How Did Law Matter for Korean Economic Development?: Evidence From 1970s.1)
Young Hoa, Jung2)
Abstract:
I can confer the legal institutional factors, which were bureau centralism of the success
and failure in Rapid economic growth from 1961 to 1979. The centralized decision making
and cooperative council worked efficiently to detect and resolve these coordination failures
through a stable and trustworthy legal incentives.
The question concerning how does the role of law matter in Korea economic growth from
1960s to 2000s is absolutely crucial to both experience and theory of economic policy. I
suggested two possible dimensions of legal institutions which can be classified the
substantial mechanism of resource allocation by decision-making such as market and state
plan, other procedure enforcement tools which are a bureaucratic discretion/direction as
informal institution and an autonomous law as formal institution. Moreover, I reviewed the
key evidences of bureau-centralism and cooperative council of bureaucrat-firm relationship
in behind of success and failure of rapid economic growth. Korean evidences of
development and law can give us the fact that too much formal institution adopted too
quickly may be as much a deterrent to economic change as the more informal institutional
problem of too little law.
Ⅰ. Introduction
The relationship between law and economic development has been a central concern of
legal
and social theory, providing a focal point for the analysis of Marx, Durkheim,
and Weber. The law and development movement ultimately fizzled, and with it went the
budgets for legal policy reform in developing countries. Today the relationship of law
and economic development is again at the very forefront of development policymaking, as
government agencies, international organizations, and the non-profit sector advocate
the need for strengthening the rule of law in developing countries. By most accounts,
law has not played a major role in Asian economic growth. Scholars have placed more
emphasis on particular policies, institutions, and cultural underpinnings rather than
1) This paper is presented for The 2012 Annual Meeting of Korean Economics Association(2012 June 20-21st).
2) Professor, Chonbuk National University Law School.
- 1 -
on law per se. For example, the World Bank study, The East Asian Mircle, does not
discuss the legal system.
There is clearly a tension between the centrality of law in theories of development
and existing evidence from Asia. There are two possible resolutions of this tension,
one empirical and the other theoretical. One possibility is that existing evidence is
insufficient and that a more detailed study of Asian legal institutions would elucidate
their central importance in Asian Growth. The other possibility is that theoretical
assumptions of scholars about the universal importance of legal institutions are
mistaken and that there is a need to adjust conceptual frameworks accordingly.
1. Whether Korea had a model of Law and Development?
The 1960s marked the stemming tide of systematic reform efforts by international
development agencies and the first effort to create an academic “field” for the study
of law and development (Trubek 2012). In 1970s, law and society scholars drew on the
tradition of “Law and Development Movement” to inform international development
policy which was focused on Latin America. They were informed by an activist vision of
law as a tool for social change, suggesting the possibility of a theoretical
development policy paid into law (Tamanaha 1995). However there is a tension between
law in the theories of development and existing evidence from Asia as well as South
Korea. There are at least two possible resolutions of this tension, one empirical and
the other theoretical. Even though existing evidence is insufficient, it needs more
detailed analysis of legal institutions for importance of economic growth. In actual,
the questions of whether and how law matters for economic growth in Korea are of great
importance for both theory and practice.
There are recent studies concerning these questions in different ways. They expand the
empirical base for the study of Asian Economic law and suggest new directions for
policymakers concerned with the role of law in development.
(1)"LegalInstitutionsinAsianEconomicDevelopment,1960~1995",written by Katharina
Pistor and Philip A.Wellons(1999),is the outcome of a comparative study conceived and
funded by the Asian Development Bank(ADB)and executed by the Harvard Institute of
International Development.
(2)"Law, Capitalism, and Power in Asia: The Rule of Law and Legal Institutions(1999)",
edited by Kanishka Jayasuriya, a project of the Asia Research Centre of Australia’s
Murdoch University.
- 2 -
(3) "Rethinking the East Asian Miracle"(2001), edited by Joseph E. Stiglitz and Shahid
Yusuf in The World Bank.
(4) "Law and Development in Asia(2012),edited by Gerald Paul McAlinn and Caslav
Pejovic, results of a conference held at Kyushu University in 2008,entitled“Law and
Development at a Cross roads: Asian Alternatives to UniversalSchemes?”they concerned
with the different models of law and development,including both the state model of the
1960s and the neo-liberal model of the 1980s,and shows how development has workedout in
practice in relation to these models in the range of Asiancountries.
In addition, "How Korea's Rapid Export began in the 1960s: the Role of Foreign
Exchange Rate,(2008)" and "The Industrial Policy of the 1970s and the Evolution of the
Manufacturing Sector in Korea,(1990), by written Yoo Jungho;
The Korean Economy: Six Decades of Growth and Development(ed., Il SaKong and Youngsun
Koh, 2010) and Economic Development and Law in Korea(Chan Jin Kim, 2010), including
evidences and cases on the base of
governmental-led model through economic approach.
In addition, there are some legal papers concerned with Development and Rule of Law;
Rule of Law and Economic Development (Park Cheoll, 2008), and The Historic Evolution of
Democracy and Rule of Law in Korea (Choi Song Wha, 2007), and A Case Study of “ Law
and development” in Vietam (Dae In, Kim , 2007).
