The role of government has experienced a dramatic change in the 20th century. In the first half of the century the role of government was strong as the world witnessed the birth of communist countries and the two world wars as well as various international conflicts. However, the role of government began to shrink as globalization was accelerated from the 1980s and the cold war era ended in the early 1990s with the sudden death of communism after an experiment of a generation. In many countries privatization was in process with massive scale and the market began to have more power in allocating scarce resources. The strong role of Korean government from the days of economic development in the 1960s became the target of the regulatory reform from 1990s, the government reform and the privatization following the economic crisis of the 1997. Although in the Roh Moo-hyun administration the size of the Korean government became larger and the privatization process has been stopped it is unlikely that the role of Korean government keep growing in the future against the world-wide trend of small government. This study performs a literature survey from law and economics perspective and analyzes the changing role of Korean government and the resulting changes on people’s view on Korean economy.

In economics different schools suggest different role of government. Classical economists emphasize the efficiency of resource allocation through market and minimize the role of government while the socialist economists emphasize the role of government as a central agent allocating resources. Keynesian economics argues for the active role of government through the fiscal and monetary policies while the monetarism, rational expectation and time-consistency model emphasize the stable role of government through consistent policy. From the normative perspective, government can cure so called ‘market failure’ caused by public goods, externalities, monopoly and/or asymmetric information. However, from the positive perspective, government is a monopolistic supplier of regulation distorting efficient resource allocation. In the literature of economic development, government was viewed, traditionally, as a driving force of economic development. However, these days, people emphasize the role of market and the institutional establishment as well as the role of government.

Hayek argues that the English tradition of common law and the empirical philosophy is superior to the continental tradition of civil law and rationalism. According to Hayek, in the rationalistic tradition, as the role and power of government gets stronger the autonomy and the creativity of private sector gets weaker. The survey of the international comparison studies on the role of government and law system, performed as a part of this study, suggests that the English common law tradition and empirical philosophy shows better results in the development of institutions and economic performance than the continental civil law tradition specifically through the establishment of property right, economic freedom, flexibility of law interpretation, independence of judicature and the development of financial sector.

With the insights from the literature survey, this study tries to interpret and classify views on Korean economy as one of the following categories; managed economy, reformed economy and free economy. It would be helpful to explain the transition of the role of government and the consequent changes in the way people think about Korean economy. In managed economy, the role of government and the role of entrepreneurs work together with government playing the manager of all the important economic policies and initiatives. In reformed economy, government undertakes active reform at the face of globalization that brings the opening of domestic commodity and capital market and serious international competition. In free economy, globalization is considered as a favorable environment in which the role of entrepreneurs can be maximized by raising the autonomy and vitality of the business sector. In the managed economy, people warn against the foreign capital and try to minimize its impact on domestic industry. However in the reformed economy people warn against the opportunism of large firms and its owners and believe that the strong reform agenda by the government and the pressure of foreign investors can discipline such problems. In free economy, people warn that the government intervention could discriminate against domestic firms and believe that the role of entrepreneurs need to be maximized under fair and free environments. Korean economy  evolved from the managed economy of development era into the reformed economy after the economic crisis of 1997. As the globalization develops and the role of government begins to shrink changing the characteristics of Korean economy, it is likely that the Korean economy will proceed to the free economy in the future. However, for this goal, the role of government needs to be reshaped to minimize the distortion and harm it inflicts on the private economic activities.

As a government of a nation state, the Noh Moo-hyun admini- stration made special efforts to upgrade the community spirit of this country. However, the ultimate target of a government is the expansion of spontaneous creativity. one can sustain economic development as the creativity and efficiency can continuously enhance the productivity and the competitiveness of the economy through the promotion of freedom and the set-up of flexible institution.