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Varieties of Capitalism and Innovation Systems, and Post-Pandemic Reform of East Asian Capitalism:
Toward Inclusive and Innovative Growth
Keun Lee
Distinguished Professor, Seoul National University
Editor, Research Policy;
Vice-Chair, National Economic Advisory Council (for the President of Korea & Chair)
1
Lee, Keun, and H. Shin. 2019. “Varieties of capitalism and East Asia,”
Structural Change and Economic Dynamics
2
Presentations based on 4 papers
Hochul Shin and Keun Lee, 2019
“Impact of Financialization and Financial Development on Inequality: Asian Economic Papers
Lee, Keun, et al. (2021). "Variety of National Innovation Systems (NIS) and Alternative Pathways to Growth beyond the Middle-Income Stage," World Development
Keun Lee, "Varieties of Capitalism and re-thinking the East Asian model of economic growth after the Covid-19 pandemic, “ Seoul journal of economics 33 (4): 487-504; ,
Part 1
From Catch-up to Convergence in VoC:
FinancializationThe End of East Asian Capitalism
and Rising Inequality
Varieties of Capitalism (VoC)• Varieties of Capitalism (VoC) proposed by Hall and Soskice (2001)
• focus of VoC : how firms enter into a relation with other actors such as workers,suppliers, business associations, governments, and other stakeholders.
• LMEs : firms use market institutions, competitions and formal contract tocoordinate the relationship
• CMEs : firms use non-market relationship more: strategic interaction among actors
• VoC classification: 2, 3 or 4 Types of Capitalism?
• LMEs - USA, UK, Australia, Canada, New Zealand, Ireland
• CMEs - Germany, Japan, Korea, Switzerland, the Netherlands, Belgium, Sweden,Norway, Denmark, Finland, and Austria
• MMEs (Mixed Market Economies) - France, Italy, Spain, Portugal, Greece, andTurkey
4
East Asian convergence to US:in terms of growth and inequality.
Source: Drawn by the authors using data from PWT 9.0 and the World Wealth and Income Database 5
Why such changes in east Asia?1) Shock in Korea: Asian financial crisis from 1997 to 1998.
IMF forced South Korea to implement liberalization in exchange for a bailout. • Liberalization of financial and labor market
• Most restrictions on foreign investments in Korean stocks were removed.• Layoffs caused by statutory requisites and employment leasing were introduced.
2) Shock in Japan:
the Plaza Accord in 1985 ;
and the burst of the financial bubble in 1991.
The Two lost decades
3) Taiwan avoided the financial crisis in 1997
so, different path from Korea?
These shocks weaken previous institutional complementarity
prompted a change toward more liberalized market economy, close to the US6
East Asia vs. Europe: Shocks vs Lasting Path-Dependency
1) Europe
Due to long history of European capitalism, Institutional complementarity and path dependency might be stronger in Europe than in East Asia.
• Many European countries seem to maintain their specific institutions, particularly labor market institutions.
2) East Asia
• Due to relatively short history of East Asian capitalism, the degree of institutional complementarity and path dependency in the East Asia may be relatively low.
• Given this possibility, external shocks (e.g., financial crises) did the job of weakening the institutions of Asian capitalism
7
Collective bargaining coverage: 1970 to 2015Low (US, Japan, S. Korea) vs. High (European C’s)
• Source: Figures are drawn by the authors; data from OECD Statistics 8
Union density:US, Japan, South Korea vs. Europe
• Source: Drawn by the authors; data from OECD Statistics.9
Long term evolution: using 5-year averaged data (1955-2009)
PeriodGroup 1
(CME like)
Group 2
(MME like)
Group 3
(LME like)
Group 4
(East Asia like)
Group
5
1955–1959 US Japan
1960–1964 US Japan
1965–1969 US Japan
1970–1974 Japan US
1975–1979 Japan US Canada Taiwan
1980–1984 Australia Denmark Japan USFrance Germany Ireland
ItalyCanada Korea Taiwan
1985–1989 Australia Denmark Japan New ZealandFrance Germany Ireland
Italy Netherlands SpainCanada US Taiwan
1990–1994Australia Denmark Germany Japan
Netherlands New ZealandFrance Ireland Italy Spain Canada UK US Taiwan
1995–1999Australia Denmark Japan Korea Netherlands
New Zealand Norway SwedenFrance Germany Italy Spain Canada UK US Finland Taiwan Ireland
2000–2004
Australia Denmark Finland Ireland Korea
Netherlands New Zealand Norway Sweden
Taiwan
France Italy SpainCanada Germany Japan
UK US
2005–2009Australia Denmark Finland Netherlands New
Zealand Norway Sweden TaiwanFrance Italy Spain
Canada Germany Ireland
Japan Korea UK US
