By Dr Stephen Kidd, Senior Social Policy Specialist, Development Pathways
In recent years, there has been an increase in AusAID’s commitment to helping countries deliver social protection to vulnerable members of their society. As a member of AusAID’s Social Protection Expert Panel, I’ve been lucky enough to work with a range of AusAID staff as they grapple with the challenge of incorporating a new policy
area into their programs and activities.
Villagers in a poor community in Oudomxay Province, Laos. Photo: Dr Stephen Kidd
I’ve worked on social protection since 2004 and it’s interesting to see how the nature of the debate has changed over the years. When I started, the focus was on trying to convince the international community and the governments of developing countries about the benefits of providing vulnerable people and families with access to regular cash transfers. It does seem a strange debate to have given that in developed countries there is ample evidence of the benefits of establishing a social security safety net. In Australia, for example, child poverty rates would more than double from 11.8 to 26.6 per cent in the absence of social protection. Indeed, debates on social protection in developed countries are not about whether it is necessary, as most recognise that it is, but rather on how it is designed.
I was recently in Laos leading the design of a rural development program for AusAID and examining the potential for AusAID support in a wide range of areas, including access to micro-finance and markets for poor farmers. We also explored opportunities to strengthen social protection within the country. AusAID’s priority is to find innovative ways to assist the growing number of vulnerable people who can no longer depend on traditional family and community support mechanisms. But Laos’ state social protection system largely benefits those who’ve worked in the formal sector; so we’re faced with the challenge of figuring out how AusAID and the Laotian government can begin working together to ensure resources are invested towards protecting Laos’ most
vulnerable people.
The situation in Laos is typical of many developing countries in which social protection programs—such as pensions, disability benefits, and child grants— either do not exist or are very weak.
Interestingly, while the international community has debated the value of social protection, many developing countries have established their own programs, often hidden from the view of their development partners.
The Pacific region is case in point, as it is often assumed that formal social protection is not necessary due to strong kinship networks that ensure care for the most vulnerable. Yet a recent AusAID study (to be released later this year) has highlighted how these networks are breaking down and a number of countries have established their own social protection programs. For example, Kiribati, Samoa, Nauru, Niue, Tuvalu and the Cook Islands provide regular pensions to all older people, while Fiji has a Family Assistance program providing monthly cash transfers to 13 per cent of the population. There are even some surprising examples: in Vanuatu, a group of landowners have
established their own old age pension, while in Papua New Guinea the island of
New Ireland has been providing universal pensions and disability benefits for
the past two years.
I’ve worked for AusAID in both Kiribati and Fiji, and I’ve met a number of people for whom regular cash transfers have made a tremendous difference. Even though families receive only small amounts of cash every month (often no more than A$40), it’s enough to significantly enhance their wellbeing, improve nutrition and enable children to continue in school.
In Fiji, AusAID is developing an initiative to provide social protection support for the most disadvantaged children so that they can attend school and have a real chance in life. AusAID’s support for social protection is growing across the world, and Indonesia is fast becoming AusAID’s flagship social protection program. The agency is working with the Indonesian Government to design and finance an old age pension and disability benefit system. AusAID is also supporting the development of a National Strategy that will set out the future direction of social protection in Indonesia, and help improve the delivery of existing social protection programs. AusAID’s investment in Indonesia will enable many of the poorest and most vulnerable families to gain some security in their lives and invest in the future of their children.
AusAID’s commitment to investing in social protection is a recognition that, while it is important to invest in economic growth and help people gain more productive livelihoods and employment, there will always be many who cannot benefit from these more traditional development activities.
If development assistance is to be comprehensive and inclusive there is a need to direct substantial resources to supporting the most vulnerable. As Australia’s own experience shows, when societies develop there is an increasing need for formal social protection
programs to ensure that no one falls below a minimum standard of living.
Many developing countries are taking the first steps to ensure a fair and just distribution of national resources, with AusAID accompanying them on their journey.
About the author: Dr. Stephen Kidd
Dr. Stephen Kidd is a consultant on social protection and a member of AusAID’s Social Protection Expert Panel. Between 2007 and 2009, he was Director of Policy at HelpAge International and, from 2001 to 2007, worked for DFID. He led DFID’s Social Protection and Equity and Rights policy teams, and also worked as a Social Development Adviser on DFID’s China and Latin America programmes. Prior to that, he lectured in social anthropology at the University of Edinburgh. He has engaged on social development and social protection issues in over 25 countries.