In this paper, I suggest theoretical evidences of the important relations between
legal institutions and economic growth in Korea from 1961 to 1979. Seeking to explain
the causes of legal and economic change in Korea, the leading legal issue is whether
legal systems are or ought to be converging to facilitate development. I would apply to
two analysis methods of legal changes in economic growth in transition from a
repressive law into an autonomous law that governed both the rule of law and market
economy system since 1990s.
“Development” is one of the most vexing ideas in the economics and law. There is an
intuitive understanding that legal institutional change often turns out patterns of
growth or decline. For economic development, Korean government had to make decision
between the repressive law and autonomous law which are not only distinct types of law,
but also stages of evolution in the relation of law to the economic development since
1960s. In legal types, repressive law is prior in the sense that it resolves the
fundamental problem of establishing political order, a condition without which the
legal and political system cannot move on to “higher” pursuits. Legal institutions
are directly accessible to political power upon which public power such as police and
- 3 -
officials
relied.
A
regime
of
“dual
law”
institutionalizes
class
justice
by
consolidating and legitimating patterns of social subordination, which legal moralism
prevails. However the autonomous law presupposes and builds upon the more limited but
basic constitutional cornerstones of the “rule of law.” The chief feature of the rule
of law stage is the disjunction of political will and legal judgment. In the regime of
autonomous law the actions of political elite are not self-legitimating, and law
institutionalizes a principle of restraint in the exercise of power.
2. The Research method of Law and Development
At the coup in 1961, General Park took over the political power without democratic
legitimacy through any election. He took into consideration that law is identified with
the state and criminal codes mirror the dominant mores in urgent time. But in the
political and economic crisis after coup, he made decision of separation between
political affairs and economic affair that should raise the economic growth as can as
possible. In actual, industrial policy was granted legitimacy, while a limited
autonomous law was seen as a device to facilitate a rapid economic growth mobilizing
foreign capital and private firms and global market by government-led policy.
In addition, I divide four periods about the history of Korean Economic development
such as the first stage: 1945~1960, the second stage: 1961~1979, the third stage:
1980~1997, the forth stage: 1998~2010s through an explanatory framework from two-by-two
box (Figure 1). Along one dimension, legal systems vary according to the extent that
economic allocation is based on the state plan or market. The other dimension is a
procedural one, focusing on the extent to which decisions are based on the informal
institutions for example political powers and discretion or formal legal institutions
such as repressive law and autonomous law. In short, I would review both formal legal
and informal (organization) factors behind the success and failure of Korean Economy,
focusing on government-led industrial policy for 1961-1979.
Figure : Typologies of Legal Institutions of Decision-Making
Substantive
Procedural
allocation
State Plan
Market
Formal
Plan/ Discretion
Market/
Institution
Planning Economy
Socialistic
enforcement [discretion]
of
mechnism
of
resource
Discretion
Market
Economy
resource
allocation
Formal
Plan/
Law
Institution
[Discretion]
[ d i s c r e t i o n / Social Market E
- 4 -
Market /
Law
[Autonomous
Law]
law]
Source: Jung younghoa(2012,a)
Market Economy
Ⅱ. Bureau- Centralism & Cooperation of Civil and Bureau
1. The limited legal instrumentalism for Economic Growth
The Bureau-Centralism and Collectivism worked to coordinate Korean economic growth
after 1961. What condition enabled the solid performance of bureau centralism or
collectivism? How did those conditions evolve? these questions are fundamental to
understanding the success or failure of the Korean economy from 1960s to 1980s.3)
Bureau-centralism or collectivism means highly centralized system. first, the power of
decision
making
is
centralized
department(presidential
office),
to
economic
which
was
development
in
charge
of
planning
an
&
coordinating
industry,
and
its
counterpart in the business sector. Second, a substantial and exclusive authority of
coordination part should carry out a hierarchical way and there is unilateral power
unit(headquarter) to coordinate the planning activities of related units on the lower
level of the hierarchy.
These
cardinal
characteristics
are
both
advantage
and
disadvantage
of
bureau-centralism(collectivism). The advantage is that it tends to be progressive and
changeable. Because decision-making is centralized in each bureau, it is easy to draw
up and implement a radical policy against the interests of the original plan and the
industry under its jurisdiction. In other words, it is inclined to protect their
interests of new industries and bureaucrats. However the disadvantage is that spot
information scattered around the industries can not be incorporated quickly into
government policy.
In 1960s' high growth era, various bottleneck were not detected easily and resolved.
In bureau-centralism or collectivism, the control of the economic process was maintained
through central government agencies. The constitution remained unchanged, but because
of the shift in economic power the governmental decision-making process underwent a
change. This development might then progress towards central administrative control of
the economic process - that is, Bureau-central departments might take more and more
control of economic life in firms by means of economic plans, instructions and allocations.
