This article compares the process of corporate structural reforms in Japan and South Korea in the late 1990s and raises two questions. Why have state-led economies such as Japan and South Korea engaged in politically costly corporate structural reforms in the late 1990s? What explains the variation in the reform process between Japan and South Korea?

I argue that the process of structural reforms in state-led economies has been the result of state mediation of global financial forces. The rise of portfolio capital inflows increases the pressure for domestic reforms, a change that is common to Japan and Korea in the late 1990s. However, the actual success of structural reforms depends on the ability of the elite bureaucracy to mediate among between global investors, domestic interest groups and the general public. In contrast to Korea, Japan exhibits a low level of bureaucratic control over the legislative agenda and a situation of tripolar deadlock.

The evidence presented here includes quantitative data, government documents, and legislative records as well as information gathered from over 100 interviews with bureaucrats, politicians, business leaders, labor leaders, and other actors in the two countries.