Legacy of Developmental State: Globalization, Income Polarization and Welfare Spending in Korea

South Korea had had low welfare spending even though it achieved high economic growth. Korean welfare spending is 10.5% of GDP when OECD average welfare spending is 23.7% (as of 2014). Welfare expenditure growth, however, is remarkable recently; average growth was 13.1% comparing to OECD average 5% for the last ten years. This contradictory statistics reflect Korea’s late coming to welfare state even with fast economic growth last 40 years. Many questions are raised regarding Korean experience of welfare spending; why was Korea so late for becoming welfare state? What are the characteristics of the current spending? Is current growth sustainable in the future? The heated debate is on going regarding how much it be expanded and how to pay for the expenditure increasing exponentially. This paper argues that Korean welfare state has close relationship with the development of capitalism in the region. For example, as many research show, later growth of welfare system is commonly attributed to the legacy of the past developmental state, so called ‘productivist welfare state’ that concentrated all available resource on the economic growth was born. This legacy is still lingering; therefore, when we deal with the issue how Korea find enough budget to pay for the fast expanding welfare expenditure to satisfy fast growing needs from all party of the society, we have to understand this matter in the context of Korean capitalism. Globalization changed employment structure resulting in many troubles including high unemployment, especially among young generation, unstable employment and income polarity. Aging population without any safety net is another challenging tasks. To make the matter worse is that is those who demand expanded welfare state are reluctant to tax increase. We argue that the reluctance is the propensity of the developmental state. With understanding on the current contradictory situation on welfare spending, we will present how we build viable new welfare state that provide the protection on the needy people while conforming to the sustainable capitalism in Korea that assures economic growth for the growing expenditure for the program.