Dynamics of Welfare Capitalism

European States and Korea

Jae-Hung AhnDepartment of Political Science and Diplomacy

Ajou University

Paper presented at the Conference of Global Korea 2012 held in Seoul, Korea on February 23, 2012

Capitalism: Small Western

European States and Korea

Hung AhnDepartment of Political Science and Diplomacy

Ajou University

Paper presented at the Conference of Global Korea 2012 held in Seoul, Korea on February 23, 2012

I. Purpose of Study

1. Background: Transition to the Welfare State in Korea

▪ In terms of social insurances, Korea has become a welfare state.

▪ In 2011, public social expenditures in terms of a percentage of GDP▪ In 2011, public social expenditures in terms of a percentage of GDP10 per cent.

▪ Social welfare has emerged as a major political issue in election campaigns.

▪ But Korea has yet to have corresponding interests in how to make and implement social policies in combination with income policy and economic policies, thereby consolidating welfare capitalism

I. Purpose of Study

1. Background: Transition to the Welfare State in Korea

In terms of social insurances, Korea has become a welfare state.

in terms of a percentage of GDP is overin terms of a percentage of GDP is over

Social welfare has emerged as a major political issue in election campaigns.

But Korea has yet to have corresponding interests in how to make and implement social policies in combination with income policy and economic

welfare capitalism.

1

2. Analyzing the Conditions of Welfare Capitalism

① Policy Analysis: What type of policy regime circle between growth and social welfare(“shared growth”)?

② Political Analysis: What type of the formation of a particular type of policy regime possible?

③ Issues: What institutional reforms does Korea need to carry out in order to develop welfare capitalism?

2. Analyzing the Conditions of Welfare Capitalism

policy regime brought about the virtuous circle between growth and social welfare(“shared growth”)?

: What type of the political economy regime makes formation of a particular type of policy regime possible?

does Korea need to carry out in order to develop welfare capitalism?

2

III. Policy Regime of Virtuous Circle

1. Policy Regime of Income Policy and Social Policy: Before Globalization

Downward restraining, wage dispersion

The NetherlandsUpward solidary wages

Solidary wages

(Passive Labor Market Policy)

Income

Policy

ALMPPLMP

Social Policy

III. Policy Regime of Virtuous Circle

Policy Regime of Income Policy and Social Policy: Before

Austria

The Netherlands

SwedenDenmark

ALMP(Active Labor

Market Policy)

PLMP(Passive Labor Market Policy)

3

2. Wage Dispersion (P50P10), 1973

Source: Huber, Evelyne et al., Comparative Welfare States Data Set

- P50P10 indicates. the ratio of the gross earnings received by the worker at the 50

those at the 10th percentile

2. Wage Dispersion (P50P10), 1973-1998

Comparative Welfare States Data Set, (2004)

the ratio of the gross earnings received by the worker at the 50th percentile to

4

Ⅰ

3. Empirical Findings before Globalization (1980)

Source: OECD, Social Expenditure Database (2004), (www.oecd.org/els/social/expenditure).

Ⅲ

Ⅱ

3. Empirical Findings before Globalization (1980)

(2004), (www.oecd.org/els/social/expenditure).

Ⅳ

5

4. Unemployment

Source: OECD, Historical Statistics 1960-1995 (Paris: OECD, 1997); OECD (1983); Huber et al., (2004)(Paris: OECD, 1997); OECD (1983); Huber et al., (2004)

6

5. Policy Regime of Income Policy and Social Policy: After Globalization

Downward restraining, wage dispersion

Upward solidary wages

Solidary wagesIncome

Policy

Social Policy

5. Policy Regime of Income Policy and Social Policy: After

IrelandAustria

Denmark,The Netherlands

Sweden

ALMPPLMP

7

6. Empirical Findings after Globalization (2002)AL

MP

expe

nditu

re /

PLM

P ex

pend

iture

ALM

P ex

pend

iture

/ PL

MP

expe

nditu

refter Globalization (2002)

8

Sweden 1st P., Sweden 2nd P., Ireland 3rd P., The Netherlands 3rd P.

Denmark 1st P., The Netherlands 1st P., Austria

7-1) Truth Table

7. Boolean Algebra Analysis

Denmark 1st P., The Netherlands 1st P., Austria1st P., Austria 2nd P., Austria 3rd P.

Denmark 3rd Period.

Sweden 3rd Period.

Denmark 2nd P., The Netherlands 2nd P.

