The 1999 pension reform and a new social contract in South Korea

This study challenges the economic explanation of pension reform, by comparing the contrasting pension reform processes of the Kim Young Sam and the Kim Dae Jung governments in Korea. The economic logic school argues that the recent wave of pension reforms has stemmed from economic globalization in which economic factors, such as domestic savings and financial burdens, have determined whether or not a country has opted to reform its public PAYG system. Contrastingly, this study highlights the underlying coalitional dynamics, which generate different strategies to manage the terms of globalization and the way to tackle the pension reform agenda.;Despite the drastic economic liberalization and the World Bank's direct involvement in the pension reform process, the Kim Dae Jung government dropped the neoliberal pension reform plan of the Kim Young Sam government and vigorously expanded the 'traditional˚' pension system to cover urban informal sectors. This study traces the abrupt change in the reform strategy to the demise of the conservative developmentalist coalition and to the rise of a new ruling coalition after the economic crisis and power shift to the center-left opposition party in 1997. Labor and civic movement groups joined the new ruling circle and constituted the core of the new social policy network. The new ruling coalition sought to complement the external strategy of economic liberalization with an internal strategy of compensation. This led to a new social contract in which the state assumed an extensive responsibility for its citizens' well-being in the form of strong social safety nets.;The theoretical implications of this study are threefold. First, the impact of globalization on social welfare is filtered out through domestic political dynamics. Compensatory responses to globalization, which were manifested in many small European open economies, are still feasible. Second, the influence of the international financial institutions is relatively weak in the social policy area. The nation state retains a considerable level of policy autonomy. Third, the negative impact of globalization on labor power can be offset by democratization and growth of civil society. This signifies the continuing relevance of the power resources model in the welfare state theory.