Using a ‘varieties of capitalism’ approach, this article explains the ongoing contradictions of the Korean economy in terms of institutional incompatibilities between the liberalised financial system and the most important institutional legacy of the Korean developmental model: the chaebol system. Using its control over financial resources, the developmental state supported, monitored and disciplined the chaebol. Since the 1990s, financial liberalisation has been incompatible with the chaebol system. The liberalised financial system has tended to heighten risks or to dampen vitality within the system. Thus, despite attempts at reform, the failure to rectify these incompatibilities has led to an overall weakening of the Korean economy.
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