Open Market Economy without Democratic Corporatism?

Since Katzenstein first made the observation, it has been widely recognized that a small, open economy is more likely to develop a welfare system based on the tradition of ‘democratic corporatism’ than a large, closed one (Katzenstein 1985; Rodrik 1998; Adsera and Boix 2002). Welfare regime studies and labor market studies have also suggested more possible combinations of open markets, democracy, and generous social welfare (Esping-Andersen 1990; Rueda 2015). These patterns of liberalization have been attributed to the strengths of social democratic parties and organized labor (Stephens 1979, Korpi 2006) or to existing institutions whose political coalitions changed under the pressure of deindustrialization (Theleen 2012, 2014).  

Market openness and the size of a country, however, do not necessarily bring about open, redistributive, and flexible governance structures in a society. Access to the global market and a more open economy may lead to more closed political governance, as Asian trajectories show a general affinity between economic development and authoritarian governance. Why are some open economies more likely to have closed political systems while their European counterparts developed into flexible regimes?

Schröder’s reform of ‘Agenda 2010’ in Germany and Swedish reforms since the 1950s represent comprehensive domestic reform processes, under pressure from labor intensive Asian capitalism and competitive German manufacture respectively. However, in 2007, the large and famous Korean enterprise Samsung decided to establish a new factory in Vietnam, seeking cheap labor, based on governmental control and privileged conditions. In this case, global competition facilitated the offshoring practice of Korean large enterprise rather than domestic reform. Why, then, has there been no systemic reform in Korea, considering how similar its level of deindustrialization and economic openness is to that of its European competitors?

Recognizing more diverse paths of liberalization, this paper argues that access to open markets can bring about different governance types for political stability. The aim of this paper is to examine the relationship between the regional context of liberalization and its implications for domestic reform process. Core dimensions of analysis are 1) the different stages of economic development and different strategic choices for national development (ISI, OEM, OBM), 2) different institutional arrangement of political governance (state corporatism, company welfare, meritocracy, one-party dominant democracy), and 3) different patterns of competition and dependency within the regional markets.

Unlike European cases where liberalization and market integration occurred after industrialization, democratization, and welfare development, Asian countries industrialized before they democratized or became regionally integrated. According to different stages of industrialization, Asian countries made different strategic choices for economic development. This strategic choice is accompanied with hybrid modes of governance for political stability. In general, competitive Asian countries approached their current level of market openness without democratically organizing their societies. This tendency continued in regional contexts where authoritarian regimes were the main competitors and partners. This research suggests that regional dynamics should be examined further, considering their implications for domestic reform.