[The Korea Herald] Should Korea adopt a welfare state?

By John Power

Social welfare was a defining issue in Korean politics last year. President Lee Myung-bak, having come to power in 2008 with a message of small government, less regulation and lower taxes, was confronted with a slew of opposition proposals for expanding welfare. Then came calls for increased welfare from the unlikely source: Grand National Party, driven by the loss of a Seoul referendum against free school lunches in August and the conservative party’s persistently low approval ratings. At the beginning of a year of major elections, the political momentum is unquestionably favoring greater welfare provision.

“The current discourse about welfare expansion is a big change from the past,” said Ku In-hoe, professor at Seoul National University’s Department of Social Welfare. “Many politicians usually appealed to the public by depending on rapid economic growth rather welfare expansion. I think the changing discourse can affect social welfare policy in the future.”

Ku believes that greater welfare spending is necessary but says Koreans will also have to accept greater flexibility in the labor market and with it greater job insecurity.

“Globalization requires extending labor market flexibility. Some people argue against extending labor market flexibility but I think we have to accept the pressures of the global market. At the same time we have to expand social welfare programs for protecting low-skilled workers in the deteriorating labor market and especially irregular workers and workers in small and medium-sized enterprises.”

Kwon Soon-man, a professor at the School of Public Health at Seoul National University and an expert on welfare policy, believes that Korea in particular needs to increase its investment in public health care.

“We have a national insurance system. It has a universal coverage of the population … but in terms of benefits, simply speaking, the percentage of health care expenditure covered by the public health insurance system is still not universal. About 30 or 40 percent of health care expenditure is borne by individuals from out of pocket,” he told Voice.

Kwon rejects the suggestion of Korea following the example of the mostly private and highly rated health system of the Netherlands, which combines mandatory universal coverage with competing private health insurers.

Illustration by Han Chang-duk

“Still there are a lot of criticisms of that change as well so I don’t think it is a good example. If you have chance to talk with the general public, most people are more or less satisfied with this health insurance program. Of course, no system is perfect, we need some changes, some improvements, but some incremental changes are only needed then,” he said.

For Yang Jae-jin, a professor of public administration at Yonsei University, it is working families who should be the main focus of greater welfare.

“I would expand social welfare programs to support working families. So priority should be given to employment insurance and public child care. Also I would newly introduce so-called ‘parental insurance’ to socialize the cost of paid maternity leave at least for one year. This benefit should be income-related and paid by a parental insurance fund not by employers.”

Historically, South Korea has shunned high welfare spending. Some of the biggest moves toward a welfare state were made under the Kim Dae-Jung administration during and after the 1997 Asian Financial Crisis. But even with incremental increases since then, South Korea ranked second-lowest in the Organization of Economic Cooperation and Development for spending on welfare in 2010, accounting for just under 11 percent of GDP. This year’s budget, reflecting the current mood, increased welfare spending by 3.3 trillion won ($2.8 billion), including more money for college scholarships, free school meals and supporting job seekers.

But with the U.S. and much of Europe struggling with debt problems partly caused by heavy social spending, some here such as Kim Chung-ho, head of the Seoul-based Center for Free Enterprise, say that Korea should think twice before committing to the welfare state model.

“Korea is already going down the welfare road,” Kim said. “It is a dangerous road. People will have to be determined to continue working hard despite welfare handouts, also they will have to pay more taxes, which seems to be unlikely. So it could mean a trip down bankrupt road.”

Yang is less concerned that the two main parties’ focus on welfare could lead to competition to outspend each other with public money.

“Learning by doing will be activated in the next general election in 2016. The middle class will no longer support pro-welfare parties if winners of this election in 2012 raise taxes and increase budget deficits.”

While welfare proponents often point out it is the southern European economies that are most severely in debt rather than the likes of high-tax, high-spend Sweden, Kim dismisses the suggestion that the Nordic model could be applied here.

“There are some countries where people evade routinely evade taxes. South Korea is one of those countries that has a huge underground economy, just like in the Southern European countries. So in some countries, people may continue paying high taxes, but based on Korea’s low ranking in the transparency indexes, it seems that Koreans would evade taxes as people in Southern European countries do rather than the way they continue paying them in Scandinavian countries.”

With some level of welfare provision seemingly inevitable, the matter of degree is an important point of contention.

“There is no golden rate,” said Yang “, but I’d say 20 percent of GDP or the average level of OECD countries on the condition that Korean aging becomes a similar level to other OECD nations. Currently, Korea is young and its pension scheme is immature. Given this young population and immature pension schemes, 15 percent of GDP would be appropriate.”

While the Kim says he can understand and even support the targeting of services at the poor, he is vehemently opposed to “universal programs that include middle-class people, college students, rich people” such as Seoul’s free school lunches program.

But in Kim’s view, the most effective thing the government could do to help the poor would be to simply enforce the law of the land.

“That’s the most important thing the government can do. The government needs to stay focused on its basic functions so that honest people can succeed. Unfortunately, we now have a situation where charlatans can make money with lies, half-truths, backroom deals, corruption.”

Kim’s colleague at the CFE, international relations director Casey Lartigue argues that helping the less well-off is a matter of government doing not more, but less.

“Instead of focusing on social welfare spending, why shouldn’t Korea, for example, follow Sweden’s historical model of having free markets, free trade, and its policy of universal school choice?”

In a brief statement to The Korea Herald, the Ministry of Health and Welfare declined to go into specifics on desirable levels of welfare spending or how it would ensure sustainability.

“We are working to find the appropriate level of welfare expenditures that fits our policy environment and circumstances. We are making efforts to make the social security system sustainable considering fiscal conditions,” a spokesman said.

But whether a program or system is fiscally sound or not, Lartigue says the principle off hands-off government is important in itself.

“The right not to have the government take half of your money to set up programs gets ignored in the rush for welfare policies. So focusing on the big government scheme is a distraction from the relationship of the individual with the state. In the age of globalization, it may not make sense to be creating a Swedish model, thereby giving citizens less control over their money and lives,” he said.

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