Introduction
Existing literature on legislative gridlock – the government's inability to enact and gain approval for significant proposals on the policy agenda (Jones, Reference Jones2001: 125; Chiou and Rothenberg, Reference Chiou and Rothenberg2008: 198) – has a strong tendency to view the dynamic interaction between government and parliament as the cause of the gridlock (Fiorina, Reference Fiorina1996; Cameron et al., Reference Cameron, Howell and Alder1997). However, the possibility that the gridlock stems from other multi-scalar factors located in various spheres of society is increasing in democratic countries. This is because the democratic principle of ‘inclusion’ – that all members of a given polity should have equal influence over debate and decision making (Young, Reference Young2000) – expands with growing public demand for the enhancement of participatory and deliberative democracy. Participatory democrats argue that if each citizen, and especially minority citizens, who had been alienated under the representative democratic system, was able to voice an opinion on public decision-making processes, rational decisions based on public reasoning could be made (Michels, Reference Michels2011: 277). Deliberative democrats contend that not only voting but also deliberation on public policy issues among citizens is a central element of democratic legitimacy (Gutmann and Thompson, Reference Gutmann and Thompson2004). This implies that it is critical to understand the dynamic interactive relationship among various relevant multi-scalar actors. Here, the term multi-scalar actors stems from the multi-scalarity of forces and processes that bring about a certain phenomenon in a given country (Lee, Heo and Kim, Reference Lee, Heo and Kim2014), although there is not a universally agreed-upon definition of the term. Thus, the term could be understood as referring to independent actors in various spheres of society with the ability to form cooperative relationships with other actors in order to exert power to influence public decision-making processes, and thus affect the formation of certain political, economic, or social phenomena in a country.
In this context, South Korea's experience offers a useful case in advancing our understanding of the issue. In Korea, not only government actors and but also civilian actors perform as strong decision-makers because of the country's political and economic development trajectory. Korea's rapid industrialization, starting in the early 1960s, featured high policy effectiveness, thanks to the bureaucracy's cohesiveness and driving force, which was less affected by the citizens’ policy influence. As the ideas and institutions that shape state characteristics are sticky and resilient (Stubbs, Reference Stubbs2009: 9), bureaucratic power remains a legal and institutional decision-making and policy-implementing entity (Lim, Reference Lim2010). Simultaneously, Korea, once a representative authoritarian state in Asia, experienced mass mobilization and revolution from below during the democratization process in the 1980s. This event led to a rise in citizens asking for greater collaboration in governance, which they regarded as a way to promote social justice, liberty, and equality. Thus, Korea is an interesting case, demonstrating various actors’ dynamic activities during the legislative process.
Korea is currently experiencing one of its longest legislative gridlocks in history, surrounding the Financial Consumer Protection Act, submitted by the previous Lee Myung-Bak government (February 2008–February 2013) in July 2012. In this and the previous decade, government efforts to reform financial supervisory governance have been frequent in Korea because of a number of large-scale financial incidents – including the loan fraud case in 2000; the credit card crisis that led to household debts amounting to 26 trillion won in 2004; the chain reaction bankruptcies of small businesses because of the misuse of financial products in 2008; and the great losses incurred by financial consumers due to savings banks’ business suspensions in 2011. In particular, after the savings bank incident that resulted in mass losses to financial consumers in the spring of 2011, social voices demanding measures to protect consumers increased rapidly. This led the Financial Supervisory Service (FSS) to launch the Office of Financial Consumer Protection, which has been in charge of supervising financial institutions by holding the right to investigate and conciliate in disputes among financial consumers and institutions. In 2012, the Tongyang Investment Bank's illegal sale of its corporate bill was revealed, which led the government to actively respond to social demands to reform financial supervisory governance in the direction of strongly protecting financial consumers. In this context, on 6 July 2012, the government submitted the Financial Consumer Protection Act, which featured the establishment of a Financial Consumer Protection Service (FCPS). In general, the finance sector has strong asymmetrical information gaps between those directly involved and those who are not, which has led social actors to be less attentive to finance in relevant policymaking. Yet, the issue of the establishment of the FCPS garnered much attention from the public because the vast amount of financial consumers who suffered from the financial crises were ordinary citizens.
However, the passage of the Bill in the National Assembly of Korea has been pending for more than two and a half years – a typical case of legislative gridlock. The two prominent financial supervisory actors, the Financial Supervisory Commission (FSC), a policymaking bureaucratic organization, and the FSS, the policy implementing non-governmental organization, have frequently clashed over critical issues in financial supervision, such as the division of work between them (Heo, Reference Heo2011). Thus, it is likely that not only the main actors of legislative decision making, such as the government and political parties, but also the FSS, FSC, and civil society actors might have proposed diverse and contrasting views on the Bill that factored into the gridlock. In this respect, the Korean case is worthy of examination amid the elevation of the democratic principle of inclusion in public decision-making processes.