The economic decisions which had to be made were so extensive and detailed that
parliament have to surrender its authority to the administration through Enabling Acts and
3) Bureau-centralism will be changed Bureau-Pluralism since the information and telecommunication industry emerged
in middle of 1980s, fusing the computer, telecommunications, and broadcsating industries had been under the
jurisdiction of the Ministry of Postal Service and Information, and Ministry of Trade and Commerce.
- 5 -
blanket clauses. The administration would then gain power within the state and a new
problem will arise. The problem is whether the preponderance of the central administration
in economic decision would enable a balance of power to be maintained. It must be
considered to what extent the 'legal state' is compatible with central administrative control
of the most important functions of the economic coordination, that is central control of
labor and flows of goods.
The efficacy of bureau-centralism relied upon the environmental conditions. In 1960s
and 1970s, there were a favorable and complementary relationship among coal, steel, and
machinery and ship construction. There were few serious conflicts among industries such
as coal-mining, textile, and agriculture(rice) were protected by the
government. In
the process of economic growth, numerous small problems related to planning and
coordination failures, and bottlenecks consistently arouse, and to cope with these
problems quickly, bureau-centralism turned out an inefficient system because of its
centralized decision-making.
While the several councils were seen as a device to facilitate the exchange of
information between government and private sectors, Industrial Policy was granted
legitimacy in development Country such as Korea in 1960s. 1970s' Heavy Chemical
Industrial Policy is inferred from the influence of the Japanese government- firm
relationship of 1930s'. In 1949, Japanese economy was transformed into a market
economy in accordance with the instructions of the American occupation authority.
Most economic controls and subsides were abolished. Still the government continued
to play a substantial role in the economy(Okazaki 1996). in those days, a wide
consensus had already formed concerning the long-term prospects of the Japanese
economy. The consensus was that the major driving force of the Japanese economy
would be the growth of an export-oriented machinery industry. Law could serve as a
positive instrument of economic change, offering incentives and institutions that
promote growth, but disincentive for those who resist change and cling to traditional
values. Concerning about a negative influence of law grew in importance towards
governmental agencies and lost faith in administrative intervention and put more stress
on the role of market. markets require a complex institutional infrastructures, including
legal rules. They also rely upon the competence and ability of legal professionals and
judges, to ensure that laws are effective. In 1948, Republic of Korea established “The
Office of Planning” for intending to plan Economic Development, but was restricted by
many factors such as the Korean War(1950~1953),lack of adequately trained officials,
and political instability which persisted during the first Republic. The government
announced the Five-Year Plan, which was further revised into a reconstruction plan
- 6 -
by 1955(ChanJ. Kim:61). The U.S. advised the policy of economic development plans
to Korea government, and lunched 1960’s Three-Year Economic Development Plan and
Five-Year Economic Development Plan in 1961. The plan adopted a“unbalanced growth
model”which focused on a few leading economic sectors, such as coal ,power, cement
and agriculture with an annual GNP growth rate target set at 6.1% for the period of
1962-1966. However both plans were not implemented due to critical political turmoil
such as The Students’ Revolution of 1960 and Coup in 1961.
General Park took over the political power by military force in May 16th 1961 and
the
military
government
enacted
“The
Emergency
Power
Act
of
National
Reconstruction”(EPANR) which provided ultra-constitutional power to“the Supreme
Council
for
National
Reconstruction”(SCNR)
in
which
suspended
the
existing
constitution and centralized all kind of power such as legislative, and administrative
and judicial power as well as all physical forces. Only two month after seizing power,
Park established the Economic Planning Council, which later became the Economic
Planning Board, to provide central governmental direction for the economic growth.
The plan was identical to the Draft Five-Year Plan of ex-administration of the Second
Public(1960) with only minor alterations to the cover, title, and preface, inaddition to a
7.1% annual growth rate compared to 6.1% and higher industrial sector goals(Chan
Kim;75). The SCNR moved toward the guidelines for formulating an Economic Plan by
the informal group as a central planning organization, and responsible for the
introduction of foreign capital.
The First FYEP was based on the “unbalanced growth” theory reflecting a “leading
sector” approach. It paid in the building of infrastructure, electric power, and social
capital as a framework within which key manufacturing industries under private
enterprise could thrive. It was declared that the economic system will be a form of
‘guided capitalism’ in which the principle of free enterprise and respect for freedom
and initiative of free enterprise will be observed, but in which the government will
either directly participate in or indirectly render guidance to the basic industries and
other important fields.
That model of FYEP was the highly successful postwar Japanese system. In 1965, in
a very unpopular personal decision that nonetheless gave a powerful boost to the
Korean economy, President Park normalized relations with Japan. The Seoul-Tokyo
normalization was strongly encouraged by Washington, brought an immediate Japanese
assistance
package
$800
million
and
led
to
many
more
millions
in
Japanese
investments and valuable economic tie-ups with Japanese firms.
2. Creation of private firms and its Enterpreneurship
Park proclaimed that economic development would be the central agenda of his
- 7 -
administration(Soon Cho, 1991: 175). He made sense of the importance of economic
stabilization and development in legitimizing his political power. So government had to
adopt active export promotion and this turned out to be the most important reason for
the economic outcome. In particular, President Park monitored the progress of every
single project, both public and private, and closely governed the industrialists by the
stick-and-carrot method.
