Globalisation and the Challenges of Social Policy in Asia’s Developed Open Economies

ETHOS Issue 03, Oct 2007

Globalisation is transforming developed open economies such as Singapore and Hong Kong in East Asia; their growth rates have declined and unemployment has increased as their economies have become more mature. At a time when public welfare appears to be losing its growth engine for raising additional resources, traditional family-based welfare is being threatened by socio-demographic changes and shifts in values between generations. Furthermore, while globalisation tends to reinforce the market orientation and anti-welfarist stance of the social-economic establishment, the outcomes of a global economy are often unwelcoming to the vulnerable classes who may find themselves relatively worse off at the end of the trickle-down process.

For instance, in Hong Kong, the pre-tax and pre-social transfer Gini ratio in 2006 rose to a new high of 0.533.¹ In Hong Kong’s case, it is not uncommon for market incomes of the lowest class to be lower than the benefit payments of social assistance recipients. However, this is not so much to do with a welfare dependency culture, but with the fact that those at the lower end of the labour market are in a weaker position to compete for a decent wage.

For economically mature, affluent societies such as Singapore and Hong Kong, there are two challenging policy issues. First is the dilemma of assisting the working poor while avoiding the criticism of engendering welfare dependency. The second is the need to expand upward mobility for the poor and lower class, especially for succeeding generations.

One approach is to link social assistance to employment. Considering that the eligibility criteria for public welfare in East Asian societies are already stringent, the challenge is to ensure that it does not impose unnecessary hardship or invite hostility towards the system.

Active labour market policies (for example, training, retraining, and re-employment support) and universal education are the usual policy tools to meet the second challenge of promoting income mobility; however, the effectiveness of this approach needs to be assessed in the wider economic context of global downward pressure on market wages, particularly at the lower end of the scale.

There is also a need to take a critical look at whether the existing arrangements in social security and education may in fact put the poor and lower classes in disadvantageous positions. Is the social security system for the unemployed flexible enough to allow easy entry, exit, and re-entry due to an increasingly open economy? In education, are there equal opportunities for children of different socio-economic backgrounds? For instance, Hong Kong has adopted the principle of local admission to primary and secondary schools, but the fact is that the best schools are often located in middle-class neighbourhoods.

AN ASSET-BASED APPROACH

There are, however, other noteworthy policy initiatives that have originated in East Asia and are particularly relevant to the present global context. Singapore has good asset-based policies associated with the Central Provident Fund. The term “asset” can mean financial wealth, tangible property, human capital, social capital, political participation, and influence. Here, I focus on financial and tangible assets in social policy. Property is a personal or family asset; one can fall back on it before seeking state assistance. The different personal savings accounts in Singapore under the Central Provident Fund are also helpful in times of financial uncertainties arising from life events and needs such as medical care. In contrast, asset-based policy tools are a new idea in the West. The Child Trust Fund for newborn babies in the UK under the Tony Blair administration is an example of such an initiative. While income-based policies are more about consumption as well-being, asset-based tools are about building one’s capabilities; it is hence investment-oriented. Social and economic development are thus built into these policy instruments.

Asset-based policies provide dormant but somewhat ready-to-use resources, and can allow greater freedom of choice in life on the part of the holders. These policy approaches are particularly relevant to financial sector-dominated global economies like Singapore and Hong Kong. A financial economy is essentially about how to manage assets (particularly financial assets) well to avoid risks. Needless to say, in a financial economy where base resources, family capacity, and social relations are determinant factors for success, the playing field between the poor and the asset-rich is anything but level. In the new economic context, where the virtues of an industrial economy—hard work and self-reliance—are no longer the most valued factors of success, there is a need for government to rethink its social role.

The interesting thing about asset-based policies in an East Asian society like Singapore is this irony: if assets are simply to be redistributed, it becomes simply another form of welfarism. Of course, the mandatory savings and matching principle such as in Singapore may help to overcome this ideological hurdle, but in general, it is in the long-term interest of a government to narrow not only the income gap but also the asset gap in a globalised economy to a level that is in line with core social values. Nevertheless, it seems worthwhile to critically examine the effects of asset-based policies in comparison with traditional income-based policies in terms of alleviating poverty, reducing social inequalities, and enhancing social harmony.