Restoring the Korean Economic Miracle


Ellen Brown | Web of Debt – TRANSCEND Media Service

This paper was written for the Economics of Happiness Conference co-sponsored by Local Futures, held in Jeonju, Korea, on October 16-17, where I was the keynote speaker — a wonderful city and great experience!   

Satisfaction in the workplace is a major component of the “happiness” index; but it is a satisfaction that young people joining the workforce today are not feeling. In a 2017 book titled Kids These Days: Human Capital and the Making of Millennials, Malcolm Harris asks why the millennial generation  – those born between 1981 and 1996 – are so burned out. His answer is, “the economy.” Millennials are bearing the brunt of the economic damage wrought by late 20th century capitalism, with economic insecurities throwing them into a state of perpetual panic. Harris argues that if they want to meaningfully improve their lives and the lives of future generations, they will have to overthrow the system and rewrite the social contract.

A similar crisis of capitalism is being faced by millennials in South Korea, which has been ranked near the bottom of the OECD’s “Better Life Index.”[1] Warabel, meaning “work-life balance,” is a new term for an old movement that began in South Korea in the 1970s, after a 22-year-old workers’ rights activist committed suicide by setting himself ablaze in protest over the poor working conditions in South Korean factories. His death brought attention to the substandard labor conditions and helped the formation of a labor union movement in South Korea.[2]

Today Korean millennials are protesting in other ways. In an April 2019 article titled “South Korean Millennials Challenge the Country’s Powerful Chaebol,” Olivia McCall observes that millennials have become more vocal about their work grievances – so vocal that they have been the strongest advancers of workplace diversity and the strongest critics of employee abuses and exploitation. As a result, they have actually brought about changes to some questionable corporate values.[3]

The power of South Korea’s millennial generation to change work cultures is displayed in how they are starting to turn away from the country’s most stoic economic pillars, the chaebol. A combination of the Korean words for “wealth” and “clan,” the chaebol are massive family-owned enterprises that own a significant number of subsidiaries across different industries. The largest include Samsung, LG, Hyundai, SK, and Lotte. Since the chaebol are family-run, management positions are traditionally reserved for members of the founding families, and chances of promotion for outsiders are slim. A recent report from Reuters observed that a growing number of South Korean millennials, burned out by working night shifts and the slight chances of promotion, are leaving their white-collar jobs and moving to farmlands in the provinces in order to pursue a more laid-back lifestyle. That means more time for family, friends and personal interests, but it also means giving up income, promotions and economic security.[4]

Adding to millennial dissatisfaction with the chaebol are the scandals, corruption and other workplace abuses in which some top executives have recently been embroiled. The executives have usually escaped prison through presidential pardons or the mere payment of fines. A notorious case involved the sentencing of Jay Y. Lee, head of Samsung Group, to five years in prison after being found guilty of bribery, embezzlement and perjury in 2017. His jail term was later reduced to just five months, but a bribery case linking him to Park Geun-Hye, then the president of South Korea, resulted in the president being jailed for corruption and his replacement by Moon Jae-in.

Also challenging the power of the chaebol are some of their foreign minority shareholders, including Paul Singer’s Elliott Management, which was instrumental in bringing the case against Mr. Lee and the former president. But Singer and his “vulture fund” are not the sort of players South Koreans should want leading a revolt against their economic pillars. The vulture fund model is to buy up the debt of struggling companies or countries at a deep discount, then engage in protracted court battles for payment in full plus interest, reaping massive profits in the process. Singer’s Elliott Management notoriously extracted billions of dollars from Peru, Argentina, and the Congo this way. In the case of companies, “activist” hedge funds buy minority shareholder stakes, then trigger proxy battles for a greater share of the profits, changes in the board, liquidation of assets, or outright sale of the company.[5]