Since 1962, when government began to implement the 1
st
FYEP, the economy had
executed an accelerated rate of growth, with an average annual growth rate of 9.85%.
one of the major reasons for this conspicuous growth was the influx of foreign capital.
The total capital investment for the FYEP period 1962-1966 was envisaged at
$2.47billion. How ever the plan did not explain in detail how government would induce
the foreign loans required to meet these goals.
Exports began to grow rapidly following the two rounds of devaluation in February
and October of 1960. Government started more serious efforts to promote exports in
1964-1965. First, a new exchange rate regime was announced in May 1964. Multiple
fixed rates were consolidated into a single variable rate, and the won was devalued
by almost half from 130 to 255 won per dollar. At the same time, the government
phased out various ad hoc export subsides and the export-import link system, and
established a comprehensive and consistent export incentive mechanism by legal
institutions such as “the ad hoc act of export bounty and subsides” which could serve
as a
positive instrument of promote and facilitate “exporting target”. In particular,
legal institutions were important export credits, whose share in total bank credit rose
4.5% in 1961-1965 to 7.6% in 1966-1972 and then to 13.3% in 1973-1981. The
interest rate of export credits was kept at low levels, and the gap with the general
interest rate reached 175 points during the high interest rate period 1966-1972.
These incentives were augmented by discretion of government and legal codes.
content
Share
of
1961-1965 1966-1972
export 4.5 %
7.6 %
credit in Bank credit
Rate
of export
18.2
credit (A)
General
9.3 %
rate
in
6.1 %
%
8.9 %
23.2
17.1%
1973-1981
13.3%
9.7 %
%
17.3
%
7.6 %
bank(B)
Gap of credit rate(B-A)
Source: Joon-kyung Kim (1993)
More over, government officials and export business CEOs used to held an Export
- 8 -
Promotion Meetings per month to monitor their export targets, checked up its problems,
and
sought
solutions
on
spot
by
presidential
directions.
In
addition,
government
established the Korea Traders Association and the Korea Trade Promotion Agency(KOTRA)
as global exporting networks such which took charge of building oversea networks, helped
the marketing activities of domestic firms, and collected market information by legal
institutions. According to Jones and SaKong (1980, 96), the most important cause for the
change was probably the reduction of alternative higher-yielding sources of entrepreneurial
income.
He chose the firms that would be awarded contracts on large government-backed
projects and provided or withheld credit through government banks, depending on their
economic performance. The growth sectors of the national economy came to be
dominated by a few highly organized, diversified industrial-business conglomerates known
as Chaebols, loosely modeled on the Japanese prewar zaibatsu or its postwar zaikai. Those
intimate relations between government and business also set the mold for the corruption
charges that later were to plague the retirement years of Park’s successors. An important
feature of the rule of law model is the disjunction of political will and legal judgment, the
positive law is held to embody standards that public consent, by constitutional process,
has removed from political controversy.
In short, As the stability of export related legal institution led to raise the export quantity,
formal legal incentives for exporting firms brought about their entreprenureship and
export's productivity which firms was increased by a systematic governmental supports and
business information concerned with global market.
Therefore exporting policy achieved
good results by legal institutions and discretion of officials.
3. Control and Rationale of Foreign Capital Market
Foreign exchange control is in accordance with a foreign economic policy that aims
prevent all outside disturbance to the national planned economy in order to preserve its
determined uniformity It proved itself plainly to be the indispensable keystones of the
whole system of the collective planned economy. Conversely, foreign exchange control
tends to pass on to the national economy the collectivism of the external system and
foreign exchange market.
After Coup in 1961, most urgent question was how did Korea obtain sufficient investment
to require the demand through more effective mobilization of domestic and external
resources in forms of foreign aid and loans, and commercial loans or foreign direct
investment.
So
chairman
Park
made
the
importation
of
foreign
funds
through
FCIPA(Foreign Capital Inducement Act) amendment to invest electricity, and sigheeing and
- 9 -
services industries. FCIA(foreign capital inducement act) replaced FCIPA and was meant to
foster positive attitudes towards foreign capital, foreign investment requirements, criteria,
and procedures for authorization, in addition to the privileges, incentives, and guarantees
of government approved foreign investors. FCIA offered many tax incentives to foreign
investors, including a 100% tax exemption for the first years and a 50% deduction in
income tax, corporate tax, property acquisition tax, and property tax for the following three
years. At the same time, the separation of political and economic spheres contributed not
only to the creation of this quasi-real world but also reduced the load on this system,
which was the framework of international economy, to such an extent that this
international 'substitute' system sufficed for actual needs.
4. Bureau Centralism : Government-Firm Relationship of HCI Policy
In 1960s, the long-term prospects of the Japanese economy was achieved through
discussions of the Committee for the Economic Recovery Plan. As newly developing Asian
countries was catching up in the textile industry, the major driving force of the economy
would be the growth of an export-oriented machinery industry absoring redundant labor
forces and earning foreign currency. However the machinery industry was not competitive
because of factors affecting several industries.4) By judging from Japanese economic plan
of export-oriented machinery industry, Korean government paid attention to HCI(Heavy
Chemical Industries) which included steel, machinery and petrochemical industries.
