Institutional Linkages between Social Protection Measures and Industrialization in South Korea

There has been a long-standing controversial debate as to whether the welfare state is compatible with a market-based economy. At the end of the twentieth century, the Left and the Right shared a broadly based consensus that the state provision of welfare was compatible with a developed capitalist economy (Pierson 1998). However, the New Right’s onslaught to the Keynesian welfare state revitalized the incompatibility proposition. Globalization, specifically its predominant neoliberal version, can be said to make social policy explicitly subservient to the interest of the economy, which can be seen as another form of the trade-off between economic growth (or competitiveness) and social welfare. In contrast with the inexorable logic of globalization conjured up by neoliberalism, however, the impact of social policy on cornpetitiveness can have positive or compatibility effects in many aspects: macroeconomic stabilization effects, human capital improvement via education and training, and enhanced flexibility via greater trust and reduced transaction costs, for example (Gough 1996). After reviewing several econometric studies, Atkinson (1999: 84) concluded that ‘studies of the aggregate relationship between economic performance and the size of the welfare state do not yield conclusive evidence’. The crux of the matter for a feasible welfare state in the epoch of globalization is how to combine economic efficiency with equity and distributive justice (for example, Goodin et al. 1999: 259–62).