RE-LIVING THE CRISIS OF 1998
By: Jaewoo Jang
Pwr: Age of Gloablization
THE STORY
My older cousin Suyeon remembers them all so very clearly: the table in the
kitchen, the silhouettes of my parents talking. He can still remember telling his wife
about losing his job, selling the house and moving out of the house. He was 27 years
old when the financial crisis of 1998 swept many households into destitution and
unemployment in Korea, leaving many young employees and workers anxious about
getting slapped with forced resignation. As much as he tried to shield his family from
the psychological stress of this apprehension, he could not hold himself back from
thinking otherwise. The effects of the crisis were apparent in his everyday life, serving
as a cornerstone in shaping our identities and the ways in which the society perceives
the development of Korea today.
To understand the ways in which we Korean perceive our leaders, I hope to
retrace its unfolding and make sense of the financial crisis that troubled so many people
during that time. Prior to this research, I focused on analyzing the factors that instigated
the financial crisis of 1998, which most of the scholarship on this issue is based on. To
add value to this study, this paper hopes to view the crisis at the perspective of a private
household. As the crisis of 1998 exposed the Korea’s flawed financial structure despite
the economic boom of 1991, people’s opinions about Korea changed. Average
households began distrusting the authority of the conglomerates in which they worked
and the media corroborated their suspicions by exposing the misjudgments of certain
investors and corporate leaders, fueling even more public resentment and anger toward
the leaders of Korea.
By in large, the majority of the working class in South Korea share Suyeon’s
experience. The financial left a permanent imprint on the Korean identity in many
households. Though some high rank government officials in Korea blamed the World
Bank for presenting misleading data prior to the financial crisis, the public
predominantly attributed the cause of the 1998 crisis to the flawed governmental policy
and mismanagement by the chaebols. This research asserts that the financial crisis of
1998 has caused many Korean working class to distrust government and chaebols’
actions and credibility even to the present day.
METHODOLOGY
Understanding the history through the perspective of the working class can
provide insight to the origins of the modern public’s distrust towards conglomerate
leaders and its resentment toward the chaebols. Observing this trend can delineate the
overt social divide in South Korea. To garner an in-depth perspective of citizens that
lived through the financial crisis, I held 30-minute interviews with Park Moon Suk, a
former 32-year-old technician at Halla Group; Dongha Jang, a former 27-year-old
employee at Samsung in 1996; Moonjung Park, a former 24-year-old merchandiser for
an unnamed private sales and trading group. Since they were employees during that
time, their perspective will likely be shared by many other average employees
Additionally, this paper cross-references the individual responses to public opinion,
whose data was collected through surveys with a sample-size of 107. This sevenquestion survey was posted informally in a private blog page called café.daum whose
online users are predominantly employees and members of the working class in their
late 40s. Targeting those in their late 40s would be most apt in providing insight to my
research as they would have been categorized as the working class in their early-mid
20s during the financial crisis. However, one limitation of using this survey is that
ensuring anonymous survey questionnaire prevents me from verifying facts or the
identity of those who answered the survey. But since those in their 40s comprises 90%
of the user demographics, I presume that my survey was answered by those whose
opinions are most relevant to my research (daum 2014). This paper shall attempt to
incorporate data and information from these two sources to verify whether the
individuals’ opinion reflects the opinion of the mass.
Building onto the data acquired at a micro-economic scale, I have also
aggregated short news clips which were broadcasted subsequently and prior to the crisis
to understand which information people consumed. I have primarily used only one
media source, Munhwa Broadcasting Station. due to the scarce availability of these
news clips; but as this company is considered one of the two biggest domestic
broadcasting stations in Korea, this media source is representative of the kind of
coverage that reached majority of the population during the period. Analyzing the
information which people were exposed to during the time can also provide the unified
sentiments people were feeling during the time.