An interesting piece by Dr Kidd. One question which springs to mind is why there is an assumption that safety nets are a natural progression from development.
“As Australia’s own experience shows, when societies develop there is an increasing need for formal social protection programs to ensure that no one falls below a minimum standard of living.”
I would argue that in fact that there is not much that is natural about the development of social protection systems. Australia’s experience is one that has had many influences resulting in the rather unique system we have today. These include penal colony economics, settler and squatter systems, utopian idealism, union based socialism, colonial paternalism, Confucianism, humanitarian liberalism, agrarian socialism, Aboriginal traditional systems etc.
The ‘natural approach’ resulting from development at least in the industrialised experience could not be further from social protection. Disenfranchisement, rural drift, urban ghettos and poverty, and in some cases anomy – are perhaps more natural results of ‘development’. Under market based systems there are always winners and losers – those who profit and those who contribute to profit. To achieve social protection systems you are in fact challenging the status quo – establishing a social contract not only between those at the bottom requiring assistance, but also those in the middle and in business that pay the taxes that underpin it. I ask the question then is it not more important to consider the fiscal context, alongside the political economy and how effective governments are at setting and collecting taxes?
Look forward to further discussion.
ZF
Dear Ziggy,
Thanks for your response. I wouldn’t argue that social security is a “natural progression from development,” but it is most definitely a necessary complement. As you point out, as societies develop, there are winners and losers in that process. Traditional forms of care and support can break down and, as a result, growing numbers of people can be left isolated and vulnerable to poverty. Many others are unable to gain sufficient income from their engagement in markets. In response, countries put in place formal social security systems to ensure that poor families and vulnerable individuals receive a minimal level of support. Some developed countries began this process in the eighteenth century and the systems that they have put in place play an important role in not only reducing poverty and inequality, but also in helping people engage more effectively with the labour market.
Until relatively recently, there was an assumption among many people working in international development that social security programs were not feasible in developing countries, either because they were too expensive or too difficult to implement. However, this thinking has changed and there is now an international consensus that all countries need some form of social security. As I pointed out in the blog, many developing countries are establishing large scale systems, on the back of popular support. Nepal – one of the poorest countries in the world – provides old age pensions to over a million people, as well as a growing number of disability benefits and child grants. These programs are having positive impacts on families, reducing their poverty, enabling children to attend school, and helping improve health.
AusAID is now at the forefront of the international debate on social security, providing assistance in a wide range of countries. AusAID’s support can benefit millions of the poorest people across the world. Importantly, AusAID is engaging in policy dialogue with governments not only to build their commitment to spending on social protection but, as you note, also ensure that the tax base is in place to support this increased spending.
Just to give one example: AusAID is currently supporting the Indonesian government’s poverty reduction agency to design an old age pension and disability benefit. If this program is successful – and gains the support of the whole of government – it will transform the lives of millions of families. Let’s see how it goes.
Cheers,
Stephen
Thanks for the reply Stephen. It took me a while to find your response. I’d certainly like to know more about AusAID’s work in Indonesia and the Nepal example you mentioned. I guess it might just be the fiscal conservative in me – but even with popular support if a government doesn’t have the means to collecting revenue how can they afford to implement large scale social protection systems? This could be as a result of an unenforceable taxation system or simply a lack of actual revenue streams to tap into. Should they take loans from international financial institutions to fund social protection systems? If so how do they then pay such loans off? Does social protection lead to economic growth?
Europe seemed to be the example for the rest of the world of how social protection could lift millions out of poverty. The remarkable transformation of Europe in the twentieth century and following two world wars is exactly that. Yet the myth seems to have been exposed by the recent financial crisis in countries like Greece and Ireland.
It’s a pity that there isn’t more discussion like this on the Engage blog as I think that important ideas like social protection are worthy of greater exploration and debate.
ZF
Dear Ziggy,
Thanks for getting back to me. You’re asking some great questions.