In addition, several factors underlie the need to elucidate a theoretical framework encompassing the multi-scalar factors in the study of legislative gridlock. First, neither the Lee Myung-Bak government, which proposed the Bill, nor the Park Geun-Hye government (February 2013–present), which has confronted severe gridlock, have faced a divided government, since the ruling Saenuri party has occupied 51.2% and 52.7% of seats in the Assembly.Footnote 1 Thus, this case goes against the conventional wisdom of a legislative gridlock, which regards a divided government as a critical cause because it is likely to result in difficulties in the policy process as a result of the two players’ different preferences (Tsebelis, Reference Tsebelis1999: 592). Moreover, the political power landscape of the Park government is weak, as supported by a survey conducted by the Social Trend Institute in January 2014. In this survey, more than 50% of respondents said that a national referendum on the presidency was needed to resolve social controversy about the National Intelligence Services’ intervention in the presidential election in December 2012 (Polinews, 2013). In this situation, the Park government should have made efforts to earn support from citizens, who form the majority of financial consumers by quickly launching an organization that could take complete charge of protecting the financial consumers. However, the government has been passive in urging the National Assembly to pass the Bill. Choi Kyung-Hwan, the deputy prime minister, only mentioned that the government expects to legalize the Bill (Newspim, 2014). This implies that it is highly likely that the factors that caused the Bill to be gridlocked for such a long time might not have only existed in the spheres of the government and parliament but also in other spheres of society.
Thus, this paper aims to analyze the legislative gridlock as revealed in the South Korean government's efforts since July 2012 to pass the Bill from an overlapping political conflicts perspective. To this end, this paper begins by developing a theoretical discussion of the overlapping political conflicts perspective, focusing on the cleavages formed between multi-scalar actors based on their long-held political interests. The central part of this paper closely analyzes the overlapping political conflicts among the actors that are relevant to the reformation of financial supervisory governance in Korea and the occurrence of gridlock. The paper concludes by identifying the theoretical and policy implications of this study.
Legislative gridlock: an overlapping political conflicts perspective
Legislative gridlock refers to the scenario in which legislative productivity halts, or where there exists strong opposition to proposed legislation submitted by the government, mainly as a result of the lack of consensus in the decision-making process (Becker, Reference Becker1993; Fernandez-Albertos and Lapuente, Reference Fernandez-Albertos and Lapuente2010). Previous studies attribute the causes of legislative gridlock principally to the dynamics of individual governments and parliaments. In particular, a divided government is considered the most critical factor in bringing about gridlock because it hinders the president or the ruling party from mobilizing a majority in the parliament (Coleman, Reference Coleman1999; Fleisher and Bond, Reference Fleisher, Bond, Bond and Fleischer2000). In contrast, mainly since Mayhew's (Reference Mayhew1991) study, the so-called revisionists argue that there is no significant difference in the amount of legislation enacted between divided and unified governments (Cameron et al., Reference Cameron, Howell and Alder1997; Fiorina, Reference Fiorina1996). In addition to such a view, other studies focus on factors such as the distribution of policy preferences between parties (Binder, Reference Binder1999), party polarization (Edwards and Barrett, Reference Edwards, Barrett, Bond and Fleischer2000; Jones, Reference Jones2001; Fleisher and Bond, Reference Fleisher, Bond, Bond and Fleischer2000; Oh, Reference Oh2009), distribution of policy preferences between parties or extreme ideological differences among parties (Binder, Reference Binder1999), budget deficits, confused mass opinions (Quirk and Nesmith, Reference Quirk, Nesmith and Nelson1995), or the preferences of veto players (Ganghof, Reference Ganghof2003; Tsebelis, Reference Tsebelis2002). Despite the contrasting and varied opinions, these examples are similar in that they mainly focus on factors in the sphere of government and parliament as the causes of gridlock.
Thus, elaborating the causes of legislative gridlock that exist in multi-scalar spheres – including the sphere of government and parliament as well as other, non-governmental spheres – is not a popular research issue in previous studies. However, in a democratic society, multi-scalar actors’ possible impacts on legislative gridlock need to be elucidated. Formation or reformation of governance in a certain public sector is completed through significant changes to laws and institutions from within parliament, as changes to both laws and institutions – that can be understood as part of a future-oriented plan to support and develop a certain sector – shape the systematic rule of governance. Accordingly, the main forces affecting legal and institutional changes are aligned with those changes in the sphere of related policy. Accordingly, in a democratic society, not only governmental bodies that lead and supervise all policy processes (Dror, Reference Dror1971), but also social and economic actors that intend to expand the ability to affect public decision-making processes, through identifying social issues, providing policy information and alternatives, and evaluating policy output, need to be considered as critical forces in the formation of, or changes in, governance in certain sectors of society (Heo, Reference Heo2013b). This suggests a need to surpass the existing literature, which stresses factors in the spheres of government and parliament as causes of gridlock.
In addition, the multi-scalar actors possess their own political interests according to their political-economic or social positions and concerns. Considering the most widely accepted conceptual meaning of ‘politics’ – authoritative allocation of values for society (Easton, Reference Easton1985) – political interests of multi-scalar actors refer to each of their interests regarding the distribution of authority and resources relevant to a specific sector. Further, the interests that each of the actors possess are continued or strengthened as time passes because of the path dependent character of preferences (Hoeffler et al., Reference Hoeffler, Ariely and West2006). For example, in the context of the East Asian developmental state, where government regulates society with an eye to exerting autonomy and capacity, governance is maintained even after facing strong influences of neoliberalism that contrast with the developmental state's raison d’état by forcing a state to give growing authority to investors.
Overlapping political conflicts develop in contexts when multi-scalar actors possess strong political interests based on their political-economic or social experiences. Specifically, in a democratic society, the fact that there exist multi-scalar actors relevant to the formation or reformation of governance in a certain public sector implies that those actors can create either cooperative or conflicting relationships with one another based on their political interests when the process of formation or reformation of governance develops. Here, the conflicting relationship forms cleavages between the actors. If the cleavages are horizontally overlapped and not vertically intersected, so that the actors present one big issue, the conflicting relationship intensifies. This is because the situation of overlapping political conflicts means that if there is compatibility of political interests, some actors are willing to share a common opinion regarding one big issue with others, and strategically make a group by forming cooperative relationships in order to present their opinions more strongly. When this happens, another group of actors with different opinions from those of the previous group are highly likely to come together to make a more powerful attack on the previous group. In this situation, their efforts to affect the passage of the Bill can easily be strengthened because they can utilize more tools to attain their goal than if they were alone. Figure 1 depicts the occurrence of overlapping political conflicts among multi-scalar actors capable of directly causing legislative gridlock.
