Demography of Welfare in Asia

Asia's population is growing, and growing older, and growing less poor. Economic development in much (albeit not all) of Asia has led several countries to step up the expansion of social welfare programs, including both national health care programs, and old-age pensions. This week's cover story in the Economist takes on this issue, noting that in the early days of economic growth, very little attention was paid to social welfare in Asia.

Thus Asia’s tigers kept social spending low as a percentage of GDP while their economies grew at unprecedented rates. This rapid economic progress was combined with big social advances in literacy and life expectancy. But the model fell foul of two closely linked disruptions and one implacable trend.

The trend was a steep decline in fertility. The average South Korean woman can now expect to give birth to only 1.39 children in her lifetime; in Singapore, the figure is 1.37; in Hong Kong, only 1.14. This welfare model assumed that Asia’s tightly knit families would take care of the social responsibilities its governments refused to shoulder. But asked to tutor their children, care for their parents and supplement their husband’s income, women have rebelled. The Singaporean women interviewed by Shirley Hsiao-Li Sun, a sociologist at Nanyang Technological University in Singapore, “want more direct and universal state subsidies, especially for education and health care,” she writes.

The disruptions were the interruption of miracle growth and the erosion of authoritarian rule. The Asian financial crisis of 1997-98 resulted in a spike in lay-offs among industrial workers, and governments found it impossible to leave the jobless masses to their fate. Before 1998, none of Taiwan’s unemployed got state benefits. By 2001, all of them did. In South Korea President Kim Dae-jung pushed through a controversial 1999 act guaranteeing a minimum income to the poor, even if they could work. That minimum is now about 97% of America’s poverty guideline, measured at purchasing-power parity, in a country with only about 67% of America’s GDP per head.

The biggest hurdle to success of these schemes is, however, demography. The European pension and health care schemes that are the current day models were instituted in populations that had higher fertility, higher mortality, and thus younger age structures. Social welfare is simply more expensive in a population that has a lot of older people who need both pensions and health care, while at the same time having an increasingly small fraction of people who are of working age and thus contributing, either directly or indirectly, to the payment of those programs. It is not clear yet what the arithmetic of these plans really is, and thus if they have any chance of success.