1) 1st Period = World War II~1st Oil Shock; 2nd PeriodAfter Globalization

2) A = Active Labor Market Policy; P = Passive Labor Market Policy; I = Income Policy;Employment

A P I U

P., The 1 0 1 1

P., AustriaP., Austria0 1 1 1

1 1 1 1

1 1 0 0

0 1 0 0

Period = 1st Oil Shock ~ Globalization; 3rd Period =

2) A = Active Labor Market Policy; P = Passive Labor Market Policy; I = Income Policy; U = Low

9

7-2) BOOLEAN ALGEBRA ANALYSIS

1) Policy regimes of Low Unemployment U(1)U = ApI + aPI + API

= I(Ap + aP) + APIWe can minimize I(Ap + aP) to IU = I + API

- Income policy I(I) is a necessary condition of low unemployment U(1).- Income policy I(I) is a necessary condition of low unemployment U(1).

2) Policy regimes of high unemployment u(0)u = aPi + Api

= Pi(a + A), If we minimize= Pi

- The Interaction effects of failure of income policy (i) and PLMP brought about high unemployment u(0).

Policy regimes of Low Unemployment U(1)

is a necessary condition of low unemployment U(1).is a necessary condition of low unemployment U(1).

Interaction effects of failure of income policy (i) and PLMP brought about

10

Unemployment

(%)

Labor Participation

(%)

Mid -1990s Mid-2000s Mid-1990s Mid-2000s

Sweden 9.31 6.96 71.12 74.38

8. Growth and Inequality

Denmark 7.12 4.69 73.62 76.16

NTLDs 6.13 4.49 65.34 72.86

Austria 4.09 4.71 - 69.38

Ireland 12.76 4.49 53.64 66.92

Poverty rates (50%) is “the share of individuals with equivalized disposable income less than 50 % of the median for the entire population. Förster and D'Ercole, 2005, 21; OECD, www/oecd/els/social/inequality.

Labor Participation Poverty Rate

(50%)Gini Index

2000s Mid-1990s Mid-2000s Mid-1990s Mid-2000s

74.38 3.7 5.3 0.21 0.23

76.16 4.7 5.3 0.21 0.23

72.86 6.3 7.7 0.28 0.27

69.38 7.4 6.6 0.24 0.27

66.92 11.0 14.8 0.32 0.33

Poverty rates (50%) is “the share of individuals with equivalized disposable income less than 50 % of the median for the entire population. Förster and D'Ercole, 2005, 21; OECD, www/oecd/els/social/inequality.

11

9. SUMMARY

-Growth (Low Unemployment)▪ Income policy is a necessary condition of low unemployment.

▪ High unemployment occurred due to the Interaction effects between the failure of income policy and passive labor market policyincome policy and passive labor market policy

- Social Equality▪ In social policies, active labor market policy should be balanced with passive

labor market policy.

- Policy Regime of Virtuous Circle (Shared Growth)▪ Income policy should be combined with a balanced expenditures in ALMP and

PLMP.

is a necessary condition of low unemployment.

High unemployment occurred due to the Interaction effects between the failure of income policy and passive labor market policy.income policy and passive labor market policy.

In social policies, active labor market policy should be balanced with passive

Policy Regime of Virtuous Circle (Shared Growth)Income policy should be combined with a balanced expenditures in ALMP and

12

Functional

Representation

Political Representation

Majoritarian

Pluralism Liberal Welfare State

III. Institutional Affinities

1. A Typology of Political Economy Regime

Pluralism

(LME)

Liberal Welfare State

(I)

Corporatism

(CME)(III)

* LME: Liberal market economy; CME: Coordinated market economy

Political Representation

Consensus

Liberal Welfare State

III. Institutional Affinities

1. A Typology of Political Economy Regime

Liberal Welfare State(II)

CD Welfare State

SD Welfare State (IV)

13* LME: Liberal market economy; CME: Coordinated market economy

- The Existing Studies ▪ Institutional affinity between consensus model and corporatism (IV) (

1999).▪ But they do not focus on the dimension of

2005).

- Theoretical Concept▪ Democratic governance: The interaction between participation from the below

2. Analytical Framework

▪ Democratic governance: The interaction between participation from the below and political governance from the above (

- Hypothesis▪ Among the countries of consensus model, consociationalism is

than positively related to corporatism.*Consociationalism - Average of effective number of parliamentary parties and percentage

of minimal winning, one-party cabinets.

Institutional affinity between consensus model and corporatism (IV) (Lijphart

But they do not focus on the dimension of political governance (Gerring et al.

The interaction between participation from the below The interaction between participation from the below and political governance from the above (Lipset and Rokkan 967).