To carry
out the HCI's investment in due course, Government enacted "steel industry promotion act"
that shall support the construction of a large scale integrated iron and steel mill and other
kind of mills, and "machinery industry promotion act" and "shipbuilding industry promotion
act", and " electronics industry promotion act", and "petrochemical industry promotion act",
and "non-ferrous metal producing act"(1971) that shall support financial subsides and loan
credit and tax incentive to those industries for long time. these industries had to rely upon
high technology and vast capital from foreign, and they encountered lots of difficulties at
initial time and a full-scale drive towards HCI began in 1973. Government support to HCI
took various forms; supply long-term credits and tax incentive to selected industries;
establishing and expanding vocational schools and training centers to supply skilled labor;
and creating government-funded research institutions carry out R&D activities as a public
good through relating act respectively.
As controlling the financial market, government could supply vast amount of directed
credits with low interest rates and share investment risk with private enterprises. The
National Investment Fund(NIF) was established in 1974, and played an important role in
4) Okazaki, "The Government-Firm Relationship in Postwar Japan," in: Joseph E. Stiglitz and Shahid Yusuf ed.,,
Rethinking the East Asian Miracle, World Bank and Oxford University Press, 2001, 332.
- 10 -
this industries. Banks and Insurance Companies and public funds were required to lend a
certain portion of their funds to NIF. NIF lent those funds to financial institutions at 5%
points below rates on general long-term bank credits on average before 1982 for very
long 8-10 years in some cases. In 1974-1990, 80% of the lending was assigned to
specialized banks, 17% to commercial banks, and 3% to regional banks. In 1974-1981, 62%
of NIF lending was assigned to KDB, and NIF accounted for 57% of total equipment loans
by financial institutions. This share reached 70% in the late 1970s, when big industrial
complexes were being built around the country.
it can summarize the features of HCI policy as following; First, government led drive but
left actual implementation to the private sector. role of government was confined to
supply financial and tax incentives to private enterprises such as Samsung and Hyundai,
and refrained from direct participation in production. This distinguished Korea's strategy
from other developing countries at then. Third, HCI policy took demand conditions and
budget constraints into full consideration.
Ⅲ. A Weak Legal Infra of Rule of Law State
1. The Characteristics of Limited Autonomous Law
For
most countries, modern law
is
in large part
a foreign phenomenon.
Much
comparative legal scholarship focuses on the distinction, and recent work in law and
development seeks to trace the effect of the adoption of these alternative schemes on
economic development. There is another literature in law and development focuses less on
what legal institutions were transplanted into developing countries, and more on how
those legal institutions were transferred(Ginsberg, 69). Alan Watson made his controversial
claim that legal transplant are the main source of legal change, mainstream comparative
law has been concerned with understanding why and how transfers occur.5) This has taken
three main streams. First, some scholars have analyzed whether Watson is indeed correct.6)
Second, Others have offered a taxonomic approach to characterizing different kinds of
transfers, including such a variety of terms as reception, imposed reception, concerted
parallel development, transposition and various others. Third, some have taken on the issue
of why particular legal transfers are successful. Berkowitz, Pistor, and Richard address
suggest that mode of adoption can be more or less voluntaristic, and this makes a huge
difference both for whether the law is effective and for development outcomes.7) There are
5) Alan Watson, Legal Transplants: An Approach to Comparative Law(1974); Rodolfo Sacco, Legal Formants: A
Dynamic Approach to comparative Law 39 American Journal of Comparative Law 343(1991).
6) Willam Ewal, "Comparative Jurisprudence(Ⅱ): The Logic of Legal Transplants," 43 American Journal of
Comparative Law(1995).
- 11 -
argument is that three features help to ensure effective legal transplants: voluntarism,
adaptation and receptivity.8) So borrowing other law in a voluntary manner would have a
greater interest in making the law work than those which have law imposed. Meiji Japan
would seem to be a paradigm case of voluntary adoption, while Occupation Japan would
seem to be a paradigm case of imposition. The adoption of borrowed laws by amending
them would seem to have more effective legal transfers as those populations shared a
similar with tradtion are seem to be more receptive to the adoption of particular rules.
As for Korea, it considered unreceptive transplants in its scheme. Korea fit in the civil law
tradition in term of the basic legal structure under the dominant influence on Japanese
law from colonial period. According to a suggestion(Ginsburg, 71), Korea had three main
elements:
a professional autonomous and competent court system; a small, cartelized
private legal profession without independent political influence; and administrative law
regime that insulted bureaucratic discretion exercised by developmental regimes.
2. Legal Instrumentalism of Judiciary System
The hierarchically organized judiciary system has been operated effectively in comparison
with judiciaries in other developing countries. Courts had a moderate capacity to handle
civil and commercial disputes rather than criminal case till 1990s. there are some evidences
which government took into consideration to judicial system as a legal instrumentalism so
far.
