Manila, 2 August 2016: Day 2 of the APSP Week saw the commencement of presentations and discussions at the ADB Headquarters in Manila. Opening remarks were provided by Bambang Susantono (Vice President for Knowledge Management and Sustainable Development, ADB). He emphasised how governments can afford and should implement social protection programmes, which play an essential role in development, especially in times of financial crisis and disaster relief. As such, social protection should be expanded to cover all—especially ‘missing’—people. What’s more, governments should invest in social protection given the challenges facing aging populations who do not have adequate pensions. He went on to recognise that in order to make social protection sustainable, duplication needs to be avoided and effective coordination of programmes needs to be achieved.
Mr. Susantono then outlined promising developments in the field of social protection, including communications technologies such as biometric identification and integrated monitoring systems that improve efficiency and enhance transparency. The move towards addressing the challenges of the elderly, prioritising financing social protection as well as better efforts by governments to cater to unemployed were mentioned as notable achievements in the field. He explained how such developments are especially positive because comprehensive social protections systems contribute to inclusive growth. Therefore, financing social protection is one of the best ways to ensure that inequality, poverty and vulnerability are reduced, while ensuring no one is left behind.
Social Protection in the Global Development Agenda—Lessons Learned from Latin America
Santiago Levy, (Vice President for Sectors and Knowledge, Inter-American Development Bank) gave the key note address, commencing the week's sessions, by sharing his work on social protection in Latin America. He began by introducing the concepts of social protection, social insurance and social assistance. He emphasised how the instruments and objectives of social protection expose its challenges. Namely, protecting all people from risk (independent of income levels) and fostering income redistribution (particularly demonstrated in targeted programmes such as conditional cash transfers—CCTs). He posited that there are many lessons to be learned from the experience of Latin American countries in the field.
He noted how a problem of Latin American programmes is that entitlements are dictated by the type of work one does;—that is, formal versus informal work. In this way, Latin America made the mistake of importing the Bismarckian system of social protection, which involves contributory social insurance, where the contribution is proportional to one’s wage. This excludes non-salaried workers from social insurance. Latin American countries began attempting to solve this problem in the 1990s, when they started to extend protection via non-contributory social insurance. However, this approach does not cater to individuals transitioning between the formal and informal economy. Only being covered for risk while you are integrated into the formal economy is a major failure. Non-contributory social insurance is also disincentives hiring salaried workers, as the firm is required to contribute to social insurance, thus encouraging hiring illegal workers.
Levy went on to highlight how non-contributory social insurance inadvertently burdens formal labour and subsidises informal labour. He illustrated this with a Mexican case where the implementation of social insurance led to an increase in women in the informal economy. Another case was that of Argentina, where the creation of a child allowance scheme also led to an increase of women in the informal economy. The combined effect of social protection programmes can thereby be understood to distort the labour market. Furthermore, small firms can evade being fined for hiring illegal workers, while big firms are taxed for their salaried workers. With informal firms being less productive than formal firms, there is an incentive for Asian Pacific countries to learn this lesson from Latin America. Therefore, a central question arises of how to proceed in implementing a social protection system while incentivising the formal labour market economy and protecting people from risk?
To answer this question, one must look to the objective of social protection. Social assistance distinguishes between poor and non-poor people, while social insurance distinguishes between formal and informal jobs, which is endogenous to the incentive structure. The objective is for CCTs to break the intergenerational cycle of poverty. Therefore, to ensure that the children of CCT beneficiary families can get access to formal jobs, CCTs need to increase human capital, allowing people to access better income opportunities, especially more productive jobs with higher real wages. This cannot happen if the labour market is distorted due to incentive structures that inhibit the formal sector. Hence, the social insurance system needs to be compatible with and complimentary to the entire social protection network. Evidence shows that the children of CCT beneficiary families are not being successfully integrated into the formal economy. Mr. Levy concluded by stating that non-contributory social insurance makes for bad social and economic policy by subsidising the informal sector and taxing the formal sector. Therefore, countries need to escape this dilemma of contributory versus non-contributory social insurance by structuring universal pensions and health insurance as opposed to structuring transfers based on the formal/informal labour market dichotomy.
