Crony Capitalism: Corruption and Development in South Korea and the Philippines
Why the same corruption produced growth in Korea and stagnation here.
Summary
Kang, a political scientist, compared South Korea and the Philippines to explain why similar levels of corruption produced very different economic outcomes.
His argument rejects both standard explanations. The developmental state account holds that Korea succeeded because it had a competent autonomous bureaucracy insulated from politics, which Kang argues is not supported by the evidence, since Korean corruption was extensive throughout the high-growth period. The corruption-as-obstacle account cannot explain why Korea grew rapidly despite it.
His alternative is what he calls mutual hostages. In Korea, a small number of large business groups faced a strong centralised state, and each side could damage the other: the state could destroy a firm by withdrawing credit, and the firms collectively could damage the government by withholding the political finance and the economic performance it depended on. This mutual vulnerability produced a bargain in which corruption took the form of predictable transfers alongside performance requirements, and where the money extracted was reinvested rather than exported.
In the Philippines, a fragmented state faced a numerous and entrenched landed oligarchy. Neither side could discipline the other, no stable bargain was possible, and the result was competitive rent-seeking in which the returns went to whoever could capture a piece of the state at any moment, with the proceeds moved offshore rather than reinvested.
His general claim is that the structure of the relationship between state and business, specifically whether both sides are concentrated enough to hold each other accountable, determines whether corruption is compatible with growth.
The argument is contested by scholars who hold that Korean bureaucratic capacity was genuinely higher and that Kang understates it. The comparative framework is a useful corrective to accounts that treat corruption as a single variable.
Key takeaways 7
- Similar levels of corruption produced very different economic outcomes in Korea and the Philippines, so corruption alone does not explain either.
- Korean corruption was extensive throughout the high-growth period, which contradicts the account of an insulated autonomous bureaucracy.
- A small number of large firms facing a strong centralised state produced mutual vulnerability that made a stable bargain possible.
- Under that bargain, transfers were predictable and were accompanied by performance requirements the state could enforce.
- A fragmented state facing an entrenched oligarchy could not discipline anyone, which produced competitive rent-seeking.
- Proceeds of Philippine rent-seeking were moved offshore while Korean transfers were reinvested domestically.
- Whether both sides of a state-business relationship are concentrated enough to hold each other accountable determines the outcome.
Who should read it
Analysts of emerging market institutions who want a framework distinguishing corruption that is compatible with growth from corruption that is not.
Similar books 6
Chosen by shared topics, the entries that hold them, and the people who recommended both.
Why oligarch families captured the banks rather than the state capturing business.
The standard economics volume: trade, banking, land and industrial policy.
John Cowperthwaite, Hong Kong's Financial Secretary in the 1960s, and his policies.
Insider memoir by the architect of much of the reform programme.
The one readable overview of how the state, NGOs and business interlock.
The founding pessimist study; useful baseline for what was later beaten.
Where it sits in the reference 2
Topics