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8/6/2019 Social Security and Economic Development- Lessons From Other Countries and Emergence of a Modern Social Secu

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International Journal of Economic Development,

1(4), 1999: pp. 365-368.

SOCIAL S E CUR ITY AND E CONOMIC

DEVELOP MENT: LESSONS F ROM

OTHE R COUNTRIE S AND

EME RGE NCE OF A MODERN SOCIAL

SE CUR ITY SYSTE M IN CH INA AN

INTRODUCTION

Yi Feng, Guest Edit or

School of Politics a nd Economics

Claremont Gra duat e University

A bs t r a c t

Th is sym posium focuses on the social security an d w elfare system in

Chin a. T he essays in this collective research stud y various a spects of th e

chan ge and r eform of Chin as social security as a result of economic

transform ation in th e nation. The aut hors cover a wide spectrum of issues,

such as the social an d political rationale of social security reform in Chin a,

the Western experience and lessons for China , pension an d u nem ploym ent

insu rance, old age fam ily insu rance, labor m igration and social security,and urban health care. Th ese stud ies intend to help un derstand t he process

an d problem in Ch ina s social securi ty reform as w ell as revealin g policy

implications.

This symposium focuses on the needs and implications of social

security and welfare systems in China. The economic transformation in

China during the past two decades has been one of the most important

development experiences in the twentieth century. Since its inception in

1978, Chinas economic reform h as been qu ite successful un til th is moment .

Currently, the problems within the social security system have become a

focal point in the reform, particularly when unemployment and

bankr uptcies ar e on t he rise. The reform in th e next phase ma y encount erpolitical and economic challenges tha t t he coun tr y has n ot known yet. The

esta blishmen t of a sound social secur ity system is crit ical for the u ltima te

success of Chin as economic reform . With out such a syst em, as d iscussed in

this volume, the fruits of reforms would be foreclosed and the transition


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toward an efficient m ar ket would be aborted in th e presence of political an d

economic instability.

In t his collection, Yi Feng, Ism ene Gizelis, and J ielie Li deal with th e

political, economic an d social ra tiona le of welfare a nd social secur ity. They

argue that institutional stability depends on the consensus established

between the government and the population. A relatively egalitarian

distribution of resources is conducive to political stability and economic

development. By contrast, long-term economic development can be

undermined by skewed wealth distribution. Equity and efficiency may be

compat ible un der a growth-oriented governmen t, but not quite so under a

government th at focuses on its sh ort-term sur vival stra tegies. A welfare

system becomes efficient if th e short -ter m political goals do not un dermin e

the long-run goals of economic development. The cases of China and

Malaysia are furth er compared an d ana lyzed in this t heoretical fra mework.

George S-F Chu, Shunfeng Song and Dasong Deng examine the

Chinese social protection system with in a br oader fra mework. They review

valuable U.S. experience and discuss policy implications relevant to the

curr ent r eform in China. From th e U.S. experience, ten suggestions are

proposed on how to establish a social protection system with Chinese

cha ra cter istics. Specially, they su ggest t he following. China should r eform

the social protection system gradually, broaden and improve social

assista nce and welfare program s, and encoura ge the development of privat e

insurance. China should also establish a social protection system with

multiple layers, determine insurance benefits based on basic needs, and

ensure adequate funds for all social protection programs. Furthermore,China needs t o esta blish an in come record syst em, a povert y-line system,

and a social protection trust fund commission. Finally, China must unify

the man agement an d adm inistra tion of social protection program s.

Wei Yu examines problems in fina ncing pension a nd u nemployment

insur an ce un der Chin as economic tran sition. Before th e economic reform,

the sta te government provided many social program s t hat were financed

th rough an economic plan . Cont ribut ions to these social progra ms were

implicitly transferred to the State through the profit of state-owned-

ent erpr ises (SOEs). The economic reform sh ifts fina ncial responsibility of

these programs from th e government to enterprises. Becau se many SOEs

are unable to finance pension and unemployment insurance, middle-agedand retired SOE employees lost t hese program s alth ough they cont ributed

before the economic reform . He demonstra tes t ha t t his hist orical debt is th e

key to solving fina ncing problems in u nemployment insur an ce an d pension.


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Social Security 367

With out wealth redistr ibution t hrough both cent ra l and local government s,

middle-aged and retired SOE employees would become victims of the

economic r eform .

