Enter Big Government, S Korean Welfare State?

♠ Posted by Emmanuel in at 3/18/2013 09:27:00 AM
One of the unspoken things many Asians feel has contributed to Western malaise is the ubiquity of extensive welfare states. With the so-called baby boom of those born in the immediate post-WWII era reaching retirement age, these countries are beginning to feel the massive fiscal pressure of providing for pensions and health care for those no longer working. Think of those hapless uber-bankrupts in the United States who cannot roll back promises made long ago that they cannot possibly meet--more so now given America's utterly pathetic growth rate.

Why, then, would leading Asian countries flirt with consigning themselves to a similar fate? Apparently, this is the very question facing South Korea--your archetypal success story. Needless to say, this success has not benefited everyone equally, hence calls to reform the Korean system away from massive industries (chaebol) and provide more opportunities for others not fortunate enough to be so favoured:
From childcare to old-age pensions, Park [Geun-Hye] wants to ramp up social spending by $125bn over the next five years as she responds to growing complaints that the proceeds of growth have been skewed towards the rich and the chaebol conglomerates that dominate the economy.
Ms Park is presenting this as a turning point after decades of small government. While the country is, by some measures, as prosperous as Italy or New Zealand, its spending on public services remains far lower than in most developed countries. Ms Park believes that this must change as the nation enters the next stage of its development. But do her sums add up?
It all sounds great on paper, but the question must be asked: Who's going to pay for it? I'm afraid Park is not so clear on this point (yet):
Instead, 60 per cent of the $25bn annual funding cost - which amounts to about 2 per cent of GDP – will come from eliminating wasteful government expenditure, although Ms Park has given no details of where these savings can be made. The remaining 40 per cent, she says, will come from regularising and taxing South Korea’s informal economy, which she believes to account for a quarter of GDP.

In short, Ms Park will fund her programme through measures that sound attractive to everyone. But until she gives more detailed proposals, there will be plenty of scepticism over whether this can really yield the sums required. And the latter could be bigger than Ms Park admits.
I am generally sceptical about claims that budgetary gaps can be closed by efficiencies in tax collection and stricter expenditure, and I don't see why I shouldn't be just because it's South Korea we're talking about here. Sure it's a country that works unlike any number of dysfunctional Western ones, but despite the popular acclaim there for a welfare state, did they ever consider that the problems the West faces stem in large part from it?

The matter is something to ponder even if the implications would be politically incorrect.