Figure. 1. Overlapping political conflicts among multi-scalar actors and legislative gridlock.
This framework can be applied to the legislative gridlock case of the Korean government's Financial Consumer Protection Act. In general, the finance sector poses strong asymmetrical information gaps between those directly involved and those who are not; thus, market failure is highly likely to occur if there are no proper government regulations. Accordingly, in most cases, financial supervision requires the government's active participation in controlling and regulating the market. Nevertheless, actors related to financial supervisory governance have been diversified according to the changes in political-economic contexts, such as economic and financial crisis, democratization, and so forth, as discussed below. In Korea, there are five multi-scalar actors relevant to financial supervision.
First, the main actors in Korea's financial supervisory governance are the government and bureaucracy. They had unilaterally dominated financial supervision from the early 1960s to 1999, when the non-governmental organization, the FSS, was established as a unified supervisory organization. The Korean government established a bureaucratic organization – the Financial Supervisory Commission (FSC1, 1998–2007) and FSC (2008–present) – which has performed duties concerning financial policy, supervision of the soundness of foreign exchange business management institutions, and financial supervision under the jurisdiction of the prime minister (the Act on the Establishment, etc., of Financial Services Commission, Article 3). In addition, the bureaucracy's role to take full authority in decision-making remained even after the establishment of the FSS. Thus, the government and bureaucracy are the main actors in financial supervisory governance in Korea.
The second set of actors is the political parties that comprise the National Assembly of Korea. These political parties are crucial actors in forming and changing governance because financial supervision reform involves significant changes to laws that shape financial supervisory governance, as discussed earlier.
The third set of actors is non-governmental – the FSS and civil society actors, including economic and finance professors and civic groups. The FSS was established in 1999 as a unified and civilian supervisory agency to conduct inspections of the affairs and the financial status of the institutions, sanction them and others with the support and governance of the FSC (the Act on the Establishment, etc., of Financial Services Commission, Article 3, 4). In addition, civil society actors were critical of the process of policymaking after the 1987 procedural democratization. They were not critical in the early stage of democratization because of the Korean government's legacy of strict control throughout the policy process (Kim, Reference Kim1995). Instead, they pressed the government to enact the Freedom of Information Act in 1998 in order to make policy information public, and focused on activities to revise or block the government's policy projects using their power to manipulate public opinion and by concentrating mass power. Particularly in the area of financial policy, these activities gained prominence beginning in 2000, owing to various financial incidents, starting with the loan fraud case of 2000.
Regarding the issue of the Bill, as Figure 1 depicts, the cleavages formed among the actors were based on their long-held political interests. Some of the actors formed the occasional cooperative relationship with others whose opinions were compatible with theirs by presenting one big issue, and they thus made overlapping political conflicts, which finally factored into the occurrence of serious, long-term legislative gridlock regarding the Bill.
The government's initiatives to reform financial supervisory governance in 2012
Korea's financial consumer protection system consists of proactive protection, such as supervision of financial institutions and education for financial consumers, and reactive protection, such as dispute resolution committees, a bankruptcy relief system, and a depositor protection scheme. These consumer protection measures were under the supervision and operation of the FSS, which was responsible for prudential supervision and business supervision of financial institutions (National Assembly Research Service, 2012). However, as one incident after another brought financial damages to consumers, in 2012 the Lee Myung-Bak government thought that, as the FSS has a tendency to prioritize the profitability of financial institutions, the role of the FSS was too biased for prudential supervision or business supervision of financial institutions, was not focused on the protection of financial consumers, and thus neglectful in the supervision of financial companies’ marketing activities. Accordingly, the government and the FSC argued that the previous supervisory governance system had limitations in fully protecting financial consumers and resolving the damages from a series of financial incidents. In this context, on 6 July 2012, the Lee government submitted its bill on the Financial Consumer Protection Act to the National Assembly.
Park Geun-Hye, who became president-elect five months after the bill was submitted to the National Assembly, proposed that her government would put financial consumer protection at the center of financial supervision and would change the sales practices of financial institutions in the direction of forming regulatory practices that would protect the rights of consumers.
In early 2014, the personnal data of bank and credit card users was leaked involving the biggest card companies in Korea – including Kookmin, Lotte, and Nonghyup. The largest ever private information breach, it involved 20 million people, and included 19 kinds of private information. This led to mortgage fraud and voice phishing, which affected financial consumers. This incident in 2014 intensified the government's will to establish the FCPS. In this context, either the quick passage of the Financial Consumer Protection Act in the National Assembly or the active discussion of the bill in the Assembly was expected among relevant actors of financial supervisory governance. However, despite this expectation the bill has remained pending in the National Assembly for more than two and a half years, a typical case of legislative gridlock.
Conflicts around the Financial Consumer Protection Bill
After the government's plan to establish the FCPS by passing the Financial Consumer Protection Act, various actors relevant to financial supervision – including the government, ruling and opposition parties, FSC, FSS, and civil society actors – put forward their opinions on the ways to protect financial consumers. Their arguments’ boiled down to two critical matters, which represent the cleavages.