Average of variables for each group
GDP growth (%) 2.19 1.79 1.39 6.83 8.95
Employment (%) 59.90 47.05 59.27 59.54 50.48
Top 10% share (%) 29.89 31.88 39.50 28.47 35.44
Good growth, low inequality, high jobs All in middleLow growth
/High Inequality
High growth
Low Inequality
Clusters using two period (15 Year) data (1985-1999 and 2000-2014)
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PeriodGroup 1
(CME like)
Group 2
(MME like)
Group 3
(LME like)
Group 4
(East Asia like)
1985–1999Australia Denmark Japan
New Zealand Norway Sweden
Finland France Germany
Italy Netherlands SpainCanada UK US
Ireland Korea
Taiwan
2000–2014
Australia Denmark Finland
Netherlands New Zealand
Norway Sweden
France Italy Spain Taiwan
Canada Germany
Ireland Japan
Korea UK US
Average of variables for each group
GDP growth (%) 1.48 1.82 1.75 6.19
Employment (%) 61.57 49.17 58.76 54.16
Top 10% income (%) 28.37 31.86 39.67 31.11
Highest Employment
Lowest InequalityMixed performance highest inequality Highest growth
* Countries in bold moved from other groups to Group 3 over time.
Summary: End of East Asian Capitalism• Stability of European capitalism – Northern and Continental Europe : support VoC;
(possibly except Germany after the 2000s reform?)
• End of East Asian capitalism
• Korea and Japan – converge to Anglo-Saxon capitalism
• Taiwan – converge to European capitalism
• Why Asian Convergence to LME
1) Weak institutional complementarity and path dependency due to short history of East Asian capitalism might affect different evolution pattern of East Asian and European capitalism.
2) Also, Shocks (Financial crisis in Korea in 1997; Bubble Burst/Plaza Accord in Japan since the mid 1990s) damaged the regime stability, whereas Taiwan avoided the crisis and did not experience such shocks
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The next question in the second Paper =
What caused the end of E Asian Capitalism?
• Answer = Financialization:
• 1) lower investment -> low growth
• 2) Higher inequality
13
Motivation: Financialization ->Inequality?
• Financial development = promotes economic growth :
-- (King and Levine, 1993; La Porta, et al 2002; Beck, et al Loayza, 2000).
• But, global financial crisis and rising inequality
➔ dominance of the financial sector not always good for the economy.
• Financialization : increasing dominance of the financial sector and its globalization, including excessive dividends payment.
• Some literatures: financialization -> inequality
- (Hacker & Pierson, 2010; Lin & Tomaskovic-Devey, 2013; Godechot, 2012; Kus, 2012).
-- Using domestic aspects of financialization and conventional econometrics14
Definition of Financialization and Financial development
• Financial development : functional concept= improvement of financial functions
(Levine 2005) = value of stock market/GDP; private loans/GDP
• Financialization : observational concept
• Stockhammer (2004) : increased activity of non-financial businesses on financial markets
• Tomaskovic-Devey et al. (2015) : expansion of both the financial service sector and
increased investment in financial instruments by the non-financial sector
• Definition of financialization in this paper: 3 measures
1) Expansion of financial sector
2) Increasing dividends: Increased share of shareholders among profit in non-financial sectors
3) Increased oversees financial investment (financial globalization);
measure = Ratio of external financial asset plus liability to GDP (%)
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Financialization: A Cause for the end of E Asian CapitalismShare of value-added in the finance/insurance sector:
US, Japan, South Korea vs. Average of European countries
• Source: OECD Structural Analysis (STAN) Database (ISIC Rev. 3). 16
Dividend tendency and top 10% income share
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Dividend tendency and top 10% income share
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Spread of maximization of shareholder value.
• Corporate management which put emphasis on maximization of shareholder value widely spread in the USA from 1980s.
• The easy way for maximization of shareholder value : increase of short-term profit
• Many American firms increased financial activities or financial portfolio to raise short-term profit and stock price (Orhangazi, 2008; Lin, 2013; Davis, 2014).
• Ratio of financial income to realized profits and ratio of financial assets to total assets doubled from late-1970s to early-2000s for USA non-financial firms (Lin and Tomaskovic-Devey, 2013; Tomaskovic-Devey et al., 2015).
