Theoretical Understanding of the Small Welfare State in Korea

Korea’s social security system is still developing, but when compared with other OECD countries, the level of social services and the generosity of income maintenance programs are quite low. Why is this? Although this book accommodates the basic argument of the existing theories of the welfare state development, it takes a closer look at the different institutional configurations of Korea which differ from most large European welfare states: enterprise unionism, big business-dominated economy, plurality electoral rules, presidentialism, stroong economic bureaucracy, and early development of corporate welfare.

First, during the authoritarian developmental period, concern for price competitiveness made state elites and employers very sensitive about labor costs. Wages were tightly controlled, social insurances, which are a form of indirect labor cost, were postponed as long as possible, and when social insurance had to be introduced, it was designed as “light” programs with low contribution and low benefit. Second, even after democratization, the single-member district (SMD) electoral system induced politicians to provide geographically-targeted benefits rather than nation-wide social policies. Also, the SMD system set a high hurdle for newly-founded leftist third parties to enter the National Assembly. Also, presidents would not push for unpopular tax increases to pay for welfare programs due to the winner–takes-all nature of the simple plurality electoral rule. If even a small percentage of the middle class voters withdraw their support, presidential candidates would lose the election. Third, organized labor led by enterprise unions, which represent privileged workers at large corporations, demanded job security, high wages, and corporate welfare. Because their demands are well satisfied by affluent large corporations, they have no practical incentive to call for social welfare beyond their corporate boundaries. Fourth, strong economic bureaucrats with planning and budgeting authority tend to act as veto player in social policy making. Finally, the early development of retirement allowance has retarded the introduction and expansion of unemployment insurance and public pension programs.

Welfare Politics and Social Policy-making Processes in the Small Welfare State in Korea

The history of the Korean welfare state can be divided into four periods: the authoritarian developmental state period (Park Chung Hee and Chun Doo Hwan governments), the democratic transition period (Roh Tae Woo and Kim Young Sam governments), the Democratic Party government period (Kim Dae Jung and Roh Moo Hyun governments), and the period of a return to conservative rule (Lee Myung Bak and Park Geun Hye governments). 

The institutional framework which affects the Korean welfare state was shaped during the authoritarian developmental state period: presidential system, SMD system rules, strong economic bureaucracy, export-oriented industrialization and large exporting firms, enterprise unionism, and low tax regime. During the formative early stages of industrialization, indirect labor costs were kept to a minimum to maintain price competiveness. In times of economic crises, tax cuts were employed to increase disposable income, give work incentives and boost investment. During this period, “light” social insurance programs were belatedly introduced. These programs started from large companies and then expanded gradually to smaller firms.

Despite the structural changes brought about by democratization in the 1980s, the institutions established during the authoritarian era remained unchanged: export-oriented industry, presidentialism, SMD system, strong economic bureaucrats, low taxes, and enterprise unionism, etc. The progressive elements of civil society failed to establish a “democratic” government, not to mention vote in any leftist parties into the National Assembly. The labor movement was militant, but it was unable to move beyond the confines of workplaces. Despite that fact that the National Pension (1988) and Employment Insurance (1995) programs were introduced and a unified single National Health Insurance was implemented (1999), a fundamental regime change in the country’s social security system did not take place. During the Kim Dae Jung and Roh Moo Hyun administrations, former activist politicians and civil movement groups formed a pro-social policy network around the presidents, and this became the main impetus for pro-welfare reform. As opposed to Europe where welfare politics are based on class or political parties, ad hoc policy networks characterize Korean welfare politics in which a pro-welfare network formed during progressive administrations collapses under conservative rule. The Kim Dae Jung government strengthened social insurance programs while the Roh Moo Hyun government introduced many new social services and social investment policies such as childcare, long-term elderly care, and EITC.  

However, these social security programs could not offset the emergence of an under-secured society. The poverty rate and suicide rate increased while the birth rate sharply declined. Social polarization and the working poor phenomenon began to emerge. This book argues that the underlying cause of this under-secured society is the polarization and dualization of the labor market. It reveals that economic unionism has aggravated the situation.

This book deals with large-scale tax cuts and the ‘wind of free welfare’ during the Lee Myung Bak government and tax politics of the 2014 tax code reform by the Park Geun Hye administration. Park Geun Hye, who was elected on a platform of ‘more welfare without tax increases,’ proceeded with her welfare pledges in a downscaled manner. Nevertheless, to provide the enormous budget required to carry out her electoral pledges, the government reformed the tax code to raise tax revenues by scaling back tax exemptions. However, people were widely opposed to the 2014 tax reform. Not only opposition parties but even the ruling party criticized the policy. The Park government retreated by withdrawing the reduction of tax exemptions for the middle class. And, as a result, the percentage of income-earners exempt from paying even a penny of income tax exploded to about 50 percent. This event showed that Korea’s political structure was very sensitive to unpopular tax increase that affects a majority of voters. From then on, the wind of free welfare began to phase out. This book unveils the weak institutional base for pro-welfare politics by pointing to the persistence of pork barrel politics even when the wind of free welfare blew strongly and to the limitations of the pro-welfare movement that lacks active participation from organized labor.

Generalizing the Theory of the Small Welfare State in the US and Japan

We can observe similar phenomenon in Japan and the United States as well. Low levels of social transfer, underdeveloped social services, reliance on private delivery systems, low levels of public social expenditures, and the development of private welfare may not be a coincidence. This book points out that these countries share several characteristics. First, enterprise unions are dominant. Their demands are satisfied by the high wages and corporate welfare provided by large corporations, which in turn erased unions’ interest in public welfare. Second, plurality electoral systems are in place, which raise local interests to the fore and result in pork barrel politics, dampening class-based socio-economic policy issues. Third, the low tax regime in the three countries places a cap on social expenditures. This book strongly suggests that the Korean welfare state will follow the United States and Japanese course of welfare state development and remain a small welfare state if there are no significant institutional changes.

* This book won the 2017 Injae Best Book Award presented by the Korean Political Science Association.