The first matter was whether to divide the FSS or not in order to establish the FCPS. The government and ruling Saenuri party argued that the FCPS would be in charge of resolving financial disputes, providing financial education for consumers, and handling complaints from consumers, and therefore would need to be established as soon as possible. To this end, they argued that this new organization would be established through the division of the FSS by separating the financial consumer protection from the prudential supervision of financial institutions within the FSS. In addition to the government and the ruling party, the FSC argued that the FCPS should make a separate budgetary document from that of the FSS, in support of the opinion of the government and the ruling party. However, the FSS was critical of the government's view, arguing that they were taking a twin-peaks approach – making the FSS focus on supervising the soundness of financial institutions and the FCPS focus on the sales activities of financial institutions while the FSC would oversee both organizations – which, although this approach has proven unsuccessful in other countries, including Australia and Netherlands, it was not considered ideal for eliminating the blind spots. Accordingly, the FSS argued that desirable protection for financial consumers could be achieved not by launching a new organization that might bring about unnecessary costs (e.g. staff and facilities) but by making a balance between financial consumer protection work and supervision of the soundness of financial institutions (Moneytoday, 2012).
The second matter is whether to position the FCPS under the FSC or not. The FSC argued that when the FCPS is established, it should submit an investigation report to the FSC so that the power of the new organization could be checked. Further, the FSC argued that the head of the FCPS should be appointed by the FSC. These opinions from the government, the ruling party, and the bureaucracy suggest that the FCPS should be established as a subsidiary organization of the FSC, and thus operate under the control and direction of the FSC. The FSS strongly opposed this approach, arguing that if the FCPS is to be established, it should remain an independent organization, unaffected by the influence of the government and the bureaucracy. In addition, the New Politics Alliance for Democracy, the largest opposition party, presented a public statement arguing that the FSC was trying to separate itself from the fundamental problem, embedded in current financial supervision, which had been revealed in the series of financial incidents. In this vein, the Korea Finance Consumer Federation argued that the FCPS could not perform effective protection of financial consumers if it did not have its own governance structure independent from the FSC (Sobilife, 2013).
The overlapping political conflicts around the Financial Consumer Protection Act
Overlap of cleavages: the issue of independence and neutrality of financial supervision
The cleavages discussed earlier – whether to divide the FSS to establish an indepentent FCPS or whether to locate the FCPS under the FSC – led to the recurrence of a key debate regarding the independence and neutrality of financial supervision, which has always been a critical matter, as it relates to the issue of political interests – thus, the division of work and authority – of relevant actors. The main cause of the elevation of this issue can be found in the political economic developmental trajectory of Korea. In Korea, when powerful stimuli brought about a need to reform financial supervision, conflicts and disagreements occurred regarding the issue of a financial supervisory organization's independence and neutrality from the government. The powerful stimuli include government efforts to achieve rapid industrialization beginning in the early 1960s, financial globalization, and the 1997 Asian financial crisis.
During the period of rapid industrialization in the 1960s and 1970s, the Park Chung-hee government focused on cultivating strategic industrial sectors, which was upheld by the selective support and strong regulation of the private sector, and which largely took the form of preferential access either to foreign credit or to credit extended by domestic Korean banks.To this end, the government and bureaucracy obtained legal justification to intervene in the flow of funds by obtaining the right to form and implement the currency credit policy. Accordingly, financial oversight represented the single most important tool in the development process (Woo-Cumings, Reference Woo-Cumings1999); the bureaucracy, including the Ministry of Finance and Economy (MOFE)Footnote 2 and a limited number of experts, dominated the governance of financial supervision by occupying all possible means to supervise the financial market. For example, in 1961, the government acquired back bank stock possessed by a few conglomerates after the bank privatization of 1957 and enacted provisional acts for financial institutions to restrict the decision-making rights of private shareholders and thereby completely dominated the bank management rights landscape. The following year, it enacted the Banking Act to obtain legal justification to intervene in the formation and implementation of currency credit policy (FSS, 2009). Thus, before the establishment of the FSS as a unified supervisory organization, binary supervisory governance was formed among the MOFE and other agencies, while MOFE unilaterally dominated them.
Since the mid-1990s, however, the opinionview that the supervisory organizations should be integrated was raised mainly by the academia for the following reasons. First, the previous structure, under which the MOFE exclusively possessed not only the policymaking function but also the implementing function, including licensing and approval rights and delegating supervision and inspection rights to each supervisory agent, was problematic in that it might have damaged the independence and neutrality of supervision. Second, the supervisory regime under the sidelining prohibition paradigm was criticized as contradicting the global trend of sidelining. In particular, the rapid growth of financial derivatives in more complex financial markets has exposed the previous regime to the growing risk of the limitations of the previous supervision method (MOFE, 2003). Finally, after the 1997 financial crisis, top-down government directives and government-involved finance were seen as crucial causes of the crisis as they led to the failure of not only the government but also of the market to respond properly to signs of a shock (Mathews, Reference Mathews1998).