First, the rate of judiciary budget has been less than 1% to 3% in total amount of
government annual budget. The judiciary power has been a passive role in contrast to the
administrative and legislative power.
Second, as a rule, awarding and penalty impositions without judicial balancing are quite
common response to property rights violations. Just as unconditionally awarding an
injunction to prevent a trespass is a basic tenet of Anglo-American property law,
enforcement of penalty imposition seems to conflict with a concern for resource allocation
efficiency because it resists judicial comparison of social benefits and costs(Neil K. Komesar,
2001:4). From this view point, the majority imposition in criminal litigation from 1968 1983
seemed so obvious. To the contrary, the ratio of civil trials was even to that of criminal
litigation from 1984, but ratio of criminal trials was reversed after 1989-1997 in the stage
of post-democratic period(table 1).
Third, after political democratization of 1987, judicial disputes settlement may crows out
private dispute litigations at a cost of the economy. Of course, A legal system which
7) Daniel Berkowitz, Katharina Pistor, and Jean-Francois Richard, "Economic Development, Legality, and the
Transplant Effect," 47 European Economic Review 165-195(February 2003); "The Transplant Effect," 51 American
Journal of Comparative Law 163-204(2003).
8) Ginsburg Tom, "Japanese Law and Asian Development," ; in Gerald Paul McAlinn and Caslav Pejovic, Law and
Development in Aisa, 70(2012).
- 12 -
makes it too easy to resort to litigation would destroy a certain beneficial business
relationship whose litigation were a less attractive alternative. Fourth, after 1997 of foreign
currency crisis, civil litigations increased more twice than that of 1980s, due to harshly
increase of small claims litigations which was equivalent to the rate of 57% in total civil
cases in 2007 due to expanding private financial loans since 1990s.9)
.
Statistic trend of civil cases and criminal cases(1968~2007)
Year
1968
1974
1981
1984
1985
1989
1993
1997
1998
2002
2007
Total Trials
2,064,734
1,586,469
2,288,572
2,574,187
2,821,609
2,803,151
3,926,020
5,407,517
6,907,400
5,726,844
6,063,043
Civil Trials
226,904(11%)
483,463(30.5%)
862,049(37.7%)
1,291,672(50.2%)
1,580,932(56%)
1,284,610(45.8%)
1,729,178(44%)
2,663,525(49.2%)
4,149,462(60%)
3,210,247(56.6%)
4,000,096(66%)
Criminal Trials
1,423,638(89%)
977,982(69.5%)
1,346,203(62.3%)
1,178,334(49.8%)
1,119,292(44%)
1,396,420(54.2%)
2,041,491(56%)
2,579,259(50.8%)
2,670,613(40%)
2,346,218(43.4%)
1,860,165(34%)
Source: Jung Younghoa(2010).
With respect to legal instrumentalism, Korea's experience establishes a couple of facts.
First, instrumentalism beyond liberal legality norm associated with the modernization
orthodoxy is perfectly compatible with rapid economic growth. Under the modernization
and comprehensive development approaches, Korean experience showed that a modern
society can allow a degree of legal instrumentalism beyond the modernization model,
accomplished constraining judges to decide individual cases according to the norms of the
bureaucratic within which they work.
After democrtization of 1988, Korea could be governed by autonomous law which is in
principle judge-centered and rule-bound. Judge is the spokesman of law as justice rather
than law as political will. For legal institutions the separation of law and politics is more
than a principle of self-restraint. The rule-centered character of autonomous law has a very
practical basis: First, rules are a potent resource for legitimating power. They fix with
precision the scope and limit of official authority, thus offering seemingly clear tests of
accountability.10) Second, when judges are perceived as constrained by rules, the apparent
range of their discretion is narrowed. As a result power of the judiciary is easier to justify,
the threat to political decision makers is mitigated. Third, autonomous law remains
9) The widespread use of individual credit cards means that more and more people have increased debt as a
percentage of income since late 1990s, total capacity of household credit was increased from one hundred trillion
won in 1994 to about seven hundred trillion won in 2009.
10) Lon Fuller, The Morality of Law (Yale University Press, 1964), pp.33-34.
- 13 -
committed to the idea that law is mainly an instrument of social control. Like autonomous
law, bureaucracy emphasizes fidelity to rules, correct procedure, and defined jurisdictions.11)
3. Infrastructure of rule of Law
While Korean legal system could be understood with relating to the role of law and legal
systems during the high growth periods, legal education remained too doctrinal and formal
to satisfy the needs of 1960s. Because government set low quotas of bar pass rate, bars
and judiciaries were kept tiny and small in the governance system. In Korea legal training
was generalized undergraduate education, and few legal graduates could pass the bar less
than 3% among them. Only minor to enter the profession were rewarded with high
rent-seeking such as their status and wealth. In the economic sphere, legal system retained
an autonomous law and a limited judicial autonomy. This is not to assert a complete
autonomy from political power. In practice and legal theory, economic institutions is the
field of public interests to both domestic and foreign subjects in private ownership, which
shows itself behavioristically in buying and selling, borrowing and lending, hiring and firing,
leasing and renting.
