To its current occupant, Seongnam's town hall, a gleaming glass structure, stands as an edifice to wastefulness. It was built for $280 million under a former conservative mayor of Seongnam, a city of 900,000 a little to the southeast of Seoul, South Korea's capital. Upon succeeding him in 2010, Lee Jae-myung, the current liberal mayor, declared a moratorium — a first for the country — on repayments of the 520 billion won in debt that he had inherited. Budget cutbacks and an anticorruption effort have since helped pay down the debt. In 2014, Seongnam was rated South Korea's most financially stable city by its interior ministry.
Yet the central government, led by Park Geun-hye of the conservative Saenuri party, thinks that Lee, in his second mayoral term, is misusing taxpayers' money. Last year Seongnam's local assembly passed a series of social-welfare bills to offer free postnatal care to new mothers; free uniforms to secondary-school pupils; and cash handouts of 500,000 won a year (about $433 at current exchange rates) to all of its 24-year-old residents amid high rates of youth unemployment, which it began to distribute in January in the form of vouchers — all to be doled out regardless of income or employment status.
Organizers in one neighborhood of Seongnam, with 18,000 residents, say that most of its eligible youngsters quickly pitched up for the coupons, with many posting snaps on social media of themselves brandishing their vouchers. Local businesses, from hairdressers to pharmacies, accept the coupons, as do most of the stalls at nearby Joongang market. A seller of rice cakes says that around a half-dozen people pay with them each day.
More South Koreans feel the country is now rich enough to build a more robust social safety net. But anxiety over a widening fiscal deficit and sluggish growth has stalled even timid welfare plans under Park. She has rebuked Lee for not getting her government's say-so on his plan. The central government has since revised rules on subsidies to allow a cut in aid to any municipality that makes unilateral changes to its social-welfare schemes. The health ministry has filed a petition with the Supreme Court to halt Seongnam's plan.
A favorite slogan of Lee's is: "South Korea cannot, but Seongnam can." It helps that the city is an affluent suburb of Seoul, bordering on the capital's glitzy Gangnam district and collecting high property taxes. Most other municipalities rely heavily on central-government subsidies. Taken as a whole municipalities collect just one-fifth of taxes, yet account for around three-fifths of all public spending, says Choe Chang-soo at Cyber Hankuk University in Seoul. The central government makes up the difference.
The national parliamentary election is April 13 and welfare is a live issue. Social spending has more than doubled in the decade since 2005, to 115 trillion won last year (about $100 billion); yet, at 10.4 percent of GDP, it is still the lowest among 28 members of the OECD, a group of mostly rich countries, and half the average. Taxes, too, are among the lowest. The OECD found in 2011 that South Korea's tax-and-benefit system did worst at reducing inequality and poverty.
Lee argues that the government views welfare as consumption, whereas at least some of it should be seen as investment. At 9.2 percent, youth unemployment was at a 15-year high in 2015 (compared with 3.6 percent for South Koreans as a whole). The share of young degree-holders who are not in jobs, education or training is a high 25 percent. It is the first generation of South Koreans, Lee says, to feel less hopeful about the future than their parents did.
Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.