‘Crony Capitalism’ in South Korea, Thailand and Taiwan: Myth and Reality

Abstract

A new myth is in the making. Once held as a model of development by practitioners and theorists alike, East Asia's Newly Industrializing Countries (NICs) are now identified as an epitome of ‘crony capitalism,’ a perversely deformed system of political and economic exchange driven by rent seekers. The privileged few have allegedly captured the state to pillage banks and sabotage market forces in pursuit of rents. But imbued with Confucian norms, which Francis Fukuyama (1995) once characterized as limiting the ‘radius’ of trust to familial ties, society cannot weed out rent seekers. The emphasis on personal loyalty is held as breeding clientelistic networks, which easily degenerate into a collusion for monopoly profits. Hiding behind a profoundly opaque corporate governance structure and protected by dense political patronage networks, business firms engage in shady deals to share rents with party politicians and state bureaucrats. From this perspective, the 1997 financial crisis was a logical outcome of East Asia's exclusionary cultural proclivities, opaque institutional arrangements, and shady business practices.