations against the government, just one year before the scheduled Seoul Olympics in 1988. With the global community watching, the president was unable to use excessive force to resist the uprising as had been done in the past. He ultimately relented and allowed free and fair elections, laying the groundwork for a democratic future.

Unfortunately, South Korea would begin to undo the progress it had made in the late 1990s, just as the United States had done in the 1980s. The Asian Financial Crisis of 1997 marked the advent of a neo-liberal political zeitgeist in South Korea, one that still exists today. This new political culture is remarkable similar to that of post-1975 America.

1997 to Today: The Rise of South Korean Neo-Liberalism

When the Asian financial crisis began in the late 1990s, South Korea was hit particularly hard. In 1997, the International Monetary Fund offered to assist South Korea by providing $55 billion in loans to help the country stay afloat. However, the capital had some serious strings attached. Korea would only be allowed to accept the money on several conditions, namely a restructuring of its socio-economic systems, the privatization of a great deal of government enterprise, massive layoffs of workers, severe austerity measures, the deregulation of business, and a weakening of organized labor. The goal of these reforms was to allow transnational capital easier access into and out of the country, and make the creation of profit more efficient. This agreement can largely be viewed as the beginning of neo-liberalism in South Korea.

The first condition imposed by the IMF was a massive restructuring of South Korea’s established political and economic mechanisms. These included Korea’s systems of banking, finance, education, corporate structure, information technology and public administration. This “restructuring” primarily took the form of corporate deregulation, increased interest rates, lay-offs, relinquishing local control of certain businesses and industries, and loosened restrictions on investing and banking activity. The IMF sought to make South Korea’s economy more conducive to international monetary exchange and bring the country into the globalized economy. Unfortunately, it inflicted a number of negative consequences on the people of Korea; so many in fact, that some Koreans refer to the economic crisis of 1997 and 1998 as the “IMF Crisis.”

As previously stated, one component of the deal struck with the IMF was the privatization of a significant portion of South Korea’s public sector and publicly owned corporations and natural resources. Public goods and services were forced to be relinquished by the government, and would instead  be managed via a profit-driven, market-based model built on a foundation of international trade. The government’s role in the production of Korean steel, iron, gas, electricity, building construction, tobacco, ginseng, telecommunications, and even textbook printing was largely shifted into the global market. The privatized industries were now controlled directly by transnational corporations in some instances, and indirectly by transnational capital in others. The push for the privatization of Korean public services continues today. For example, the Korea Railway Corporation fought to corporatize the KTX bullet train just last year.

The Korean labor movement, which had been building in South Korea for decades, found continued operation increasingly difficult after the IMF intervention in 1997. In the early 1990s, unions and businesses had worked together in an attempt to manufacture a consensus. In 1993, the Federation of Korean Trade Unions met with the Association of National Businessmen in order to broker a social contract on the nature of labor in Korea. In April 1996, the ‘Committee for Reform of the Employer-Employee Relations’ was founded in order to assist in negotiations between management and labor.

Between the IMF’s presence in the aftermath of the 1997 financial crisis and the Trade Union Act that had been rushed through the National Assembly in December 1996, organized labor in Korea found itself on the ropes. In 1999, the Committee for Reform of the Employer-Employee Relations was abandoned, and by 2002 the Korean government had passed legislation laying out special “economic zones,” in which legal labor protections were not applicable. Labor protections were slowly replaced by “right-to-work” style legislation, further weakening the bargaining power of organized labor across the country.

The various attacks on labor eventually led to a massive rise in what are known as “precarious workers,” similar to part-time or temp workers in the United States. By some estimates, precarious workers make up nearly half of the current South Korean workforce. General Secretary of the International Metalworkers’ Federation Marcello Malentacchi remarked in 2008 that 70% of female workers in South Korea were precariously employed and earned less than half as much as their regularly employed male counterparts.