MIRACLES OF THE KOREAN ECONOMY
Prior to the financial crisis, the working class perceived the chaebols and the
government with respect. Following the ceasefire of the Korean War in the mid-1950s,
South Korea suffered high levels of unemployment and severe destitution (Yoo &
Moon 269). Since 1950s, the government has had a tight control on the banks and
transnational capital flow to minimize the amount of money exiting the domestic
market. One of the repercussions of imposing this strict government regulation on the
economy was the proliferation of a select group of individuals who dominated large
market shares (Powers 106). By entrusting a large portion of the domestic economy to
a few, the government hoped to cultivate the economy and gear its country to adopt a
more export-based strategy (Powers 106).
But as the Korean economy grew since the beginning of 1960s, the government
aimed to liberalize the financial market to supply the capital needs of the chaebols in a
more systematic and efficient manner (Kim, 2006). The Korean government sought to
adopt a more export-oriented economic strategy to reduce its deficit terms of trade and
generate national revenue by implementing the seven five-year economic plans in 1962
(Yoo et al., 272) The provision of this governmental policy include the deregulation of
interest rates offered by domestic and foreign banks, the removal of restrictions on
offering loans to domestic companies, consolidation of a more managerial autonomy
to wholesale banks, the reduction of entry barriers to financial activities and most
importantly, the liberalization of cross-border capital account (Kwon 331).
Though the Korean government in 1962 had imposed the seven “five-year
economic plan” to liberalize the financial activity in the country, President Kim Young
Sam’s government hastened the “five-year economic plan” to “100-day economic plan”.
This removed government jurisdiction over private banks and establishing a number of
merchant banks or wholesale banks to cater short-term debts to the conglomerates in
1989 (Chang et al., 265). During the first half of the decade, the market had responded
positively to this policy, marking a stable 2% increase per annum (Chang et al., 266).
Liberalization of the financial market quickly attracted foreign investors interested in
financing domestic conglomerates, generating an increase in capital inflow from $20
billion dollars in 1990 to $100 billion dollars by 1997 (Chang, et al. 738). Similarly,
the policy induced positive growth, increasing the country’s GDP per capita from $67
in 1960s to $8,500 worth of GNP in 1997 (Yoo et al., 271).
Underneath this massive economic growth, the chaebols were the master
puppeteers in directing the nation’s economy, playing a pivotal role in maximizing and
enlarging the nation’s production. As the chaebols took control of 94% of the National
GDP from 1984, these large conglomerates were deeply integrated into the markets,
almost as though the market was dependent on them. The influx of capital rose from
$78.4 billion dollars in 1990 to more than $600 billion dollars by 1995 in that the
domestic firms took advantage of a more readily accessible loan structure to enlarge
and raise as much capital assets as possible (Chang et al., 738). Through financial
liberalization and allowing the chaebols to benefit from easy access to loans, South
Korea demonstrated an optimistic projection of its economic discourse and as a
consequence, the average employees were content with the government and the
conglomerates.
OPTIMISM FROM PRIVATE HOUSEHOLDS
As companies expanded and unemployment rates fell, the employees were
content with the national economic growth from 1991 to 1997. Their satisfactions
toward the government and the chaebols’s investment strategies rose above
expectations. Out of 107 former employees of the chaebols, the overwhelming majority
of 95 employees responded that their wages during 1992 to 1996 rose between 1991
and 1998. The chaebol’s primary goal to expand their businesses rather than to
maximize their profits had the unintended consequences of inflating the wage rate
(Noland 500). Since the chaebols minimized dividend payments to expand their
businesses, chaebols re-invested large portion of their revenues in labor and physical
capital, which thereby lowered the unemployment rate by 5% (Amess & Demetriades,
215).
Attesting to this fact, Parkmoon Suk and Dongha Jang both claim how
exhilarating and successful businesses were prior to the financial crisis. In his interview,
Suk recalls that the Halla group used to hire 200 new employees every month, setting
one of the highest record employment rate of all time. He describes those flourishing
years as “fruitful and exciting” because of the optimism with which Korea’s economy
and businesses grew, exhibiting his unduly admiration for the work that the chaebols
had put in. Corroborating Suk’s admiration towards the chaebols, Dongha Jang
associates the chaebols, accompanied with government’s legislation, as Korea’s
“source of success” in the early 1990s.
