Financial structures, firms, and the welfare states in South Korea and Singapore

South Korea and Singapore display distinctive patterns of social provision. The Singaporean welfare state has served as the primary provider of social infrastructure and services, whereas the South Korean welfare state has developed its primary role in supporting income maintenance. These differences are not well accounted for in the existing literature, which focuses on similarities between the two regimes. This paper shows that deep institutional legacies in the two countries' respective financial structures powerfully shaped their unique social policy instruments. In South Korea, where financial openness was low and firms relied on relationship-based financing, the corresponding long-term perspectives on production and employment encouraged the private provision of welfare-related infrastructure and services. In Singapore, where firms have relied heavily on arm's length financing, the corresponding flexible investment and employment perspectives encouraged the utilization of private income maintenance arrangements. Each country's government prioritized the mode of social provision that the firms were less willing to engage in. These findings suggest that financial liberalization may be an important determinant of welfare regimes in developing countries.