The Last Word: Social Policy and Economic Development: Lessons from East Asia

With the continued economic crises in the developing countries during the last couple of decades, even the World Bank and the International Monetary Fund have come to pay attention to social policy. The Bank and the Fund, which traditionally decried the scourge of “premature” social policy in developing countries, have now come to acknowledge the need for a “social safety net”.

In some of its recent work, UNRISD has advanced an important position: that social policy should not be treated merely as an afterthought, as implied by the safety net approach, but instead that social policy must be an essential ingredient in any developmental strategy. This article corroborates this point with examples from East Asia.

East Asia has traditionally been regarded as a “social policy-free” zone. Those on the right have often brandished the East Asian experience as proof that countries should concentrate on “economic policy” and forget “social policy”. Some on the left have argued that, if the East Asian countries did not have many social policies, it was only because they had few social conflicts thanks to historical factors like egalitarian income distribution, ethnic homogeneity, or even an inherently less conflict-oriented “Asian” culture. Both views are highly problematic.

To begin with, it is simply not true that the East Asian countries are inherently low-conflict societies. Social peace in East Asia is, in fact, a relatively recent achievement. Readers should recall the communist revolution in China, the Viet Nam War and the Korean War. Furthermore, in the 1950s and the early 1960s, Japan lost more working days per worker in industrial strikes than did the United Kingdom or France. Indonesia’s 1966 military coup was one of the bloodiest in the twentieth century. Malaysia, Singapore, Thailand and the Philippines have seen armed communist insurgencies. There was a race riot in China (Taiwan Province) in 1947, and one in Malaysia in 1969. Hong Kong was the site of housing riots in the late 1960s. The examples could continue, but the point is that the East Asian countries are not naturally low-conflict societies.

It was only because of a range of “social policies” (combined with political repression in some cases, it is true) that the Asian countries managed to achieve social peace, although the recent events in Indonesia illustrate how fragile these achievements can be. The social policies included, depending on the country: land reform; protective measures for workers (coverage for industrial accidents, legal priority for wage claims over other claims in case of enterprise bankruptcy); public housing (especially in Hong Kong and Singapore); ethnic-based redistribution (in Malaysia); restrictions on luxury consumption (especially in Japan, the Republic of Korea and China (Taiwan Province)); and government-administered rural micro-credit programmes (in Indonesia).

However, what is more interesting about the East Asian experience is the extent to which social policy has been implicit. In countries like Japan and the Republic of Korea, the corporate welfare system (while clearly inferior to a citizenship-based welfare system) played an important role in promoting industrial peace in large firms. Another important example is the protection of small farmers (through trade protection and/or restrictions on farmland ownership) and of small shop-owners (through the Large Store Law in Japan, and through urban planning in the Republic of Korea), who were neither qualified enough to get a job in the modern manufacturing sector, nor entitled to social protection measures due to the poorly developed welfare state.

More recently, many of the above-mentioned explicit and implicit social policy measures have come under strain due to changing national and international circumstances. Some measures, such as the protection of small retailers, are regarded as covert forms of protectionism and deemed unacceptable in the new era of globalization. Other measures—such as corporate welfare, labour protection, and an ownership ceiling for farmland—are regarded as inimical to the international competitiveness of these economies. And still others, such as ethnic-based job and ownership quotas (as in Malaysia), are criticized—both within the country and outside—for being inefficient and unfair.

Most of these criticisms have a point, but they tend to miss the bigger picture. What the East Asian countries have been “buying” with these sometimes (but not always) inefficient—and sometimes unfair—social policy measures are social cohesion and peace, which have been the foundation of their prosperity. It may be possible to increase the “efficiency” of the East Asian economies by abolishing some of these measures, but in the longer run, such moves would likely increase social tensions and political unrest, and may ultimately damage their prosperity.

This is, of course, not to deny the need for carefully thought-out reforms that can improve the cost effectiveness and the fairness of social provisioning in East Asia. In fact, there is still a long way to go before these countries can claim to have established genuinely inclusive and cohesive societies. We should not lose sight of the bigger picture: the apparent peace and harmony in many East Asian countries is fragile, and social cohesion and political peace in these countries had sometimes to be bought at a considerable cost.

Ha-Joon Chang is the Assistant Director of Development Studies, Faculty of Economics and Politics, University of Cambridge.