|JPRI Working Paper No. 51: November 1998
The Faltering Economic Reforms of South Korea
by Robert J. Myers
While there has been a good deal of discussion about the causes of the Asian economic crisis in general and the fallout in South Korea in particular, there has not been much talk about South Korea's future political economy. The general assumption has been that the South Koreans will make a good thing out of the disaster and their acceptance of a hastily-arranged International Monetary Fund $58 billion bailout. The new president, long-time dissident opposition leader, Kim Dae-jung, seemed to be just the man to right the wrongs of the past and lead Korea into a free-market economy and democracy.
However, I believe that a fast economic recovery is not likely to occur. Too much emphasis has been placed on South Korea's ability to realize internal reforms, and expectations are too high that the old "miracle on the Han" that began in the 1960s can be restarted in the late 1990s. Most optimistic analysts are ignoring the extent to which the IMF-Kim Dae-jung "free market" solution is at odds with the Korean economic traditions of mercantilism and the chaebol (the Korean zaibatsu, or big business). And the chaebol are supported by conservative pressure groups and Kim Dae-jung's political coalition partner, now Prime Minister, Kim Jong-pil. When President Park Chung-hee, an authentic authoritarian, was in power in the 1960s and 1970s, Kim Jong-pil served as South Korea's first KCIA director and later as prime minister.
Kim Jong-pil is again prime minister, thanks to an uncharacteristic and brilliant compromise in Korean politics. Kim Dae-jung, as head of the National Congress for New Politics (NCNP), ran several times for president without winning. In the 1998 election he had two main problems: he was a regional candidate, with support mainly in the Cholla provinces in the western part of the country, and he had a reputation for being 'soft' on North Korea. Since Kim Jong-pil is from the southern part of the country and a staunch and well-known anti-Communist, Kim Dae-jung offered Kim Jong-pil, who is president of the United Liberal Party (ULP), the prime-ministership and an amendment to the constitution that would establish a parliamentary form of cabinet (perhaps on the French model) so that power might gradually shift from Dae-jung to Jong-pil. Unfortunately, in the wake of the economic crisis this deal already seems to be coming apart.
To start the recovery, the positive was accentuated. There is still the same determined work force, South Korea's single largest asset, and an experienced business group, the chaebol--family-run conglomerates that, like the Rockefellers, declared themselves ready to be of service to the nation. President Kim Dae-jung was a fresh and friendly face, at last the man of destiny, arriving at the precise moment to save his country from economic ruin. In early June of 1998, he made a well-orchestrated trip to the U.S.-- first to Wall Street (largely symbolic), then Washington, D. C., followed by Stanford University and Silicon Valley. He spread his message of the free market and democracy, and it was clear that he meant what he said. He would restructure South Korea's economy and reform the chaebol. While some listeners thought it was an odd way to go about creating a free market, Kim announced that "big deals" were in the works.
Back home, some chaebol leaders not only denounced the plan to their associates, but also in public. They wanted to "export" their way out of the crisis, said Kim Woo-chung, then chairman of Daewoo. Chairman Woo-chung made his views known at the same forum in a Seoul hotel attended by President Kim. If nothing else, it demonstrated democracy at work. But if the government and the chaebol do not really see eye to eye, the pace and scope of "restructuring" may be slow and tentative, as indeed they have been. President Kim complains regularly and loudly about this. Some of the friction may well come from an incomplete analysis or lack of consensus on what went wrong for Korea, both internally and in the external world. All of this needs to be better understood before the battle is joined in South Korea over what the proper policy for the near and long terms should be. World leaders are now beginning to focus on the global scene, and this too will have to be taken into account as South Korea surveys the economic wreckage.
The Korean Meltdown
For Korea, the critical economic moment arrived in early December, 1997, when then President Kim Young-sam claimed to have learned for the first time of the seriousness of the liquidity crisis. South Korea could not pay its foreign debts. He and his advisers decided that the IMF offered the best immediate solution and quickly arranged for a $58 billion bailout. This would hold off the creditor banks and shore up Korea's sovereign credit. It was about two weeks before the presidential election of December 18 and all candidates were pressed into agreeing to this step, however reluctantly. (Brazil, in September 1998, was faced with a similar crisis, also just before a presidential election, but declined the IMF offer because it did not want the accompanying "austerity" package.)
