Sustainable Social Development in a Period of Rapid Globalization: Challenges, Opportunities and Policy Options

Chapter V: Social protection systems

There is general recognition that enormous development opportunities and gains have emerged in this region from processes associated with globalization. Yet experience in the region, as elaborated in this study, has also illustrated the increased potential of social risks and vulnerabilities resulting from, among other factors, the rapid socio-economic changes and the social impacts of the 1997 financial crisis that hit some countries in East and South-East Asia, and the recent general economic slowdown.

Indeed, the impacts from the financial crisis have sent a clear signal that the countries affected did not have in place adequate social protection systems to withstand macroeconomic shocks in a period of rapid change and economic volatility. Many countries discovered, painfully, that their lack of proper social protection systems had made their working populations vulnerable to excessive risk, increased the incidence and depth of the poverty among their populations and undermined their longer-term human capital investment efforts. The countries are also recognizing that what social protection systems they do have in place are difficult to sustain financially and are inadequate to the task of meeting the challenges of globalization, changing demographic trends and the attendant processes of increasing urbanization, migration and disintegration of family and community networks.

This chapter examines some of the challenges posed by globalization and demographic change for the provision and financing of effective social protection schemes. It considers various measures by which formal, informal and temporary social safety nets could be made more sustainable and inclusive by effectively targeting groups in need. Social protection policies vary from country to country depending on their specific needs, availability of resources, the range of existing institutions and the political economy of reforms. Once specific measures are selected, the programmes will have to consider the crucial issues of coverage, targeting of vulnerable populations, gender sensitivity, sustainability, good governance and institutional and political capacity for reforms.

A. UNDERSTANDING SOCIAL PROTECTION

It is recognized that history, traditions, value systems and the political economy of different countries will affect their respective understanding and approach to social protection. In that light, and in reiterating the importance of social protection as a major issue in social development, ESCAP members and associate members had, in adopting the Agenda for Action on Social Development in the ESCAP Region in 1995, committed themselves, by 2000, to formulating an overall policy framework that would accord priority for social protection for all, in accordance with the prevailing standards of society and within available resources. That framework would include viable measures for social protection covering unemployment, illness, disability and old age. Among other means of comprehensive social protection to be considered would be emergency employment schemes, food security schemes, targeted subsidies and community-based care and rehabilitation (ESCAP, 1995).

While there is no single definition of social protection among United Nations Member States, it is commonly understood as the mix of policies and programmes aimed at reducing poverty and vulnerability for individuals unable to work owing to chronic illness, permanent disability or old age, and also at protecting the majority of the population against some of the unexpected downturns in life (illness, unemployment, death of the breadwinner, etc.). Social protection is often used interchangeably with the terms “social security” and “social safety nets”. Social security is the more established term, but it is more often associated with the sophisticated institutional arrangements in the developed countries set up to protect their citizens against risks and provide assistance to the poor; the programmes are available on the basis of their participation and entitlements. Social safety nets, a term more recently used in social protection discussions, is associated with the more limited social assistance provided through public measures that are designed to transfer resources to assist groups which are poor and or deemed eligible owing to deprivation or sudden dependency. They include welfare programmes targeted at the poorest of the poor, or the short-term compensatory emergency measures undertaken during structural adjustment or other aggregate shocks.

In the current discussions on social policy, social protection is the more widely used concept that refers to both social security and social safety net measures combined. Thus, social protection encompasses all forms of benefits and services (such as child/family benefits, health care assistance and minimum-income provisions) that are generally available on a universal basis without regard to participation, contribution or employment status (although they may include a test of means).

In the report of the Secretary-General of the United Nations to the Commission for Social Development at its thirty-ninth session, held in 2001, the following points were noted in defining social protection policy:

(a) Social protection embodies society’s responses to levels of either risk or deprivation that are deemed unacceptable. Underpinning the operation of social protection systems, therefore, is a social consensus (which may be implicit or explicit) on fundamental values concerning acceptable levels and security of access to the means of meeting basic needs and fulfilling basic rights. These include secure access to income, livelihood, employment, health and education services, nutrition and shelter. Social protection is therefore multidimensional and does not refer solely to meeting variability in cash income with public transfers or regulated insurance (which remains the predominant understanding in some countries);

(b) Values of social solidarity, civility and fraternity, as well as responsibility and self-help, underlie social protection. The existence of social protection systems promotes more humane societies. However, social protection regimes and the values underpinning these regimes are not static: there has been a shift in the understanding and applications of social solidarity, as well as some other principles;

(c) Social protection deals with both the absolute deprivation and vulnerability of the poorest people and also with the need of the currently non-poor for security in the face of shocks and life-cycle events (particularly ageing);

(d) The character of the policy response may involve a range of different institutions: central or local government, civil society (voluntary or membership associations, trade unions, NGOs) and the private sector;

(e) There are two predominant subcategories of social protection. “Social assistance” encompasses public actions that are designed to transfer resources to groups deemed eligible owing to deprivation. “Social insurance” is social security that is financed by contributions and based on the insurance principle: that is, individuals or households protect themselves against risk by combining to pool resources with a larger number of similarly exposed individuals (United Nations 2001c).