In the US in 2009, Elliott Management and two other vulture funds extracted $1.5 billion from Delphi, General Motors’ troubled auto parts manufacturer, and is said to have virtually destroyed North American unionized labor in the process. Delphi’s 20,000 retirees lost up to 70 percent of their pensions, an estimated 8,500 workers lost their jobs nationwide, and all but four factories were closed.[6] In Korea, intrusions by foreign “activist” hedge funds have resulted in hundreds of billions of won being extracted from the chaebol, money that could have gone for research and development and for improving the conditions of workers.[7]

Upon assuming the presidency, Moon Jae-in vowed to revive South Korea’s dormant economy, but the government’s approach — raising taxes and the minimum wage — has made it difficult for businesses to compete with Chinese industries.[8] There is another alternative for funding economic and social development, one that was pursued by South Korea in the past and will be explored here.

The chaebol led South Korea’s “economic miracle” of the last half-century. Rather than destroying their cultural legacy, their best features need to be transmuted into a vehicle for serving the people and their local communities. This paper will suggest some possibilities for achieving that result, including a way to maximize the “impact” investment in social enterprises now being promoted by the Korean government.[9] Before getting to solutions, however, we will look at Korea’s economic history, at how the chaebol contributed to its dramatic rise, and at the unique funding mechanism that made its “economic miracle” possible. 

Korea’s Fifty-Year Economic Miracle

In 1961, South Korea’s per capita GDP stood at $103, making it one of the poorest countries in the world—poorer even than North Korea.  Per capita GDP skyrocketed to $5,438 in 1989, $20,000 in 2007, and $30,000 in 2010, placing it solidly in the club of wealthy first-world nations.[10] According to Cambridge economist Ha-Joon Chang in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, it was “as if Haiti had turned into Switzerland.”[11]

South Korea’s achievements were all the more impressive considering the country’s rocky start after World War II. President Syngman Rhee, a staunch anti-communist educated in the United States, had followed American economic prescriptions; and the nation’s banks, which had been government-owned under Japanese colonial rule (1910-1945), had been privatized.  The economy suffered runaway inflation, highly unfavorable trade balances, and mass unemployment; and it was dependent on U.S. foreign aid.  South Korea’s war with North Korea in the early 1950s was one of the bloodiest in human history, claiming four million lives and destroying half of Korean industry. The corrupt, authoritarian Rhee regime was finally toppled by a student uprising in 1960; and in 1961, General Park Chung Hee seized power in a military coup.

Educated at the Japanese imperial military academy in Tokyo before serving in the imperial Japanese army in Manchuria, Park was well aware of Japan’s rapid economic progress in the 1950s based on its experiment in “state-guided market capitalism.” Under the new Japanese model, the state determined the priorities and commissioned the work, then hired private enterprise to carry it out. The model overcame the defects of the communist system, which put ownership and control in the hands of the state.[12]

Chalmers Johnson, president of the Japan Policy Research Institute, wrote in 1989 that the closest thing to the Japanese model in the United States was the military/industrial complex. The government determined the programs and hired private companies to implement them. The U.S. military/industrial complex was a form of state-sponsored capitalism that had produced one of the most lucrative and successful industries in the country.[13]

The Japanese model achieved that result, however, without the pretext of war. The Japanese managed to transform their warrior class into the country’s industrialists, successfully shifting their focus to the peaceful business of building the country and developing industry. The old feudal Japanese dynasties became the multinational Japanese corporations we know today – Mitsubishi, Mitsui, Sumitomo, and so forth. The government was at the helm directing the economy in a way that served the public interest. Japan proved the new state-guided model by rocketing from a per capita GDP of $610 in 1962 to $38,500 in 2006, a 63-fold increase in GDP in less than half a century.[14]

Japan’s impressive growth was not lost on South Korea, Japan’s former colony. After Park Chung Hee came to power in the 1960s, he instituted Japanese-style state-guided planning and development, including nationalization of the banks. South Korea replicated the Japanese model, adopting a similar system of economic planning, life-time jobs and export assistance, and close copies of the Japanese Ministry of Finance, Ministry of Trade and Industry, and Development Bank of Japan.  It also replicated the industrial conglomerates that in Japan were called keiretsu and in South Korea were called chaobol. State-owned enterprises (SOEs) were used extensively and the government was highly protectionist, including controlling foreign currency and investment. South Korea’s version of the Japanese model was a stellar success, with per-capita income increasing nearly twenty-fold as early as 1978.[15]

