Modes of Social Policy in the Developing World

Abstract

Governments can engage in budgetary social policy by supporting income maintenance through social insurance and assistance programs or by providing social infrastructures and services such as public housing, education, and health services. This study examines conditions under which developing country governments prioritize one mode over the other. I argue that a developing country government newly embarking on a path to welfare state would seek to fill in the welfare gap by prioritizing the mode that the private sector is less incentivized for or less capable of engaging in. Doing so helps the government to maximize the marginal political returns and tap the efficiency gains from social spending. I then argue that the preferred mode of private welfare enhancement in a developing country depends on the prevailing production and employment perspectives, which is shaped largely by the type of financing the private sector can access. Thus, financial structure ultimately explains mode of governmental social policy. I illustrate my theory with the distinctive trajectories of social policy development in South Korea and Singapore. I test the theory's generalizability through an analysis of 66 low and middle income countries over a time period between 1974-2006.