In my view, focusing on the South Korean debt/equity ratio as the proximate
cause of the trouble has only concealed the depth of both the economic and
political problems South Korea is facing. For example, John A. Mathews, in JPRI Working Paper 46 ("Fashioning a New Korean Model Out of the Crisis," May 1998) was positive and upbeat about the South Korean economic situation. The country was in the process, he believed, of turning in its old economic model for a bright new one, better and sleeker, attuned to the realities of economic competition in the 21st century. The problem, as he saw it, "was the redemption of $30.6 billion in debts out of a total external debt for domestic financial institutions of $103.2 billion, that encapsulates the core of the Korean crisis (p. 4)."
The reason for the build-up of this debt (in an economy of then $400-500
billion GNP) was in large part due to the liberalization of the credit market
beginning around 1990, when businesses could begin to borrow money abroad
without government approval. Alice Amsden and others have pointed out that this
amounted to a premature relaxation of government control on borrowing. It
contributed to the overextention of credit to major South Korean businesses and
accelerated the South Korean system of substituting loans for equity to finance
business expansion. The Hanbo steel scandal of early 1997 revealed that
trillions of won had been overspent on the construction of yet another steel facility,
made possible by the bribing of officials including former President Roh
Tae-woo, and the second son of the then president, Kim Young-sam. That son,
Hyon-chol, was jailed for his role in this affair, contributing to the decline
of his father's health and mental capacity during his last fateful year in
office. About $2 billion of the $6 billion investment could not be accounted
for. In the end, the Hanbo chairman and his son were convicted of taking a mere
$400 million of company funds. (See Leo Gough, Asia Meltdown: The End of the Miracle [Oxford: Capstone Publishing, 1998], pp, 112-13.)
The collapse of Kia auto in July of 1997 added to the growing debt pool and
also signalled the tightening of the saturated world auto market. But both of
these major indicators, Hanbo and Kia, were largely ignored or considered
exceptions. And as John Mathews pointed out, "Korea has faced huge crises
before and emerged stronger from the experience (p. 12)." Chalmers Johnson
opened a wider discussion of the Korean/Asian problem that, in my opinion, can
help us understand what is going on in South Korea and the difficulties
standing in the way of a short-term or long-term solution. In his paper,
"Economic Crisis in East Asia, the Clash of Capitalisms" (Cambridge Journal of Economics 1998, 22), Johnson goes beyond the liquidity crunch explanation to argue that general world over-capacity and the end of the Cold War in East Asia are also factors in what happened to the Asian economies.
This is getting closer to the complexity that faces South Korean policy makers. The first reaction of the new Kim Dae-jung administration in its dedication to the twin principles of democracy and free markets was to arrest the former deputy prime minister and minister of finance, Kang Kyong-shik, and the senior Blue House economic adviser, Kim In-ho, for failing to see the coming clouds and putting up the umbrellas in good time. The two have recently been released on bail, but I wonder what this example may mean for the new model of democracy. Who will volunteer the next bold program? The best that can be said for their arrest is that it is important to find out what went wrong; and bad policies such as lack of government control of chaebol borrowing, may be one thing. But this is hardly a sufficient explanation.
Like the rest of the world, South Korea was caught up in the vortex of
international economic turmoil that began in July 1997, when the Thai bhat came
under speculative attack because of over-valuation in the face of an
unsupportable debt. A version of this spread through Southeast Asia, before
reaching South Korea in December. Thus the disappearance of a sizable portion
of its Asian market is a factor that must be added to South Korea's collapse.
Chalmers Johnson has pointed out elsewhere that what was needed for continuing
prosperity in Asia was another major market, which he hoped would be Japan.
"One problem has always been Japan's comparison of East Asian economies to
a V-formation of flying geese with Japan always as head goose. . . . No one
never asked where these geese were flying. Up to now, they have been flying to
Los Angeles, but in the post-Cold War era, the United States can no longer play
its traditional role. A new primary market for Asian manufactured goods must be
found" (in Kenneth W. Thompson, ed., China, Taiwan, Japan, the United States and the World, University Press of America, 1998, p. 100). The search for such a market continues, and no one is more anxious to find this new El Dorado than the Koreans. The U.S. is staggering along with a trade deficit in the $200-300 billion a year range. Eventually such deficits will kill off American jobs and lead to a sharp decline in the value of the American currency.