Cooperative Corporate Groupings and Their Internal Funding Mechanisms

Underwriting these dramatic developments was a unique funding model that differed from the Western “free market” approach. Ha-Joon Chang wrote:

The neo-liberal establishment would have us believe that, during its miracle years between the 1960s and the 1980s, Korea pursued a neo-liberal development strategy.  The reality, though, was very different indeed.  What Korea actually did during these decades was to nurture certain new industries, selected by the government in consultation with the private sector, through tariff protection, subsidies, and other forms of government support . . . until they “grew up” enough to withstand international competition.  The government owned all the banks, so it could direct the life-blood of business—credit.[16]

Great Britain’s policy had been to own the central banks of the nations it occupied. To avoid that trap, in 1882 Japan became the first nation in Asia to found its own independent state bank.  The bank issued new fiat money which was used to pay the samurai nobles.  The nobles were then encouraged to deposit their money in the state bank and to put it to work creating new industries.  Additional money was created by the government to aid the new industries.  No expense was spared in the process of industrialization.  Money was issued in amounts that far exceeded annual tax receipts.  The funds were, after all, just government credits – money that was internally generated, based on the credit of the government rather than on debt to foreign lenders.[17]

Classical socialism emphasized the need to control the “commanding heights” of the economy, but this had been taken to mean the major industries—steel, coal, and the like. The Japanese recognized that it was not those industries that commanded the economy but the banking sector, which supplied capital to business. According to Robert Locke in a 2004 review titled “Japan, Refutation of Neoliberalism,” the Japanese understood that “it is possible to manipulate an economy that is 99% capitalist into being, essentially, a centrally-planned economy if the state controls the right 1%. And this ‘right 1%’ is the allocation of capital, especially big capital. The MOF [Ministry of Finance] uses its stranglehold on the allocation of capital to make the banks into willing servants of its mission to control the Japanese economy.”[18]

Japan’s major banks were no longer under the private control of rich families but were controlled at the top by the Ministry of Finance.  Banks were embedded in the networks of companies called keiretsu. The successors to the prewar zaibatsu, they had family-like commitments to each other and preferentially traded among themselves. At the apex of each keiretsu pyramid was its bank, which allocated capital.  The MOF kept tight control over these banks.  It did not try to micro-manage as in the old Soviet-style central planning; but it set the agenda, directing the banks in a way that implemented the government’s plans for economic development.

Locke explained the cooperative keiretsu groupings like this:

[T]heir system is designed so that corporations, in essence, largely own themselves.  Even when there are nominal outside owners, corporations are managed so that the bulk of the wealth generated by the corporation flows either to the incomes of present workers or to investment in the future competitive strength of the company, making the workers and the company itself the de facto or beneficiary owners.

Most corporate capital in Japan is owned by banks, and the banks are principally owned not by shareholders, but by other companies in the same keiretsu or industrial group.  And who owns these companies?  Although there are some outside shareholders, majority control is in the hands of the keiretsu’s bank and the other companies in the group.  So in essence, the whole thing is circular and private ownership of the means of production has basically been put into the back seat.[19]

Businesses in the keiretsu had cheap credit lines with their own cooperatively-owned banks, making them more economically efficient than their Western capitalist competitors. Access to cheap funding  gave them an obvious competitive edge over businesses forced to borrow at usurious rates from private banks extracting as much “rent” as they could for the use of the bank’s credit. The keiretsu added an element of cooperation and integration to the economy, with businesses remaining very competitive but competing as a team. They were less concerned with short-term gain than with market share, improving production techniques, and maintaining employment. They could take the long view because their funding came from their own banks rather than from shareholders whose chief interest was quarterly profit.

