The New World Order and Korean Municipal Finance

Abstract

ASIANPERSPECTIVE, Vol. 16, No. 2, Fall-Winter 1992, pp. 109-140 THE NEW WORLD ORDER AND KOREAN MUNICIPAL FINANCE Robert C. Rickards and Yi Seung-Cheoul How stable are Korean municipal revenue and expenditure patterns? What accounts for observed differences across cities in the level of stability in those patterns? Over time, has the pro­ cess of democratization begun to have an impact on the stability of municipal budgetary priorities? How does the stability of Korean cities' fiscal priorities compare with that of municipali­ ties in other systems? The answers to these key questions have important implications for policymakers locally, nationally, and internationally. At present, a New World Order is replacing the Yalta sys­ tem of international arrangements. As explained below, the three processes shaping this Order are changing the socioeco­ nomic and political environment of most national and local gov­ ernments. In its efforts to maintain rapid economic growth, the Republic of Korea finds itself increasingly exposed to such change (Clifford, 1988: 80-81). Shifting budgetary priorities constitute one indicator of a government's response to environ­ mental change. That makes investigation of the level of stability in Korean cities' taxing and spending patterns especially interesting. The study undertaken here begins by describing the three processes behind the emerging New World Order. Next, it con­ siders factors affecting municipal governments' ability to 109 110 Robert C. Rickards and Yi Seung-Cheoul respond to changes caused by those processes. After discussing how municipalities formulate their budgets, the study then looks for evidence of systematic shifts in Korean cities' fiscal priorities. In analyzing the evidence discovered, it compares Korean budgetary behavior with that observed in Germany, Japan, and Switzerland. Finally, the study concludes with sever­ al policy recommendations likely to improve cities' responsive­ ness to environmental change. The recommendations apply not only to Korean cities specifically, but also to municipalities throughout the developing world in general. The New World Order Beginning with the breaching of the Berlin Wall in 1989, the system of international arrangements in place since World War II has been collapsing. Subsequent years have seen the dissolu­ tion of the Warsaw Pact, the Soviet Union, and Yugoslavia. They also have witnessed: the successful campaign against Iraq undertaken by the United States, together with its European and Arab allies; a tentative settlement in the Cambodian civil war; the initiation of Middle East peace talks, and the first meet­ ings that eventually may lead to reunification of the Korean nation. In the resultant, radically transformed international environment, three powerful processes are shaping a New World Order. These processes are globalization, localization, and democratization (Suzuki, 1991:1-2; Wun'Gaeo, 1991: 3-5). In the 1950's and 1960's, many newly independent coun­ tries accepted foreign capital to finance ambitious industrializa­ tion programs. Often, social dislocation, poverty, pollution, and other unanticipated consequences resulted. Nevertheless, at least along Asia's Pacific Rim, some industrialization programs were quite successful. Accordingly, mutual economic interde­ pendence deepened, both among countries in that region and with the North American and European regions. This deep, mutual interdependence is a product of the glob­ alization process. Globalization thus involves the free flow of goods, capital, people, and information. In practical terms, it means opening domestic economies ever wider to the interna­ tional free-trade system. The New World Order and Korean Municipal Finance 111 Having moved to globalization, the Asian Pacific Rim region came under the influence of another process of environ­ mental change: localization. In earlier periods of development, almost all the region's nations relied on state control of capital formation and prices, domestic economic management by vari­ ous government agencies, and the concentration of wealth and decisionmaking in a few urban areas. State control of concen­ trated capital and production, though, led to corruption and maldevelopment. Today, many countries no longer regard state-led develop­ ment as a desirable model for economic progress. Instead, they prefer a more decentralized approach based on competition among private businessmen. Hence, governments are starting to sell off state-owned corporations, thereby separating them­ selves from capital. In addition, they are allowing more room for the interplay of market forces in managing the economy. As entrepreneurs search out economic...