Regarding your question on affordability, there’s no easy answer. However, I don’t think that the comparison between Greece/Ireland and developing countries is too helpful. Greece, for example, spends around 15% of GDP on social security programs while Nepal spends only 0.8% of GDP on a mix of old age pensions, child grants and disability benefits. Indeed, most of the developing countries that provide pensions to all older people spend just over 1% of GDP on these programmes, while Greece spends around 10% on its public pension. There are other developed countries with well-managed and fiscally sustainable public pension systems that cost much less: for example, Australia and New Zealand spend just over 4% of GDP on theirs. Of course, higher spending is possible if countries have a social contract that enables them to generate more taxes to pay for their social security system: for example, Sweden and Denmark are able to spend around 20% of GDP and have successful economies.
Realistically, the level of spending required to provide a minimum level of social security coverage in developing countries is relatively low – as a percentage of GDP – when compared to current spending in developed countries, as long as the size of benefits are also restricted. South Africa’s comprehensive social security system – which provides benefits to most older people, children and people with disabilities – costs around 3% of GDP, and has significant impacts on poverty. It’s interesting to compare this level of spending with England in the early nineteenth century, which invested more than 2% of GDP on one of the world’s first formal social security programs. Developing countries should probably aim to achieve something around this level of spending if they are to provide a minimum level of protection for those living in poverty.
Can developing countries afford levels of spending comparable to Nepal or South Africa? In reality, this is down to political will and spending priorities. In those developing countries that do spend on large-scale programs, the answer would seem to be that it is affordable. In fact, Nepal – which as I mentioned is one of the poorest countries in the world – was able to significantly increase its spending on its social security programs in 2009 in the context of a tax in-take that was growing at over 20% per year.
Indonesia is an example of a country where there is growing political debate on social protection, within the context of a Constitution that guarantees social security for everyone. It already spends a little under 0.5% of GDP on social protection programs for the poor, but could it do more? According to the IMF, Indonesia’s gross debt reduced from 39% of GDP in 2010 to 27% in 2010, a pretty healthy state of affairs when compared to countries such as Greece, which has a gross debt of 142% of GDP, and the UK with a debt of 75%. Indonesia also spends between 1% and 3% of GDP on a fuel subsidy that mainly benefits the better off. There is an ongoing – but unresolved – political debate in Indonesia on whether this funding could be better directed towards a social protection program that benefits the poor.
There is, of course, a lot more to say on this. For example, many people would argue that the design of social protection programs is critical for generating greater spending commitments. Programs that include the majority of the population – in particular those who pay most taxes – tend to generate higher levels of spending than programs only directed at the poor, since people are more willing to pay taxes to finance programs if they themselves also benefit. If you’re interested in reading more about this, could I direct you towards an excellent paper by Pritchett (2005) entitled “A lecture on the political economy of targeted safety nets.” It was published by the World Bank.
You also ask whether social protection leads to economic growth. This, again, is a major area of debate. Certainly, the evidence that countries with the highest levels of spending on social protection are also among the richest – in particular, the Nordic countries – indicates that social protection is certainly not incompatible with economic growth. Indeed, many people would argue that social protection can have a major role in strengthening economic growth by, for example, building human capital, reducing social unrest, encouraging people to invest in higher return income-generating activities, increasing the flexibility of the labour force, and generating greater consumption, thereby acting as a stimulus to the economy. However, we shouldn’t forget that the main aim of social protection is to reduce poverty and promote greater social justice, which should be sufficient ends in themselves.
Stephen,
A wonderful and thought provoking reply. I hope that you’ll consider doing another blog in future.
ZF
What do you see as the role for civil society organisations, whether local or international NGOs, in the plannign and delivery of social protection programs? What about the risk of corruption in many countries, what the best approach to managing that? And does the reality of cash transfer programs run the risk of a) undermining longer term development work focused on community led solutions rather than handouts and b) focusing attention on access to services rather than the quality of those services?