Among the countries of consensus model, consociationalism is negatively rather

Average of effective number of parliamentary parties and percentage party cabinets.

14

3-1. EMPIRICAL ANALYSIS 1: CONSOCIATIONALISMCORPORATISM (1970-90), OECD C

Cor

pora

tism

<OECD Countries>

* The variables of corporatism and consociationalism are Z scores. * Case (I): Pierson Correlation = - 0.671; Significance Level = 0.034* Case (I) + (II): Pierson Correlation = 0.420; Significance Level = 0.065* Operationalization – Corporatism (Siaroff 1999); Consociationalism (Armingeon 2002)

Cor

pora

tism

Consociationalism

ONSOCIATIONALISM(1971-96) AND90), OECD COUNTRIES

Cor

pora

tism

<Proportional or Mixed Representation>

* The variables of corporatism and consociationalism are Z scores. 0.671; Significance Level = 0.034

* Case (I) + (II): Pierson Correlation = 0.420; Significance Level = 0.065Corporatism (Siaroff 1999); Consociationalism (Armingeon 2002)

Cor

pora

tism

Consociationalism

15

3-2. EMPIRICAL ANALYSIS 2: CONSOCIATIONALISMCOORDINATION OF MARKETS (1971

Coo

rdin

atio

n of

mar

ket

Coo

rdin

atio

n of

mar

ket

<OECD Countries>

* The variables of coordination of market and consociationalism are Z scores.* Case (I): Pierson Correlation = - 0.683; Significance Level = 0.029* Case (I) + (II): Pierson Correlation = 0.526** Source: Hall and Gingerich 2009, dataset; Armingeon 2002.

Coo

rdin

atio

n of

mar

ket

Coo

rdin

atio

n of

mar

ket

Consociationalism

ONSOCIATIONALISM(1971-96) AND(1971-97)

Coo

rdin

atio

n of

mar

ket

<Proportional or Mixed Representation>

* The variables of coordination of market and consociationalism are Z scores.0.683; Significance Level = 0.029

t; Armingeon 2002.

Coo

rdin

atio

n of

mar

ket

Consociationalism

16

The state was relatively autonomous, government party mobilized a

majority of votes in the parliament, and/or labor and capital could keep

“centralized self regulation” based on centralized organizations.

- Cases

4-1. Arguments 1: The Expansion of the Welfare State

▪ Sweden and Denmark before the mid-by social democratic dominance.

▪ Denmark and the Netherlands: State intervention played a role of an functional equivalent to strong corporatism (

▪ Austria: Low degree of consociationalism and strong corporatism.

The state was relatively autonomous, government party mobilized a

majority of votes in the parliament, and/or labor and capital could keep

“centralized self regulation” based on centralized organizations.

1. Arguments 1: The Expansion of the Welfare State

-1970s: Close to the majoritarian model

State intervention played a role of an to strong corporatism (Estévez-Abe 2008).

Austria: Low degree of consociationalism and strong corporatism. 17

- Breakdown of Political Governancewith weak corporatism. Ex) Denmark and the Netherlands.

- Failure of income policy : Both labor and capital were opposed to state intervention in collective bargaining. The ‘functional equivalent’ to

4-2. Argument 2: The Breakdown of the Virtuous Circle

intervention in collective bargaining. The ‘functional equivalent’ to strong corporatism stopped working in income policy.

- In Sweden, social democrats’ dominance ended after the electoral reform in 1969. But labor and capital continued to comply with “centralized self-regulation” until 1983.

Breakdown of Political Governance: High consociationalism combined with weak corporatism. Ex) Denmark and the Netherlands.

: Both labor and capital were opposed to state intervention in collective bargaining. The ‘functional equivalent’ to

2. Argument 2: The Breakdown of the Virtuous Circle

intervention in collective bargaining. The ‘functional equivalent’ to strong corporatism stopped working in income policy.

In Sweden, social democrats’ dominance ended after the electoral reform in 1969. But labor and capital continued to comply with

regulation” until 1983.

18

4-3. ARGUMENTS 3: THE RETRENCHMENT

- Reinforcement of political governance based on party politics.

▪ In forming (minority) coalition governments, ‘bloc politics’ was weakened:The Netherlands (CDA-PvdA 1989, PvdA1993-), Ireland(FF-PD1989-).

- Written coalition agreements in the formation of coalition government (Müller and Strøm 2008).

- Diverse committees within the cabinets and across the executiveparliament relations contribute to the management of conflicts (Andeweg and Timmermans 2008).

