Welfare State and Global Financial Crisis: A Case Study of South Korea

This research project examines how and to what extent the 1997 Asian financial crisis influenced the development of Korean welfare state system. Korea's success in overcoming the Asian financial crisis shows that Korea perceived and reconstructed structural problems very quickly. The national debate ignited by the crisis was not only important in restructuring of the economy but also in expansion of social policies. This counters the neo-liberal assertion that market-driven globalisation renders social policy marginal in economic development. Why Korea was able to develop a welfare state system unlike other East Asian countries, which simultaneously faced the financial crisis? In explaining the development of welfare states in Europe, scholars assume that industrialisation, democratisation, and, in particular, growing labour movements and leftist political parties as crucial factors. In a similar vein, scholars sought to explain the reason for the slow development of social policies and limited welfare systems in East Asia in spite of rapid modernisation and democratisation. It was generally accepted that East Asian social policies were primarily driven by the dynamics of development policies and political legitimacy, particularly in Korea where the foundations of a welfare system were established under military regimes. In that case, how can the development of the welfare state system in Korea be explained? I argue that the welfare state system in Korea is an outcome of an interaction among various factors including mainly democratisation and industrialisation as a basis to the welfare state, the Asian financial crisis as a turning point from residual to institutional welfare systems, rise of neo-liberalism as a dominant ideology, and the effects of global governance by the IMF and the World Bank. The democratic transition and intervention of the IMF and the World Bank contributed to substantial policy reforms leading to a welfare system. In addition, civic and labor movement played important roles in setting the policy agenda for the system. Due to these internal and external factors in conjunction with the Asian financial crisis, Korea developed a welfare state system unlike other countries affected by the crisis. The development of the welfare state system in Korea shows that Asian countries could respond to economic challenges and opportunities in different ways.