Dear Charlie,
Thanks for your comment. Let me start with the question on whether social protection benefits are handouts. As you may be aware, the Universal Declaration on Human Rights recognises the right to social security. The provision of social protection benefits is a means of putting this entitlement into action. However, there is a significant difference between conceiving of a social protection benefit as handouts or entitlements. Entitlements are provided to people because they are citizens and members of groups that society – through the social contract – has deemed worthy of support. And, of course, most beneficiaries of social protection benefits have been or are taxpayers – often via indirect taxation – and fully contribute to society. They, therefore, deserve these entitlements. In contrast, a handout is a somewhat arbitrary gift to which no one has any right. The concept of “handout” does not fit with the modern understanding of social protection as an entitlement that has developed during the past 70 years or so, in particular since the Universal Declaration of Human Rights came into force.
In developed countries, we tend to focus our social protection entitlements on specific groups such as the elderly, people with disabilities, widows, children and the unemployed. We are willing to invest a significant proportion of government spending on these groups in recognition of their rights as citizens. In Australia, for example, over 10% of GDP is provided to such groups (and this also helps drive the economy by stimulating consumption). I’m sure that if you were to suffer from a severe disability or were no longer able to work due to old age, you’d expect to receive a disability benefit or old age pension.
Similarly, in developing countries, the growing interest in social protection in recent years has been the result of governments recognising that they need to establish entitlements for their most vulnerable citizens. In a number of countries – such as Indonesia – the right to social security is even explicit in their Constitutions. These entitlements are not meant to replace community led solutions, but are complementary and recognise that community led solutions alone will not reduce poverty for everyone, especially for those with minimum labour capacity.
In fact, there is growing evidence that providing people with a guaranteed social protection benefit enables them to more effectively engage in income generating activities or obtain employment. Since they know that they are guaranteed to feed their children and ensure that they can attend school, they are better able to plan for the future and take greater risks in their investments – by, for example, taking credit or using higher yield seeds – which are likely to result in higher incomes.
I certainly agree with you that there needs to be an increasing focus on quality of services. However, providing citizens with guaranteed entitlements to income should not impede governments from investing in strengthening services such as health and education. While social protection benefits enable families to send their children to school or obtain medical treatment when ill, it is also essential that there are complementary investments in all social services to improve their quality. This, of course, brings us to the question of taxation. It is essential that developing countries are able to establish more effective and progressive taxation systems. Indeed, many international donors invest significant resources in enabling developing countries to do this, often with a great deal of success. In Nepal and Rwanda, for example, tax intakes have been increasing by more than 20% a year.
The role of civil society organisations in planning and delivering social protection systems can vary significantly between countries and between types of benefits. Civil society organisations should contribute to coalitions representing citizens when countries are deciding how best to design their social protection systems. There are, though, many large-scale national benefits that are often best delivered by governments – such as old age pensions, disability benefits and child benefits – although civil society organisations can play an important role in enabling the most vulnerable people to access these entitlements. In more fragile states, however, where government has minimal presence in rural areas, civil society organisations could play an effective role in supporting the delivery of social protection. In remote areas of northern Kenya, for example, AusAID is supporting the Hunger Safety Net Programme to deliver regular cash transfers to extremely poor pastoralists through civil society organisations, although the cash itself is transferred via a bank.
Civil society organisations can also play an important role in delivering local level social protection solutions. For instance, in Bangladesh, AusAID supports BRAC – a non-governmental organisation – which provides regular transfers to poor women, alongside support to develop a micro-enterprise.
Finally, corruption is a risk in any program delivered by government, whether it is agriculture, health, education or social protection. The best means to avoid corruption in social protection is to make programs as simple as possible. Often programs are designed that are too complex for local administrative systems which means that the selection of beneficiaries can easily go wrong. In other programs, too much discretion can be given to local officials, who can select beneficiaries on the basis of patronage. However, programs in which the criteria for selection is simple – such as a universal old age pension – are easy to manage and provide few opportunities for local officials to take advantage of beneficiary selection for their own ends. Other means of minimizing corruption are to establish advanced systems – using new technologies – for managing information and delivering cash.
However, in social protection programs, beneficiaries themselves are often the best means of controlling corruption. If they know that they are meant to receive $30 per month as an entitlement, but only receive $20, they should be able to complain about this. If countries can establish complaints and grievance systems that enable people to report corruption, this could be a powerful means of control. In contrast, in other social services it is often difficult for citizens to know what they are expected to receive, which makes it more difficult to complain.