Issue 78 of INTERNATIONAL SOCIALISM, quarterly journal of the Socialist Workers Party (Britain) Published March 1998 Copyright International Socialism


Shin Gyoung-hee

Only ten months before the crash in South Korea mainstream economic commentators and analysts were still admiring South Korea's economy. Jeoffrey Sachs at Harvard University, adviser to the IMF and most famous preacher of free market economics, argued in South Korea's most influential bosses' paper, 'Since the economic structure of Korea is fundamentally different from that of Mexico, there is no possibility of recurrence of the situation that happened to Mexico'.1 Paul Samuelson said, 'Most economic specialists [including himself] predict that this year's growth rates of East Asian economies will be higher again than are expected'.2 As for the IMF, it could see 'no problem in Korea's economy in light of macroeconomic indexes such as international payments, growth rate, prices, and so on'.3

But right after the bankruptcy of Hanbo chaebol (conglomerate), some pro-capitalist media commentators suddenly began to see the problems. The Financial Times on 4 February 1997 indicated that 'Korean banks are in financial difficulties because of the insolvent obligation which is estimated to be some 8 percent of the total credit and because of fall in stock prices'.4 And Business Week on 24 February 1997 also warned of the weakness of Asian banks. According to the New York Times, South Korean capitalists themselves began to have 'a sense of total crisis because of the slowing economic growth rate, declining stock market, decreasing currency value of the won, increasing trade deficit, and cumulative bad bonds of financial institutions'.5

Michel Camdessus, managing director of the IMF, nonetheless said in May 1997, 'The fundamentals of Korea's economy themselves are sound'.6 Even on 14 August 1997, when the South East Asian economies ('Tiger cubs') were experiencing the crash and Kia, the eighth largest business group in South Korea, was faced with bankruptcy, the IMF estimated that next year the growth of the South Korean economy would increase to 9 percent. Not until late October when Hong Kong's stock market crashed and Kia finally proved to be bankrupt, only to be nationalised, did the international financial market eventually lose all confidence in South Korea's economic prospects.

Media pundits, as supporters of orthodox economics, try to explain this situation in purely financial terms as if financial markets have nothing to do with the 'objective economy' - the production and distribution of industrial wealth. But back in December 1995 the then new minister of finance and economy, Nah Woong-bae, acknowledged the 'seriousness of the economic situation' and later laid bare his heart saying, 'Problems are so intricate that I am at a loss what to do'.7 The collapsing price for computer chips was the detonator. From early 1996 the global semiconductor market was in a state of 'oversupply' and the prices of South Korea's chips plummeted. Chips account for a quarter of South Korea's exports. South Korea's other principal exports - cars, ships, steel and petrochemicals - were all faced with a glut in the world market.8 But more fundamental was the declining competitiveness of South Korean capital. Worsening international payments meant that South Korea's external liabilities at the end of 1997 proved to be over $200 billion.9 More striking was the fact that 58.8 percent of the external liabilities were a short term loan payable within a year.

This combination of pressure from global overproduction by heavy and petrochemical industries and South Korea's own weakening competitiveness meant, for an export led economy, a profitability crisis. The net profit of listed firms in 1996 dropped by 55 percent compared with the previous year.10 The falling profit rate must have been much starker in 1997, given the crash which happened in late October and continued into this year. The rate of ordinary profit to sales of manufacturing industry in 1996 was 1 percent as compared with 3.6 percent in 1995. The rate of increase in sales itself dropped from 20.4 percent to 10.3 percent. Already in 1995 ordinary profit and net income for the year of listed firms - except Samsung Electronics, Posco and Korea Electric Power Corporation - decreased respectively by 8.3 percent and by 3.8 percent, as compared with the previous year.11 The rate of profit (as opposed to the mass of profit) becomes all the more important because South Korean firms have depended on borrowing. Chris Harman has elaborated this point:

Now the rate of profit regains its importance. For only if they get an adequate rate of profit can individual state capitals and individual multinational corporations pay the internationally determined rate of interest they owe to the banks. Nationally based accumulation cannot proceed unless it can match internationally determined standards of profitability.

Unless the national capital or the multinational corporation can meet these minimum standards it is operating at a loss once it has paid off its interest. And for a national economy to operate at a loss is to contract rather than expand. The emergence of international finance capital means that we have entered the age of the state capitalist recession.

