Download 슬라이드 1 - Konkuk

Financial Crisis
and
Prospects for the
Future
Chapter 14
Stages of Development

World Bank classification




Low income economy (per capita GNI < $745 in
2001 prices)
Middle income economy
High income economy (per capita GNI > $9205 in
2001 prices)
Michael Porter’s development stages



Factor-driven stage
Investment-driven stage
Innovation-driven stage
Korea’s Visions by Decade

1960s: Growth at any cost to catch up with and surpass North
Korea

1970s: HCI (heavy and chemical industry) drive in pursuit of
self-defense and self-reliance

1980s: Democratization

1990s: Globalization

2000s: High income economy/innovation-driven economy (a
core economy)
Factors Behind the 1997
Financial Crisis

Change of economic policies’ general direction

Supply factors

Demand factors

Management

Firms and industries

Government

Internationalization

Chance variables
Foundations Weakened

President Kim Young-Sam: pro-(labor)union, anti-chaebol, anti-capitalist

Thirty decades of opposition (to Park Chung Hee, Chun Doo Hwan and Roh Tae
Woo)

Trying to reverse the policies of his predecessors

Specific policies included:




Encouraging high wages
Maintaining high interest rates
Overvalued currency
Discouraging borrowing by big firms from the government-controlled banks


Hyundai group could not get loans from the banks due to which it avoided the dire effects of
the 1997 crisis
These policies have greatly weakened Korea’s global competitiveness
Supply Factors

Four Highs





Wages (increased production costs reducing
competitiveness of exports)
Interest rates (borrowing for investment into capital more
expensive)
Land prices (land is part of the businesses’ fixed costs of
production)
Consumer goods prices in general
Three Lows



Technology
Efficiency
Value added (difference between sales and costs)
Demand Factors

Overvalued Korean won made it cheaper for
Koreans to buy foreign goods thus hurting
domestic industries, including the exportoriented ones

Deterioration of exports decreased Korean
global competitiveness

Both domestic and foreign markets are hurt
Management

Management has been historically
growth-oriented, global
competitiveness not an issue

Family-type system of management
often resulted in cronyism

Hanbo Steel
Firms and Industries

Excessive government regulation made it very difficult to start a
new firm in Korea

Big firms being the backbone of the Korean economy made
foreign borrowing excessive

Korean banks largely considered a policy instrument for the
government rather than financial intermediaries channeling
savings into productive investments


Financial sector underdeveloped, did not meet international banking
standards
Banks’ capacity to evaluate risks and benefits of investment
projects (crucial for making sound decisions on loans!) extremely
low
Government

High wages, high interest rates and overvalued
currency

All three undermine Korean global competitiveness

Erosion of global competitiveness resulted in low
stock prices so firms could not gain much from being
traded on the stock exchange

Tight monetary policy led to scarcity of domestic
loans making interest rates exceed the international
ones which in turn made foreign borrowing more
attractive
Internatiolization

Kim Young Sam’s goal of joining OECD required
liberalization (opening up) of domestic capital and
financial markets to the rest of the world

Korean financial sector was highly underdeveloped at
the time

Private sector used liberalization to borrow more,
making Korea more vulnerable to fluctuations in the
world economy, also more indebted
Chance Variables

Chance variables are economic factors exerting
substantial influence on the economy but also being
out of control by the domestic government

Japan’s economic slowdown in 1990s (recession)

Economic crisis in Indonesia and Thailand

Worldwide decline in demand for computer chips,
ships, automobiles and textiles
Economic Effects of the World Cup

Increase in self-confidence and selfassurance

Improved image of the country

Increase in competitive spirit

Tourist spending
2010: Projection of Korea’s Standing
US
Luxembourg
Japan
Finland
Germany
Ireland
South Korea
USD 45300
38100
32800
32400
31100
31000
31000
Directions of Development at
Innovation-Driven Stage

Expand government spending on R&D

Promote venture capitalism (simplify procedures of going
public/getting listed on stock exchange thus allowing small and
medium-size firms to borrow funds directly from the general
public by issuing stocks)

Improve financial and legal arrangements for new startups

Improve legal procedures for intellectual property rights

Reduce government interference in the economy
Advantages of Korean BGs
(Chaebols)

Economies of scale and scope

Information collection and use, especially important in the global
knowledge-based era

Use of management resources

Financial mobilization and allocation

Global marketing

Education and training of employees

Bargaining power