The welfare state in the West is on the run. Right now in Washington, the White House and Congress are haggling over what to do with key entitlement programs like Medicare, which are key to supporting middle-class lifestyles but, with the population aging and national debt rising, have become financially unsustainable. For avid Tea Partiers, large-scale social spending is synonymous with wasteful and intrusive government — the hated “nanny state” that ruins whatever it touches. However the budget arguments play out, reform of American welfare policies seems inevitable. In Europe, the situation is even worse. Debt-ridden countries like Spain and Greece have had to scale back their welfare states in an effort to control debt and narrow deficits. Does the welfare state have a future?
It does in Asia. Ironically, as the West retreats from their welfare states, Asia is just starting to build them. Indonesia is about to roll out a national healthcare plan to provide coverage for all of its 240 million people. South Korean President Park Geun Hye came into office earlier this year with grand plans to subsidize college tuition, offer free treatment for cancer and other serious illnesses, and instate a universal pension system. Even Singapore, which has prided itself on the stinginess of its welfare programs, can’t resist the trend. In the 2013 budget, the government expanded state healthcare programs and increased cash handouts to low-income families.
This trend is a reversal of Asia’s traditional economic policy. While the West built middle-class lifestyles in part on a state-funded social safety net, governments throughout Asia tended to rely on strong family networks to care for society’s downtrodden. Welfare spending was aimed usually at the most vulnerable, while others who required assistance — the unemployed, the sick, the elderly — were expected to turn to their families, not the taxpayer. That strategy was a key element in the policy mix that sparked the region’s exceptional growth. Instead of burdening state budgets with heavy welfare spending, resources were freed up to invest in the education and infrastructure that supported rapid development.
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Now, though, attitudes are changing. In some cases, building better social safety nets has become an economic necessity. China, for instance, is trying to repair woefully inadequate healthcare and pension systems to convince high-saving Chinese households to spend more of their rising incomes and make the economy’s growth more sustainable. With populations aging throughout East Asia, states will have no choice but to care for a larger number of elderly. Politicians are also reacting to growing discontent over income disparity and middle-class demands for more substantive social services.
All of these factors are driving a rethink of government welfare programs. In Singapore, where policymakers have long feared government aid can become a crutch for the lazy, the demographic realities of the city-state are causing a change of heart. “Although overall healthcare expenditure will go up, we want to see Singaporeans’ out-of-pocket share of medical costs fall, and the Government take on a larger share,” Finance Minister Tharman Shanmugaratnam said in a February speech. With the region’s greater wealth has also come an altered view of both the appropriate role of government and the responsibilities a modern society should have towards its weakest members.
In her inauguration speech Korean President Park pledged to “usher in a new era of hope whereby the happiness of each citizen becomes the bedrock of our nation’s strength.” What Korea needs, she said, was “economic democratization” to spread Korea’s newly acquired riches throughout society. “No citizen should be left to fear that he or she might not be able to meet the basic requirements of life,” she said.
Yet such lofty ideals are already running into financial reality. Facing a strained budget, Park had to backtrack on her welfare pledges only months after taking office. She was forced to scale back her pension plan and delay the subsidization of tuition. “This was inevitable,” Park told her cabinet, due to the government’s financial position. That gets at the biggest challenge facing Asia in its pursuit of the welfare state. How can Asia build them, without taking on the financial burdens now weighing down the West?