This is a revised version of the paper presented at the “International Conference on Globalization and Social Policy” held at Brown University, October 1999. I am deeply indebted to Miguel Glatzer, Dietrich Ruschemeyer, and two anonymous readers for many insightful comments and suggestions as I have revised my analysis. This paper is financially supported by Korea Research Foundation, Grant No. B00113. Any errors or omissions, of course, are mine alone.Google Scholar

1. To be more accurate, the retrenchment thesis has proved true only in a few national cases in spite of the popular belief in the neoliberal proposition that globalization brought the end of the welfare state. Even in most of the advanced industrialized countries where the neoliberal thesis gained wide support, the state has maintained its welfare regime or modified it only marginally with globalization. While the reliance on market mechanisms has increased in financial markets and in the employment system, institutional protections for social welfare remain largely unchanged or only slightly modified. At most, the state in Western Europe has shifted from guaranteeing unconditional and universal protection to that of providing welfare benefits with greater conditionally with the goal of promoting work incentives.Google Scholar

2. Korea stands out from this Western European pattern in three ways. First, as shown in Table 1, it was a “welfare laggard” with social expenditure taking up a mere 2.6 percent of gross domestic product (GDP) as late as 1987, the year when the authoritarian Fifth Republic (1980–1988) collapsed and financial liberalization began. By contrast, most Western European countries channeled more than one-fifth of GDP into social expenditures. Even some Latin American countries with per capita GDPs lower than that of Korea were “advanced welfare states” by its standard, disbursing more than 10 percent of GDP for social expenditures. Second, however, once democratization set in and globalization began in earnest after 1987, social expenditures increased gradually but consistently to hit 6.8 percent of GDP by 1997. This upward trend temporarily stopped in the aftermath of financial crisis, but when it picked up again in 1999, the rate of growth accelerated. Social expenditures exceeded 10 percent of GDP in 2000 for the first time in the history of social welfare in Korea.Google Scholar

3. See Koshiro, Kazutoshi, ed., Employment Security and Labor Market Flexibility: An International Perspective (Detroit, MI: Wayne State University Press, 1992); and Taira, Koji, Economic Development and the Labor Market in Japan (New York: Columbia University Press, 1970); Dore, Ronald, British Factory-Japanese Factory: The Origins of National Diversity in Industrial Relations (Berkeley: University of California Press, 1973).Google Scholar

4. Song, Ho Keun, Company Welfare in Korea: An Empirical Study (Seoul: FKTU, 1996) (in Korean).Google Scholar

5. Song, Ho Keun, “Welfare Policy in Korea: Theoretical Significance of Company Welfarism,” in Song, Ho Keun, Open Market, Closed Politics (Seoul: Nanam, 1994) (in Korean).Google Scholar

6. Koh, Kyong Wha et al., Korea's Social Expenditure: A Comparative Analysis with OECD Countries (Seoul: Korea Institute for Health and Social Affairs, 1998) (in Korean).Google Scholar

7. Although the state had long been a rescuer in social emergencies, it rarely provided people with cash assistance. Social benefits given to the extremely poor were rarely enough for the recipients to live even at subsistence level because these consisted primarily of small amounts of grains, condiments, garments, and cash for heating. Only the elderly who had no family and who were poor were provided with a small amount of cash benefits under the title of “consolation money.” Google Scholar

8. Song, Ho Keun, “Labour Unions in the Republic of Korea: Challenge and Choice,” in Jose, A. V., ed., Organized Labour in the 21st Century (Geneva, ILO: International Institute for Labour Studies, 2002).Google Scholar

9. On the third wave of democratization, see Huntington, Samuel P., The Third Wave: Democratization in the Late Twentieth Century (Norman: University of Oklahoma Press, 1991).Google Scholar

10. See Rodrik, Daniel, Has Globalization Gone Too Far? (Washington, DC: Institute for International Economics, 1997); Betcherman, , “Globalization, Labor Markets, and Public Policy”; and Standing, Guy, “Labor Insecurity Through Market Regulation: Legacy of the 1980s, Challenge for the 1990s,” in McFate, Katherine, Lawson, Roger, and Wilson, William Julius, eds., Poverty, Inequality, and the Future of Social Policy (New York: Russell Sage Foundation, 1995).CrossRefGoogle Scholar

11. To show more clearly the relationship between globalization and social welfare, the table below displays two sets of data: the share of trade in GDP and the volume of capital inflows and outflows as proxies for globalization; and the share of social expenditure in GDP as a proxy for social policy development. The high positive correlation that social expenditures had with the trade/GDP ratio (r = .941) and with capital mobility (r = .923) shows that for Korea, a welfare laggard, the increase in economic openness meant the expansion of state role in social policy. The positive and strong correlation between TRADE and SOCIAL is consistent with Daniel Rodrik's argument that increases in trade generate negative impacts on workers' livelihood and thus stimulate government efforts to compensate for worker distress. See Daniel Rodrik, Has Globalization Gone Too Far? Nonetheless, it is unlikely that trade increase played a greater role than capital mobility in expanding social expenditures. Trade accounted for more than half of Korea's GDP during the Fifth Republic, but it was only after its demise in 1987 that social expenditure grew at a rapid pace. Given the already very high share of trade in GDP in 1987, it is difficult to attribute the expansion of social expenditures since then to any further change in Korea's dependence on trade. By contrast, the sudden, rapid, and extensive opening up of capital markets after 1987 was new, allowing not only the chaebol conglomerates to finance their massive entry into unrelated industries with foreign loans, but also the declining light industries to seek an exit from the Korean economy and seek new homes abroad, especially in the rising Chinese market, thus creating for the first time in Korea's economic development the societal demand for the state to intervene regularly to provide a social safety net for worker distress. Even before the Asian crisis, in the isolated areas of the depressed light industries, company welfarism showed signs of breakdown. The system of company welfarism, however, would have survived longer, had the Asian crisis not occurred. It was only with the Asian crisis that the Korean state came to realize that company welfarism was not politically as well as economically compatible with the requirements of the borderless global economy.Google Scholar

