[Outlook]A child-care market

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[Outlook]A child-care market

President-elect Lee Myung-bak included child care in his eight major policy initiatives. This is a welcome move because state support for child care can help in resolving demographic problems caused by low birthrates. A well-designed child care policy can also help to increase the number of women in the work force. As a presidential candidate, Lee presented a child care policy but the vision he offered did not include detailed measures because of the conflicting interests among different groups. He now needs to transform his vision into government policy for the next five years
Most of those involved think of child care as part of welfare policy, maintaining that public services for child care should be strengthened. However, if they insist on this perspective, the policy will be mostly about regulations. Under the Roh Moo-hyun administration, government agencies related to child care have grown bigger while private child care organizations were subject to new regulations.
A child care policy should include a state subsidy for families with low incomes but at the same time it should help meet the demand for child care services through a free market. As for a child care policy for low-income families, the government must provide assistance in the workplace so that parents can earn a living. But for families with decent incomes, the government can ensure that the market carries out its functions so consumers can find needed services efficiently.
Consumers will be satisfied if they can find the type of service that they want and service providers will work harder to offer better quality service. As with any efficiently functioning marketplace, both consumers and suppliers will have their needs met and the child care industry will grow as a result. If the prevailing view that child care is a government obligation changes, then child care can be included in the policy to revive the economy. Thus, there are two factors to bear in mind when thinking about a child care policy. First is the very real need for government assistance to low-income families. Second, the government must normalize the market for child care services for families with incomes above a certain threshold.
President-elect Lee said as a candidate that he would invest 3 trillion won ($3.2 billion) in child care services. This is more than double the Roh administration’s budget for child care, even though it has already increased this line item significantly.
The resources allocated to child care services must benefit only those whose incomes are lower than a defined amount. State-funded child care centers should be built in farming communities and small and medium-sized cities where there are few private child care centers. In large cities with many services, the government can provide assistance to consumers in the form of subsidies. The incumbent administration has given subsidies to day care center providers, but this is not sufficient. When the budget is more than doubled and the number of recipients of government assistance is reduced, those who really need state assistance will receive more benefits than they do now.
When normalizing the child care service market, there is no need for government outlays. All that is needed is the courage to lift unnecessary regulations.
In the day care center market, there are two major rules: a regulation on fees and a ban on profit-making organizations entering the market. The regulation on fees should be scrapped so that various types of child care services can be made available, depending on the demand from consumers and their ability to pay. Consumers can judge for themselves whether a certain service is worth the fee or not, so why does the government have to regulate the fee schedule for this service any more than it would the price of toothpaste? Meanwhile, for-profit corporations are banned from entering the market, so private capital doesn’t go into child care services. There are rich human resources in the market but not enough capital due to ignorance and misunderstanding that hinders the development of a child care service industry. If for-profit companies are allowed to enter the market, child care services, currently stuck in the welfare “ghetto,” will be vastly improved.
Lee won the voters’ hearts with his policy to revive economy. He said he would revitalize people’s livelihoods by lifting regulations and carrying out reforms in the government. He should implement a child care policy within this framework. He should not be misled into thinking that child care is part of public welfare. A new paradigm to divide functions between the government and the market is needed, but those working in the area have a deep-rooted distrust of the market. This is an opportune time for a new child care policy that can change that perspective.

*The writer is a professor of economics at Ajou University. Translation by the JoongAng Daily staff.

by Hyun Jin-kwon
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