On the one hand, how economies as advanced as Korea could work function without lots
numbers of private lawyers. The answer lies in part that many legal trained generalists who
were unable to pass the bar worked in quasi-legal jobs with legal officials and companies.
In addition, a large amount of quasi-legal adjunct professions such as scriveners, patent
agents, and tax-filing agents, and estate realtors etc with competence in specific practices,
including patent applications and tax filings, and judicial administrative filings. However
Japan and Korea has granted attorney with patent attorney and tax accountant in
according to respectively related acts coincidently.
Trend of practice attorney and rotary (1997-2010)
practice
Rotary
public
97
2000
02
03
05
06
07
08
09
10
3,364
3,887
4,618
5,073
6,300
6,997
7,603
8.895
9,621
10,263
216
244
278
298
333
341
354
405
417
397
source:
The impact of legal transfers is determined by more than good or bad intentions in
colonial period. The pattern and performance of legal institution leading Korean economic
growth were hardly the result of intended planning, but rather emerged from a discrete
set of inter-related institutional choices pursued by political elites.12)
11) Philippe Nonet & Philip selznick(2005), op. cit., 62-63.
12) Ginsburg Tom(2012), op. cit., p.85.
- 14 -
Ⅳ. Conclusion
I can confer the legal institutional and organizational factors, which was bureau centralism
of the success and failure in Rapid economic growth from 1961 to 1979. Bureau
centralism, including cooperation council of official-civil associations, was adopted from the
evolution from Japanese bureau-pluralistic system which worked efficiently to coordinate
high economic growth in 1950s. There were few severe conflicts among bureaucrats and
business
sector
to
coincide
with
progressive
interests
of
emerging
industries.
The
centralized decision making and cooperative council worked efficiently to detect and
resolve these coordination failures through a stable and trustworthy legal incentives.
In short, the question concerning how does the role of law matter in Korea economic
growth from 1960s to 2000s is absolutely crucial to both experience and theory of
economic policy. I suggested two possible dimensions of legal institutions which can be
classified the substantial mechanism of resource allocation by decision-making tools such
as market and state plan, other procedure enforcement methods that are a bureaucratic
discretion/direction as informal institution and an autonomous law as formal institution.
Moreover, I reviewed the key evidences of bureau-centralism and cooperative council of
bureaucrat- firm relationship in behind of success and failure of rapid economic growth.
Korean evidences of development and law can give us the fact that too much formal
institution adopted too quickly may be as much a deterrent to economic change as the
more informal institutional problem of too little law.
Consequently, It can be led to two results that law can be an instrument to foster
development or a barrier economic growth. one the one hand, law should be a framework
to facilitate private decision-making. As development economics turned away from a belief
in state-led initiatives, more emphasis was placed on the role of law as a framework within
which private actors would make economic decisions based in according to the neutral
framework. On the other hand, law may be a barrier to economic growth. Even those had
a positive view of law understood that the wrong kind of legal rules and practices could
reduce incentives for investment and increase the cost of innovation.
- 15 -
[Reference]
Ahn, Kyong Whan(1998), "The Influence of American Constitutionalism on South Korea," 22
Southern Illinois Law Journal, 71-115.
Amsden Alice(1989), "Asia's Next Giant: South Korea and Late Industrialization, New York:
Oxford Univ. Press, 1989.
Bernstein Lisa(1994), "Opting Out of the Legal System: Extralegal Contractual Relations in
the Diamond Industry," 21 Journal of Legal Studies, 1992, 115-57.
Chan Jin Kim, Economic Development and Law in Korea, The Catholic University of Korea
Press, 2010
Charles Wolf, Jr., “Economic Planning in Korea”, Korean Affairs( No.2, 1964): 227-229.
Chiu Hungdah and Jyh-Pin Fa(1994), "Taiwan's Legal System and Legal Profession," in
M.A.Silk ed., Taiwan Trade and Investment Law, New York:Oxford Univ. Press.
Chua, Amy(1998), "Markets, Democracy, and Ethnicity: Toward a New Paradigm for Law
and Development," 108 Yale Law Journal 1-107.
Cooney, Sean(1996), "The New Taiwan and Its Labor Law: Authoritarian Legislation in a
Democratised Society," 18 Comparative Labor Law Journal 1-61.
deLisle, Jacques(1999), "Lex Americana? United States Legal Assistance, American Legal
Models, and Legal Change in the Post-Communist World and Beyond," 20 Univ. of
Pennsylvania Journal of International Economic Law 179-308.
Don Oberdorfer, TheTwoKoreas:AcontemporaryHistory,Basic Books,2001,p.34.
Ellickson, Robert C.(1991), Order without Law: How Neighbors Settle Disputes, Cambridge:
Harvard University Press.
Galanter, Marc(1966), "The Modernization of Law," in M. Weiner, ed., Modernization: The
Dynamics of Growth, New York: Basic Books.
Gerald Paul McAlinn and Caslav Pejovic ed., (2012), Law and Development in Asia, New
York: Routledge.