As in the classical capitalist crisis, the tendency is for the internationally prevailing rate of interest to move in the opposite direction from the average international rate of profit. As profitability falls, the supply of funds to the banks gets tighter, yet more capitals get into difficulties which make them look to the banks for yet greater borrowing; the demand for funds rises faster than the supply, and interest rates soar, putting still further pressure on individual capitals.

The phase of capitalist history in which national capitals could ignore low profit rates by retreating into themselves is over. The old structure of the capital market - and the role played in this by financial capital - has re-emerged, at a higher, international level. Whole states are driven to abandon their half-finished investments at enormous cost, out of fear that they will not yield the level of profitability needed to pay off the bankers. The whole world becomes drawn into a single rhythm of half-hearted expansion of investment and convulsive contraction, of short, limited booms and long depressions.12

Until the late 1980s the average rate of net profit of South Korea's manufacturing industry was higher than that of Japan's, the US's and Europe's. But it has tended to fall during the three decades since industrialisation started in 1963. See the table and graph below:


           South Korea   Japan       US       Europe

1963-1971     39.7       48.2       28.4       16.4
1972-1980     27.7       22.9       17.4       12.7
1981-1990     16.9       14.4*      12.6*      13.4*
[*Japan, America and Europe: 1981-1987. Source: Japan, US and Europe; Armstrong et al, Capitalism Since 1945 (Oxford, 1991), Appendix data A1, A2. South Korea: H W Jang, 'Phases of Capital Accumulation in Korea and Evolution of Government Growth Strategy, 1963-1990', unpublished D Phil thesis (University of Oxford, 1995), Appendix data.]



[Source: Jang, as above.]

The Bank of Korea's Financial Statement Analysis each year also shows the same tendency:


1971-1979        4.42
1980-1989        2.70
1990-1995        2.23
The years 1993-1995 were a short period of economic recovery, relying chiefly on special demands for computer chips and the rising value of the yen. Moreover, the Securities Supervisory Board announcement of 26 March 1996 indicated that many firms employed accounting techniques, which partially hid the declining profit rate. For instance, Dae-il Chemicals turned a loss of 5 billion won into a black-ink (paper profit) of 4.3 billion won. Other companies such as Keukdong Construction Company and Dongyang Textile Company rigged their profit figures quite legally.13 The weakness of the 1993-1995 'boom' is shown by the fact that, despite an increase in exports during this period, trade deficits, especially with the US, increased. (The US was South Korea's main sales market until late 1980s.) See the following table:

Year          Total        w/US         w/Japan

1982          -2.4          0.3          -1.9
1983          -1.7          2.0          -2.8
1984          -1.4          3.6          -3.0
1985          -0.9          4.3          -3.0
1986           3.1          7.3          -5.4
1987           6.3          9.6          -5.2
1988           8.9          8.7          -3.9
1989           0.9          4.7          -4.0
1990          -4.4          2.4          -5.9
1991          -9.7         -0.3          -8.8
1992          -5.2         -0.2          -7.9
1993          -1.6          0.2          -8.5
1994          -6.3         -1.0          -9.9
1995         -10.1         -6.3         -15.6
1996         -20.6        -11.6         -15.7
[Source: Bank of Korea, Economic Statistics Yearbook, each year.]
A profitability crisis forced South Korean firms to look to the banks for greater borrowing. By March 1997 the economy had been in recession for 21 months.14 No previous recession had lasted more than 19 months since the early 1970s, when the official statistics on business cycles began. As a result, the first half of last year saw the rate of bankruptcy (0.22 percent) double that of the previous year (0.10 percent).15 The number of bankrupt firms increased by 31.1 percent, which meant 48 firms going bankrupt every day. So firms' debt rapidly increased. Already in 1996 the rate of liabilities to net worth in manufacturing industry (317.1 percent) increased by 30.3 percent over that in the previous year (286.8 percent).16 This figure was almost double the US's (159.7 percent in 1995) and almost four times as big as that of Taiwan (85.7 percent). While the return on net sales of South Korea's manufacturing industry (6.5 percent) was much higher than that of Japan's (3.3 percent) and not very much lower than that of Taiwan's (7.3 percent), the rate of financial expenses to net sales (5.8 percent) was much higher than that of Japan's (1.3 percent in 1995) or that of Taiwan's (2.2 percent). Because of this high debt ratio the rate of net income to net sales was just 1 percent, much lower than the US's 7.9 percent, Japan's 2.9 percent and Taiwan's 5.1 percent. Borrowing is not a practice of manufacturing industry alone. The rate of financial expense to net sales of South Korea's 30 largest chaebols (whose net sales in 1996 amounted to 92.1 percent of GDP) has been 5.4 percent on the average for the past ten years, as compared with Japan's 1.8 percent, Taiwan's 2.1 percent and Germany's 0.9 percent.17