One aspect of South Korea's search for a market for its products is China. For the U.S., as well as South Korea, China has been the market of myths, dating from the will-o'-the-wisp of "Oil for the Lamps of China." Instead, the American trade deficit with China is now running well over a billion a week. South Korea has succeeded, through diligent work, in maintaining a bilateral trade advantage over China so far: $59.4 billion in exports against $23.7 in imports for the first four months of 1998. At the same time, however, China is taking over what is left of Korea's battered exports to Southeast Asia, which are already down over 50 percent. Korea is now reduced in its Indonesia trade to barter arrangements.
In the 1960s, South Korea's success in building itself up as an export platform rested on four things: (1) a global demand for low-priced, high-quality consumer goods that allowed Korea to follow behind Japan in supplying them; (2) a determined leader, President Park Chung-hee, who saw trade at ever-higher levels of technology as the key to Korean wealth and national security; (3) a desire on the part of the U.S. to see Korea succeed--despite its reluctance to have Korea enter into steel and high-tech--as part of its own security alliance against China and the Soviet Union. (U.S. market access and technology transfer were exchanged for enhanced security.) And (4) the Vietnam war spurred Korea's economic growth. A final, more recent reason for Korean economic growth was the country's high expectations engendered by its participation in "Globalization."
Today, however, none of the first four conditions prevail: (1) China has moved into the niche Korea once held and will continue to move up the technological ladder. China trade will continue to expand in the region and in the world because Korea cannot compete on price with the Chinese. (2) The Korean leadership today is determined but still undecided about which direction to take and divided. President Kim's bold announcement on the 50th anniversary of the founding of the South Korean government (August 15, 1998) that "nation-building will restart" fails to note whether his prime minister and the Federation of Korean Industries are with him. (3) There is today considerable ambiguity about how far the U.S. will go to promote economic competitors in Asia. It may well be, as Chalmers Johnson has predicted, that the trade-off between trade and security in both Japan and Korea is aout to end. The Cold War has ended and a limited war in Asia as an economic stimulus does not seem likely.
Finally, globalization, once considered a potential boon, is instead taking its toll. In 1993, during the early days of Kim Young-sam's administration, it was embraced as a sign of modernity and trade opportunities without carefully weighing the negative possibilities. Thus Korea joined the Organization of Economic Cooperation and Development (OECD) in 1996. In retrospect, this seems to have been too much too soon and some warning voices (one of them Kim Jong-pil's) were raised at the time. Once South Korea's domestic market was exposed to the full range of international competition as a result of World Trade Organization (WTO) and OECD agreements, it immediately went into a trade deficit.
Aside from its more recent difficulties, South Korea suffers from a built-in paradox. At this moment, as it tries for the first time to attract substantial foreign direct investment--whereas previously it preferred easy loans that guaranteed continued Korean control--it wants the investment but it also cannot completely ignore the possibility that the North may attack at any moment. It uses this scent of danger to insure American military support and the support of the U.S. Congress for IMF funds. Money again takes on a security flavor. Korean defense spending has gradually fallen from 6 percent to 3 percent of the annual budget, but unless North-South talks produce tangible results, the percentage will need to rise again. Kim Dae-jung tries to walk along a narrow line between competing military and consumer interests. The Geneva Agreed Framework of 1994, wherein North Korea agreed to scrap its conventional nuclear program in exchange for supposedly less threatening "light water reactors," may be at stake. The $4 billion or so price tag, mainly to be paid by Japan and South Korea, looks increasingly unattractive, both because of the falling won and the launching of a three-stage missile by the North Koreans just before Kim Jong-il officially came to full power on September 5, 1998.
The North Korean military problem aside, the conditions that allowed South Korea to make such a spectacular entrance into the international economic scene in the 1960s are no longer present nor, in my opinion, are they likely to return. The IMF keeps up its self-congratulatory view that "South Korea's economy will contract this year as much as 6 percent, before turning around next year and resuming 'normal growth' by 2000." But I believe the Koreans will have to search hard for alternatives if they are to find their way back to the glory days as number 11 on the world trade list instead of today's ranking as number 19.
A South Asian journalist who visited Korea in August told me he was perplexed by the somber tone of the Koreans he met, their lack of verve and self-confidence. I observed some of the same atmosphere when I was in Seoul in June and interpreted it as a certain bewilderment, a waiting for the promised changes to materialize that are supposed to restore South Korea's economic health. The plan was for a two-stage reorganization of the chaebol, the first stage to involve seven business sectors: ship building, oil refining, railroad cars, aircraft, petrochemicals, semiconductors, and power generating equipment. The government called these realignments "big deals," although what role stockholders have in all of this in a "free market" economy is not clear. So far no money has changed hands and the marginal efforts to date have avoided addressing the word "overcapacity." Creating larger debt-ridden companies from smaller debt-ridden companies through amalgamation seems dubious economics.