Pearson Correlation Between Globalization and Social Expenditures

12. Lee, H. K., “Globalization and the Emerging Welfare State: The Experience of South Korea,” International Journal of Social Welfare 8 (1999): 23–37.CrossRefGoogle Scholar

13. Kim, Byung-Kook and Lim, Hyun-Chin, “Labor Against Itself: Structural Dilemmas of State Monism,” in Diamond, Larry and Kim, Byung-Kook, eds., Consolidating Democracy in South Korea (Boulder: Lynne Rienner Publishers, 2000), pp. 111–137.CrossRefGoogle Scholar

14. The measures included the termination of bank loans to financially insolvent firms, the enactment of a restrictive monetary policy through an interest rate hike, the restructuring of financial institutions unable to satisfy newly tightened prudential regulations, and the lifting of the ceiling on foreign ownership of stocks.Google Scholar

15. Lee, Eddy, The Asian Financial Crisis: The Challenge for Social Policy (Geneva: International Labor Organization, 1998).Google Scholar

16. The social pact envisioned that the government and employers would establish nationwide organizations to prepare a policy package for unemployment, including the sharing of work among the employees before laying off excess workers. All parties also agreed to eliminate unfair labor practices and to establish the institutions to monitor compliance. The social pact, moreover, pledged to open to the labor unions the policymaking processes that affected wage earners' living standards such as public service prices, public utility charges, and interest rates of bank loans for housing and living expenses. Included in those policymaking processes were those that dealt with the restructuring of chaebol firms. In addition, the social pact promised the legalization of the hitherto illegal teachers' union and even a limited participation of workers in the management of firms.Google Scholar

17. Among the target goals, only the reform of financial institutions yielded unquestionably positive results in the first two years of reform. Through the sale of one of the five major nationwide commercial banks to foreign capital and the closure of merchant banks, insurance companies, and other secondary financial institutions, Kim Dae-jung managed to reestablish the disciplinary power of the market in the financial sectors by the end of 1999.Google Scholar

18. National Statistical Office, Korean Statistical Database (1999) (in Korean). Jung Soon, Rew, “Estimation of Population in Poverty and Livelihood of Poor Households,” in Choon, Kim Dong, ed., Poverty After IMF in Korea (Seoul: Nanam, 2000) (in Korean).Google Scholar

19. In spite of the increasing popularity of the neoliberal thesis among the radical conservatives in Korea, it is hard to find any strong negative causality between welfare regimes and lower rates of economic growth, thus casting doubt on the neoliberal argument that welfare institutions constitute a direct cause for the decline of economic performance in Europe. See Pfaller, Alfred, Gough, Ian, and Therborn, Goran, eds., Can the Welfare State Compete? (Hampshire: Macmillan, 1991); Fligstein, Neil, “Is Globalization the Cause of the Crisis of Welfare States?” paper prepared for the annual meeting of the American Sociological Association, Toronto, Canada (1998); Pierson, Paul, “The New Politics of the Welfare State,” World Politics 48, no. 2 (1996): 143–179; and Stephens, Evelyne Huber and Stephens, John D., Development and Crisis of the Welfare State: Parties and Politics in Global Markets (Chicago: University of Chicago Press, 2001).CrossRefGoogle Scholar

20. Prior to 1998, the unemployment budget stood at a very meager level even though unemployment insurance was legally in place.Google Scholar

21. Kwon, Soonman, “Globalization and Health Policy in Korea,” Global Social Policy 2, No. 3 2002): 279–294; and “Health Insurance for All: Lessons from the Republic of Korea,” ILO Extension of Social Security, Paper Series No. 1 (Geneva: International Labour Office, 2002).CrossRefGoogle Scholar

22. Song, Ho Keun, What Doctors Wanted to Say (Seoul: Samsung Economic Institute, 2001) (in Korean).Google Scholar

23. Kwon, Huck-ju, “Inadequate Policy or Operational Failure? The Potential Crisis of the Korean National Pension Program,” Social Policy and Administration 33, No. 1 1999): 20–38.CrossRefGoogle Scholar

24. A similar relationship between globalization and social policy also existed in Japan. With the economy in depression for a decade, the Japanese public increasingly demanded the state to intervene and fill the vacuum left by the fall in company welfare benefits, one result being the state proposal to support the elderly in the areas of health care. The proposal was also justified as a way to reduce the burden on women in caring for older family members.Google Scholar

25. For an analysis of the importance of social performance in the consolidation of democracy, see O'Donnell, Guillermo and Valenzuela, Samuel, eds., Issues in Democratic Consolidation (South Bend, IN: University of Notre Dame Press, 1992); Schmitter, Philippe and Karl, Terry Lynn, “What Democracy Is … And Is Not,” in Diamond, Larry and Plattner, Marc F., eds., The Global Resurgence of Democracy (Baltimore: Johns Hopkins University Press, 1991); Choi, Jang-Jip, The Vision and Condition of Korean Democracy (Seoul: Nanam, 1997) (in Korean); and Im, Hyug Baeg, Market, State, and Democracy (Seoul: Nanam, 1994) (in Korean).Google Scholar

26. Diamond, Larry and Plattner, Marc F., eds., The Global Resurgence of Democracy.Google Scholar