China can avoid welfare pitfalls

By Geoffrey Murray
0 Comment(s)Print E-mail, March 7, 2012
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 [By Jiao Haiyang/]

 [By Jiao Haiyang/]

China is absolutely right to focus on reforming its medical and health care system, and speeding up the building of a full-coverage social security system in order to ensure the wellbeing of all its citizens.

By starting this huge task late, China can benefit from the bad experiences of others, such as the United States and the states of the European Union, who are now struggling as a result of decades of well meaning but potentially financially ruinous State welfare spending.

The government's thinking was laid out when President Hu Jintao participated in a panel discussion with health and social welfare experts during the annual session of the Chinese People's Political Consultative Conference (CPPCC) which began on March 3.

As always, the key question is this: Who will pay for better medical care, better retirement pension schemes and other vital aspects that go towards creating an efficient and equitable social welfare system? According to President Hu, the government should certainly play a leading role in solving "the most pressing problems". However, the "whole society" must also take responsibility for sharing the burden.

The Labour Government that took power in Britain in 1945 was filled with idealism to create a better life for all citizens. From this idealism there emerged a whole range of social welfare programs, headed by the National Health Service, which essentially provides "free" medical care (although partially funded by deductions from workers' pay packets). "National Insurance" deductions were also instituted to guarantee a State pension for retirees.

I grew up under that system, and most people took it for granted. It was our unquestioned "right".

Nobody in those rosy early days imagined that the system would eventually come close to bankruptcy. Anyone using the NHS these days can face long waits for a doctor's appointment and maybe several years for surgery; those who can afford it take out their own medical insurance and use private hospitals. Meanwhile, the growth in the number of retirees has imposed impossible strains on the State pension scheme, forcing an extension of age eligibility and predictions that today's young workers might have to wait until they are 75 before they can receive their State entitlement.

China, Europe and the United States all face the same problem: An ageing society that requires more spending on health care and other programs in order to ensure that the quality of life of seniors does not deteriorate alarmingly.

The combination of welfare entitlements and ageing is imposing an alarming debt burden on many countries that face a bleak fiscal future unless they make some painful adjustments. This has been clearly shown in the ongoing eurocrisis.

Back in 2010, a Bank for International Settlement (BIS) study indicated that government debt in most industrialized nations would soar to more than 200 percent of GDP within the next few decades. Most experts believe a debt level of 90 percent of GDP is the point at which alarm bells start ringing.

Well, somehow, nobody heard the bells. This is especially true of Greece, whose collapse was fuelled by a government which sought public support through generous social welfare programs it couldn't support without heavy borrowing from foolish banks which should have known better. Now that everyone has awoken to the reality, there is public outrage in the face of draconian austerity programs that hit the individual pocket – a bit like a drug addict facing withdrawal symptoms.

Europe, where the tradition of the welfare state started much earlier, is obviously further down the track to disaster than, say, the United States, which, according to calculations by the Congressional Budget Office, has 10 or 20 years to sort things out before disaster strikes (when the so-called "baby-boom" generation retires). But, reform of the health care system – the Medicaid program – to widen coverage has long been a political football in Congress.

So, what lessons are there for China?

It has reached the point in development where social security is assuming a crucial role if high economic growth is to be maintained. This brings great challenges in terms of equalizing income distribution, alleviating poverty and maintaining social stability. China is starting from further back than the EU and the US, but can perhaps learn from their mistakes.

For historical reasons, the core of the State protection system for decades benefitted a minority of urban workers. What is needed now is a system that covers all. Getting it right will not be easy, given the large differences between urban and rural areas in terms of income level, employment structure, fiscal capability of local governments and provision of social services – especially for rural migrant workers facing an unstable job market, low incomes and the need for mobility in search of work.

Government spending in China needs to target those in greatest need; those Chinese able to take care of their own welfare needs should be encouraged to do so, as well as helping the less fortunate.

The author is a columnist with For more information please visit:

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