• Example : GM Acceptance Corporation (GMAC) and Ford Credit in 2004 (Lin and Tomaskovic-Devey, 2013; Hakim, 2004).
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Financialization and Inequality
• Spread of maximization of shareholder value • More share of resources and profits of firms goes to shareholders and CEOs in
terms of dividends, stock buyback, and CEO’s stock options and less share goes to workers and other stakeholders.
• Lazonick (2014) showed that 54% and 37% of US companies’ earning had
been spent on stock buybacks and dividends in 449 firms among the S&P 500
firms from 2003 to 2012, respectively, using S&P Compustat data
• Change of bargaining power between labor and capital
• As firms involve financial activities more, they focus more on financial
investment than real investment (Alvarez, 2015).
• Capital account liberalization and financial globalization
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Income Shares by Top 1% Rich: The higher in Anglo-Saxon Capitalism;
In Korea, rapid increase since ‘97: (Kim , Nak Nyeon; 2014)
0
5
10
15
20
25
1913
1917
1921
1925
1929
1933
1937
1941
1945
1949
1953
1957
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
U.S.
U.K.
Korea
Japan
France
(%)
Korea After the 1997 crisis, Decline of Fixed Investment → The root of slow growth:
investment rate reduced by 5%P (35-40% → 30-35%)
Korea
China
Japan
US
Taiwan
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gross capital formation
(% of GDP)
Share of Foreign Investors Up -> Investment rate down:=> Cost of Anglo-Saxon (or American) Capitalism?
10
15
20
25
30
35
40
45
25.0
27.0
29.0
31.0
33.0
35.0
37.0
39.0
41.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total investment(% of GDP) Share of foreign investors in stock market(% of total market capitalization)
Share of foreign investors
Investment
High Dividends -> Inequality (top 10% share):Group-mean FMOLS results using OECD data
24
Dependent variable Top 10% income share Adjusted wage share
Variable Coef. p-value Coef. p-value
Distributed income of corporations 0.093** 0.000 -0.06 0.265
ICT compensation 0.33** 0.000 0.50** 0.000
Tertiary enrolment ratio -0.043 0.266 0.030 0.724
Trade openness 0.036** 0.005 0.010 0.584
Number of countries 10 15
Number of observations per country 12.0 11.8
Number of observations 120 177
Period 1979-2007 1979-2007
Shin, HC and Keun Lee, Asian Economic Papers (2019)
Policy implications to check financialization
• Increasing dividend tendency (distributed income of corporations) in the non-
financial corporations can be one reason of recent rising inequality in the
developed countries.
• Cf) argument that financial development reduces inequality by relaxing the
credit constraints of the poor is not supported.
• policy implication : simple focus on financial development is not enough to
promote inclusive growth (or to reduce inequality)
=> there is a need for government policies, including differentiated taxation on
dividends vs. reinvestment,
=> which induce non-financial firms to focus more on productive re-investment
from profits and to discourage too much dividends for shareholders.
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Part 2
Varieties of the NIS (National Innovation Systems)and Alternative Pathways for Growth beyond the Middle income stage:
Catching up vs. Trapped NIS
Lee, Keun, et al. (2021). "Variety of National Innovation Systems (NIS) and Alternative Pathways to Growth beyond the Middle-Income Stage," World
Development,
Lee, K., & Lee, J. (2019). National innovation systems, economic complexity, & economic growth. J of Evolutionary Economics, 1-32.
