Despite common beliefs regarding the damaging side effects of income redistribution, equity and efficiency can coexist. 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 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.
It has become apparent in recent years that fast-track economic reform in China has generated an immediate urgency to create a safety-valve mechanism to cope with public stress or frustration resulting from massive unemployment, rapidly aging population, and widening gap between the rich and poor in social stratification. The attempts made to establish a social security system aim at ensuring social order and stability in China.
China is now in such a critical transition that the social organizational structure upon which the traditional social protection system has been based is falling apart, whereas a new social organizational structure has yet to take place to meet the needs for a new social security system. As Dreze and Sen (1991) point out, the Chinese government's success during the pre-reform period in enhancing the quality of life was associated with inefficiencies and constraints in the economy and "a sever neglect of the market." In the reform period, "there is evidence that there has been some set-back in the sharp decline of mortality rates and related features of the quality of life ... and that this may be connected with some withdrawal from public provisioning" (Dreze and Sen, 1991: p. 30). As the market plays an increasingly important role at the cost of central control and as traditional social protection breaks down, a new integrative mechanism is required for continued success of its economic reform.
Socio-economic theories consider the welfare state a response to both industrialization and democratization (Wilensky, 1975; Flora, 1981; Pierson, 1991). Both processes alter fundamental social structures and create the necessity for a mechanism to integrate the society. The primary role of the welfare state is to build the necessary social cohesion for sustained economic development. To secure the participation of all socioeconomic classes in the productive process, the government needs to integrate the population. To that extent, the two functions of the welfare state--resource redistribution and social cohesion--are complimentary rather than antithetical.
Before we explore China's efforts to establish a modern welfare state, we should understand why and how welfare programs intervene in the redistribution of resources and whether they can result in desired policy outcomes. In that regard, this paper deals with a broader issue than other papers in this collection. What we are concerned about are not only social security policies but also various kinds of welfare transfer. The second section of this essay discusses the political and social rationale for social security and welfare systems. The third section examines the consequences of wealth redistribution on economic growth. The fourth section analyses the difference between welfare programs that have short-run political consequences and those that have long-run effects on economic growth. The fifth section summarizes the Malaysian experience with social welfare reforms and their implications for China. The sixth section focuses on the emergence of a new social security and welfare system in China. …