This success soon translated into increased opportunities for the average
households. The survey among 107 former employees corroborates this phenomenon
as the statistic shows that more than 65 of the employees have taken on new
opportunities partially due to the expansion of the company. Jang has taken this
opportunity to attain a regional director position for Samsung in Singapore (Jang, 2014)
while Suk, who was originally hired under the marketing team, received an opportunity
to remake the company Halla Groups image by managing sponsorship for certain
sports team (Suk, 2014). At that time, Suk and Jang were very appreciative of the
chaebols for bestowing these “too-good-to-be-real opportunities” (Suk & Jang, 2014).
The confidence that Suk and Jang both felt toward the chaebol in the early
1990s mirrors that of hundreds of other young employees. Seventy five out of the 107
surveyed acknowledge that they approved of the chaebols strategic implementation to
expand their businesses and increase job prospects. Therefore, prior to the financial
crisis of 1998, average working class was content, if not very supportive, of the
chaebols.
STIRRING PATRIOTISM
Along with the tangible realities of this heighted economic growth, the media
regarded the local conglomerates with a sense of patriotism by depicting Korea’s
development as a common cooperative success and the chaebols’ investment strategy
as the recipe for that success. In 1996, Munhwa Broadcasting Corporation, for example,
applauded Samsung’s increased global presence in the electronic industry and
Hyundai’s exponentially increasing production of automobiles (MBC 1998). The
media sensation showcasing the success of the conglomerates, Park notes, definitely
stirred a pro-chaebol response from the public. Since Korea had suffered a current
account deficit ever since 1950s, the emergence of South Korea as an economic
stronghold in Asia was not only something new but also a news that evoked a sense of
patriotism and even more pro-chaebol fervor among the public (Powers 110).
Figure 1:
Fig 1: In 1996, the Munhwa Broadcasting Corporation,
one of Korea’s biggest television news station,
broadcasts the World Bank’s report that predicts the
Korean economy to be the 7th largest economy in the
world by 2020. It commends the hardworking Korean
conglomerates were paving the way for development.
Suk and Jang also acknowledges that the pro-chaebol sensation by the media
contributed, if not acted as propaganda, to the citizen’s patriotism, thereby giving them
more the reason to bestow their trust upon the government and the chaebols. When
asked to describe about his life prior to the financial crisis of 1998, Suk recollects the
days in which his superiors promised the employee a successful life as long as the
employees remained loyal and committed (Suk, 2014). Suk says that “there was unity
among the Korean workforce, government and the entrepreneurs”. Providing an
explanation to Suk’s observation on Korea’s national unity, Park believes that the
expansion and the emergence of the Korean economy as one of Asia’s strongholds
spurred unprecedented pride in Korea’s patriotism (Park, 2014). Especially since South
Korea suffered colonialism, civil war and extreme poverty until the late 20th century,
the fact that the media broadcasted optimistic projections about the nation’s economic
development evidenced the competence of the government and the chaebols (Park,
2014). The media definitely brought this culminating effect in forging the trust between
the elite chaebols and the average households (Chang et al., 735). This trust
strenghtened when the nation’s aggregate success brought tangible material reward to
the average households, persuading many citizens to support the conglomerate leaders
and government officials.
EXPOSING THE TRUTH
In only a few years, this trust proved to be only transient. Though the chaebols
expanded the Korean industries, Kwon proposes that this economic growth only
created a façade of success, hiding the underlying flaw of the entire financial system
(Kwon 335). While the Korean economy experienced severe disintegration by 1998,
the media certainly played a vital role in informing the situation to the average
households. Observing the ways in which the media portrayed the unfolding of the
financial crisis can certainly provide us insight to what people may have felt.
Figure 2: Blaming the chaebols Figure
Fig 2: the Munhwa Broadcasting Corporation in 1998
broadcasted the public’s demand to change the ways in
which the government regard the chaebols. In fact, the
caption below the image on the left hand corner states
“support for chaebol reform”, explicitly contending
that the complete liberalization of the financial market
will only aggravate the crisis. The media thereby
blames the chaebols and the government for creating a
downfall in the economy
3: Blaming the Government
Fig 3: This was the breaking news scene when the
Munhwa Broadcasting Corporation in 1998 broadcasted
the tragedy of the 1998 financial crisis in South Korea.