The insolvency of big firms weakened banks and stock companies. This is a so-called 'compound slump': a combination of industrial crisis and financial crisis. South Korea's six largest nationwide commercial banks' bad debt in 1996 amounted by US standards to 14.3 percent of the total credit, as compared with the US's 1.2 percent (in 1995).18 Hence the desperate calls for the IMF's relief loan.

Class struggle in 1997

In January 1997 mass strikes exploded against this economic background. They were the first major event in the class struggle since the July-September mass strikes of 1987. The mass strikes in January 1997 were the first political strikes and had a profound impact on workers' consciousness. Trade union organisations were also strengthened. Thanks to the strikes the reputation and the status of the Korea Confederation of Trade Unions (KCTU) was enhanced. This was the most important gain of the mass labour movement since the 1987 mass strikes. On the other hand, the leadership of the Federation of Korean Trade Unions (FKTU), which was transforming itself from a state-controlled bureaucracy into an ordinary right wing trade union bureaucracy, could not stop its base being undermined. It supported the strikes against its will.

The strikes ended up in a victory, humiliating president Kim Young-sam. This plunged him into a grave crisis. He was even forced to send his own son, who had been involved in bribery, to prison. At last the one-party state which has ruled South Korea since 1963 is collapsing. The strikes initially exposed the class nature of established politicians. This was shown by the fact that all the main presidential candidates' popularity fell, according to all the polls taken during and immediately after the strikes. Later it was Kim Dae-jung who was to fish in troubled waters in the presidential election of 18 December. He profited from the class struggle because Kwon Young-gil, leader of the KCTU, was out of the running.

The January 1997 mass strikes proved that workers can resist mass sackings. Unlike the trade union leaders who suggested that they should accept the proposed labour law, ordinary workers consistently opposed it. Now, as the economic crisis deepens and the international financial market increases the pressure, Kim Dae-jung and the bosses are trying to push through the labour law as soon as possible. And trade union leaders are trying to avoid struggles against it under the pretext of 'sharing the suffering'. But pressure from the rank and file is so immense that the union leaders are hesitating to enter what they call a 'Social Agreement' with Kim Dae-jung. The president elect is trying to allure KCTU leaders into the Committee of Labour, Management and Government to achieve what he calls a 'National Agreement', which means bartering structural reform of the chaebols in return for the unions' acceptance of massive sackings.

Despite the rise in workers' consciousness and organisation, the January 1997 strikes fell short of ordinary workers' expectations that there would be a definite improvement in their conditions. This demoralised a significant number of militant workers. The fault lay with the KCTU leaders who suddenly retreated to a 'strike every Wednesday' tactic on 18 January 1997, when the strikes showed some signs of escaping their control. The strikes had petered out before the union leaders finally called them off on 28 January under the pretext of the Hanbo chaebol's bankruptcy. But this didn't mean that the workers' movement was put on the defensive after the strikes. Since the rank and file potential and will to fight were not fully unleashed, the ruling class did not dare to launch a full scale counter-offensive.

Individual bosses nonetheless quickly counter-attacked individual militant activists, taking advantage of the rank and file confusion at the union leaders suddenly ending the strikes. This was made possible because company based union leaders, as well as the national bureaucracy of the KCTU, assured their bosses that the target of the strikes was not them but only the government. The KCTU leaders refused to support the economic strikes staged in mid-January by several company based unions belonging to the FKTU, the right wing trade union confederation. In doing so they argued that the January strikes were political strikes and therefore should be confined to the key political demand, ie repealing the labour law which had been rushed through the National Assembly by surprise on Boxing Day of the previous year. Since workers in the FKTU were paid less and worked in worse conditions than those in the KCTU, they tended to support economic demands at the height of more advanced workers' struggles. But, especially in state capitalist countries like South Korea, the political and the economic cannot easily be separated, and yet the reformist union bureaucracy was and is always trying to separate one from the other. For instance, the KCTU leadership refused openly to defend the Hanchongryon, the Korea Confederation of Student Councils, when they were witch hunted and arrested en masse in August to September 1996 and in June to early November 1997.