Restructuring the Chaebol
One of the restructuring efforts to date has involved Hyundai Electronics and LG Semicon groups, which will create a joint new semiconductor company. There is an element of hubris in this plan and the Prime Minister's support of it. The world market for semiconductors is about $21 billion, of which the South Koreans control about one third. The overcapacity in this market is enormous, with some chips falling in price by about 80 percent over the past year. New plants in Taiwan and Singapore are coming on line, lemming-like. Down the road, there will have to be a vast restructuring of the entire semiconductor business, with the likely winners being Samsung of Korea, Hitachi of Japan, and Micron Technology in the U.S. Setting up a new semiconductor manufacturing company thus makes no sense, and it can only survive (if at all) through government support. The debts of this proposed new entity will also exceed the equity. This has been the story of the Korean semiconductor industry, which has been kept afloat with government money. At the moment, the U.S. Department of Commerce has placed restraints on Korean chips, and has charged Korean firms with dumping.
The really critical restructuring issue, however, is automobiles. Since the 1970s, Hyundai, the largest producer, and Daewoo have had a cartel. Then others entered: Kia, Ssangyong, and Samsung. Samsung started producing cars in March of this year, a case of truly poor market timing. Getting in the way of any rational solution to ease this vast overcapacity problem is the unrelenting intramural competition among the chaebol. Also at issue are the labor unions and a large helping of national pride.
National pride is perhaps the easiest to understand. In the 1960s and 70s every country in the world wanted to have its own airline, a fad that has now run its course largely because of the huge loses run up by inefficient carriers. Privatization and bankruptcy have taken care of the worst cases. Today, it is evidently considered a sign of economic maturity to have one's own auto factory. It is not enough simply to assemble cars; one has to make them from scratch if possible. Hyundai has relied heavily on Mitsubishi; Daewoo has had an off-and-on relationship with General Motors; and Ford Motor Company already owns 11.9 percent of bankrupt Kia. Auto manufacturing is considered to be a pillar of the South Korean economy, earning $10 billion in exports last year, about 8% of Korea's export total.
The leader of the Korean auto business is Chung Mong-gyu, chairman of Hyundai Motor Company and of the Korean Automobile Manufacturers Association. In the Association's current handbook, Mr. Chung says: "The growth of the auto industry in Korea also has a significant effect on secondary supporting industries including metals, plastics, machinery, rubber, textiles, electronics, petrochemicals, and many others. Thus, automobile production supports employment in a wide range of sectors throughout the economy, which is a benefit that is generally little noted." The aspirations of the association are world wide. "We are becoming more active in mergers and acquisitions through which we support jobs and technology introduction all over the globe and we are helping developing countries establish and expand their own auto industry."
The Association was bullish for 1998. If we take the U.S. market as representing 100 percent in terms of cars per capita, then the Korean domestic market currently stands at a quarter of that. To promote further exports, Korean autoworkers' wages are pegged at 40 percent of Japan's. And with the dramatic 40 percent devaluation of the won, that advantage will be even greater. The Association also felt it had a competitive advantage over China and Southeast Asia in terms of manufacturing facilities.
However, the Korean manufacturers are learning the limitations of price as
the only sales tool. With Kia's bankruptcy, the government became determined to
rationalize the industry. The first step was to place Kia up for bids. In the
first round, the bidders were Hyundai, Samsung, and Daewoo among the Koreans
(Ssangyong having earlier been absorbed by Daewoo), plus GM and Ford. GM
finally backed out, finding no fit, while the remaining bidders made their
offers contingent on the forgiveness of as much debt as possible. Kia's debt is
estimated at $10 to $12 billion. Because of these demands, the first round was
canceled and then the second round in September also failed for the same
reason. Ford threatened to back out altogether, saying that its pursuit of Kia
made little sense in view of this "unreasonably high amount of debt."
Ford may also have been adversely affected by a review in the New York Sunday Times of September 6, 1998, automotive section, where a new Kia model, the Sportage, was panned. The headline was "99 Kia Sportage Not Ready for Prime Time," and the conclusion was no better. "The primary appeal of the Sportage convertible is its devil-may-care looks, off-road capacity, and low price [$13,995]. But the sacrifices in terms of ride, handling, and fit and finish, are considerable."
