Welfare state in capitalism
Since the eruption of the sub-prime mortgage crises of 2007 to 2009, there have been hot debates on how the current “greedy capitalism” must change into sustainable capitalism.
The “Occupy Wall Street” protests were against the far-reaching negative consequences of neo-liberal capitalism.
In the wake of the global financial meltdown, the notion of Capitalism 4.0 has suddenly made headlines and the Davos Forum early this year also addressed how to make capitalism sustainable.
To what extent is this debate and the search for a new version of capitalism relevant to Korea?
Unlike advanced Western capitalist states with more than 300 years of history, Korea’s modern development of capitalism occurred in the past half century but is regarded as the representative economy of East Asian miracle performers.
Korea formally adopted capitalism in the post-liberation era after 1945 by formulating a constitution containing a market economy as its basic tenet to promote economic freedom and encourage creativity.
As a corollary of this fundamental principle, the Korean constitution dictates that the government can regulate and adjust economic matters to supplement market economic principles to achieve social justice and economic democracy.
Empirical analysis suggests that the Korean economy has achieved both growth and equity.
Ironically, at the outset of Korea’s modern economic development, the Korean War (1950-1953) allowed everyone in Korea to be on equal footing.
Furthermore, Korea, with the birth of a new democratic government, carried out two institutional reforms: land reform based on owner-cultivator principles and a compulsory education system for school-age children to be enrolled at a primary school, at the very least.
In the past half century, Korea’s rapid economic growth has evolved around the creation of chaebol (large conglomerates), administered credit allocation with easy monetary policies from banks to priority sectors and export-oriented outward-looking policies to concentrate economic power highly in favor of them.
However, in the post-1997/98 Asian financial crisis era, and with the recent global crisis, Korea’s compressed growth model has resulted in worsening income polarization and jobless growth.
Korea now faces serious challenges on its way to introducing a welfare state paradigm. As part of the campaigns for the general elections concluded last week, left-wing opposition parties introduced a series of free programs involving everything from school lunches, school tuition, universal welfare and college tuition reduction to tax hikes for the rich and a chaebol tax.
The conservative government party also put forward its own welfare policy platforms largely based on selective and prudential principles.
What type of welfare state Korea should design is likely to be a key issue in the December presidential election.
Korea should consider a welfare state as a distinct combination of democracy, welfare and capitalism, as implemented with different degrees of emphasis by Germany, all the Nordic countries, the Netherlands, New Zealand and the United Kingdom.
Given Korea’s transition to a matured advanced economy and ongoing income polarization, the country must address how to balance growth dynamism and equity.
Above all, the government should do its best to construct a social safety net for those in need.
Without due consideration of fiscal sustainability, we should avoid the popular approach to embrace “something for nothing.”
Korea may also consider privately channeled welfare measures within corporate social responsibility mandates as given in the United Nation’s new norm for shared growth.
In this regard, Korea’s large conglomerates need to be proactive in nurturing human capital for a high-tech society.
Indeed, highly skilled manpower is the core element to ensuring a sustainable endogenous growth model.
Koreans should keep in mind that the provision of welfare should not discourage the incentive to work. We should not let our next generation bear the burden of financing excessive welfare expenditure for the present generation.
We should be aware of the fact that capitalism is not a static set of institutions but an evolutionary system that reinvents and reinvigorates itself through challenges and crisis. The present case of Greece’s demise makes this clear.