The Chaebol

The Korean version of state-guided capitalism and its stellar rise were detailed by economics professors Jang-Sup Shin  and Ha-Joon Chang in a 2003 book titled Restructuring ‘Korea Inc.’ The model was based on the state, the banks and the chaebol. The chaebol were corporate groupings that as fledging industries got preferential financial treatment and protection from the government. The member companies operated under centralized coordination that let them exploit economies of scale by mobilizing and sharing financial, entrepreneurial and other resources, allowing them to sustain long-term projects that required a long gestation period for learning and creating new technologies. A stream of profits from existing businesses could be mobilized for or guarantee new uncertain projects, and member firms could buy cheaply from each other. Shared financial resources were mobilized across member firms through direct subsidy, corporate lending, and loan guarantees, and they were directed to projects the group considered strategically important. In that sense, wrote Shin and Chang, they approximated the functioning of a capital market.[20]

The chaobol differed from the keiretsu in that their ownership and control was more centralized under their founding families and they were largely prohibited from owning private banks, in order to increase the government’s leverage over them in such areas as credit allocation.[21] However, the chaebol still succeeded in generating much of their own funding. Shin and Chang wrote that the corporate groupings were a way to generate “fictitious” capital through “mutual shareholding” or “circular shareholding,” without actually putting up real money. Member companies could buy each other’s stock and guarantee each other’s loans, recirculating existing funds. The more interlocked the shareholdings, the more assets they could create on the same initial paid-in capital, a process facilitated by the lack of transparency in these private groupings.

Creating fictitious capital and credit may sound like a questionable practice, but it is not much different from how banks operate today. Contrary to popular belief, banks are not merely intermediaries, taking in deposits and lending them out again. As the Bank of England recently acknowledged and the US Federal Reserve acknowledged in the 1960s, banks actually create deposits when they make loans. They do this simply by writing the loan amount into the borrower’s deposit account. When they need liquidity to cover transfers or withdrawals, they borrow cheaply from their depositors, other banks, the shadow banking system, or the central bank. The Bank of England said that 97 percent of the money supply is created in this way. Most of our money today is simply bank credit.[22]

Dubious as it sounds, the prevailing practice of creating money simply as credit on the books of banks is not actually a bad thing. It allows viable enterprises to turn their future productivity into cash flow they can spend today. Corruptions in the system have arisen chiefly because it is opaque, privately owned, and geared to short-term investor profits. Corruptions in the system can be eliminated while preserving its essential features by transforming it into a public utility, one that serves the people and the productive “real” economy rather than the speculative financialized economy that the private banking system serves now. But more on that shortly.

The Assault of the Wall Street Speculators

The Japanese and Korean state-guided systems worked brilliantly well until the late 1990s, when they were crushed along with other Asian economies in the 1997-98 “Asian crisis.” In a 2004 book called A Century of War, William Engdahl traced how the crisis was manufactured by foreign speculators and its resolution served foreign investors and banks. The Japanese state-guided market system was so effective and efficient that it was regarded as an existential threat to the neoliberal model of debt-based money and “free markets” promoted by the International Monetary Fund (IMF). By the end of the 1980s, Japan was considered the leading economic and banking power in the world. Its state-guided model had also proved highly successful in South Korea and the other “Asian Tiger” economies. When the Soviet Union collapsed, Japan proposed its model for the former communist countries, and many began looking to it and to South Korea as viable alternatives to the US free-market system. State-guided capitalism provided for the general welfare without destroying capitalist incentive. Engdahl wrote:

The Tiger economies were a major embarrassment to the IMF free-market model.  Their very success in blending private enterprise with a strong state economic role was a threat to the IMF free-market agenda.  So long as the Tigers appeared to succeed with a model based on a strong state role, the former communist states and others could argue against taking the extreme IMF course.  In east Asia during the 1980s, economic growth rates of 7-8 per cent per year, rising social security, universal education and a high worker productivity were all backed by state guidance and planning, albeit in a market economy – an Asian form of benevolent paternalism.[23]

