Chapter Six Democracy, Growth and the Evolution of Social Contracts in East Asia, 1980-2005 The turn to democratic rule in the middle-income countries of Asia began in the Philippines with the “people power” uprising against the Marcos dictatorship in early 1986; Figure 6.1, using standard Polity scores, tracks the subsequent process of political change in the region. In Korea, the presidential elections of 1987 are typically considered the transition point, although an opposition candidate did not ascend to the office until 1993. Two other transitions occurred more gradually. In Thailand, the military slowly yielded its veto power over elected politicians during the 1980s before a brief military interlude in 1991-92. Since 1992, however, the country has been continually democratic. In Taiwan, as in Mexico, the ruling KMT gradually exposed itself to political competition at the national level from the mid-1980s. Although the presidency was not held by an opposition politician until 2000, politics in the country was solidly democratic by the early 1990s. As of 2005, only Malaysia and Singapore remained less than fully democratic, although both systems had competitive elements. //Figure 6.1 here//2Figure 6.3: Polity Values for East Asia: 1980-2003-10-8-6-4-20246810121980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002Source: Polity IV Database-10-8-6-4-2024681012Korea, Rep.MalaysiaPhilippinesSingaporeTaiwanThailandThailandSingaporeMalaysiaKorea, Rep.TaiwanPhilippines The politics of social policy in the new democracies of East Asia took place against a very different economic backdrop than in the Latin American and Eastern European cases that we discuss in Chapters Seven and Eight respectively. With the important exception of the Philippines, growth in Korea, Taiwan and Thailand was robust until the Asian financial crisis of 1997-98 (Figure 6.2). As a result, these countries did not initially undergo the fundamental debates about development strategy visible in Latin America and Eastern Europe nor did they undertake the same kinds of wrenching macroeconomic adjustments or market-oriented reforms. Governments did liberalize trade and investment. But the increase in economic openness occurred from an already-high base and was itself partly a product of the region’s continued high growth. Other reforms were gradual in design. //Figure 6.2 here//3Figure 6.2 GDP Growth in East Asia, 1982-2002 (Three-year moving average)-5.00.05.010.015.01980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002-5.00.05.010.015.0KoreaMalaysiaTaiwanThailandSingaporePhilippines Strong growth in the new democracies was associated with favorable fiscal circumstances (Figure 6.3). In Taiwan, budget deficits averaged less than one percent a year from 1980 through 1988, before widening temporarily due to the political processes we will describe. In Korea, the fiscal position of the government remained broadly in balance through the democratic transition until the financial crisis hit in 1997. In Thailand, the 1980s began with fiscal deficits larger than those in the Philippines but major adjustments taken in the early-1980s reversed them and the transition to more democratic politics took place in the context of extraordinarily large fiscal surpluses. //Figure 6.3 here//4Figure 6.3Budget Balance as a Percent of GDP: Korea, Philippines, Taiwan, and Thailand 1980-2002-12-10-8-6-4-202461980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002-12-10-8-6-4-20246KoreaTaiwanThailandPhilippines Strong growth and favorable fiscal circumstances were coupled with a very particular social policy legacy (Chapter Three). Education received substantial attention in most of the cases we consider here, with the partial exception of Thailand as did basic public health measures. However, authoritarian governments generally eschewed redistributive social policies—again, with an exception in Malaysia’s pro-bumiputra policies. They took a relatively minimalist approach to the provision of social insurance, or did so through purely defined-contribution systems, and provided the space for private provision, particularly with respect to health care but in some cases such as Korea with respect to education as well. This combination of economic, fiscal and policy circumstances strengthened the hand of political actors arguing for an expansion of the state’s social policy role, whether by adding beneficiaries to existing programs, increasing spending on them, or through altogether new initiatives that covered new groups and risks. Conversely, strong growth and the absence of fiscal constraints diluted the force of arguments that the public sector, employers and employees could not afford new entitlements and weakened the case for liberalizing social policy reforms. Even when new social insurance programs were revealed to be financially unsustainable over the long-run, or when they ran into immediate financial difficulty, reformers inside and outside the government found it extremely difficult to roll them back. These broad generalizations about the politics of social policy require a number of qualifications. First, it is important to underline that new social policy commitments in the region were not necessarily targeted at the poorest and most vulnerable segments of the population, nor5to those most affected by economic reforms or increasing openness; to the contrary, politicians had incentives to spread benefits widely across the electorate or to target politically consequential constituencies. Second, the course of social policy was affected by a variety of other political factors including the partisan orientation of government and its regional and sectoral bases of support, the strength of labor and NGOs, and institutional features of the new democracies; we review these contending hypotheses in more detail in the case studies and by way of conclusion. But even when these factors operated, they did so in a context in which the combination of democratization, permissive fiscal conditions and a minimalist welfare legacy created strong incentives for a larger state role in social provision. Singapore and Malaysia provide an opportunity to test these propositions by comparing the evolution of social policy in the new democracies with semi-democratic and semi-authoritarian systems. Economic circumstances in these two cases were broadly comparable. Except for a short, sharp downturn in the