Tilting the playing field: government strategies to bolster control over policy paths in Japan and South Korea

Abstract

Following the financial crises in the late 1990s, governments in Japan and South Korea embraced institutional change that corresponded with Western neoliberal norms. These changes prompted some observers to expect a similar adjustment of monetary and financial policy to Western standards. Others anticipated that historical legacies would preserve developmental policy continuity. Curiously, neither of the two perspectives can fully explain the ensuing monetary and financial policy paths in both countries, which have exhibited differences in both conduct and objectives. To explain the puzzling policy paths, this article focuses on the role of government objectives in shaping institutional change and policy paths. It finds that in the 1990s, governments in Japan and South Korea sought to expand their control over monetary and financial policy vis-à-vis the bureaucracy. They used international pressure and expert commissions to bring about institutional change when the financial crises hit. This enabled them to instigate new monetarist (Japan) and financial stability-directed (South Korea) policy paths they preferred. The findings indicate that accounts by institutionalist and state capacity scholars should pay more attention to government objectives when explaining the timing of institutional change and the emergence of subsequent policy paths.