A talk drawing upon 2 papers:
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Localization( Intra-national creation and diffusion) of Knowledge
(vs. reliance on foreign sources)
Dispersed vs. Concentration = 1-HHI
of knowledge creation (by assignees)
Short vs. long cycle technologies Specialization
Originality (high if citing and combining widely)
(= Technological Convergence /combination)
Technological Diversification
(Wide vs. Deep in patent portfolio)
5 Variables to measure the NIS (Lee 2013):
Basis for a composite index of NIS (Lee&Lee 2019, JEE)
=> Somewhat Narrow but close to the definition by Lundvall (about knowledge)also better in terms of homogenous dataset (US patents) over longer term
NIS Index of 45 economies, 2011~2015: Lee & Lee (2019, JEE), NIS, Econ. Complexity, & Econ Growth
Country LocalizationTech
Diversif’nOriginality
Relative
cycle time
Decentral’n
1-HHI
Index of
NIS-5
Rank of
NIS5
Japan 0.407 0.866 0.354 0.942 0.980 3.566 1
United States 0.246 0.937 0.503 1.005 0.994 3.495 2
Germany 0.140 0.844 0.455 1.106 0.984 3.147 3
France 0.111 0.735 0.402 1.083 0.975 2.873 4
United Kingdom 0.070 0.687 0.450 1.157 0.993 2.855 5
Italy 0.090 0.611 0.408 1.163 0.981 2.763 6
Australia 0.134 0.469 0.466 1.176 0.923 2.742 7
Switzerland 0.042 0.657 0.434 1.159 0.984 2.730 8
Canada 0.065 0.671 0.486 1.014 0.935 2.709 9
Taiwan 0.129 0.674 0.331 0.828 0.971 2.575 10
Netherlands 0.075 0.582 0.434 1.041 0.903 2.564 11
Israel 0.066 0.431 0.498 1.044 0.990 2.551 12
South Korea 0.137 0.705 0.339 0.846 0.854 2.533 13
Denmark 0.081 0.374 0.429 1.169 0.971 2.516 14
Norway 0.080 0.268 0.482 1.200 0.985 2.503 15
Austria 0.076 0.405 0.422 1.133 0.967 2.496 16
Sweden 0.098 0.568 0.390 0.992 0.824 2.435 17
Belgium 0.065 0.378 0.418 1.130 0.955 2.421 18
China 0.048 0.643 0.332 0.854 0.944 2.343 19
New Zealand 0.043 0.172 0.481 1.251 0.976 2.341 20
Spain 0.044 0.324 0.400 1.107 0.986 2.308 21
Dynamic Change of the NIS Variables, Knowledge Localization
Dynamic Change of the NIS Variables: Technological Diversification
NIS and Complexity(ECI) on Growth (Lee & Lee 2019 JEE)
31
Next Question
Which types of NIS to grow
beyond the Middle Income Trap/stage ?
To show the two types of catching-up NIS,;
Balanced and imbalanced
cf) Trapped NIS (middle income trap)
1) Balanced and Mature NIS (6): Canada, Germany, France, Italy, Switzerland, and the United Kingdom.
2) Balanced and Catching up NIS (8): Ireland, Spain, Hong Kong, Singapore, India, Denmark, Norway, Russia
3) Imbalanced Catching-up NIS (3): China, South Korea, and Taiwan.
4) Imbalanced and Trapped NIS (9): Argentina, Brazil, Chile, Malaysia, Mexico, South Africa, Thailand, Greece, Portugal
The Cluster Analysis using the 32 Economies
Variety of NIS ~ VoC
34
❖ Developed (mature) NIS = all high scores
❖ Trapped NIS = long cycle, med originality but very low localization/diversification
❖ Catching up NIS = short cycle and low originality but high localization/diversification
NISDecentral-ization
localizationTech.
diversificationOriginality
(combinationcycle time
Balanced & Mature(Europe)
High High High High Long
Balanced & Catching up(India, Russia)
Med high Medium Medium Medium Medium
Imbalanced Catching-up
(Korea, China)Low High High Low Short
Imbalanced & Trapped
Medium Very Low Very low Medium Too long
Relative Cycle Time of Technologies:How to get out of the Middle income Trap:
from short to long detour in Korea, Taiwan, China
36
Why specializing into Short Cycle Tech. matters
Cycle time = speed of change in the knowledge base of a technology
= mean citation lag
= time difference between the application year of the citing patent
and of the cited patents
“To catch up, specialize in Short cycle technology-based sectors“