The announcer laments the “possibilities of recessions”
and confronts his viewers with the painful news that
some average households will have to deal with the
“consequences”.
(i)
FAILURE OF THE GOVERNMENT
During the financial crisis, the media exposed the mismanagement of the
government to the public and demystified the public’s unconditional trust in them. The
Munhwa Broadcasting Station (MBC), in particular, placed great emphasis on the
inadequate attention the government put in understanding the country’s mounting debt
(MBC, 1998). Kwon attests to the media’s claim by asserting that the government
lacked patience in evaluating the misleading statistical data of South Korea’s overall
debt/Gross National Product ratio (Kwon 333). By the eve of the crisis, Korea was at a
low 22% as to the accepted benchmark of a low-risk debt/GNP ratio which refers to
any figure below 48% (Kwon 333). Offering an explanation to this misrepresentation
of the data, the MBC blamed that the government for failing to notice that the
debt/Gross National Product ratio does not reflect the short-term debt ratio which
comprised more than 60.1% of Korea’s total debt (MBC, 1998). MBC further clarified
that being unaware about this underlying high short-term debt ratio is problematic
because the acquisition of large amount of short-term debt does not require strict
scrutiny from the Ministry of Finance and Economy (MBC, 1998).
After hearing this news, Jang’s confidence of the government “shattered” (Jang
2014) and Jang also felt “backstabbed” by the government for its inability to direct the
country at a right path. Similarly to Jang’s response, Suk remained frustrated yet
puzzled by the ineffectiveness of the government. He recalls that the sudden change in
the media’s portrayal of the government from patriotic to malfeasance polarized his
opinion. Suk felt as though the government had been “deceiving” him about the
economy ever since, expressing the disappointment he felt toward the government’s
lack of competence. Though Park had a contrary feeling as she thought that the World
Bank misled the Korean government into believing the stability of its economy (Park
2014), an overwhelming response of 105 out of 107 people thought that the negligence
by the Korean government paved way for the financial crisis to occur. Hence, amid the
financial crisis, the opinions of the media criticizing the government’s policy paralleled
the way people perceive the government.
(ii)
Chaebols’s Flawed Investment Strategy
Along with the government’s negligence, the media also directed an equal
barrage of criticism at the chaebols. The MBC, as shown in figure 3, reported that the
chaebols’ flawed investment strategy likewise contributed to the failure of the
conglomerates, an event which left thousands of young youth unemployed (MBC,
1998). The loose financial structure in Korea led many of the chaebols to adopt risky
investment strategies (Chang et.al, 736). The media reports disillusioned the public by
championing the argument that the chaebols’s primary goal to expand their business
rather than maximizing profit led themselves into bankruptcy and trigged the nation’s
economic collapse (MBC 1998). Powers provides a more scholarly background to the
opinion of the media by discussing that chaebols blindly merged with many unrelated
small-medium enterprises (SME) to diversify their investment portfolios (Powers 112).
The Halla Shipbuilding and automobile company, which Suk worked in, owned
clothing productions and pharmaceutical firms while Samsung electronics, which Jang
worked in, owned car manufacturing and insurance companies (Powers 112). Though
these vertical integrations may have contributed to minimizing transaction costs, the
media laments that “overexpansion of the businesses failed because they were too big”
(MBC 1998). Yoo, an interviewee of the MBC news and a representative of Korean
Business and Enterprise Association, likewise professes the chaebols’ ineffective
business strategy by asserting that outsourcing resources and components from other
small-medium sized enterprise is less risky and more efficient (MBC 1998).
Hearing these explanations on the news, Jang perceived the chaebols’ strategy
to diversify their portfolios at the expense of minimizing profit dividend and pile up
their debt as a display of ostentatious ambitions (Jang 2014). Similarly to Jang’s
opinion, Suk attributes the “flaw in investment strategy” as the main factor in the
Korean financial crisis (Suk 2014). Therefore, the change in media’s depiction of the
chaebols altered the views of the average households: viewing chaebols as qualified
leaders then to as the incompetent. Perhaps most directly relevant to my thesis, I posted
an online poll with the question “Did your opinion on the chaebols and the government
change for the worse, better or the same after 1998?” Out of the 107 participants, all
answered with a “worse”. This data implies that people not only lost faith in the
chaebols and the government but also lost it collectively as a group. The opinion of the
media reflected or at least influenced the average household to view the chaebols
business strategies and the government’s policies with more wariness.