Despite the victimisation of rank and file militants, the ruling class was still on the defensive in terms of the balance of class forces across the whole society. In spring 1997 the public hearing on the Hanbo scandal took place. Concern focused on whether Kim Young-sam was personally involved in the corruption scandal. The whole process of the hearing was concentrated on pacifying popular wrath. This would not have been possible without the co-operation of Kim Dae-jung's NCNP (National Congress for New Politics), then the major opposition party. Confronted with a serious challenge from below demanding the president's resignation, however, Kim Young-sam was forced to have his son sent to prison. Student demonstrators shouted on the street, 'Down with Kim Young-sam!' and the popular masses applauded, protesting against riot police brutality. In late May the Democratic Professors' Association demanded in a press conference that Kim resign immediately. Sadly, the KCTU simply kept silent.

It was at the height of students' anti Kim Young-sam protest demonstrations that in early June a man named Lee Seok was beaten to death by student militants who believed he was a police spy. At that time agents provocateurs were sent into university campuses to get secret information on wanted Hanchongryon leaders.19 It was regretable that any individual, whether or not he was a secret agent, should have been killed. But this could not justify the regime's sickening hypocrisy. How many people were killed, injured, tortured and imprisoned in protest against the regime's vicious repression? How many people were disabled and killed as industrial accident victims, their deaths ignored by their state? South Korea's rulers supported the massacres in the second Gulf War in 1991 and in Somalia in 1993, respectively, by financing the US army and by sending troops. They were not entitled to condemn violence and to speak of 'humanity' and 'morality'.

The witch hunt which followed the killing threw the student movement on the defensive in an instant. Sadly, the middle class left-populist National Union for Reunification and Democracy (NURD) joined the denunciation of the Hanchongryon. The leadership of the KCTU simply kept silent, abstaining on this important political issue. Under the slogan of 'The labour movement going with the people', the populist leaders of the KCTU implicitly agreed with the NURD that it was wrong to demand Kim Young-sam's resignation, speaking of 'judgement through the presidential election', though Kim's term of office still had another nine months to run (until February 1998). Of course, the Hanchongryon was (and still is) dominated by supporters of the North Korean regime. So real Marxists in South Korea criticised the Stalinism of the Hanchongryon leadership from the perspective of socialism from below and internationalism. But the whole thrust of the opportunist attack on them was oriented in the wrong direction: the critics' argument missed the point of whether they came from reformist, Stalinist or liberal perspectives. As the government's repression on student activists went too far, especially in October when Kia and other car workers were threatening a national strike for job security, the opportunists moved to an equivocal position, juxtaposing defence and criticism of the Hanchongryon.

Even after the students' anti-government demonstrations were undermined the crisis of the Kim Young-sam government was far from over. Although there was little agitation by trade union leaders, workplace labour disputes increased from late June. The industrial struggles whose key demand was a job security agreement culminated in the Kia workers' strike in late October. Since the problem of job insecurity became an issue for the whole class as a result of the deepening economic slump, the Kia workers' struggle became a national focus. So the regime organised another witch hunt, in addition to that on student militants, as its own focus for national attention. (In ancient Chinese military tactics this manoeuvre is called 'shouting in the east, striking in the west'.) This was all the more necessary because the popularity of Lee Hoi-chang, the governing New Korea Party's (NKP) candidate, plummeted after it was revealed that his son had evaded military conscription by taking advantage of his father's privileged position. On this pretext Rhee In-je seceded from the NKP and formed the splinter New People's Party (NPP).

The witch hunt was formally directed against Kim Dae-jung. On 8 October a far right magazine supported by the National Security Planning Board (the NSPB, which was the Korean CIA before 1980) organised a 'Discussion for the Inspection of Presidential Candidates' Ideology'. This was televised on all TV channels from 10am until 4pm! The target of the magazine, the Monthly Korea Forum, was Kim Dae-jung. The KCTU's candidate, Kwon Young-gil, was completely and deliberately ignored by the establishment's media and so excluded from the discussion. The 'discussion' was de facto a McCarthyist hearing. Kim Dae-jung defended himself well in his own way - simply because he was not a left winger. (Western media portrayal of him as a 'centre-left' is sheer nonsense. Before the 1987 mass strikes he was a middle of the road politician but since then has moved rightward, and is now a centre-right ruling class politician. He is now willing to embrace far right politicians like the former head of the Korean CIA, who previously tried to have him killed. Kim is allied to the conservative politicians of the United Liberal Democrats who serve as his protectors.

