The establishment of the rule of law in the social and economics spheres is fundamental towards effective and practical reform of a country’s legal and institutional environment. Such reform must take place under the rule of law, and not through human or administrative discretion. We claim that establishing ‘a law-governed economy,’ which is defined as the operation of an economy under the rule of law, is an indispensible feature for Korea’s proper economic reform.

In Korea, many factors presently hinder the establishment of a law-governed economy, of which the most important are the persistent government intervention into markets, the government’s excessive discretionary power, the weak check and balance among the three government branches, the absence of regulatory bodies’ independence, the unclear division of labor among government bodies, and the ‘egalitarian trap’ embedded in the Korean culture.

We argue in this paper that political reform is a prerequisite to a law-governed economy. There should be a conscious effort to remove entry and exit barriers in political markets, as well as reduce significantly its high-cost structure. Through such a process, and by improving the country’s economic institutional environment, more effective economic reform, especially of corporations, will then become possible. Regarding corporate sector reform, there is a need to establish a proper market disciplinary system by strengthening the monitoring roles of various market participants, thus replacing the existing regulatory framework that aims to directly control corporate behavior.