South Korea’s sub-optimal experience with Neoliberalism: lessons for Pakistan

Pakistan has been actively under neoliberal policies since late 1980s when it first started to come under major International Monetary Fund (IMF) programmes, while its engagement with IMF during earlier years since the country’s independence coincided with a time when IMF programmes were quite basic in their orientation, with very little role of conditionalities, which anyways were hardly neoliberal; a phenomenon that took over the multilateral institution after the end of the Bretton Woods system in early 1970s. Although Pakistan has remained a prolonged user of IMF resources, since the decade of 1990s, yet even when out of IMF programme, public policy continued to be neoliberal under the significant influence of ‘Chicago boys’-styled policymakers at home.

The neoliberal experience in many places like Latin America, South East Asia, and much of advanced countries, where this was actively practiced led to neither any sustainable macroeconomic stabilization, nor economic growth, where the latter had to pay a lot of sacrifice at the back of over-board demand-squeeze consolidation/austerity policies, but still there was no sustained stability or growth. Moreover, a lack of social spending under the charge of austerity policies, on one hand, led to increase in inequality, and poverty, and also diminished political voice, but greater entrenchment of market fundamentalism meant lowering level of economic resilience and allocative efficiencies.

The experience of South Korea, which was once marvelled as a successful experiment of state planned economy, saw falling levels of economic stability, increasing inequality, and lack of improvement of democracy overall. Since the level of social, and manufacturing investment was quite deep before the neoliberal experiment starting late 1990s – a time that also coincided with the Asian Financial Crisis (AFC) of 1997 – the impact of the neoliberal assault has not been pronounced in terms of economic, and democratic indicators as in countries like Pakistan, which are far behind the development ladder than South Korea.

A world-renowned economist Ha-Joon Chang, for instance, in his latest piece for the Financial Times (FT) titled ‘Economic unfairness threatens to undermine democracy in South Korea’ and published on December 16, lamented the coincidence of AFC of 1997 with the fledgling roots of democracy, since instead of building forcefully towards achieving sustainable development, the country had to come under the wings of neoliberal IMF programme.

He pointed out in this regard: ‘Korea’s transition to democracy started in 1987, when the military was ousted after 26 years. The election of Kim Dae-jung, the leading pro-democracy activist, as president in 1997 completed the process of democratisation. Unfortunately, Kim’s election coincided with the 1997 Asian financial crisis, which compelled Korea to agree a radical programme of economic liberalisation with the IMF. Greater fairness was off the agenda. Subsequent governments all adhered to the liberal economic agenda. The result has been three decades of significantly slower growth, fewer quality jobs, increased inequality and vastly reduced social mobility, compared with the “miracle” years between 1961 and 1996. Economic insecurity was heightened by the failure of the welfare state to grow. Today, public social spending in Korea is below 15 percent of GDP, among the lowest in the OECD.’

Hence, the neoliberal experience, which started after the fall of dictatorship has subdued economic, and democratic dividends that should otherwise have come after the end of years long dictatorship in later 1990s. For one, inequality has increased, while efforts to strengthen democratic roots have seen a tug of war, with no forward movement as such, given lack of social and economic institutional development, on one hand, has allowed leaders in power with enough space to venture into negative domain at the back of weaker economic and political empowerment of demos, and take serious blame for corruption/abuse of power charges, and yet, on the other hand, the parliament has shown enough resilience to see the ouster of political leaders found out in the grey area due to reasonable level of economic empowerment during the dictatorship.

In no way does it mean that dictatorship is better than democracy for obvious benefits of economic and political freedoms/empowerment, but because of lack of control over public policy by demos due to weakening of political voice, and lack of economic empowerment of demos, to allow political leaders with lesser check from demos both directly, and through lack of regulatory oversight in the public domain due to wanting level of legislation as a result of weaker public voice.

Highlighting the tug of war situation over establishing democratic roots in South Korea, with negative political, and economic fallout, especially in the wake of impeachment of the country’s President Yun Suk Yeol recently, the same FT published article indicated, ‘Yoon’s rapid demise is a tribute to the robustness of Korean democracy, which has been forged through decades of struggle against dictatorship and military rule. When Yoon declared martial law, opposition politicians and millions of citizens acted promptly and decisively to reject the move and impeach the president. But if Korean democracy is so robust, why are mass protests and presidential impeachments so frequent? It is because Korean democracy has failed to deliver for ordinary citizens.’

It is in this context that Pakistan should understand both the limits of benefit of the current IMF programme, and that is to keep the country safe from economic default, through both bringing to table its own resources, and also allowing the country to present the case of being in an IMF programme to satisfy other multilateral, and bilateral development partners to continue with their financial assistance towards the country. This is because, the structural reforms like building the level of domestic resource mobilization, for instance, requires a non-austerity programme so that enhanced level of social spending empowers demos enough to push policymakers legislate in this direction; something the policymakers have been reluctant to do on their own as it is counter-productive to their rent-seeking designs, in general.

It is important, therefore, that the country should adopt a non-neoliberal policy, with limited austerity practiced, which is an important complementary support to pushing for structural natured reforms, including enhancing domestic resource mobilization for instance, but also in terms of need to reach much better price discovery, and reducing information asymmetry in an overall reduce transaction cost.

Copyright Business Recorder, 2024