Hierarchical Rationalization: Sociopolitical Obstacle to Productivity Growth in South Korea

This study provides an analysis of unsatisfactory productivity performance in today’s Korea. Despite energetic policies to improve productivity in a wide range of industries, the growing productivity gap between the chaebol and small and medium-sized enterprises (SMEs) has limited the overall productivity growth of the Korean economy. This study argues that this problem has been affected by Korea’s method of economic restructuring following the financial crisis: hierarchical rationalization. The hierarchical industrial networks have enabled the chaebol to restore their financial balance by charging the costs of economic adjustment to those least able to develop on their own: SMEs and workers. Consequently, the latter have been deprived of opportunities for productivity improvement. The analysis of hierarchical rationalization implies that Korea needs to rebalance power relations within industries in order to improve productivity performance in the larger context of social development.