So the far right's ideological assault failed in relation to Kim. But the other edge of the far right's knife, which was directed against the left, was not so blunt. Moreover, it was rumoured at that time that the NSPB was digging up a North Korean spy ring and questioning some left activists. This proved true when, on 20 November, the NSPB made an official announcement about its anti-espionage activities. Since both the Stalinist and the reformist left identified the North Korean regime with some kind of socialism, they could not cope effectively with the far right's ideological offensive. This left the workers' movement weakened when it came to deal with the industrial militancy emerging again in October.

In addition to these political weaknesses on the part of the labour movement, the trade union leaders' reformism came to the fore once again. When Kia was first faced with bankruptcy on 15 July 1997, trade union leaders started to talk about 'rescuing Kia'. Did this mean rescuing Kia workers or Kia management? In fact, the KCTU and Kia union leaders supported Kia management in the name of 'keeping the people's corporation afloat', arguing that Kia was not a chaebol but only a business group whose ownership was joint stock separate from management. Meanwhile, Kia bosses were sacking non-unionists with tacit approval of union leaders. The leaders of the metal workers' federation criticised Kia union leaders for protecting Kia bosses from the government (whose minister of finance and economy seemed to be considering handing Kia over to Samsung). But they did not criticise the government, merely arguing for building a single industrial union of metal workers in order to bargain collectively around the issue of job security.20 The overall emphasis of these left wing union leaders was on industrial bargaining. Both the slogans, 'Rescuing Kia as a people's corporation' and 'Industrial bargaining by a single industrial union', failed to meet the aspirations of Kia workers. As early as September, ordinary workers' aspirations for job security were strong enough to force the delegate conference of the KCTU to adopt a resolution for a 'general strike'. But the demand for 'rescuing Kia' precluded other workers' solidarity. How could you appeal to other workers for a sympathetic strike when you yourself were arguing for rescuing your own company? And the demand for 'industrial bargaining' precluded the rank and file initiative and solidarity from non-metal workers.

The Kim Young-sam regime with the official free market ideology did not initially intervene for over three months until 21 October 1997. In the meantime the rulers were busy with quarrels over measures to cope with the bankruptcy of Kia. For instance, when Lee Hoi-chang as presidential candidate visited Kia Motors and promised the workers not to hand Kia over to Samsung, the then minister of finance and economy blamed him for seeking popularity. All the politicians of the ruling class spoke of 'putting Kia under market principles', but they didn't have any clear alternative to state intervention. So Kia was effectively nationalised, put under legal management by the government run Korea Development Bank. Since the National Workers' Mass Meeting was scheduled for 9 November, the government had to 'solve' the Kia problem before the end of October so that the issue might no longer serve as a national focus for workers. Though KCTU leader Kwon Young-gil promised a 'November general strike', he wanted to move as soon as possible to an electoral campaign, making the National Workers' Mass Meeting his most important canvassing forum.

It seemed clear that the 25,000 workers gathering in the National Workers' Mass Meeting didn't expect Kwon Young-gil to be in the running, nor to poll a significant vote. A majority of them seemed to aspire to defeat the governing party's candidate Lee Hoi-chang by voting for Kim Dae-jung. But a minority of them didn't seem to have any illusion in Kim Dae-jung and instead seemed ready to vote for Kwon Young-gil. He argued that voting for him would be a kind of demonstration against mass sackings. Socialists voted for Kwon as an expression of solidarity with this section of workers. In the election Kwon polled sightly over 300,000 votes. Of the whole 550,000 members of the KCTU some 120,000 to 150,000 voted for him, according to the KCTU's own estimate.

