This working paper was originally printed in the Working Paper Series of the MIT International Motor Vehicle Program

This thesis challenges the neoclassical and the state-oriented views on economic and industrial development, using a strategic decision making theory framework and by focusing on the changing governance of the Korean water sector as an in-depth case. This research finds that a governance structure controlled by a few elites from the market or the state inevitably fails to meet the public interest. Strategic decision making theory (SDT) in this research incorporates Barzelay’s institutional processualism (Barzelay, 2003, Barzelay and Gallego, 2006) and Moe’s concept of purposive incentive (1981), in order to explain ‘changing’ governance and the reasons why some actors voluntarily participate in democratic decision making despite ‘collective action problems’. The Korean water sector, the case of this research, illustrates these ideas by showing that governance changes result from intense interaction between interested and purposive actors, critical events, and context. SDT analysis is complemented by an econometric analysis, which shows that the decentralisation of decision making power does not necessarily come with better performance unless proper governance is introduced. Solutions suggested in this thesis are democratic industrial governance and, as an intermediate means, a democratic regulatory agency, which is beyond merely (economic) regulation to remedy ‘market failure’ and economic bureaucrats pursuing long term career path.