To diffuse that threat, the Bank of Japan was pressured by Washington to take measures that would increase the yen’s value against the dollar.  The stated rationale was that this revaluation was necessary to reduce Japan’s huge capital surplus (excess of exports over imports). The Japanese Ministry of Finance countered that the surplus, far from being a problem, was urgently required by a world needing hundreds of billions of dollars in railroad and other economic infrastructure after the Cold War. But the Washington contingent prevailed, and Japan went along with the program. By 1987, the Bank of Japan had cut interest rates to a low of 2.5 per cent.  The result was a flood of “cheap” money that was turned into quick gains on the rising Tokyo stock market, producing an enormous stock market bubble.  When the Japanese government cautiously tried to deflate the bubble by raising interest rates, the Wall Street bankers went on the attack, using their new “derivative” tools to sell the market short and bring it crashing down.  Engdahl wrote:

No sooner did Tokyo act to cool down the speculative fever, than the major Wall Street investment banks, led by Morgan Stanley and Salomon Bros., began using exotic new derivatives and financial instruments.  Their intervention turned the orderly decline of the Tokyo market into a near panic sell-off, as the Wall Street bankers made a killing on shorting Tokyo stocks in the process.  Within months, Japanese stocks had lost nearly $5 trillion in paper value.[24]

Japan, the “lead goose,” had been seriously wounded.  Washington officials proclaimed the end of the “Japanese model” and turned their attention to the flock of Tiger economies flying in formation behind.

Taking Down the Tiger Economies: The Asian Crisis of 1997

Until then, the East Asian countries had remained largely debt-free, avoiding reliance on IMF loans or foreign capital except for direct investment in manufacturing plants, usually as part of a long-term national goal.  But that was before Washington began demanding that the Tiger economies open their controlled financial markets to free capital flows, making them vulnerable to speculation by foreign investors. Like Japan, most went along with the program.  The institutional speculators then went on the attack, armed with a secret credit line from a group of international banks including Citigroup. Chalmers Johnson wrote in The Los Angeles Times in 1999:

The funds easily raped Thailand, Indonesia and South Korea, then turned the shivering survivors over to the IMF, not to help victims, but to insure that no Western bank was stuck with non-performing loans in the devastated countries.[25]

Mark Weisbrot testified before Congress, “In this case the IMF not only precipitated the financial crisis, it also prescribed policies that sent the regional economy into a tailspin.”[26] The IMF had prescribed the removal of capital controls while insisting on very high interest rates and “fiscal austerity.” The result was a liquidity crisis (a lack of available money) that became a major regional depression. In 1997, more than 100 billion dollars of Asia’s hard currency reserves were transferred in a matter of months into private financial hands.  In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight. The result was mass poverty in countries that had previously been experiencing real economic and social progress. In an article in Monetary Reform in the winter of 1998-99, Professor Michel Chossudovsky wrote:

This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare.  No need to re-colonize lost territory or send in invading armies.  In the late twentieth century, the outright “conquest of nations,” meaning the control over productive assets, labor, natural resources and institutions, can be carried out in an impersonal fashion from the corporate boardroom . . . . Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets.

Chossudovsky warned that the Asian crisis marked the elimination of national economic sovereignty and the dismantling of the Bretton Woods institutions safeguarding the stability of national economies.  Nations no longer had the ability to control the creation of their own money, which had been usurped by marauding foreign banks.[27]

In their 2003 book Restructuring ‘Korea Inc.’, Shin and Chang took up the tale for South Korea. They said the country had become dominated by foreign capital, reversing the former nationalistic model. More than 50 percent of the shares of many major Korean companies were foreign-owned, including Samsung Electronics and Hyundai Motors. To avoid a liquidity crunch after the 1997-98 crisis, assets over which the government had control were sold to investors at firesale prices, including Korea First Bank and Daewoo Motors. Companies were virtually given away to foreign investors rather than nationalized, because the government feared tarnishing its new image as a “market-oriented” government.[28]

Hostile takeovers of Korean companies by foreign investors remain a threat today, as Paul Singer’s Elliot Management and other “activist” funds step up their efforts to bleed the companies of profits.[29] What can be done to reverse this situation and salvage the best features of the chaebol, while at the same time providing the millennial generation with the quality of life and work they want and deserve? Two possibilities are suggested here, one federal and one local.