As three of my interviewees suspected, the combination of chaebol’s risky
investment strategy and government’s negligence of the financial market brought down
businesses overnight, leaving many employees to lose their jobs. As the chaebols’ and
the government’s misjudgments undisclosed to the public during the crisis, the average
household perception of the elites changed to the worse. But this change in perception
cannot be induced solely with the exposure to the media. Park, Jang and Suk genuinely
came to “detest” the government and the chaebols due to the actual changes in their
lives (Jang, Suk and Park 2014). Therefore, the tangible factors such as the decline in
living standards and the anxiety of average households during the crisis consolidated
the average households’ distrust toward the government and the chaebols.
VISIBLE CHANGES IN HOUSEHOLDS
The average household became discontent and bitter with the government and
the chaebols as the financial crisis inflicted direct harm upon them. Jang, an employee
at Samsung on November 1998, faced insecurity each day as the company would
“arbitrarily lay people off” (Jang 2014). Consequently, Jang lived under constant fear
of losing his job. To bear responsibility as the breadwinner of the family, he voluntarily
worked 14 hours a day to appeal to his supervisor (Jang 2014). Other employees shared
a similar strenuous lifestyle. Suk, an employee of the Halla group during the crisis,
likewise worked more than 12 hours each day, including Sundays, to secure his job. He
recalls that the employers openly told them to anticipate a massive reduction by the end
of the month, implicating that many of Suk’s colleagues would have had to compete to
keep their jobs (Suk 2014). Both Jang and Suk worked under cut-throat working
conditions as they forced themselves to work for long hours to keep their jobs. Though
in the long run both ended up securing their jobs, they could not forget the magnitude
of stress that they had felt during the financial crisis. Quite different from Jang and Suk,
Park acquired a job in Singapore during the financial crisis. Therefore, she feels grateful
for escaping the effects of the financial crisis but rather feels remorse by the fact that
the rest of her family had to experience the trouble (Park 2014).
The tremendous stress from the financial crisis made people bitter toward those
responsible for the crisis. Suk and Jang, upon hearing the corporate malfeasance from
the media, came to distrust the motives of the government officials and the
conglomerates (Jang and Suk 2014), which corroborate the results of my survey data
where all 107 answered that they came to distrust the government and the chaebols.
The media, shown in figure 4, likewise portrayed the conglomerates and the
government officials as purely self-serving, making people even more disappointed by
their leaders.
Figure 4:
Fig 4: MBC broadcasts that the financial crisis of 1998
threatens the middle class and that the average
households suffer most from the incompetence of the
government and the chaebols. They also portray them as
self-serving and careless.
The financial crisis therefore signifies and continues to serve as a reminder
of how the abuses of irrational misjudgments by the government and chaebols ruined
the economy. At least for Suyeon, he now supports legislation that restricts financial
loan systems to the chaebols and cannot reconcile with the hardship he felt during the
peak of his youth. Supporting the sentiments of the average households, the media
likewise empathized with the working class and rendered a common experience for the
nation. As Jang and Suk put it succinctly, the Korean people “no longer trust the rich
and the powerful” (Jang and Suk 2014).
Fig 5: The snapshot on the left shows the student protest
towards the G20 plans in supporting the Korean
government and the chaebol domestic industries. In
2007, they believed that a more involved IMF would
instigate another financial crisis in Korea by liberalizing
the capital and currency market. Their anti-financial
liberalization sentiment stemmed from the 1998
financial crisis.
Therefore, there exists an irreconcilable virtual divide between the two social
classes in the country. The average households cannot forget how the government and
the chaebols’ malfeasance affected their 20s and misled the public. The financial crisis
of 1998 inflicted stressful psychological effect upon the Korean people and unified the
weak and the powerless to balance their powers against the government and the
chaebols. Even until today, the mutual respect between the two social classes never
seemed to have created.
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