A third round of bidding including the three Korean companies and Ford ended on October 19, 1998, with Hyundai as the winner. Like the Hyundai Electronics/LG Semicon merger, this of course produces no new external infusion of funds. Any improvement in sales for Kia also assumes a rising market both at home and abroad. Here one should remember that with the devaluation and the IMF's austerity program, the per capita income of Koreans has fallen from $10,000 in 1996 to about $6,100 today. This has effectively eliminated most of the "middle class" Koreans from the regular auto market. Minicars, selling for around $5,000, are now a hot item in Seoul.
With the auto dilemma still far from resolved, the bad news continues to pour in. South Korea is now suffering the worst domestic slump among major economies. A new devaluation may be just over the horizon. According to the Daewoo Economic Research Institute, domestic demand has declined 28 percent compared to last year. This is a historic figure. In Indonesia and Thailand, for example, also IMF beneficiaries, domestic demand fell 20.5 and 14.2 percent respectively. What about the prospect for a large influx of foreign capital, which President Kim still anticipates since his trip to Wall Street and Washington? With the exception of Japan, South Korea rates the lowest in the world in attracting foreign capital. The figure between 1992-97 was 0.9 percent, compared to Japan 0.1, China 13, Singapore 25.4, and the U.S. 4.4.
What these figures suggest to me is that the South Korean economy will continue to decline well into next year, with little chance of a significant recovery. Historic negative attitudes toward foreign investment (in considerable part because of Japanese colonialism), a loss of market share in the U.S. and Europe, not to mention in Asia, cannot be cured easily or quickly. And ultimate recovery depends on a general improvement in the world economy. A further very substantial problem for South Korea is that in the midst of this crisis, the South Korean government is going through the motions of revamping the chaebol, allegedly dismantling that system and the iron triangle of government, banks, and business. This is not only difficult; it may not be successful. And what will be left in their place? It is no wonder that the pro-chaebol factions are skeptical of the glitter of the "free market."
This is why one has to ponder Kim Dae-jung's economic program. The actual "restructuring" of the chaebol, which control an increasing share of the national wealth, has yet to begin. In the first seven months of this year, the five top chaebol issued about $12.5 billion in corporate bonds, or 77.8 percent of the domestic volume. The comparable figure for last year was 39.8 percent. Analysts place no credibility on the semiconductor chip merger between Hyundai and LG Semicon, the first of the so-called "big deals." This feeble effort, however, seemed to satisfy the president at this juncture. After just six months in office, he apparently believes that the economy is now in hand. On August 24 he announced that he will "now turn [his] attention to political affairs and push for radical reform of Korean politics." This is not to say that reform of the Korean political system is a bad idea, and such a reform might accomplish important results. But with phase one of chaebol reform meaningless and phrase two underway, President Kim seems to be too complacent. Unemployment is over 1.7 million (about 8 percent), three times what it was last year, and if the chaebol reforms actually take hold, much more unemployment may be one result.
The Hyundai auto strike over the proposed reduction of the work force by
8,189 wound up, after government intervention, producing a reduction of 277.
President Kim deplored his government's intervention, but what can a poor
populist do? His popularity is on the rise, from 43.1 percent in July to 58.3
in mid-August, with only 9.8 feeling he was doing a bad job. This is partly
because the nation's largest daily, the Chosun Ilbo, is now supporting the President and others are falling into line. This level of popularity is essential if Kim is to accomplish his political reforms and then, in the winter, face up again to the economic problems.
As for political reform, Kim's prosecutors are busy rooting out corruption in election fund-raising cases, although they are so far focussing primarily on the opposition--the Grand National Party (GNP), a different name for the long-standing conservative successor to Kim Young-sam's New Korea Party. During the summer, President Kim's NCNP and his partner Kim Jong-pil's ULP, wooed away enough GNP members to gain an absolute majority in the National Assembly. This new coalition finally approved Kim Jong-pil as prime minister, a move they will probably live long enough to regret. Kim Jong-pil is now in the official residence, promoting the old ways and playing a stronger role every day in the "second nation-building program" that Kim Dae-jung announced on August 15, 1998, celebrating the 50th anniversary of the founding of the Republic of Korea.
President Kim seems to be pressing for recognition as an "economic
president," much as George Bush did when he wanted to be the
"education president." Korea University recently gave President Kim
an honorary degree in economics. A new book entitled Opening Tomorrow Together With the People was published on September 1, containing a blueprint of Kim's economic reforms based on democracy and the market economy. The book was hastily completed in three months' time using contributions from 29 ministries, 10 government think tanks, and a large roster of academics and journalists.