Many countries in the ESCAP region are undertaking social protection reforms. They are being assisted in their efforts by a number of multilateral and bilateral aid agencies, each of which contributes its particular perspectives to the definitions of social protection. The World Bank employs the conceptual framework of social risk management (Holzmann and Jørgensen 2000); the Inter-American Development Bank emphasizes social protection as a means to address macroeconomic and catastrophic shocks (IADB 2000); the Asian Development Bank’s approach is a design of social protection aimed at reducing poverty by making growth more efficient and equitable (ADB 2001a); and the Department for International Development of the United Kingdom uses a rights-based approach to define social protection, with an emphasis on promoting integrated livelihoods (Norton and others 2001).

The United Nations views social protection as an issue of social rights and long-term investment in societies. The report of the United Nations Secretary-General entitled “Enhancing social protection and reducing vulnerability in a globalizing world” is the first comprehensive United Nations statement on social protection (United Nations 2001c). The report asserts that social protection measures serve both an equity-enhancing and an investment function, and such measures need to be a high priority of Governments and regions. The report defines social protection broadly to include not only cash transfers but also health and housing protection. It considers that unregulated globalization can increase inequity within and between countries, and argues that if equity is the goal then tax-funded social transfers are highly effective if the fiscal situation permits (United Nations 2001c).

Individual United Nations agencies are also involved in innovative approaches to social protection, providing their respective specialized expertise with regard to specific components of social protection policy. UNICEF views social protection as more than an insurance scheme or a safety net; it employs a human rights approach with a specific interest and expertise in relation to children’s issues in social protection. WHO recognizes social protection as an overriding goal, emphasizing the reduction of risk factors that pose a threat to human health and which go beyond the domain of the health field, such as environmental degradation, inadequate housing and lack of education. UNDP emphasizes social mobilization, that is, helping the poor to achieve social protection by building viable and sustainable livelihoods. For ILO, social protection focuses on labour protection and social security in the context of redistributive justice. UNHCR focuses on social protection for refugees to ensure the basic rights of refugees as well as their physical safety.

The understanding and the practice of social protection have, therefore, been dynamic. At both the national and international levels, a multitude of deliberations accompanied by a wave of reforms are taking place with regard to planning and implementing changes in current social protection systems. These have included the need to develop social support for economic reform programmes or to make growth more efficient and sustainable. They have also included the pursuit of social justice and equity or the obligation to provide all citizens with a minimum acceptable livelihood and protection against risk; furthermore, they involve the promotion of social cohesion, solidarity and stability.

B. GLOBALIZATION, CRISIS AND DEMOGRAPHIC TRENDS AND CHALLENGES TO SOCIAL PROTECTION SYSTEMS

The recent and heightened interest in social protection derives, to a large extent, from the global reaction to various forms of economic or financial crises that occurred during the 1990s. These crises are associated with contemporary processes of globalization and specifically with the growing integration of trade systems and capital markets, which are generally seen to present two contrasting faces. On the one hand, they are seen as increasing opportunities for all (including poor people and poor countries). On the other, they are seen as increasing insecurity on a global scale (Weisbrot and others 2001). Three aspects of the potential risks and vulnerabilities in contemporary global change are highlighted.

First, inequality within and between countries can increase. The processes of international economic integration can diminish the capacity of nation States that are less powerful to regulate conditions for relationships between capital and labour and conditions of access to internal markets. Second, countries will find it difficult to sustain the levels of budgetary support for funding social expenditures and human development programmes as the previously available sources of funding would be reduced. Third, development processes are contributing to positive processes of human development (such as longer lifespans). The demographic transition to ageing populations would exert greater pressures on public resources in the field of social protection. Yet processes of accelerated integration of global societies and economies, which have great potential for increasing growth and human well-being, may in the long run be threatened if growing inequality leads to a perception that basic requirements of social justice are not being met. Analysis suggests that the institutional framework for social policy must adapt in response, at the local, national and global levels, although the appropriate agenda for such a response is still evolving.

The 1997 financial crisis certainly caused a shift in social protection thinking. The crisis affected countries with varying intensity and speed and its impact reached beyond the urban areas, where it started, to the rural communities. In some countries, the crisis was aggravated by natural disasters caused mainly by the El Niño phenomenon. Existing social safety nets were found to be inadequate and improperly designed when the crisis hit.

Before the financial crisis, several high-performing South-East and East Asian economies had enjoyed three decades of steady income growth and attained remarkable improvements in the well-being of their populations. At that time, a number of new social issues, such as rapid ageing of the population, migrant workers, income inequality, regional and gender disparities, and ethnic conflicts, as well as environmental concerns, were beginning to attract political attention in many parts of the region. It was, however, the 1997 crisis itself that triggered a serious debate within these countries regarding the sustainability of social protection and more broadly the future of their societies.