Federal Solutions

 The global banking crisis of 2008-09 was a game changer, introducing solutions not previously thought possible.  The US Federal Reserve embarked on a  new program called  “quantitative easing,” in which it purchased  over $1 trillion in toxic mortgage-backed securities from bankrupt Wall Street banks, along with a further $2.7 trillion in US government bonds; and it did this simply by creating new money in the form of bank reserves on its books.[30]

Other central banks soon followed suit. The Bank of Japan has now purchased nearly 50 percent of Japan’s federal debt with money just generated on its books.[31] In effect, Japan has returned to its nineteenth century practice of funding the government with fiat money created by the central bank; yet its inflation rate remains below 2 percent. Meanwhile, in the last 20 years China has increased its money supply by 1,800 percent, and its inflation rate also remains low.[32] The old monetarist dogma holding that governments could not simply “print money” because it would result in hyperinflation has been disproven by these dramatic recent developments.

The Bank of Japan, the Swiss central bank, and other central banks have gone further than just purchasing government bonds. Today they are intervening in their stock markets by purchasing large blocks of stock.[33] The Korean central bank could do this as well. It could thwart the destructive designs of the vulture funds by purchasing a controlling interest in the major chaebol, using funds simply generated on its books. Alternatively, the central government could purchase shares in the chaebol, using funds borrowed from the central bank. Unlike under either US or Japanese banking law, Korean law allows the federal government to sell its bonds directly to the central bank or to borrow from it.[34]

Purchasing a controlling interest in the larger chaebol would put the government back in control of the “commanding heights” of the economy. The government could again support the chaebol, not with taxes but with funds generated by the central bank, reducing or eliminating the companies’ dependence on foreign investors. Chaebol with a public mandate could be directed to focus on research and development, long-range socially responsible investments, and improving working conditions for their employees, as well as providing better opportunities for promotion.

Local Funding Solutions

Young Koreans wishing to avoid the corporate workplace and strike out on their own are often prevented from starting their own local businesses by an inability to get credit. Small and medium-sized local businesses (SMEs) are particularly disadvantaged in the credit markets. Commercial lenders consider them too risky, and they are too small to raise capital by incorporating and selling stock.

For SMEs that are struggling to get loans, local governments could generate domestic funding through their own publicly owned banks, backstopped by the central bank’s ability to create liquidity as needed. A bank has the advantage over a revolving fund, which simply lends out its capital and waits for the money to come back, that it can leverage its capital into many times that sum in loans. At a 10 percent capital requirement, a bank can generate 10 times its capital in local credit.

Shin and Chang wrote that large banks dealing in international trade were required to comply with the more stringent and restrictive capital and reporting requirements imposed by the Bank for International Settlements, the World Trade Organization, and other international regulatory agencies. But they argued that local banks funding local businesses need not be so limited. Writing in 2003, they said the reform measures of that era “were principally geared to reducing financial risk of the system, even to the extent of over-killing the economy in the short run.” A case in point was the increased BIS capital adequacy ratio, which forced the banks of developing countries to expand their capital bases very rapidly, creating a severe credit crunch. Shin and Chang wrote:

Given that the BIS rule is an international norm, there was little that the Korean government could do in changing the rule itself. However, it could still have applied it more flexibly, in a way that promotes national interests. For instance, rather than applying the rule to all the domestic commercial banks, it could have made it obligatory only for those that have high international exposure, whilst applying less stringent standards to those that have limited exposure to international financial markets.[35]

That could still be done today. Local public banks could be authorized to operate with reduced capital and other regulatory requirements, allowing them to make low-interest loans to struggling SMEs.