Ultimately, it must be recognised that social policy is intimately connected with fiscal considerations. The idea that social policy is used to transfer income is flawed. Imprecision in the stated objectives of social protection and the instruments that will be employed to achieve these objectives is where the problem starts, meaning there needs to be a focus on the incentives that structure social protection programmes. This involves addressing the macro architecture of the social protection system, as you cannot draw reliable inferences from individual programmes. Mr. Levy went on to conclude that Latin America faces the challenge of creating a welfare state underpinned by low productivity economies and that this is a social protection policy challenge that Asia should avoid.
Social Protection in the Global Development Agenda
The speakers from Session 1 were joined by Frances Lund (Senior Adviser, Social Protection Programme, Women in Informal Employment: Globalizing and Organizing—WIEGO) to participate in a discussion panel moderated by Satinder Bindra (Principal Director, Department of External Relations, ADB). When addressing how the Sustainable Development Goals (SDGs) have influenced the social protection agenda, Ms. Lund noted that there has been a shift towards recognising the developmental impact of social protection, with treasury departments acknowledging that these initiatives do not simply constitute wasteful welfare spending. Mr. Levy submitted that there is now a convergence between ambition and awareness in governments; however, since each country faces distinct challenges, programmes need to be adapted to local contexts. Mr. Susantano alluded to social protection emerging as a government priority, although lack of experience in the field is a major challenge to the social protection policy agenda.
Strategies for Success in Financing Social Protection
Moderator: Daniel Horn (Economic Adviser, HelpAge International)
With respect to financing social protection, Mukul Asher (Professor of Economics, National University of Singapore) noted how governments often underestimate fiscal and financial risks, including the contingent risks and liabilities they face. Consequently, outcome orientation and human welfare needs to be the focus of the government agenda. Social protection needs to be understood as a system, where pensions and healthcare are addressed together for policy coherence and organisational coordination, which will in turn lead to a reduction in fiscal risk. Mr. Asher explained how funding represents the share of total economic resources while financing entails various instruments or mechanisms through which resources are accessed or allocated. With this in mind, higher funding is needed to finance social protection.
A further point is that improving social protection by lowering administrative costs can have a major impact. The emphasis should be on capitalising on existing social protection arrangements, not necessarily reforming or expanding the system. Furthermore, improving social protection benefits by increasing the real rate of return is important, as obtaining higher returns has become difficult given the near-zero yields of government bonds.
Haiyani Rumondang (Government of Indonesia’s Director-General for Industrial Relations and Social Protection for Workers) went on to give a presentation on the implementation of social security in Indonesia. She began with an outline of the comprehensive policy directions for social protection of the National Medium-Term Development Plan 2015-2019. The basic philosophy of social security in Indonesia involves cultivating a good working climate, ensuring welfare for workers and their families, creating a positive environment for businesses and increasing discipline and labour productivity. This approach is understood to cultivate successful financing for social protection.
Peeyush Kumar (Joint Secretary, Direct Benefit Transfer—DBT, Ministry of Finance, India) then introduced the federal structure of India to provide insight into the financial strategies for successful financing of social protection. He began by outlining various challenges in India, including an outdated and ill-designed architecture of social welfare programmes, delivery mechanisms not being robust, the incidence of duplication as well as weak monitoring and feedback systems. These challenges have resulted in high administrative costs and delays in the payment of benefits.