ETRENCHMENT OF THE WELFARE STATE

Reinforcement of political governance based on party politics.

In forming (minority) coalition governments, ‘bloc politics’ was weakened:PvdA 1989, PvdA-VVD1994), Denmark (SD-RL

in the formation of coalition government

within the cabinets and across the executive-parliament relations contribute to the management of conflicts (Andeweg and Timmermans 2008).

19

- Institutionalization of Social Concertation

▪ Corporatism becomes weakened, but a new type of coordination arose: The making of social pacts through social 2008).

▪ Political parties play a role in social concertationcover a wide range of social policies in addition to income policy.

▪ The inclusion of social policies in political exchange links functional representation to political representation (

Social Concertation

Corporatism becomes weakened, but a new type of coordination arose: The making of social pacts through social concertation (Baccaro and Samoni.

Political parties play a role in social concertation, and political exchanges cover a wide range of social policies in addition to income policy.

The inclusion of social policies in political exchange links functional representation to political representation (Christiansen et al. 2011).

20

- LME is not an appropriate alternative for Korean economy

▪ Leading industries have grown based on CME: long

IV. Transition to Welfare CapitalismIssues and Lessons

1-1) Issue 1: State-led Transition to Liberal Market Economy

▪ Leading industries have grown based on CME: longindustry specific skill-formation, stake-unilateral drive by the state towards neoliberalism should be abandoned.

- Industries▪ Dichotomized market economy: regular

conglomerates vs. small businesses.

▪ Idiosyncratic embeddedness between LME and

LME is not an appropriate alternative for Korean economy

Leading industries have grown based on CME: long-term investments,

Capitalism in Korea:Issues and Lessons

led Transition to Liberal Market Economy

Leading industries have grown based on CME: long-term investments, -holder corporate governance. The

unilateral drive by the state towards neoliberalism should be abandoned.

Dichotomized market economy: regular vs. non-regular workers,

Idiosyncratic embeddedness between LME and CME.21

- Weakening of democratic political governance after democratization

▪ Conflicts in the executive(President)-parliamentary relationship.

- Moving towards to a political economy regime of majoritarian model and

1-2) Issue 2: Failure in Institutionalizing a PostState

- Moving towards to a political economy regime of majoritarian model and pluralism (Model I of III.1)?

- The state lost a timing of constructing a CME regime in the aftermath of 1997 financial crisis.

▪ The Tripartite Commission was founded in 1998 but failed to be institutionalized. The state exploited it to transform economy into an Anglo-American type LME.

Weakening of democratic political governance after democratization

parliamentary relationship.

Moving towards to a political economy regime of majoritarian model and

2: Failure in Institutionalizing a Post-Development

Moving towards to a political economy regime of majoritarian model and

The state lost a timing of constructing a CME regime in the aftermath of

The Tripartite Commission was founded in 1998 but failed to be institutionalized. The state exploited it to transform the state-led market

American type LME.22

- Reinforcement of Party Politics

▪ The private organizations of presidential election campaign have been damaging political parties in terms of organizations as well as politics

(Samuels and Shugart 2010).

2. Lessons from Small Western European States

- Divided Government and Democratic Political Governance

▪ The divided government and minority government share similarities (Laver 1999).

▪ Formation of diverse committees to mange the conflicts between government and the parliament, and between government party and parties in opposition.

▪ Publicly announced coalition agreements

The private organizations of presidential election campaign have been damaging political parties in terms of organizations as well as politics

2. Lessons from Small Western European States

Divided Government and Democratic Political Governance

The divided government and minority government share similarities (Laver

to mange the conflicts between government and the parliament, and between government party and parties in opposition.

coalition agreements in the formation of government.23

- Policy Regime for “Shared Growth” or the Virtuous Circle

▪ Income policy in combination with a balanced social policy of ALMP and

PLMP.

- An Appropriate Political Economy Regime for Korea (Model II, see III.1)- An Appropriate Political Economy Regime for Korea (Model II, see III.1)

▪ Combination of consensus model and pluralism (or weak corporatism)

sustained by strong democratic political governance

▪ Policy Instrument: Social concertation coordinated by party government.

Policy Regime for “Shared Growth” or the Virtuous Circle

Income policy in combination with a balanced social policy of ALMP and

An Appropriate Political Economy Regime for Korea (Model II, see III.1)An Appropriate Political Economy Regime for Korea (Model II, see III.1)

Combination of consensus model and pluralism (or weak corporatism)

strong democratic political governance.

Policy Instrument: Social concertation coordinated by party government.

24

V. Thank YouV. Thank You

25

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