To raise the needed capital, public banks could issue and sell bonds. Today South Korean institutional investors, including its National Pension Service (which has close to $500 billion in assets), are looking for socially responsible investments that integrate environmental, social and governance considerations and address national socio-economic gaps. Bonds issued by publicly-owned banks that had this sort of public interest mandate could qualify for these investments.[36]

Local public banks could help millennial entrepreneurs with good ideas but little funding start their own businesses. Prudent underwriting standards would still apply; but if some loans went bad, they could be carried on the banks’ books as nonperforming loans (NPLs) without harm to the banks or the local economy. As the Bank of England has now confirmed, loans are simply created on bank books in the first place, so no investors would lose money if they were written off. Harm results when the lending banks are declared insolvent and forced to close, but this is just an accounting convention, which local law could change for local banks. In fact that is the current practice in China. Their state-owned banks have been allowed to carry substantial NPLs on their books, yet the Chinese economy continues to function and thrive.[37]

Writing off NPLs or carrying them on the books would increase the money supply from the loan money that was not repaid, but this too would not harm the economy. Regular injections of new money are actually needed by local economies, to fill the gap between an exponentially growing debt and the money available to repay it. Debt always grows faster than the money supply, in part because of the way money comes into existence as bank loans. Banks create the principal but not the interest, which is typically acquired by someone somewhere taking out more debt. Even much of the principal created as loans is not returned to the local circulating money supply. It goes into the speculative financial casino, offshore tax havens, or simply into safety deposit boxes or under mattresses. Debts mount until they cannot be repaid, when the economy falls into the troughs of the “business cycle.” Ancient rulers solved the problem of an exponentially growing debt with periodic “debt jubilees” in which they just forgave the loans; but that cannot be done today because the creditors are not the government but are private lenders. The alternative is to fill the gap between debt and the local circulating money supply with regular injections of new money, and nonperforming loans could satisfy some of that need.

If regulators are opposed to allowing local public banks to carry nonperforming loans on their books, the central bank could buy the loans and move them onto its own books. Again there is ample successful precedent for this practice. According to UK Prof. Richard Werner in a 2012 paper, the UK engaged in it at the beginning of World War I, Japan engaged in it after World War II, and the US Federal Reserve engaged in it when it bought over $1 trillion in “toxic” (then unmarketable) mortgage-backed securities from failing US banks after the 2008 crisis. In each case the move was successful without triggering price inflation.[38]

Now that central banks have shown us what they can do without wreaking havoc on the economy, vast new possibilities have opened up for creative financing. For a more in-depth look at these issues and at the alternative funding mechanisms possible in the 21st century, see Ellen Brown, Web of Debt (now available in Korean[39]), The Public Bank Solution (2013), and Banking on the People: Democratizing Money in the Digital Age (2019);


[1] “OECD’s Better Life Index,” Organization for Economic Cooperation and Development,

[2] “Work-Life Balance,” Wikipedia,; “Jeon Tae-il,” Wikipedia,

[3] Olivia McCall, “South Korean Millennials Challenge the Country’s Powerful Chaebol,”, 3 April 2019,

[4] Cynthia Kim, “South Korea’s Burned Out Millennials Choose Youtube Over Samsung,” Reuters, 31 March 2019,

[5] “Elliott in Korea: The Back Story,” Korea JoongAng Daily, 5 May 2018,

[6] Hedge Clippers, “Paul Singer—Market Master or Litigious Vulture?”,, 23 June 2016,

[7] Ibid.

[8] Felix Imonti, “The Eclipsing of Moon Jae-in,” Geopolitical Monitor, 24 July 2019,

[9] Shanzhai City Holdings, “South Korea Government Has Decided to Provide Intensive Assistance to Impact Investing,” Medium, 19 July 2018,

[10] “Economy of South Korea,” Wikipedia,

[11] Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury Press 2010).