As a result, the Direct Benefit Transfer (DBT) initiative has been developed, which features transfers of cash benefits directly to beneficiaries. It has already led to enormous savings and to an expansion of the social security system. Even so, major challenges remain, including poor last mile service delivery, limited coverage due to a shortage of financial infrastructure and poor network connectivity. Mr. Kumar then presented emerging solutions for successful financing, including creating Micro ATMs, leveraging existing infrastructure, promoting the mobile-based platform for DBT payments and operationalising payment banks. With such measures in mind, the next step of improving the DBT involves a governance tool for the social security platform that is regularly updated, providing base beneficiary data to avoid duplication of efforts while aggregating benefits.
Facing the Challenges—Economic Crisis and Creating Fiscal Space for Social Protection
Moderator: Susann Roth (Senior Social Development Specialist—Social Protection, Sustainable Development and Climate Change Department, ADB)
Armando Barrientos (Professor of Poverty and Social Justice, University of Manchester) opened the afternoon session with a look into financing social assistance in the context of financial crisis. He explained the need to consider the tax system together with the transfer system as taxes represent its source of the funding. Social assistance tends to be counter-cyclical in that it experiences the greatest demands in the context of a crisis. More so, the level of expenditure on social assistance in different countries as a percentage of GDP spans a vast range; from a fraction of 1% to 6% in Australia. 75% of countries spend a mere 1-2% of GDP on social assistance and surprisingly, there is no relationship between the level of economic development, and the amount a country spends on social assistance. To identify the factors that influence spending, one must look to the architecture of each country’s welfare institutions, with many allocating greater funding to social insurance.
Mr. Barrientos went on to explain how you need to pay attention to the 3 dimensions of fiscal spending: resource mobilisation (enhancing fiscal space and expenditure switching), legitimacy (financing social assistance influences support for anti-poverty measures) and effectiveness (financing modalities influence resource allocation and accountability). Although international assistance can be effective in reducing the high set-up costs of a social assistance system, ultimately a long-term sustainable approach is required, meaning taxes and transfers must cater to these costs. Asian countries have very low tax-to-GDP ratios. Therefore, it is important to look at financial narratives of where funding will come from to expand social assistance, lending support and legitimacy to anti-poverty transfers.
Kewal Bhandari (Joint Finance Comptroller General, Financial Comptroller General Office, Ministry of Finance, Nepal) then explored the sustainability of social security financing to stimulate economic growth and enhance productive employment. This requires creating fiscal space, formalising informal labour, prioritising public programmes and achieving allocative efficiency, which involves resource availability versus resource management. To convince decision-makers to allocate budget to social security during times of crisis one must capitalise on the political interest in having a positive impact on poverty and vulnerability rates as well as encouraging governments to use existing systems to cater to vulnerable populations. A motivating factor for governments and the people is that having a social assistance system in place allows countries to allocate funds more easily in times of crisis.
Michel Rovers (Director of Strategy at the Netherlands Executive Organization of Employees Social Insurance Schemes, Social Protection EU Expertise in Development Cooperation—SOCIEUX—expert) followed, noting how, in times of crisis, investing in social protection stimulates economic growth and prevents further deterioration. Even so, social protection increases the government deficit and affects labour market mechanisms. Consequently, most West European countries have prioritised long-term sustainability in their social protection approach, involving budget cutbacks and structural reforms. In the short term, some countries have introduced part-time employment benefits, social contribution reductions, tax reductions, low paying salaried jobs, as well as vocational training for the unemployed.
Mr. Rovers then went on to note how crises often prompt necessary government policy changes. Social protection is not only a means to reduce poverty, but also a way of encouraging economic growth, as long as there is a long-term, sustainable vision that accounts for emergency situations with achievable goals in place. It is essential that governments ensure that their countries’ social protection systems are flexible in order to be fundable, even in times of crisis. Governments must always keep evaluating their schemes and make adjustments in good economic times. In the discussion session that followed, Barrientos noted how financial crisis has prompted governments to invest more in exit strategies to support people graduating from social protection programmes. It is also important to keep social protection systems simple. It was also mentioned how in times of crisis, public work programmes are the easiest to scale up, as cash transfer programmes demand specific targeting mechanisms.