because old knowledge quickly obsolete/useless
+ new knowledge tend to emerge more often
-> less disadvantageous for the latecomers
=> technological sectors
with less reliance on the old technologies
but with greater opportunity
for emergence of new technologies
37
G5 Class Class NamePatent
count
1 514 Drug, Bio-Affecting and Body Treating Compositions 10349
2 428 Stock Material or Miscellaneous Articles 3883
3 73 Measuring and Testing 3789
4 123 Internal-Combustion Engines 3479
5 424 Drug, Bio-Affecting and Body Treating Compositions 3389
6 210 Liquid Purification or Separation 2853
7 435 Chemistry: Molecular Biology and Microbiology 2852
8 250 Radiant Energy 2639
9 264 Plastic & Nonmetallic Article Shaping or Treating 2349
10 324 Electricity: Measuring and Testing 2325
Top 10 Classes of G5 vs Korea-Taiwan ->no overlap
Korea-
TaiwanClass Class Name
Patent
count
1 438 Semiconductor Device Manufacturing: Process 1189
2 348 Television 712
3 439 Electrical Connectors 408
4 257 Active Solid-State Devices ( Transistors, Solid-State Diodes) 374
5 362 Illumination 374
6 280 Land Vehicles 355
7 365 Static Information Storage and Retrieval 346
8 70 Locks 340
9 360 Dynamic Magnetic Information Storage or Retrieval 313
10 482 Exercise Devices 311
38
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Telephone switches
Steel & Automobiles
Apparel &textiles
Memory chips
Cell Phones
Digital TVs
Medicine& Basic Science
Korean Detour from Short to long cycle technologies1st in the mid 80s: to short cycle sectors
2nd in the 2000s: to long cycle sectors; ex. Samsung’s biosimilar
2 Tech. turning point
0.75
0.85
0.95
1.05
1.15
1.25
1.35
1984~1987 1988~1991 1992~1995 1996~1999 2000~2003 2004~2007 2008~2011 2012~2015
Table 3-1 Period average cycle time of technologies in selected economies
Brazil China Germany Korea Taiwan
China
Germany
Korea
(Normalized) Average Cycle Time of Technologies: mid 1980s to 2010s
Brazil
Korea = Used to be in the big mixed group but created catching up NIS Dynamic Evolution of the NIS over time (Cluster Analysis) :
Grou
pGroup 1 Group 2
Gro
up
3
Group 4 Group 5 Group 6 Group 7Group
8
Gro
up 9
1984
-91
Argentina, Brazil, China, Denmark,
Finland, Hong Kong, India, Ireland,
Israel, Malaysia, Mexico, Norway,
Singapore, S. Africa,
South Korea, Spain, Taiwan
Chile,
Greece,
Portugal
Tha
ilan
d
Canada, France,
Germany, Italy, UK,
Swiss, Sweden,
Netherlands
Japan USA
1992
-99
Argentina, Brazil, Chile, China, Den
mark, Finland, Hong Kong, Greece,
Israel, Ireland, India, Mexico,
Malaysia, Norway, Portugal, Russia,
S. Africa, Spain, Thailand
Chile,
Portu
gal
SingaporeSouth
Korea
Canada, France,
Germany, Italy, UK,
Swiss, Sweden,
Netherlands, Taiwan
Japan USA
2000
-07
Argentina, Brazil, Chile, Denmark,
Hong Kong, Greece, Mexico,
Norway, Portugal,
Russia, South Africa,
Spain, Thailand
Singapore,
Ireland, India
Malaysia,
China
South
Korea,
Taiwan
Canada, France,
Germany, Italy, UK,
Swiss, Sweden,
Netherlands,
Finland, Israel,
Japan USA
2008
-15
Argentina, Brazil, Chile,
Malaysia, Mexico,
South Africa, Thailand,
Greece, Portugal
Singapore,
Ireland, India,
Spain, H.Kong,
Denmark,
Norway, Russia
South
Korea,
Taiwan,
China
Finland,
Sweden,
Israel,
Netherlands
Canada, France,
Germany, Italy,
UK, Swiss
Japan USA
Balanced vs. Imbalanced Development: Nurkse (1953) vs Hirschman (1958):balance between agriculture and manuf => between manuf and services & balances in NIS
High coeffOf variation
Low coeffOf variation
Bigger NIS-5 Smaller NIS-5
Ireland, Spain, Hong Kong, Singapore
Korea, Taiwan, China
Summary: NIS to Economic Growth : Catching up & Convergence
1) Confirms correspondence between diverse NIS types andcatching-up/falling behind performance.