After the Kia problem was 'solved' by government intervention in late October, Lee Hoi-chang, the government's candidate, began to rapidly gain support among the ruling class. In addition, in early November the NKP formally broke with the retiring and hated president Kim Young-sam and integrated the smaller opposition Democratic Party into the Grand New Party (GNP). On the other hand, Rhee In-je was reported, to his disadvantage, to have the support of Kim Young-sam. All these facts combined to raise Lee Hoi-chang's popularity. Then, apart from the announcement on the North Korean spy ring mentioned above, the NSPB announced in early December 1997 that a former Kim Dae-jung man, who had defected to North Korea in August, had sent a letter of support to Kim Dae-jung from Pyongyang. A few days later the NSPB made another announcement: it had obtained a video tape of a press conference given by this man in Pyongyang in order to express his support for Kim Dae-jung. Several days later the top secret agency announced that, citing a Christian minister who had visited North Korea, North Korea's ruler Kim Jeong-il had given Kim Dae-jung a slush fund. (A pro Kim Dae-jung weekly news magazine, Shisa Journal, disclosed that all these were sheer fabrications made in collaboration with the North Korean regime in exchange for financial aid and construction contracts!) Finally, on 17 December, the day before the election, the GNP delivered an official statement declaring, 'A red government is not to be allowed to establish in Seoul.'

Crash and the 'IMF era'

It was against the background of the economic crisis that the unprecedented financial crash erupted in South Korea. The financial crash is not the cause but an effect - albeit an important one - of the industrial crisis. But it deepens and exposes the industrial crisis. When the crash was felt in earnest by ordinary people from late November, with the 'coming of the IMF era', many started to argue that the responsibility rested with the government and the chaebols. Lee Hoi-chang's election chances were definitively and irrecoverably hit by this anger and panic. The crisis combined with the effects of the January mass strikes to encourage sections of the ruling class to choose Kim Dae-jung as the organiser of a crisis management government, specially charged with getting the workers' movement under control. Hence his victory in the presidential election - the first transfer of power since 1963, from which the present one-party state originated.

But Kim Dae-jung will have little room for manoeuvre, given the pressures from the international financial market. The harsh terms of the IMF deal will mean mass unemployment, severe austerity, economic stagnation, rising prices, absolute poverty and continuing repression. The government's National Statistical Office has recently estimated that this year's unemployment rate will be 5 percent, with the number unemployed rising to one million. But the KCTU has estimated that the rate of unemployment will be 10 percent. At present, at least 4,000 people are being dismissed each day. The domestic interest rate is around 30 percent. Already 100 listed firms face bankruptcy, says a law firm partner.21 He adds that at least four of the 30 largest chaebols are among them - one is in the top ten largest chaebols, another is in the top 20. Prices are officially estimated to rise 11.3 percent by the end of this year. Quoting David Ruccio, Chris Harman indicated that '[the various programmes implemented in the different Latin American states] did not end inflation, restore employment or solve balance of payments problems'.22 Deflationary policies at a time of inflation can result in stagflation. South Korean bosses are now crying, 'Export is the only way out.' This means a rising rate of exploitation for South Korean workers. Already in the years 1993-1995, during the economic 'recovery' fuelled by rising exports (especially computer chips) to the other Asian countries, the rate of exploitation rose from 448 percent, to 466 percent and then to 497 percent.23

Furthermore, unlike Kim Young-sam in 1993, president Kim Dae-jung in 1998 will be faced with a strong workers' movement and a revived left, albeit a reformist one. In 1993 there was a political vacuum on the left. Traditional left wingers were demoralised and disoriented by the defeat in the presidential election held at the end of the previous year and by the collapse of the USSR in 1991. In 1993 Kim Young-sam was faced with a very weak bourgeois opposition party without Kim Dae-jung (who was then in Britain). In 1998 Kim Dae-jung will be faced with the former governing party which is a majority in the parliament.

This will mean that Kim Dae-jung will have no choice but to rely on trade union leaders to control the strong workers' movement. He has already established the Committee of Labour, Management and Government in order to tempt them to co-operate with massive sackings. A conservative public opinion poll taken on 9 January 1998 showed that 10.5 percent of the nation opposed the participation of trade union leaders in the committee and that 47.3 percent opposed the sackings. This figure will probably be much higher among workers. So in the delegate conference of the KCTU held on 8-9 January, the overwhelming mood was of opposition to their leaders' participation in the committee. Sadly, nonetheless, the KCTU leadership decided to participate. Hence Kim Dae-jung's success in establishing the committee. But the committee will be fragile because of workers' bitterness and anger.