Initially imposed from the outside from the IMF, austerity has also been increasingly employed in South Korea since the late 1990s. To demonstrate this trend from a personal perspective, my position as a native English-speaking teacher in South Korea is a permanent fixture on the chopping block in budgetary debates. Some provinces have been forced to completely eliminate native English-speaking education programs, or cut services in other areas to continue to provide these programs to Korean students. The number of native English-speaking teachers in Korean schools has dropped from 9,320 in 2011 to just 6,785 this year, a reduction of almost one third over a four year period. This is a microcosmic example of the budget cuts and resulting lay-offs common in Korea since 1997. These austerity policies have also contributed to the rise in precarious workers noted earlier.

As previously mentioned, the primary aim of the reforms proposed by the IMF was to bring international capital into the country, and facilitate the creation and extraction of profit. One of the most striking examples of this was the purchase of Daewoo Auto by General Motors at far below market value in 1997. GM ordered a sweeping corporate reorganization and massive lay-offs at Daewoo before the merger would be approved, thus contributing to unemployment and significantly weakening the power of the Korean automobile union. With organized labor on the decline, doing business in Korea became cheaper and more profitable for the international business class.

During the post-crisis period, South Korea also accelerated its quest to enter into the competitive global market and forge free trade agreements with other nations. South Korea began signing major free trade agreements with countries around the world in the early 2000s; Chile in 2004, Singapore in 2006, and the United States in 2007, just to name a few. In fact, South Korea signed a major free trade agreement with China just a few months ago. Inked in June 2015, the agreement eliminates tariffs on approximately 90% of the goods and services exchanged between China and South Korea. This is great news for the Korean business class, but largely leaves the Korean worker hung out to dry.

Swelling Economic Inequality in the United States and South Korea

The South Korean government, in collusion with the International Monetary Fund, has systematically crushed organized labor, expanded free trade, privatized public services, imposed austerity, and deregulated private enterprise. If these changes sound familiar, it’s because they are. South Korea is imposing the same policies that have caused massive economic inequalities in the United States, leading to similar results.

Due to decades of neo-liberal policies, the United States is currently experiencing levels of economic inequality not seen since before the Great Depression. Economists note that the graph representing American economic disparity resembles a “suspension bridge.” Two huge spikes of inequality can be seen around the years 1928 and 2007; years which coincidently saw economic collapses immediately thereafter. In-between the 1928 and 2007 peaks, the “suspension bridge” income inequality graph shows prolonged period of shared prosperity, with economic disparity bottoming out around 1975. In short, the middle class has been increasingly feeling the economic squeeze for decades. The economic turmoil felt by the middle class in recent years is evidenced by the political upheaval on both sides of the spectrum over the last few election cycles. Movements like the Tea Party and Occupy Wall Street have sprung up in response to a widespread feeling that government has abandoned the average citizen and that the middle class has lost a great deal of economic strength.

(Source: 'Inequality for All')

(Source: ‘Inequality for All’)

According to Professor Jongil Kim of Dongguk University, South Korea is also experiencing a dramatic increase in economic inequality. Kim analyzed data from Korea’s recent household and tax surveys and found that that income inequality “has been rapidly increasing since the mid-1990s.” He reported that the top 10% of Korean income earners took home about 45% of the wealth in 2012, meaning that inequality is higher in South Korea than in Japan, and is quickly catching up to that in the United States, where the top 10% of earners have more than 60% of the overall wealth of the country.

In Conclusion

Neo-liberalism borrows the worst elements from philosophies on both the political left and right. It marries the left’s support for a large, active government with the right’s preference for big business, free trade and privatization. The result is an ideological monstrosity that destroys the basic economic bargain, leading to dramatic increases in economic inequality wherever it is tried. Both the United States and South Korea can expect to see increasing economic, political and social distress until they decide to abandon disastrous neo-liberal policies.


Kevin Nugent is an Oriskany, NY native who is currently teaching English with his wife in South Korea. Kevin previously sat on the Board of Directors for Central New York Citizens in Action, Inc. and taught as an adjunct lecturer of Government and Politics at Utica College.

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