Asset-Based Welfare Regime

Concept and definition

The asset-based welfare regime refers to the regime of Korean welfare capitalism in which, under suppressed public welfare provision, real estate has functioned as old-age security and a substitute for the welfare state. In A History of Welfare Capitalism in South Korea: Emergence and Change of the Asset-based Welfare (Seoul National University Press, 2018), Kim Do-gyun defines Korean welfare capitalism as asset-based welfare and traces its formation and transformation across three periods, from industrialization in the 1960s to the post-Asian Financial Crisis and into the 2000s, centring on social policy, tax policy and financial policy. The book revises the author's 2013 Seoul National University doctoral dissertation.

Kim writes that "the state not only suppressed welfare expenditure to an extreme degree but had no will to solve the housing problem, and in that situation real estate has operated as ... the last safety net," and that "the one house one owns is a safety net guaranteeing one's later years after retirement." The core of the concept is that asset-based welfare operates as a systemic substitute for public welfare provision.

History

Under the authoritarian system of the industrialization period a globally low income-tax regime formed and welfare spending was extremely suppressed, while household savings were emphasized in place of the welfare state. The state's savings-mobilization strategy combined with heavy-chemical industrialization to set the path of Korean welfare capitalism. The concrete institution of this current was the workers' asset-formation savings scheme, promulgated and implemented by presidential decree in April 1976 as the Workers' Asset-Formation Savings Promotion Scheme, following West Germany's 1961 asset-formation promotion law and Japan's 1965 scheme, and combining savings premiums with tax benefits. Eligibility widened in 1978 and 1979 and narrowed in 1984; as of September 1998 ordinary workers were limited to monthly wages of 600,000 won or less and low-income workers to 200,000 won or less. At end-1996 cumulative accounts numbered 2.62 million (262만 개) with a contract value of 872억 9000만 원, that is 87.29 billion won. In August 1991 the Workplace Labour Welfare Fund Act (Act No. 4391) was enacted, operating from January 1992; financed by employer contributions set by a joint labour-management fund council at roughly 5 per cent of the prior year's pre-tax net profit, it funded workers' housing purchase and rental, employee-share purchases, welfare loans, scholarships and disaster relief, and was operated by 735 workplaces at end-1997.

In the democratization period the possibility of a welfare-state path opened, but the conservatism of the middle class and the enterprise-centred labour movement actually reinforced the income-tax and savings institutions introduced under Yushin. With the two-million housing-unit construction plan a homeowner society unfolded and real estate began in earnest to substitute for the welfare state. Established to secure social stability by resolving the housing problem, the plan provided for two million units from 1988 to 1992 under the Roh Tae-woo government; by end-September 1991, 2.08 million units had been built, the housing supply ratio that had fallen since 1985 reversed upward, and new permanent-rental and workers' housing types were built for low-income groups including the urban poor and workers.

After the 1997 financial crisis, financialization of the economy and flexibilization of the labour market proceeded and welfare expenditure kept rising, yet the existing asset-based welfare norm was not weakened but reproduced across generations: household saving rates fell sharply and household debt rose sharply, while asset-dependent survival strategies stayed unchanged. From the early 2000s the South Korean economy financialized rapidly through the housing market as its primary channel; households across income strata joined the race for short-term capital gains using easy loans, actively encouraged and underpinned directly and indirectly by the state, and apartment pre-sale and deposit-only rental agreements (jeonse) made extremely high-leverage investment and household speculation possible.

Relations and disputes

The regime is bound up with delayed welfare-state development. That link implies that welfare-state strategy is the starting point for resolving the housing problem. Because real estate concerns survival and not merely desire, suppressing speculation alone cannot solve it, and a comprehensive welfare-state strategy addressing housing insecurity and old-age insecurity together is required: this is the author's argument.

The comparison with Western asset-based welfare theory needs correction of emphasis. Asset-based welfare was originally a normative ideal of providing welfare in the form of assets the recipient must tend, of which the individual development account (IDA) proposed by Sherraden in 1991 is the representative case. IDAs are asset-building tools for low-income families matched by public and private funds and targeted at home ownership, post-secondary education and small business, and were adopted in US federal legislation in 1996 and in more than 40 states. According to Benoît and Hay, asset-based welfare originated in Anglophone economies such as the US, UK and Australia; as a clearly articulated, conscious and substantive public policy stance it was used publicly by Tony Blair's New Labour from around 2000, and was tied to an Anglo-liberal growth model resting on private debt backed by rising property values. Property-based asset-based welfare is thus not unique to Korea; the Korean specificity lies in its developmental-state savings-mobilization origin and its institutional path of tax and savings policy.

Asset-based welfare is also analytically distinct from welfare-state provision. In Benoît and Hay's formulation it is "a potential complement to (if not necessarily a substitute for) benefits-, or transfer-based social security schemes." Kim's Korean regime, by contrast, is characterized as a systemic substitute effected through real estate, so asset-based welfare and welfare-state retrenchment must not be equated. Asset-based welfare has appeared across liberal, conservative and social-democratic welfare regimes as a common response to similarly interpreted demographic and fiscal pressures rather than simple UK policy transfer; in the UK it is parasitic on the very growth the growth regime is meant to produce, it may prove more viable in export-oriented consumption-repressing regimes, and its regressive logic rewards the asset-rich while penalizing the asset-poor. This positions the Korean case comparatively.

As a point of dispute, "real estate hostage society" is the author's own coinage: "in this respect Korean society may well be called a real estate hostage society." It is a diagnostic characterization and should not be treated as a synonym shared by other scholars. "Asset-based livelihood-security system" derives from the title of the 2013 doctoral dissertation, and "homeowner society" is an author-derived term tied to the two-million-unit construction period. Jeonse, a deposit-only rental financial mechanism, is distinct from asset-based welfare itself.

Examples

For the alternative of the "People's Home," the author cites Sweden, where the man called the father of the Swedish welfare state, Per Albin Hansson, called the welfare state the People's Home, a family concept extended to all citizens, and the Swedish Social Democrats achieved long rule after adopting that idea. Kim contrasts this with Korea, where each household still struggles alone to buy its own home. This is the author's normative frame and should be attributed to him.

As an assessment, Lee Byung-chun's review says no prior Korean study has probed the political economy of asset-based welfare this deeply, calling the book a rare creative masterwork. The book revises the author's 2013 SNU doctoral dissertation on the formation and transformation of Korea's asset-based livelihood-security system centred on the developmental state's savings mobilization and tax politics.