Pathways to Crisis: Structural Liability, Global Contingency, and State-Business Relationships in the East Asian Economic Turmoil

Abstract

The financial crisis of 1997 in East Asia evoked extensive academic discussion and re-interpretation of the region's economic growth strategy. In contrast to prevailing theorization through singling out certain principal elements for explanation, a theory of structural liability is proposed herein to examine both the structural liability of problematic economic institutions and the contingency of global contexts that instigated the crisis. This study argues that a context-dependent causation model helps untangle causal complexion of this economic upheaval. After identifying weak financial/market regulation as a structural liability accompanying East Asia's industrial development, we further discern the distinctive transformation of the state-business relationship in Thailand and South Korea (decreasing state regulation), which differs from that of Indonesia (increasing state predation), and suggest that there were two pathways toward such liability. The changing global economy and geopolitics are included in the structural liability model as the contingent contexts enabling problematic institutions to develop into crisis. The concluding section discusses both theoretical and methodological implications of the realist model for explaining the crisis.