Neoliberal Paradox? Explaining the Unremitting Corruptions in the Deregulated Korean Economy

Abstract

The recent financial scandal in Korea surrounding savings banks call into question two kinds wisdom we have about corruption: corruption is a result of political rent-seeking, and corruption in East Asia is manageable with the help of the centralized and strong state. Contrary to the expectation that the double advent of democratization and globalization would scale down, if not eradicate, such a political rent-seeking, the recent corruption seen from the scandal has been encompassing the entire regulatory regime. The profile of the corruption was also ugly along with blatant trades between regulatory favors and bribes. This paper defines the Korean scandal as a bureaucratic institutional corruption resulting from the decline of a few management mechanisms occurred throughout the political and economic liberalization during the 1990s. First, the financial scandal is understood in this paper as a policy failure involving misbehaviors while implementing regulatory policies, differently from a generic political failure where policy favors are awarded to selected businesses in return for payments, mostly illegal, at the stage of policy making. It happens with an unsettled economic reform like in Korea where the liberalized financial market meets with a few still highly discretionary government policy agencies. Second, a few fallouts of bureaucratic institutional deterioration or abuse have collectively driven the financial regulatory regimes down to corruption. Most fatal, this study suggests, is the disruption of deferred compensation to policy agents.