The KCTU leadership and the reformists in general demand reform of chaebols as a precondition for a deal. This is what they call 'Social Agreement' and what Kim Dae-jung calls a 'National Agreement'. Of course, chaebols are notoriously greedy diversified capitalist operations - so diversified that they are known as 'octopus' legs'. And as the bosses of the crisis ridden system they are partly responsible, together with the state bureaucracy, for the economic crisis. But the fundamental responsibility lies with the system itself, otherwise why would there be an economic crisis in Europe where there are few equivalents to South Korea's chaebols?24 Why is the US economy's current 'boom' so feeble when there are so few chaebols?25 The real problem with the demand for the reform of chaebols is that in the process of 'structural readjusting' the chaebols workers are also 'structurally readjusted', ie sacked. So bartering massive sackings for reform of chaebols is not what bosses call a 'sharing of sufferings' but an exclusive bearing of suffering by the working class. Since workers are not responsible for the economic crisis, we should not pay the price.

Even if Kim Dae-jung succeeds in concluding a 'National' or 'Social Agreement' with trade union leaders, workers can resist the bosses' attacks that are to come. This will pressure union leaders to question their loyalty to the agreement, to renegotiate its terms. This is most likely if the economy does not improve quickly, because the agreement is justified by appealing to the prospect of an economic recovery. (Kim Dae-jung promised 'to rescue the economy within one and half years'.) This doesn't mean that workers will not struggle in the next one and half years. There will be sharp contradictions right from the beginning. In any case many workers (including the 120,000 to 150,000 belonging to the KCTU) voted for Kwon Young-gil, not for Kim Dae-jung, without having any illusion in the possibility of his winning the election. Above all, many of the workers who voted for Kim Dae-jung did so simply with the intention of defeating the candidate of the hated governing party. But initial stimulus can also come from elsewhere, ie from the political crisis of the Kim Dae-jung government.

The history of class struggle in South Korea has many examples of political crises for the regime lending an impetus to workers' struggles. For instance, before the January 1997 strikes, the year 1996 saw Kim Young-sam surrounded by foes on all sides. From mid-November to early December 1995 he was confronted with the biggest popular resistance since his inauguration. It opposed Kim Young-sam's protection of the former military rulers, Chun Du-hwan and Roh Tae-woo, from the then popular demand for their imprisonment for the military massacre in Kwangju City in May 1980. Kim Young-sam backed off. This sharpened the tensions within the regime, formally around the issue of corruption which is rooted in the close relationship between the state and capital. The issue of corruption was explosive enough to raise public indignation, which in turn made the trade union leaders demand collective bargaining and an end to bosses bribing government officials, politicians and bankers. Together with the victory in the struggle for the imprisonment of the former military rulers, this contributed to strengthening workers' wages struggle in summer 1996. The regime counter-attacked workers as we have seen, by witch hunting Hanchongryon student activists in mid-August 1996. Finally, in December the governing NKP party planned to push for a lightning introduction of the labour law alienating the opposition NCNP, only to arouse popular resistance in defence of parliamentary democracy. The result was workers' mass strikes in January 1997 against the labour law.

The election of Kim Dae-jung as president will mean more tensions within the ruling class. And while he will never act on behalf of workers, his political base is different from the traditional governing bloc of the state bureaucracy, the military and large capitalists (including chaebols). So it will be difficult, if not impossible, for him to reconcile his supporters with these sections of the ruling class. Meanwhile, because of the deepening economic crisis, the internal ruling class bickerings will take the form of smoldering feuds around the issue of economic structural reforms.

Of course, given the pressures from the international financial markets represented by the IMF deal Kim Dae-jung will have little room for manoeuvre. So many people, including those on both the reformist and Stalinist left, argue that South Korea has become an 'economic colony' without 'economic sovereignty' under 'the IMF's trusteeship'.26 Many on the left even explain the crash by talking about the US's conspiracy to take over the South Korean market, the so-called 'New MacArthur Scenario'. But South Korea has its own ruling class with its own methods of capital accumulation free from imperialist oppression. A centre-right magazine has recently disclosed that some of the international financiers who are creditors to South Korea's domestic financial market are in fact Koreans.27 They are called 'foreign capital with black hair' in the financial market. Their money, disguised as foreign funds, aims chiefly at the merger and aquisition of domestic companies whose stock value has plummeted. The total amount of 'foreign capital with black hair' in the global financial market is estimated to be between $10 billion and $20 billion. So the 'IMF era' will involve a class struggle rather than a Third Worldist national struggle.28

The inner conflicts within the ruling class will mean that sooner or later working class struggle will emerge. In the process, the biggest beneficiary on the left will initially be the reformists, given the fact that the revolutionary left is severely repressed by the secret police and alienated from the mainstream labour movement. The International Socialists of South Korea (ISSK) will, however, be able to grow and to begin to implant themselves in the working class movement - if they can find a way in which they can operate in this milieu without being culled by the police.


