The Trouble with Europe, the Future of Korea?

Rachel Donadio

Photo by Jacqueline Mia Foster
New York Times

Well . . . the trouble with Italy, anyway (and Korea's future?). Rachel Donadio, in "Stuck in Recession, Italy Takes on Labor Laws That Divide the Generations" (NYT, March 19, 2012), describes a problem that plagues Italy (and likely other European countries), a welfare state that advantages the old, disadvantages the young, stifles the economy, and is no longer paying for itself:

[A] generational divide . . . is crippling the Italian labor market. While older workers came of age with guaranteed jobs and ironclad contracts granting generous pensions and full benefits, younger Italians . . . are now paying the price. They are lucky to find temporary work, which offers few benefits or stability . . . . [U]nions, business groups and countless governments have invested in the status quo to protect their constituents, at the expense of economic growth. Without . . . changes, . . . Italy is headed toward an economic and social implosion, with a rise in under-the-table work and a looming pension crunch . . . . Italy's employment rate and productivity have been stunted by high labor costs . . . [. L]owering the cost of firing workers and increasing protections for shorter-term contracts would encourage companies to hire, stimulating growth . . . . "We have to get away from a dual labor market where some are overly protected, while others totally lack protection and benefits when unemployed," the prime minister [Mario Monti] said shortly after taking office . . . . [adding] that "equity and growth" would be the watchwords . . . and that he aimed to increase employment . . . . The most delicate topic . . . is the infamous Article 18 of the Italian labor statute of the 1970s . . . . It states that workers cannot be fired without just cause and, if fired, can sue their companies to be reinstated . . . [and] generally win . . . . While such cases are pending in the . . . slow legal system, companies . . . [must] keep fired workers on the payroll . . . at the expense of a company's solvency.

Italy -- and Europe -- has to solve this very pressing problem, and the solution will mean fewer benefits for those whom the welfare state has long protected. The irony for me is that just as Europe's welfare system is falling apart in some countries, South Korea's government is beginning to move toward a welfare system without seeming to give this enormous change much thought. For instance, Seoul's current Leftist mayor, Park Won-soon (of the Democratic United Party), pushed for free meals provided to all elementary school students in Seoul -- all of them! -- because the mayor and others on the Left didn't want only impoverished students to receive free meals, for that would 'shame' them in the eyes of their peers. One sees where this sort of 'thinking' would logically lead: welfare for everybody so that nobody is ashamed to be on the dole! The Korean Left's ideological sentimentality overrides reason.

And Korea's government spending is already increasing so precipitously that Lee Eun-joo, in "Piling debt could haunt economic growth" (JoongAng Daily, March 20, 2012), notes the money spent on public works, public housing, and the like, and adds up the cost:

According to data compiled by the Ministry of Strategy and Finance and the Bank of Korea, Korea's public sector's debt, including debt held by central and provisional governments as well as state-run companies, reached 789.4 trillion won ($703 billion) as of the end of the third quarter last year, up 9.2 percent from the previous year. This is double the government's budget of 325.4 trillion won for 2012.

In the same issue of the JoongAng Daily, Yu Jung-jae editorializes about "The real consequences of welfare," noting that both Left and Right share blame for thoughtless welfare policies. Why would the Korean Right join in? Yu reminds us that much social welfare legislation began in Germany under the right-wing Bismarck as a means of exerting control over society since a state that offered pensions held more power over its citizens. That perhaps was true of a Prussian-inspired authoritarian state like Germany's in the late 19th century, but in a democratic state, the political parties support social welfare because it's popular and gets politicians votes, and that dynamic goes on year after year until the entire system begins to implode, as in Greece or Italy, as well as other European countries.

The good news is that some Koreans see the looming problems, and I hope that their more sensible warnings receive a hearing. Korea has a strong economy and a population with a work ethic. I'd hate to see that ruined by thoughtless welfare policies that only serve to land Korea in European-style problems.

Not that I would oppose a reasonable social welfare program for those in need, but the definition of 'neediness' seems rather elastic . . .