Social Security and Economic Development: Lessons from Other Countries and Emergence of a Modern Social Security System in China-An Introduction

By Feng, Yi | International Journal of Economic Development, October 1999 | Go to article overview
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Social Security and Economic Development: Lessons from Other Countries and Emergence of a Modern Social Security System in China-An Introduction


Feng, Yi, International Journal of Economic Development


Abstract

This symposium focuses on the social security and welfare system in China. The essays in this collective research study various aspects of the change and reform of China's social security as a result of economic transformation in the nation. The authors cover a wide spectrum of issues, such as the social and political rationale of social security reform in China, the Western experience and lessons for China, pension and unemployment insurance, old age family insurance, labor migration and social security, and urban health care. These studies intend to help understand the process and problem in China's social security reform as well as revealing policy implications.

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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, China's economic reform has been quite successful until this moment. Currently, the problems within the social security system have become a focal point in the reform, particularly when unemployment and bankruptcies are on the rise. The reform in the next phase may encounter political and economic challenges that the country has not known yet. The establishment of a sound social security system is critical for the ultimate success of China's economic reform. Without such a system, as discussed in this volume, the fruits of reforms would be foreclosed and the transition toward an efficient market would be aborted in the presence of political and economic instability.

In this collection, Yi Feng, Ismene Gizelis, and Jielie Li deal with the political, economic and social rationale of welfare and social security. 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 compatible under a growth-oriented government, but not quite so under a government that focuses on its short-term survival strategies. A welfare system becomes efficient if the short-term political goals do not undermine the long-run goals of economic development. The cases of China and Malaysia are further compared and analyzed in this theoretical framework.

George S-F Chu, Shunfeng Song and Dasong Deng examine the Chinese social protection system within a broader framework. They review valuable U.S. experience and discuss policy implications relevant to the current reform in China. From the U.S. experience, ten suggestions are proposed on how to establish a social protection system with Chinese characteristics. Specially, they suggest the following. China should reform the social protection system gradually, broaden and improve social assistance and welfare programs, and encourage the development of private 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 to establish an income record system, a poverty-line system, and a social protection trust fund commission. Finally, China must unify the management and administration of social protection programs.

Wei Yu examines problems in financing pension and unemployment insurance under China's economic transition. Before the economic reform, the state government provided many social programs that were financed through an economic plan. Contributions to these social programs were implicitly transferred to the State through the profit of state-owned-enterprises (SOEs). The economic reform shifts financial responsibility of these programs from the government to enterprises.

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