1 Interview with the Chosun Ilbo, 13 January 1997.

2 Interview with the Seoul Kyoungje Shinmun, 1 January 1997.

3 IMF, World Economic Outlook (October 1996). Quoted in the Seoul Kyoungje Shinmun, 28 February 1997.

4 Quoted in the Mae-il Kyoungje Shinmun, 4 February 1997.

5 Quoted in the Chosun Ilbo, 5 February 1997.

6 Quoted in the Chosun Ilbo, 22 August 1997.

7 Ministry of Finance and Economy, Economic White Paper (Seoul, 1997), p39.

8 The Chosun Ilbo, 14 June and 6 October 1997.

9 This is the most recent figure estimated by the Ministry of Finance and Economy, pressured by the American Department of the Treasury. Vice-Secretary Lawrence Sommers argued in a press conference held at the end of last year that South Korea's real external liabilities were $240 billion.

10 Bank of Korea, Financial Statement Analysis (Seoul, 1997).

11 Securities Supervisory Board announcement, 26 March 1996.

12 C Harman, Explaining the Crisis (Bookmarks, 1984), p115.

13 Securities Supervisory Board announcement, 26 March 1996. Chris Harman had earlier indicated such profit overstatements by firms. See C Harman, 'Where is Capitalism Going?', International Socialism 58 (London, 1993), pp20-22.

14 Bank of Korea announcement, 22 May 1997.

15 Bank of Korea announcement, 24 August 1997.

16 Bank of Korea, Financial Statement Analysis (Seoul, 1997).

17 Korea Institute of Finance report, 5 September 1997.

18 Committee for Financial Reform report, 1996.

19 The Han-kyoreh, 19 June 1997.

20 Kang Shin-joon, 'How Should Workers Look at the Kia Question?', Solidarity and Practice 37 (Youngnam Institute of Labour Movement, July 1997). In the 1980s Alex Callinicos observed a similar division and eclecticism between populism and workerism in South Africa. See his South Africa: Between Reform and Revolution (Bookmarks, 1988), especially pp88-104.

21 News+ 118, 22 January 1998, p44.

22 C Harman, 'Where is Capitalism Going? (Part Two)', International Socialism 60, (London, 1993), p116.

23 Seong-jin Jeong, 'Social Structure of Accumulation of South Korean Economy and its Collapse', Conference of Progressive Academic Groups (ed), June 1987 Democratic Uprisings and Korean Society Ten Years Since (Seoul, 1997), pp41-42. Professor Jeong is a Marxist academic.

24 Some commentators argue that the chaebol is not a peculiar form of capitalist organisation to be found in South Korea alone. But in South Korea a chaebol means a large, diversified group of companies which are both owned and monolithically managed by its head, his family and his blood relatives, and which has grown under the auspices of the government, relying on borrowed capital. According to this definition, there are chaebols in some other NICs too (like in Indonesia, with Suharto family's business group). For a definition closest to this see P Jones and Il Sakong, Government, Business, and Entrepreneurship in Economic Development: The Korean Case (Harvard University Press, 1980).

25 J Geier and A Shawki, 'Contradictions of the "Miracle Economy"', American ISO's International Socialist Review 2 (Chicago, 1997), pp6-14.

26 For a typically Third Worldist and Stalinist outlook on South Korea's economic crisis, see Institute of Democratic Trade Union Movement, The Great Economic Crisis and the IMF's Trusteeship (Seoul, 1998).

27) News+ 118, 22 January 1998, pp20-21. Alex Callinicos, quoting J Petras and M Morley, pointed to a similar phenomenon in Latin America. See his article 'Marxism and Imperialism Today', International Socialism 50 (London, 1991), p25.

28 Ibid.

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