-- There are variety of NIS, similar to Variety of Capitalism:Balanced NIS (mature or catching-up)
vs. Imbalanced (catching-up vs. Trapped)
2) Imbalanced Catching-up NIS in E Asia = specialization into short cycleTechnologies, and there by promoted localization and diversification;-- Getting into short cycles -> higher localization (less need to rely on
incumbents) -> tech. diversification by keep entering newly emerging classes
➔Detour from short to long cycle tech = Convergence
3) Balanced Catching-up NIS = alternative to E Asian Path;India/Russia in the NIS : promising signs for future growth
Part 3
Re-balancing of Capitalism since the Pandemic
K. Lee (2020)
Keun Lee, "Varieties of Capitalism and re-thinking the East Asian model of economic growth after the Covid-19 pandemic,
“ Seoul journal of economics 33 (4): 487-504; ,
43
After the Covid-19,New Tradeoffs or Coronomics
1) Lock-down vs economic growth (+inequality)
2) GVC: efficiency vs. resilience
-> resilient efficiency /efficient resilience
3) Country: New balance
bt. Manuf vs services (and Agriculture)
4) Capitalism: new balance
between shareholder vs stakeholder capitalism
Re-balancing of Capitalism since the Pandemic:a retreat of shareholder capitalism
• Acemoglu et al. (2012): the US model of capitalism vs. Western European models
= ‘cutthroat’ capitalism versus ‘cuddly’ capitalism;
Cutthroat capitalism is good for innovation but generates inequality,
cuddly capitalism: better at redistribution & protecting employment and health but worse at innovation.
• Aghion et al (2020) tries to compare again these US and Western European models in terms of how they are dealing with and responding to the Covid-19 crisis.
• Western economies have also revealed their weaknesses: suffered greatly.
• -> their reliance on East Asia for the production of medical devices, including the test kits.
• Overall GVC (global production chains) have revealed weakness associated with too widespread a fragmentation over diverse countries.
• Thus, Covid-19 also signals the retreats of the Anglo–Saxon style shareholder capitalism that has driven globalisation or neoliberalism since the 1980s.
45
A new move toward stakeholder capitalism?
• Shareholder capitalism is again being criticised:
- Eg) Boeing : asked for financial help from the public sector because it paid – before the pandemic outbreak – a huge amount of money to its shareholders (with its top five all PEFs) in the form of dividends and stock buybacks, rather than reserved profits for in-house reserves or reinvestment funds.
• Even before the pandemic crisis: Reset capitalism
- Business Roundtable (August 2019): ‘Statement on the Purpose of a Corporation’ by top business leaders:
- Financial Times under the heading of ‘Capitalism: Time for a reset’.
• January 2020 Davos Forum: endorsed stakeholder capitalism as the vision for the future of capitalism.
46
A series of blows to Globalizationand G7’s Cornwall Consensus
1) the 2008-09 global financial crisis (GFC)
-- the first blow: to financial globalisation
2) US-China trade war:
- a major setback against trade globalisation
3) The pandemic is the final blow to production globalisation or over-fragmented GVC;
-- Multilateral Free Trade ➔A small-number alliance based GVC
4) 2021 G7 Cornwall Consensus:
A big deal between US and EU: common corporate taxation and digital taxation,
(facing the common threat of rising China)
-> A new, rule-based, fair and accessible global order?
47
Checks on free capital mobility re-instituted in Korea during Covid Crisis in 2020
1) Dollar Swap with 9 countries:
In March 2020, global financial markets = suffering the shock of the outbreak of the pandemic.
- US FED : Dollar swap to: Korea, Brazil, Mexico, Singapore, Sweden, Norway, Denmark, New Zealand and Australia
2) Three macro-prudential measures (introduced in 2011 after GFC):
• an additional stabilising role by reducing the possibility of capital flight.
a) Bank of Korea: banks’ position in forward exchange markets enlarged from 200% to 250%
(of equity capital for Korean branches of foreign banks, and from 40% to 50% for domestic banks.)
b) no taxes on new non-deposit foreign exchange debt during Spring 2020.
c) the Korean government: the LCR (liquidity coverage ratio) reduced from 80% to 70% until May 2020.
=> these measures to stabilize inflow and outflow of hot money during the times of uncertainty.48
Post-Covid Reform of East Asian capitalism• Covid-19 pandemic:
- suddenly stopped globalisation; questioned the superiority of shareholder capitalism (associated with financialisation, globalisation, and inequality).
• A need for rebalancing between shareholder and stakeholder capitalism.
• East Asian economies can be reborn as a hybrid capitalism,
with East Asian capitalism at its original core,
to restore their growth momentum in an inclusive way.
• Post-pandemic retreat of globalisation is a good opportunity to restore autonomy in domestic economic policymaking over interest rates and exchange rates,
while imposing some checks against too much capital mobility and financialization
To boost more inclusive and innovative growth;
need more supply side interventions, including ALMPs and industrial policy,
given the possibility of cost-push inflation (or stagflation)
50
Gracias! ස්තුතියි !Obrigado!
Thank you! Tak! amesege'nalo’
謝謝大家감사합니다
Danke shon!ありがとう
www.keunlee.com