Thus, in January 1997, a presidential Committee for Economic Reform was formed to discuss construction of a new supervisory agency for confronting the new financial environment (Financial Reform Committee, 1997). After deliberating for five months, the committee presented the financial reform bill in July 1997, which passed the voting procedure in the Bill Review Committee of the Strategy and Finance Committee of the National Assembly. However, the 1997 financial crisis was generated before the passage of the Bill, and, in this situation, the IMF recommended rapid establishment of an integrated supervisory agency to implement structural reform of weak financial institutions. In response, on 31 December, the Kim Dae-jung government (February 1998–February 2003) enacted the Special Act on the Installation of Financial Supervisory Organization, and on 1 April 1998, the FSC1 was launched as a government organization affiliated with the prime minister's office and as a decision-making organization. The legal rights of the FSC1 were restricted to enacting and revising supervisory regulations and to deciding the main matters relating to the inspection of the financial institutions. Later, in February 2009, the government integrated the supervisory organizations of each financial sector and established the FSS as a single unified supervisory organization composed of civilians (FSS, 2009).
This 1999 reform brought about the expectation that financial supervision dominated by the government and bureaucracy would be changed largely through the establishment of the FSS, which was meant to satisfy the need for a supervisory organization free from the influence of the political considerations of the government. This expectation was elevated because there was criticism that government finance, which led to the cozy relationship between politicians and businesses, played a role in the 1997 financial crisis (Kim and Im, Reference Kim and Im2000).
However, since then, the FSC1 has trengthened its authority. Specifically, although the FSC1 was initially regulated to simply act as a decision-making organization, it gradually gained more rights and expanded functions. For example, Office 1 and Office 2 of Supervisory Policy, which had overlapping duties with thos the FSS, were established in the FSC1 in 2001; the Asset Management Supervision Department, which had overlapping duties with those of the Office of Asset Management Supervision of the FSS, was established in the FSC1 (Seoul Finance, 2005). Finally, the FSC1 was further expanded, according to the revisions of the Government Organization Act on 29 February 2008, by taking over the financial policy of the MOFE in addition to financial supervision. This meant that some roles were duplicated between the Bank Department, the Insurance Department, the SME Finance Department, the Public Finance Department, and the Capital Market Department of the FSC, on one hand, and the Office of Bank Service Management, the Office of Life Insurance Service, the Office of Mutual Financial Service, the Public Finance Support Department, the Office of Financial Investment Service, and the licensing and supervision sector of the FSS, on the other. In particular, in 2010 and 2011, the FSC reclaimed the sanction rights of the FSS, which had previously managed consumer protection and dispute settlement duties, which aroused conflicts with the FSS regarding state involvement in finance.
In this context, the issue of the supervisory role's independence and neutrality has been a critical matter as it relates to the issue of political interests. The two points of the Bill – whether to divide the FSS to establish the FCPS or whether to locate the FCPS under the FSC – that formed cleavages directly coincided with the issue of independent financial supervision from the government. Thus, the two cleavages overlapped and conflicts regarding the Bill were intensified asas groups of actors that shared common opinions were created.
Group 1. The government, ruling Saenuri Party, and the FSC
The government, the ruling Saenuri party, and the FSC intended to establish the FCPS, leaving the FSC in status quo, and to reform supervisory governance in the direction of positioning the FSS and the FCPS under the supervision of the FSC. In other words, they tried to make a governance system in which the FSC, as a top supervisory body, would oversee both the FSS and the FCPS. The political interests of the government, the ruling party, and the FSC coincided and this led them to collaborate to realize this plan by overcoming criticisms from other actors, especially the FSS, and by pressing the National Assembly to pass the Bill.
First, the government and the ruling party possessed the same political interests. Traditionally in the Korean context, they have revealed a strong cooperative relationship surrounding most policy issues. Until the Kim Dae-jung government, when the power of party and the power of the administration were unified, the president held the position as the head of the party concurrently with the head of the administration, which gave the government and the ruling party the same political interests, which strengthened the government's policy capacity based on the support of the ruling party in the National Assembly. After the Kim government, party leaders pursued separation of party and politics. However, cooperation was sustained by the Party Government Policy Coordination System. The aim was to coordinate differences in policy opinions between the government and the Standing Committees of the National Assembly. However, in reality, this system focused on the prior consultation and agreement between the government and the ruling party in the first step. Accordingly, the government and the ruling party were able to coordinate their position on specific policy issues (Min, Reference Min2009; Ka and An, Reference Ka and An2012; Heo, Reference Heo2013a). In this context, the government recognized a need to launch a new organization dedicated to preventing financial consumers from financial damages caused by the weak performance of financial institutions that brought about the frequent occurrence of financial incidents. In addition, the government thought that this new organization, which would authority to investigate financial institutions, should be under the supervision of the FSC. The ruling party, which traditionally had collaborated closely with the government, elaborated on the government plan and submitted the Bill to the National Assembly. The fact that Kang Seok-hoon, a member of the Saenuri Party, mentioned that the government had not made any separate bill for financial supervision reform, and that he elaborated on this, stating that the Bill reflected the government's comments, directly supports this (Kookmin Daily, 2014).
