Developmental Mindset: The Revival of Financial Activism in South Korea

Cornell Studies in Money

by Elizabeth Thurbon

The Asian financial crisis of 1997–1998 was supposed to be the death knell for the developmental state. The International Monetary Fund supplied emergency funds for shattered economies but demanded that states liberalize financial markets and withdraw from direct involvement in the economy. Financial liberalization was meant to spell the end of strategic industry policy and the state-directed "policy lending" it involved. Yet, largely unremarked by analysts, South Korea has since seen a striking revival of financial activism. Policy lending by state-owned development banks has returned the state to the core of the financial system. Korean development banks now account for one quarter of all loans and take the lead in providing low-cost finance to local manufacturing firms in strategic industries. Elizabeth Thurbon argues that an ideational analysis can help explain this renewed financial activism. She demonstrates the presence of a "developmental mindset" on the part of political leaders and policy elites in Korea. This mindset involves shared ways of thinking about the purpose of finance and its relationship to the productive economy. The developmental mindset has a long history in Korea but is subject to the vicissitudes of political and economic circumstances. Thurbon traces the structural, institutional, political, and ideational factors that have strengthened and at times weakened the developmental consensus, culminating in the revival of financial activism in Korea. In doing so, Thurbon offers a novel defense of the developmental state idea and a new framework for investigating the emergence and evolution of developmental states. She also canvasses the implications of the Korean experience for wider debates concerning the future of financial activism in an era of financialization, energy insecurity, and climate change.

240 pages, Paperback

First published April 26, 2016

Reviews

[Zhenyao Li · Rating 3 out of 5]

This book wants to analyze the reason of the reappearance of the interventionism after 1997. And believes in the necessity to bring “idea” back into the related discussion. The development mindset of this book means national techno-industrial catchup and export competitiveness via strategic interventions. It is not about several policies or the acts of the intervention per se, is more about a consensus among elites about how to best realize those ambitions.
This book is evidently influenced by Kohli a lot, the analysis until the end of Park therefore lack of some originality from authors. I wasn’t impressed since I have read Kohli’s book. since the author is emphasizing the importance of presidential influence, it is inevitable to place a lot of emphasis on different presidents, which make the entire book less interesting and lack a taste of structure.
The analytical structure is poor, the duality of domestic and international environment is old fashioned, and I did not see a lot of narrative distributed for analyzing interactions between ideas and institutions.
In essence, the five points emphasized by author really gave nothing new: crisis, powerful president, like minded officials, meritocratic bureaucracy ( MITI), PFI. It especially failed to answer one crucial question: if the institution is thus solid, why we could not prevent the democratization period.