Breakthrough to Excellence—Delivery and Governance of Social Protection Programmes
Moderator: Gisèle Yasmeen (Director, Social Protection Programme, WIEGO)
Gambhir Bhatta (Technical Advisor, Governance Thematic Group, ADB) presented the case of Bangladesh, where they are measuring the amount of corruption a citizen has to endure in order to access public services, which has revealed interesting elements for achieving excellence in service delivery. It has been found that to improve access to services, you need to empower citizens and communities, engage sub-national governments and expand the use of ICT as a catalyst. A priority in this regard is strengthening community groups and civil society, as well as access to information. To improve service delivery, local accountability mechanisms and local capacity building needs to be supported. Capacity development involves changing the organisational culture with respect to resources, tools and skills. ICT, through the digitisation of land records and real time information on the effectiveness of service delivery has been found to be highly effective in minimising corruption and knowing who is entitled to what services. Mr. Gambhir called for people centred service delivery in social protection, which means giving primacy to the needs and services of citizens and being accountable to them; for example, striving towards single-window service delivery. Accountability and fairness are also essential. He concluded by emphasising that political commitment across all levels of government is a necessary condition for excellence in service delivery.
Sri Wening Handayani (Principal Social Development Specialist, ADB) then presented on behalf of Stephen Kidd (Senior Social Policy Specialist, Development Pathways) on inclusive social protection for the ‘missing middle’ of Asia. A massive proportion of people in Asia are poor and income dynamics demonstrate how these people are likely to remain poor due to high inflation and low purchasing power parity. Poverty and vulnerability are particularly high among children, the elderly, the disabled and people with young children. The correlation between poverty and vulnerability in Asia is therefore extremely high. Many countries in the region offer social insurance for those employed in the formal sector, with social assistance being dedicated to the poor. However, those in the middle are excluded from social protection, while living in poverty and insecurity, despite being more powerful politically than those in extreme poverty. More so, not all poor people are included in social protection schemes. Limited government fiscal space to tackle poverty is to blame as the level of investment in social protection schemes determines their impact. A higher investment in a social protection system results in a better design, meaning a more financially sustainable system. She concluded by stating that countries will only have an effective social protection system if they are willing to significantly invest in it.
Duncan Campbell (Professor, Cornell University and former Director of the Policy and Integration Department, ILO) brought the day’s presentations to a close, presenting on the delivery of social protection worldwide. He began by reflecting on the disconnect between legally and constitutionally enshrined labour rights and the labour rights are that are enjoyed by citizens and ensured by governments in reality. This shortfall in government delivery is not confined to labour rights. Only 27 per cent of people have access to comprehensive social security; 18,000 children die daily from preventable diseases, there is a 10.3 million health care worker shortage and less than 40 per cent of women are covered by paid maternity benefits around the world. Even pensions for workers are not universal. Fiscal crisis has left governments eager for fiscal consolidation, resulting in the reversal of expanded social protection systems. However, social protection has an economic function. Therefore, to motivate governments to invest in social protection, it needs to be recognised that investing in social protection is investing in economic growth.
New literature on aspiration failure reflects how poor children do not aspire to better opportunities. We know that social protection leads to a decline in poverty rates, ensures more productive job search, counters the aggregate demand effect of precautionary savings and reduces the economic burden of post-preventative healthcare. Social transfers also prevent people falling into poverty, while realising more equal societies that perform better economically. Investing in children is a central element for avoiding the inter-generational transmission of poverty; therefore an investment in social protection is clearly the wise choice from a socio-economic standpoint.
We invite you to continue reading the full coverage of the event here:
- Day 1 of the APSP Week
- Day 3 of the APSP Week
- Day 4 of the APSP Week
- Day 5 (Final) of the APSP Week
Article and photos by Ashleigh Kate Slingsby