Second, the political interests of the FSC also coincided with the opinions of the government and the ruling party which insisted on positioning the FCPS under the supervision of the FSC. In general, under the presidential system, a favorable condition contributes to collaboration between the government and bureaucracy. This is because the president, as the head of the administrative branch of the government, has the authority to appoint bureaucrats. This means that people with a similar vision to that of the president are likely to be appointed as heads of the bureaucracy, and to form and implement policy projects that coincide with the government's vision. In this vein, within Korea's financial supervisory governance, the bureaucracy works to realize the government's policy vision by continuously expanding its role and authority, which began in the period of rapid industrialization. During the period of rapid industrialization, as discussed earlier, the bureaucracy enhanced the efficiency of financial funds by reducing misallocation costs and created windows for long-term industrial finance, thus contributing to the government's domination and control of financial flows aimed at accomplishing industrial objectives. However, the severe economic crisis in the late 1970s – which occurred not only because of the second global oil shock but also because of endemic structural problems, including hyperinflation, foreign loan accumulation, and negative growth – led the government to reshape its previous aims, which focused on the utilization of financial supervision as a means of effectively propping up industrial policy. As a result, the government gradually began to view and develop the financial industry as a strategic industry in its own right (Kim, Reference Kim1995; FSS, 2009). However, until the late 1990s, the bureaucracy dominated authority to enact relevant institutions and policies, to approve financial institutions’ activities, to make final decisions on financial issues, and so forth (Heo, Reference Heo2013c). In addition, although the bureaucracy's role of financial supervision decreased after the establishment of the FSS, the FSC1 continuously has expanded its authority as discussed previously. Moreover, the FSC kept making efforts to gain more authority in financial supervision by revising regulations regarding the FSS and make the FSS quickly report financial issues directly to the head of the FSC (FSC, 2014). Considering the history of the bureaucracy's continuous efforts to expand its role in financial supervision, the government's and the ruling party's argument to divide the FSS and to launch the FCPS, and to place the FCPS under the FSC was entirely consistent with the political interests of the bureaucracy.
On the basis of their congruent political interests, these three actors formed a group that featured the unified opinions of the government and the ruling party and support from the bureaucracy to fulfill the establishment of the FCPS under the control of the FSC. Specifically, the government and the ruling party argued that the FSS should be divided into two parts, according to its unique roles of supervising financial institutions’ soundness and protecting financial consumers; the second role should be reformed and established as the FCPS. The FSC also adhered to the previous stance and argued that the FCPS should be established by dividing the FSS in order to commit itself to protecting consumers (Etoday, 2014; Newdaily, 2014).
Group 2. The FSS, opposition parties, and civil society actors
The FSS, opposition parties, and civil society actors presented their opinions on the Bill from entirely different perspectives. First, the main goal of the FSS regarding its supervisory roles is summarized as obtaining independence from forces of the bureaucracy. As discussed earlier, financial supervisory governance, dominated by the government and bureaucracy since the 1960s, did not focus on preserving finance as an independent policy domain, which began to be attacked in the late 1990s. The FSS was launched in this context, so it cherishes most the de-politicizing of financial policy and supervisory roles. Accordingly, the FSS strongly disagreed with the government, the ruling party, and the FSC, who intended to place the FCPS under the control of the FSC. Specifically, it attacked the government's argument that the consumer service division, launched in November 2009 within the FSS, had relatively low status compared to the divisions that supervise the soundness of financial institutions and the FSC's argument that the staff lacked insight into financial consumer protection because they were focused on the supervision of financial institution soundness. Moreover, it argued that the bureaucracy's poor policymaking roles critically factored into a series of financial incidents in Korea that caused huge damage to financial consumers. For example, it argued that the cause of the credit card crisis was the government's abrupt deregulation of credit card companies and the fundamental cause of the savings banks crisis was the bureaucracy's faulty policy permitting banks to gain more than 8 billion won only if they had a capital adequacy ratio of more than 8% (Heo, Reference Heo2011).
In this context, the FSS questioned whether the FCPS was indeed capable of achieving fairness in work free from the government's influence. This question was strengthened based on its experiences with the FSC regarding work redundancies that were raised due to the FSC's continuous intention to expand its roles and authority, as discussed previously. Accordingly, it argued that the strong influence from the FSC on the FSS, that has been revealed in the form of work redundancies in the FSS, led to poor financial supervision and, further, to weak protection of financial consumers. Thus, the FSS attacked the government and bureaucracy, arguing that the establishment of the FCPS was not necessarily required. If it should be launched, the FSS argued that the FCPS should be independent from the FSC since the FSC would accelerate inefficiencies in supervisory roles because of their political influences and continuous work redundancies. Thus, the FSS argued for either the maintenance of the status quo or the establishment of the FCPS independent from the FSC (MK news, 2014; Newsway, 2014).
In this context, financial institutions, which are under the supervision of the FSS, also put forward negative opinions on the launch of the FCPS. Specifically, their criticisms were three-fold. First, they argued that the FCPS's role of financial consumer protection did not have any meaningful difference with that of the FSS (Shim, 2013). Second, the FCPS as a newly established organization was expected to display excessive power in order to establish its status, which meant that financial institutions would be under severe controls. Third, they were worried about what stance they would need to take when the aims of supervision of financial institutions and of financial consumer protection – the key aims of the FSS and the FCPS respectively – conflicted with one another (Kim, Reference Kim2011). Even though financial institutions had not taken any collective actions to overtly express their clear stance on this issue, these opinions were compatible with those of the FSS, who argued for maintenance of the status quo as one of the options, and utilized it to support their argument.
Second, academia, one of the main civil society actors to propose views on issues of financial supervision, argued for strengthened neutrality of supervisory roles, thus supporting the FSS (Hankyung news, 2014). Since the year 2000, academic experts have argued for clearly divided financial policymaking and implementation roles, pointing out problems that stem from the bureaucracy's financial supervisory policymaking and implementation roles, double regulation by the FSC and the FSS, and so on (Kim, Reference Kim2005; Kim, Reference Kim2007; Heo, Reference Heo2011; Yoon et al., Reference Yoon, Ko, Bini, Yang, Won and Jun2013; Yoon, Reference Yoon2014). They put forward the opinion that a series of financial incidents was fundamentally the product of the lack of neutrality of financial supervisory roles and their lack of independence from government influence. To propose the argument more effectively, in 2004, 103 economists issued a statement criticizing government-controlled finance as the main cause of the credit card crisis, and argued for fundamental reform of financial supervision in the direction of a unified non-governmental organization. In July 2013, 11 professors of economics and finance organized a campaign, arguing that the FSC should be closed down and its policymaking duties transferred to the Ministry of Strategy and Finance, the relevant economic policymaking ministry, and the rest of its duties should belong to the FSS (KS Economic Research Institute, 2007).
