Bureaucratic institutions and economic reforms: The effects of disrupted post-retirement incentive structures on the performance of Korean officials

The 1997 Asian financial crisis called into question the virtues of the "developmental state" in Korea (a development-conducive combination of authoritarian political stability and competent bureaucracy). Democratization per se provides half an answer for the state's degeneration: political liberalization raised the cost of politics enough to facilitate "money politics". The competence of the bureaucracy, however, requires further investigation. The institutional degeneration of Korea's bureaucracy during the 1990s cannot be identified with political regime change; much of Korea's economic success is owed to the fact that policy decisions were delegated to an autonomous bureaucracy, insulating them from politics.; This study introduces deferred compensation (i.e., post-retirement jobs) as the determinant of a competent bureaucracy. The opportunity to obtain a highly paid second career provided a strong incentive for performance among incumbent bureaucrats; central coordination of placement prevented corruption. Democratization disrupted this system quantitatively and qualitatively. Public pressure for economic decentralization shrank the pool of jobs. Simultaneously, political incursion into public firms destroyed the networks that coordinated individual reemployment.; The effects of the disruption on Korea's financial reform were notable. The empirical part of this study demonstrates that bureaucrats' behavior in major fields of financial reform corresponded with their efforts to defend reemployment opportunities at the critical moment of disruption. In restructuring financial intermediaries, the needs to maintain discretionary power (reemployment opportunities) kept bureaucrats vigilant against private interruptions, exhibiting a strong and coherent policy commitment. Conversely, capital market opening had little to do with reemployment opportunities so it attracted the least attention, resulting in some fatal policy mismatches.; The path of Korea's reform illustrates how deferred compensation, undermined by political liberalization, impeded Korea's adaptation to globalization by degenerating the bureaucracy. In essence, the path reflects a dilemma for individual bureaucrats (private versus public goals) that mirrors Korea's structural dilemma (political versus economic liberalization). Formerly, the system of deferred compensation had developed in such a way as to improve bureaucratic competence, leading to successful economic upgrades. By elucidating both institutionalization and disruption of the deferred compensation system, this research brings bureaucracy back into the study of the Korean economy.