Giddens, Anthony(1973), Capitalism and Modern Social Theory, Cambridge Univ. Press.
Ginsburg, Tom(1995), "Law and Development: The Third Wave," Presented at the Law and
Society Association Annual Meeting, Toronto(June).
Ha-Joon Chang(2000), "An Institutionalist Perspective on the role of the State: towards an
Institutionalist Political Economy," in : Leonardo Burlamaqui, and Ana Celia Castro, and
Ha-Joon Chang, Institutions and the Role of the State, Edward Elgar Publishing. Inc.,
Il SaKong and Youngsun Koh, The Korea Economy: Six decades of Growth and
Development, KDI, 2010
- 16 -
Jones, Carol G. (1994), "Capitalism, Globalism, and the Rule of Law: An Alternative
Trajectory of Legal Change in China," 3 social & Legal Studies 195-221.
Joseph E. Stiglitz abd Shahid Yusuf ed., Rethinking the East Asian Mircle, world Bank and
Oxford University Press, 2001
Jules L. Coleman(1998), Market, Morals and The Law, Cambridge University Press,
Jung Young Hoa (2010), "The Limit of Rule of Law in Economic Development in South
Korea," Presented at the Law and Society Association Annual Meeting, Chicago(May)
―― (2010), "The Evolution of Constitutionism and Moral Hazard of Government in Korean
Economic Policy", presented at The International Conference KIEA and KEA, Seoul(August).
―― (2011), “The Role and Limit of Constitutional Litigation among Socio-economic Change in
Korean Post Democracy," Presented at the Law and Society Association Annual Meeting,
Sanfransisco (June).
―― (2012), " The Law and Economic Development in Korea: 1961-1979," at presented 2012
The Law and Development Institute Conference, Seoul(May)
Kanishka Jayasuriya, ed., (1999), Law, Capitalism, and Power in Asia: The Rule of Law and
Legal Institutions, New York: Routledge.
Katharina Pistor & Philip A. Wellons(1999), The Role of Law and Legal Institutions in Asian
Economic Development, 1960~1995, New York: Oxford Univrsity Press.
Meredith Woo-Cumings(2010),"Miracle As Prologue: The State and The Reform of The
Corporate Sector in Korea," in: Joseph E. Stiglitz and Shahid Yusuf(2010), Rethinking The
East Asian Miracle, World Bank & Oxford University Press, 343-377.
North, Douglass (1990), Institutions, Institutional Change, and Economic Performance,
Cambridge Univ. Press.
Philippe
Nonet
&
Philip
LawandSocietyinTransition:towardresponsive
Selznick,
law,
nd
2 ed.,(Transaction Publishers,2005)
Posner, Eric. A. (1996), "Law, Economics, and Inefficent Norms," 144 Univ. of Pennsylvania
Law Review, 1697-1744.
Pyong-Choon Hahm (1983), "The Traditional Patterns of Authoritative Symbols and the Judicial Process
in Korea: A Study in Legal Culture and Legal Development", in Korean Jurisprudence, Politics and
Culture, Yeonsei University Press, 1983,
Robert Z. Lawrence and David E. Weinstein(2010), "Trade and Growth: Import Led or
Export Led? Evidence From Japan and Korea," in: Joseph E. Stiglitz and Shahid
Yusuf(2010),
Rethinking
The
East
Asian
Miracle,
World
Bank
&
Oxford
University
Press,379-408.
Ross-Ackerman, susan (1999), Corruption and Government: Causes, consequences, and
Reform, New York: Cambridge Univ. Press.
Sungchick Hong(1967), "The Intellectual and Modernnization: A Study of Korean Attitude", Social
Research Institute of Korea University,
- 17 -
Tetsuji Okazaki(2001), "The Government-Firm Relationship in Postwar Japan: The Success
and Failure of Bureau Pluraism," in: Joseph E. Stiglitz and Shahid Yusuf(2010), Rethinking
The East Asian Miracle, World Bank & Oxford University Press, 323-342.
Trubek, David (1972), "Max Weber on Law and the Rise of Capitalism," 1972 Wisconsin
Law Review, 720-53.
Trubek, David & Marc Galnter (1974), "Scholars in Self-Estrangement: some Reflections on
the Crisis in Law and Development Studies in the United States," Wisconsin Law Review.
1062-95.
Upham, Frank (1987) Law and Social Change in Postwar Japan, Harvard Univ. Press.
Winn, Jane Kauffman (1994), "Relational Practices and the Marginalization of Law: Informal
Financial Practices of Small Businesses in Taiwan," 28 Law & Society
World Bank(2001), Rethinking of East Asian Miracle: New York: Oxford University Press.
Yoo Jungho(2008), "How Korea's Rapid Export Expansion Began in the 1960s: the
Role of Foreign Exchange Rate," Paper 08-18, KDI School of Public Policy and
Management.
Yoo Jungho(1990), "The Industrial Policy of the 1970s and the Evolution of the
Manufacturing Sector in Korea," KDI Working Paper, No.9017, October.
- 18 -