[12] Eamonn Fingleton, In the Jaws of the Dragon  (Thomas Dunne Books 2008).

[13] Chalmers Johnson, “On the Japanese Threat,” Multinational Monitor, November 1989,

[14] Fingleton, op. cit.

[15] Ibid.

[16] Chang, op. cit.; emphasis added.

[17] Kathy Wolfe, “Hamilton’s Ghost Haunts Washington from Tokyo – Excerpts from the Leaders of  the Meiji Restoration,” Executive Intelligence Review, January 1992,

[18] Robert Locke, “Japan, Refutation of Neoliberalism,” Real-world Economics Review, 5 January 2004,]

[19] Ibid., emphasis added.

[20] Jang-Sup Shin & Ha-Joon Chang, Restructuring ‘Korea Inc.’: Financial Crisis, Corporate Reform, and Institutional Transition (Routledge Studies in the Growth Economies of Asia, 2003),

[21] “Chaebol,” Wikipedia, citing Dong-Woon Kim, “Interlocking Ownership in the Korean Chaebol,” Corporate Governance: An International Review, April 2003.

[22] Michael McLeay, et al, “Money Creation in the Modern Economy,” Bank of England, Q1 2014,; Modern Money Mechanics, published by the Federal Reserve Bank of Chicago in multiple editions from 1961-1992, now available on the Internet at

[23] William Engdahl, A Century of War (London: Pluto Press, 2004).

[24] Ibid.

[25] Chalmers Johnson, “How America’s Crony Capitalists Ruined Their Rivals,” Los Angeles Times (May 7, 1999).

[26] Mark Weisbrot, ”Testimony Before the House of Representatives Committee on Banking and Financial Services on the International Monetary Fund and Its Operations in Russia,” (September 10, 1998).

[27] Michel Chossudovsky, “The Curse of Economic Globalization,” Monetary Reform On-line (fall/winter 1998-99).

[28] Shin and Chang, op. cit.

[29] Sohee Kim and Heejin Kim, “’Walk on Eggshells’: The Man Who Has Billionaires Quivering,” Sidney Morning Herald, 22 March 2019,

[30] Jeff Cox, “The Fed Is Looking at a New Program That Could Be Another Version of ‘Quantitative Easing,’”, 29 April 2019,

[31] Hideyuki Sano, Tomo Uetake, “Bank of Japan’s Balance Sheet Now Larger Than Country’s GDP,” Reuters, 12 November 2018,

[32] “M2 for China,” Federal Reserve Bank of St. Louis,

[33] Knave Dave, “Central Banks Buying Stocks Have Rigged US Stock Market Beyond Recovery,” Zero Hedge, 26 June 2017,

[34] Bank of Korea, “Financial System in Korea,”, December 2008,; see Ellen Brown, “How to Pay for It,”, 10 July 2019,

[35] Shin and Chang, op. cit.

[36] UNEP Finance Initiative, “Mainstreaming Social Impact Investing in Pension Funds in South Korea,”, 12 April 2017,; Noriko Akiyama, “Social Investment Funds with a Conscience,”, Spring 2019,; “South Korea Government Has Decided to Provide Intensive Assistance to Impact Investing,” op. cit.

[37] Chen Zhao, “Stop Worrying about Chinese Debt,” Financial Times, 4 December 2017, ; Jeff Spross, “Chinese Banks Are Big. Too Big?”, Reuters, 7 May 2018,

[38] Richard Werner, “How to End the European Financial Crisis—at No Further Cost and Without the Need for Political Changes,” University of Southampton, CBFSD Policy Discussion Paper 2-12, 31 July 2012,



Ellen Brown is a member of the TRANSCEND Network for Peace Development Environment, an attorney, founder/chairperson of the Public Banking Institute, and author of thirteen books including Web of DebtThe Public Bank Solution, and Banking on the People: Democratizing Money in the Digital AgeHer 300+ blog articles are at


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