There is an unusual political battle going on in South Korea right now, over, believe it or not, school lunches. The Seoul city council voted to implement a large-scale program to feed every primary and middle school student in the capital – all 850,000 of them – a free lunch every day, at a cost to the government of nearly $380 million a year. However, Seoul’s mayor, Oh Se Hoon, opposed the program and countered with a more modest proposal to expand the current school lunch program to include more needy students, at a cost of $280 million annually. This issue of school lunches was extremely controversial in Korea and sparked a national debate. The dispute, at its heart, was over how the Korean government should spend its money, and how extensive state welfare policies ought to become. Should Korea have a big government, or a small one? Should Korea adopt the sort of taxpayer-funded welfare systems so prevalent in the West? The conservative Oh thought the answer was no. The council’s feed-everyone-for-free idea, he believed, ran counter to the spirit of the national economy. Here’s what he said, according to The Wall Street Journal:
Giving free meals to all students can’t be consistent with the Seoul city government’s welfare policy, which aims at citizens’ independence and self-reliance.
In the end, though, Seoul’s citizens decided in favor of the big lunch bonanza. In a referendum on Wednesday, so few residents showed up to vote on the contending proposals that it failed to block the city council’s plan. Oh has said he will step down over the matter.
Why, you ask, am I writing about school lunches in Seoul? Because the case says something about the future of state welfare systems in the global economy. As governments in the West, burdened by debt and deficits, look to scale their programs back, policymakers in the emerging world are under pressure to implement similar policies in their own economies. That has sparked a debate across Asia over what role the state should play in the economy, and whether governments in the region will end up facing the same financial difficulties as those in the West. As the welfare state comes under strain in the U.S. and Europe, it is finding new life in the emerging world.
That’s quite a major reversal of economic policy. The role of the state in Asia, especially in East Asia, has traditionally been quite different than in the West. Bureaucrats interfered in markets to a greater degree, to support individual industries or companies, while, in many cases, authoritarian states placed heavy controls on people’s political freedoms. But at the same time, they tended to ran conservative fiscal accounts and avoid the sort of welfare programs prevalent in the West. Policymakers saw issues such as caring for children or the elderly as the responsibility of the family, not the state, and they focused their resources on investments in education and infrastructure. The result is that many countries (leaving out Japan) have quite healthy government finances. South Korea has a government debt to GDP ratio of only 34%, compared to almost 94% for the U.S. (Korea, in other words, can afford its school lunches.) Some economists have pointed to this allocation of government resources as one of the factors behind Asia’s economic miracle.
However, that rather conservative policy framework is coming under strain as Asian societies change with their growing wealth. As families become more nuclear and birthrates drop, for example, they are no longer willing or able to care for grandparents in the same way as before. In China, that situation has been exacerbated by its one-child policy. Widening income gaps are putting pressure on governments to help the needy. And in general, as the middle class expands, they expect to enjoy a higher quality of life, which means better government services – improved health care, sanitation and education and a cleaner environment. (And apparently, free school lunches.) In other words, there are factors pushing Asia towards recreating the welfare states of the West.
Look at what is going on in China. In order to balance its sources of growth, away from its invest-and-export model, the government needs to encourage greater domestic private consumption. But the problem is that Chinese consumers, even as they become wealthier, are actually saving a greater percentage of their income. That’s because the introduction of a market economy in China has increased their uncertainty about the future – will they have enough money to retire, or pay doctors’ bills? To counter this trend, the Chinese government is building a massive social safety net. Policymakers are expanding the healthcare system to cover nearly the entire population, and implementing a national pension system. So on a certain level, the introduction of welfare state policies in Asia is an economic necessity.
But that doesn’t mean they are not controversial. Welfare policies are sparking the same sort of ideological wars being waged in the U.S. right now over the proper role of government in the economy. In Hong Kong, for example, the cash-rich government, facing criticism that it isn’t doing enough to help the city’s underclass, decided to hand out about $770 to every adult resident. But the plan was attacked by many Hong Kongers as a waste of resources, as one student passionately pointed out in a local newspaper:
Instead of announcing a mass distribution of cash to try to silence the mounting complaints on inflation, could the government not have done something more sustainable with the HK$36 billion ($4.6 billion) that is going into the handouts? Really, if surplus money is to be simply distributed back to the public without any thought going into it, we might as well make do with an old calculator instead of a financial secretary.
The school lunch debate in Seoul has led South Koreans to ask the same questions. Folks in Asia are clearly aware of the potential risks of adopting the welfare policies of the West in their own societies today. Here’s what Moon Chang Keuk, a columnist for the Joong-ang Daily, a Korean newspaper, had to say about the lunch program:
The result (of the school lunch referendum) is directly related to the future of Korea. Today, the United States and many European countries are struggling with their economies. One of the main problems is oversized national debts due to unplanned financial spending. Politicians liberally used money to please the voters…This is not an issue of “Let’s have children eat free.” Rather, it will be the beginning of the break in the levee. Mayor Oh Se-hoon is trying to put a finger in the dike, all alone, just like the Dutch boy who saved Holland…Free meals for our children are all about our greater philosophy. We have a sense of responsibility to take care of our children. Should we transfer the bulging debt to the next generation just to pursue a little more comfort now? We shouldn’t be locked in the palace of the present and fail to look over the wall into the future.
How these debates play out will have an important role in determining the economic future of Asia and other emerging regions of the world. Do they copy the West’s welfare policies, and inherit the same problems in the future? Will policymakers be smarter with their money, helping those in need without taking on a financial burden they can’t afford down the road? Will they choose to support welfare policies but fund them appropriately, or cut spending from elsewhere? The politicians of the emerging world have ample examples to learn from in the experiences of the West. Let’s see if they make the same mistakes.