Third, opposition parties also attacked the government and the ruling party, focusing on the possibility of damage to non-governmental supervisory organizations’ independence. They argued that, in order to launch the FCPS according to the Bill, the new body should not be under the supervision of the FSC. This argument was strengthened by the unique disposition Korea's opposition parties have. Theoretically, the conflicting relationship between president and opposition parties is a matter of frequent occurrence, since they have a tendency to rearrange policies that have been formed according to the president and ruling parties’ will (Kernell, Reference Kernell1977). This kind of conflict between ruling and opposition parties is likely to be intensified under the system of ‘dual democratic legitimacy’ – which means that no democratic principle exists to resolve disputes between the executive and the legislative branches concerning which of the two actually represents the will of the people (Linz, Reference Linz1990, 63) and political parties’ strong party discipline (Kim, Reference Kim2010). Korea has both of these factors, which critically factored into the acute tensions between the parties. The tension became even stronger because of the weak performances of the Party-Government Policy Coordination System. Although this system provides communication channels between the government and the National Assembly, it is not sufficient to resolve any conflicts. Although there is prior consultation between the president and the ruling party, as discussed earlier, this restricts active deliberation in the National Assembly (Min, Reference Min2009: 51). Moreover, in the committees of the National Assembly, the ruling party lacks the capacity to persuade opposition parties, all of which lead to the absence of legislative bargaining either between the government and opposition parties or between the ruling party and opposition parties (Ka and An, Reference Ka and An2012: 88–109).
In addition to the conflicting relationship between the government and the ruling party, Korea's opposition parties have revealed a strong tendency to make every effort to bring together civil society forces, whenever opposition to the government is required. In fact, this tendency is not confined to Korea because in the context of a competitive electoral system (Neshkova, Reference Neshkova2014), opposition parties tend to make every effort to critically assess the performance of the president and the ruling party in order to expand their political power within civil society. Particularly in Korea, this phenomenon is intensified because of civil society's tendency to oppose the government and the ruling party. After the 1987 democratization, the radical democrats, who argued that greater pluralism would promote inclusion, empowerment, social justice, liberty, and equality (Bevir, Reference Bevir2010: 116), began to dominate political discourse. In this context, civil society groups have frequently had a conflicting relationship with the government and the ruling party (Lee, Kim and Jeon (Reference Lee, Kim and Jeon2008)). This tendency led them to protest when critical policy issues were raised. In the area of financial supervision, in June and August 2004, the People's Solidarity for Participatory Democracy – a representative civic group launched in 1994 – argued that non-governmental organizations, through the integration of the FSC1 with the FSS, should be pursued. In August 2004 and in June 2005, the Citizens’ Coalition for Economic Justice held a press conference and argued for the immediate resolution of structural matters, such as the dominance of the government and bureaucracy in financial supervision, the lack of political neutrality on the part of supervisory organizations, and the uncertain division of responsibilities. It also carried out a signature campaign to demand fundamental reform of financial supervisory organizations (Heo, Reference Heo2013c).
The conflicting relationship between civil society groups and the government further led opposition parties to develop a collaborative relationship with civil society groups. Regarding the issue of the passage of the Bill in the National Assembly, the New Politics Alliance for Democracy made a close cooperative relationship with these civic groups regarding the issue of establishing the FCPS under bureaucratic supervision. The party cooperated with civic groups – including People's Solidarity for Participatory Democracy, Citizens’ Coalition for Economic Justice, and Korea Finance Consumer Federation – and put forward their opinion that if the FCPS were placed under the control of the FSC, it would lead to the expansion of the government and bureaucracy's authority on financial supervision, which would reignite government-involved finance issues. Accordingly, as with the FSS and academia, they argued that if the FCPS was to be established, it would be free from the FSC and receive the independent right to enact and revise relevant regulations (Digital Times, 14 April 2014). Thus, the FSS, academia, opposition parties, and civic groups created a unified voice to stress the need to acquire independence of financial supervision from the influence of the bureaucracy.
The occurrence of the legislative gridlock: the need for an inter-scalar mediator
The above examination shows that two cleavages regarding the Bill centered on the issue of the ‘independence of financial supervision.’ This revealed that each of the actors’ arguments presented during the early stages of the government's efforts to reform financial supervisory governance was intensified as a result of the two cleavages. This led them to keep arguing their original stances on the Bill. The ruling party and the FSC kept arguing that positioning both the FSS and the FCPS under the control of the FSC and making the FSC a control tower of financial supervision was necessary in order to prepare reasonable solutions to protect financial consumers. Other actors argued that the Bill would be reviewed again at the origin and must be discussed as part of government reorganization (DongA Daily, 2013). Finally, in the National Assembly, the discussion between the ruling and opposition parties regarding the passage of the Bill was suspended, which led to legislative gridlock regarding the bill since July 2012 – the longest gridlock case among several bills submitted by the government in order to activate the economy (Newdaily, 2014).