"The Koreans should concentrate on democracy and market economy in tandem with the creation of a society filled with competition and originality," writes the president in the preface. There is also a dash of egalitarianism, an exhortation to "share the pain" in overcoming the economic trials and carrying out the ambitious reforms that will clear the path to future growth. This is a grand effort compared to Kim Young-sam's 1993 28-page plan for "Shifting Toward the New Economy, Korea's Five-year Economic Plan, 1993-97." None of that plan was implemented. Had it been, the financial sector, for example, might have been improved and some of the loan excesses and currency problems of last year might have been prevented. But now, whatever the Koreans are able to do for themselves, they are only a relatively small part of the problem. South Korea has "globalized," and stands as a small player and small pawn in the world economy.
The IMF program will continue for 3 to 5 years, and the IMF is showing some flexibility in the Korean situation. There may be selective "pump priming" efforts to energize public works and start dealing with unemployment. The IMF discipline has resulted in a huge increase in South Korea's foreign exchange reserves, from about $3 billion in February to around $46 billion in September. Another currency crisis could nonetheless occur next year; Korea's external debt is still around $165 billion, slightly over half of the projected GNP. A temporary foreign exchange surplus is a typical result of IMF-imposed austerity, a key ingredient of which is to slash imports. South Korea has set about this with gusto: for example, U.S. agricultural imports, previously around $8 billion, are now about zero.
While one should admire this aspect of the IMF's success, the reduction of Korea's international imports on this scale does not bode well for a later increase in exports. South Korea is resource poor, and exports are obviously closely related to imports as well as to the country's standard of living. If the new economic plan, much esteemed by American neoclassical economists, does not work, a new version of the old autarchic, mercantilist system may rear its head, sealing off the Korean market to the benefit of the chaebol, with piratical export raids as opportunities present themselves. Kim Jong-pil's star will start to rise in the second half of the Kim Dae-jung term.
Already both Malaysia and Hong Kong have placed restraints on their stock markets and capital movements. The idea that capital flows everywhere and at all times should be free has been tested in Asia and Latin America and Russia. Some find it lacking. South Korea as a "middle economy" has much to consider during the Kim Dae-jung/Kim Jong-pil era, recognizing the contradictions in policy and approach between the two leaders, if South Korea is going to stage a successful launch into the Twenty-First Century.
Given the number of relevant factors, both domestic and international, facing the Kim Dae-jung reform programs, what are the most likely results? Korea is an inherently very conservative country. A victory for the old guard would also reflect the realities outside the orbit of Korean domestic economics and politics. The trend of "globalization" will be in the hands of the principal player, the U. S., which pretends that controversial reallocation schemes are the work of the IMF. In truth, the IMF is simply another American financial tool. Meanwhile, the trend in Asia is demonstrated by Malaysia and Hong Kong, the slowness of Japan to "reform," and China's growing reluctance to join the WTO. Classical economics may become an issue rather than a solution. As the bail-out of the Long Term Capital Management hedge fund dramatically demonstrated, even for world-class capitalists free-wheeling capitalism may be all right most of the time, but not all of the time.
In my opinion, South Koreans will grow tired of President Kim's rhetoric by the end of this year, the unemployment rate will rise to over 10 percent, and the economy will continue to contract next year by another 5 or 6 percent. Exports will also continue to sink because of the stagnant world market and the intensity of competition. There is no indication that the Korean military has so far played any role in the politics of 1998, having been defanged earlier by Kim Young-sam. Instead, South Korea's future will hinge on President Kim's free-market dreams, which I believe will be increasingly compromised as the balance of power shifts to Prime Minister Kim Jong-pil. The result will be a scaled-down version of the Korean economic system of old and a disengagement from globalization and the American capitalist model.
ROBERT J. MYERS was President of the Carnegie Council on Ethics and International Affairs in New York from 1980 through 1994. Prior to that, he was publisher of The New Republic and served twenty years in the U.S. military and the CIA. He is currently a research fellow at the Hoover Institution at Stanford. His forthcoming book is U.S. Policy in the 21st Century: The Relevance of Realism (Louisiana State University Press, March 1999). The author wishes to thank Thomas Henriksen, associate director of the Hoover Institution and head of the Hoover Korea program, and Victor Cha, visiting National Security fellow, for reading this article in draft form and making valuable suggestions.