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The Evolution of Large Corporations in Korea

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa

Controversy still looms large both in public and academic circles as to the role of large corporations in sustainable economic growth. In this book, the new-institutional economics perspective is adopted to clarify and answer some of the most critical questions relating to the behaviour of large corporations in Korea, or the chaebol, and the role and impact of institutions on their behaviour.
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Chapter 8: Toward a New Framework of Chaebol Policy

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa


1. INTRODUCTION We have come a long way in analyzing the main features and sources of chaebol behavior, as well as clearing up some issues regarding the nature of past and current chaebol policy. It is time to move forward and spell out the framework of a new paradigm for corporate policy. In this chapter we draw from results of analyses in previous chapters and, in particular, the theory of corporate governance constructed in Chapter 7, to build a framework for chaebol policy that is needed for Korea’s sustainable development. We have suggested repeatedly that the alternative direction for Korea’s chaebol policy should focus on the reform of the external business environment, which, as has been explained, is ultimately the main determinant of chaebol behavior. Broadly speaking, the government’s economic policy under the new economic environment of globalization should shift from one based on government-led discrimination and direct regulation to emphasizing market-led discrimination and indirect guidance based on market principles. Only by managing the economic environment and by giving private firms the autonomy to decide on endogenous management variables will the government be able effectively to steer economic activity in the private sector in an economically efficient direction. This chapter is structured as follows. In Section 2, the basic direction toward improving chaebol regulation policy, particularly in the modern era of globalization, is discussed. In Section 3, the details of what a new chaebol policy should look like is presented. This section follows directly from our analysis of the chaebol...

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