Reform of financial supervision through making or revising laws and institutions that shape governance in a specific public sector can be understood in terms of policy change. In addition, policy is a ‘crafted argument’ (Stone, Reference Stone1988); thus, details of policies evolve through deliberation in such a way that interdependent and conflicting policy-relevant actors can learn more about issues and the perspectives of opposing actors (Forrester, Reference Forrester1999: 1–2). Accordingly, deliberation among relevant actors is indispensible during the policy process. This implies that legislative gridlock can be alleviated when the deliberative process among relevant actors develops successfully.
This discussion clarifies that an inter-scalar mediator who can find ways to talk and coordinate collusion among multi-scalar actors is required in a situation of legislative gridlock. In the case of a legislative gridlock, the government can be the number one actor in coordinating roles. In most countries, not only lawmakers but also the government has the right to initiate and submit a bill. Korea's constitution specifies that both the government and members of the National Assembly have the right to submit a bill (Article 52). Considering that lawmakers are easily affected by party discipline, which might cause them to embrace actors with different political interests, the government can be the most significant inter-scalar actor to solve legislative gridlock.
However, the Korean government, the initiator of the Bill, did not make much effort to coordinate conflicting opinions between the ruling and opposition parties in the National Assembly or between the FSC and the FSS or civil society actors to create an agreed-upon opinion to smooth the process. Moreover, the government did not develop tools for deliberation, such as public learning, listening, or policy dialogue, which can lead the relevant actors to reach reasonable judgments and innovative agreements on policy alternatives (Forrester, Reference Forrester1999) that bring together those actors. In April 2014, the government opened a public hearing on the establishment of the FCPS that was unsuccessful because of strong disagreements between the ruling and opposition parties on the issue of giving the right of budget and personnel to the FCPS. In January 2015, those parties promised to hold a public hearing again but did not mention when it would be held.
Further, both the Lee and Park governments were in favorable positions, both externally and internally, to deliver their message regarding the establishment of the FCPS. Externally, international recognition grew so that financial consumers, who lacked information and bargaining power compared to financial institutions, were in a weak position and could be harmed in a situation in which the complexity of financial products and diversification increases. In addition, one of the key topics of the G20 Seoul Summit in 2010 was financial consumer protection; the France G20 Summit in 2011 endorsed an OECD task force on financial consumer protection, and the leaders agreed that integration of financial consumer protection policies into regulatory and supervisory frameworks contributes to strengthening financial stability.Footnote 3 Internally, amid the growing financial harm to consumers due to a series of financial incidents beginning in 2000, providing financial consumer protection measures was urgently necessary, and the government needed to expand its political landscape within civil society. This meant that the government had good reason to create and lead active discussion channels among multi-scalar actors to solve the gridlock. However, its efforts were limited by the deputy prime minister's remark that he hoped for the quick enactment of the Act (Newspim, 2014), thus the gridlock continued.
Conclusion
This paper shows that the long legislative gridlock over the Financial Consumer Protection Act developed as a result of overlapping political conflicts among multi-scalar actors relevant to the reformation of financial supervisory governance. Thus, this paper offers academic support for advancing existing literature on legislative gridlock by encompassing various actors into the examination of gridlock cases.
Amid the elevation of public attention on the quality of democracy in not only Korea but also other countries in the process of democratic consolidation, or on completion of the process, the findings of this paper demonstrate that solving gridlock problems is an urgent task of the government in order to respond to public demands to improve the quality of democracy. Specifically, better democracy is achieved through enhancing people's satisfaction with the government (O'Donnell et al., 2004; Morlino, Reference Morlino2009). To improve the government's political responsibility – what Manin et al. (1999: 29) called the governments’ responsibility for past actions – the establishment of both vertical and horizontal accountability among relevant actors, including government agencies and socioeconomic actors, is required. According to O'Donnell's conceptual framework, vertical accountability means ‘making elected officials answerable’ and horizontal accountability concerns ‘a network of relatively autonomous powers that can call into question, and eventually punish improper ways of discharging the responsibilities of a given office’ (O'Donnell, Reference O'Donnell1999). This further relates to the argument that various actors should be able to voice their opinions on public decision-making processes based on the democratic principle of ‘inclusion’, and this would facilitate the government's vertical and horizontal accountability. In this situation, it is highly likely that legislative gridlock stemming from the collision of multi-scalar actors because of overlapping political conflicts among them would occur frequently. This brings about the weakening of the government's political responsibility, and thus does not accord with the people's demands to enhance the quality of democracy in a given country. As a result, the Korean case of legislative gridlock also offers academic and policy implications for the roles of inter-scalar mediators, which could coordinate conflicts among multi-scalar actors to alleviate legislative gridlock.
About the author
Inhye Heo is a research professor at Dong-eui University, South Korea. She also teaches history of Korean politics, theories of political economy, theories of democracy, regional studies, etc., at Korea University. Her research explores public policy and democratic governance in Asian countries. Her recent work includes ‘Neoliberal developmentalism in South Korea’ (2015 Asia Pacific Viewpoint), ‘Managing policy dilemmas in South Korea’ (2015 Asian Studies Review), ‘The role of the state as an inter-scalar mediator in globalizing liquid crystal display industry development in South Korea’ (2014, Review of International Political Economy), ‘The political economy of reforming financial supervision in South Korea’ (2014 Journal of Asian and African Studies), ‘Changing aspects of government-society relations in South Korea’ (2013, Contemporary Politics), ‘The political economy of policy gridlock in South Korea’ (2013, Politics and Policy), ‘South Korea's corporate restructuring after the 1997 and 2008 economic crises: different patterns and lesson for policy’ (2013 Asian Politics and Policy).