Ling L i an alyzes the old age fam ily insu ra nce and social insur an ce

from an economic an d social developmen t per spective. Her essa y provides a

genera l an alysis of th e tra de-off between th ese two system s. Based upon

th e th eory an d experiences of other count ries old age insu ra nce systems,

she ar gues th at when a na tions avera ge income level is high enough, th e

social benefits of a pr operly designed social insu ra nce program out weigh its

social costs. Ther efore, it is inevitable th at a social insu ra nce will replace

the family insurance, as the economy and society develop. Based on the

th eory a nd experience of Wester n count ries social security s ystems , she

pr ovides a nu mber of policy opt ions for t he on-going social secur ity r eform

in China.

Shuanglin Lin bases his study on the fact that China is in the

process of industrialization with a large portion of labor force migrating

from th e agricultur al sector t o indu str ial ones. An expan sion of th e pay-as-

you-go social securit y system benefits curr ent ur ban retirees, an d m ay solve

th e social secur ity payment problem faced by ma ny sta te ent erprises. Also,

despite facing a declining population growth rate, China may not have a

social security crisis under a pay-as-you-go social security system that

covers th e wage ear ner s only. However, he ar gues tha t th e expan sion of

the pay-as-you-go social security system may have an adverse effect on

capital a ccumu lation in t he long r un, h urt ing th e ru ral old. Meanwhile,

such a pr ocess either benefits or har ms wage earn ers in u rban areas beforethe completion of industrialization, and is likely to reduce wage earners

welfare after industr ialization.

J ing J. Xiao, Shu nfeng S ong and Yinzhou Xu investigat e workers

responses t o the curr ent reform of social secur ity in Chin a. Their findings

based on a survey conducted in June, 1998, among 500 workers in

Gua ngzhou ar e as follows. Firs t, over eight y percent of work ers su pport

th e reform . Second, th ere is a consensu s th at th e responsibility for

providing old-age insu ra nce should be sha red a mong individuals, society,

and t he government . Third, workers pr efer a par tially-funded pension

system to either the pay-as-you-go system or a fully-funded system.

Fourth , most workers do not want th e government to increase th e legalretirement age at th e present time. Fifth , a majority of workers worry

about t heir futur e retiremen t income adequa cy and consider it a potentially

serious social problem. Sixth, work ers perceive th at sta te-owned


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enterprises offer the best pension plans while foreign-owned companies

provide the worst . Finally, th e survey shows tha t m ost workers desire and

would part icipate in a pr ogram t hat would educate t hem a bout investmentalternatives. These findings provide important insights for both Chinese

policy-ma kers an d futu re r esearch in to China s social security r eform.

Gordon G. L iu and h is group tha t includes Renhua Cai, Zhongyun

Zhao, Peter Yuen, Xianjun Xiong, Schumarry Chao, and Boqing Wang

present a pr eliminar y assessment of Chinas ur ban health care r eform

experiment . In reform ing its existing nat iona l hea lth care program s for

urban employees, the Chinese government initiated a new community-

based insurance plan, which was implemented in a pilot experiment in

1994. Data for this study were derived from the first post-experiment

survey. Their ma jor findings suggest t hat the new insuran ce plan h as led to

some significan t chan ges in cost a nd u tilization measu res, as compa red toth e previous h ealth car e progra ms. First , the incidence of seeking any car e

(versus no care) increased by 12 percent among the general population

(user s and n on-user s) un der th e new insu ra nce plan . Second, when looking

int o chan ges in th e composition of differen ce ser vices, their s tu dy identifies

a sh ift from th e likelihood of usin g inpat ient care t o outpa tient car e. Third ,

total health care expenditur es decreased by 8 percent among th e general

population and 18 percent among users. And fourt h, among respective

service-specific users, the utilization rates consistently decreased by 14

percent for out patient visits, 11 percent for inpatient admissions, an d 17

percent for length of st ay (LOS) per a dmission.

The seven essays in this volume deal with the progress, problemsan d pr ospects of China s social securit y system from different an gles. The

findings in th em ar e insightful and form a genera l guideline for the st udy in

the social security system and welfare transfers in the largest developing

economy in th e world. Fur th ermore, th e au th ors discuss policy implicat ions

and provide suggestions that have relevance for the formation of

appropriate policy responses. Finally, the authors raise important

questions that are not answered in this collection but will be, hopefully,

tackled by the scholars wh o read t his symposium.

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