The financial crisis quickly translated into a drastic contraction in production and employment in Indonesia, Malaysia, the Philippines, the Republic of Korea and Thailand, the five hardest-hit countries (Lee and Rhee 1999). The fall in real GDP in 1998 compared with 1997 ranged from 13.1 per cent in Indonesia to 0.6 per cent in the Philippines, while the rise in open unemployment rates was most conspicuous in the Republic of Korea (from 2.6 to 6.8 per cent) and Thailand (from 0.9 to 4.4 per cent).

The crisis negatively affected the well-being of individual households in a number of ways (Lee 1998). First, the sharp contraction in production reduced the demand for labour, which resulted in a reduction in real wage rates and an increase in unemployment. Second, a bout of high inflation during the crisis and its aftermath dented real household expenditure. Third, higher import prices as a result of real currency devaluation reduced the purchasing power of household income. Fourth, a substantial loss of property income (dividends, capital gains and rents) reduced total household income. In addition, the welfare of poor households further deteriorated as the respective Governments lowered spending on education, health care and other social services as a consequence of the economic downturn.

Evidence thus far indicates that the social impact of the crisis was substantial and, more important, the impact on poverty was much more severe in some countries than others. One important reason is that workers displaced from the formal industrial sector were absorbed in agricultural and (informal) service employment. In other words, much of the adjustment took the form of lower real wages. In some counties, it has been pointed out that foreign migrant workers bore the greater brunt of the adjustment burden (World Bank 2000a).

Demographic trends also have important implications for social protection policy and programmes. In 2000, the ESCAP region had over 3.7 billion people, or 62 per cent of the global population of 6.1 billion (Seetharam, Gubhaju and Huguet 2001). The region also contains the two most populous countries in the world: China, with a population of 1.3 billion, followed by India, with over 1 billion. The number of countries in the region with 100 million inhabitants or more increased from five in 1975 to seven in 2000. By 2050, 11 of the 18 countries globally with 100 million inhabitants or more will be in the ESCAP region. By 2050, India is expected to overtake China as the most populous country in the world.

The demographic transition in the region is under way with a decrease in the number of young children and a progressive increase in the number of the elderly. In the ESCAP region as a whole, the proportion of persons aged 60 years or older is expected to increase from 9 per cent in 2000 to 15 per cent in 2025. The proportion of older persons in the total population is likely to be much greater in East and North-East Asia and North and Central Asia than in other subregions. It is projected that by 2050 between 30 and 33 per cent of the populations of countries such as the Republic of Korea, the Russian Federation, Singapore and Thailand will be 60 years or older, while in Japan older persons will constitute about 38 per cent of the total population.

Another feature of demographic dynamics is the prospect of urbanization – the increasing concentration of the population in urban places. Increasingly, people are migrating from rural-agricultural settings to urban-industrial, commercial and administrative centres in search of employment, education and a better standard of living. Between 1990 and 2000, urban areas absorbed nearly two thirds of the total population growth in the ESCAP region. In the next two decades, the total population of the ESCAP region will increase by 800 million, to 4,550 million, and the urban population will increase by 760 million, to 2,180 million (United Nations 2000a). Thus, most of the population increase in the ESCAP region (nearly 40 million per year on average) will be absorbed by urban areas. If seen in a global context, more than 60 per cent of the increase in the world’s urban population over the next three decades will occur in Asia, particularly in China and India, but also in Bangladesh, Pakistan, the Philippines and Viet Nam (McGee 2001).

Increasing urbanization and the changing age structure are significant for most countries in the ESCAP region. Rural-to-urban migration will swell the youth population of the cities or urban areas in the coming decades. In 2000, about 18 per cent of the population in the Asian and Pacific region were youth aged 15 to 24 years and 30 per cent were below age 14. Although the age group 0 to 14 years is projected to fall to 25 per cent of the region’s total population by 2015, it is still a remarkably high proportion (ADB 2001b).

A new study indicates a gradual increase over time in the proportion of women among rural-to-urban migrants who move independently (United Nations forthcoming). This trend is likely to continue because of employment opportunities in the urban formal and non-formal sectors. The continuing pace of urban growth and urbanization, together with increasing female education in both rural and urban areas, can only add to this trend.

In this region, more than 60 per cent of the population currently live in rural areas. Most of the poverty in the region is rural-based, although urban poverty is also increasing. About 800 million people, 30 per cent of the population of the region, are poor. More women than men live in poverty and poverty is increasingly a condition found among older persons; recently arrived immigrants also tend to be poorer than others (ADB 2001b).

International migration is emerging as an important issue not only in demographic dynamics, but also for many social protection policies. Many Asian countries currently send or receive hundreds of thousands of international migrant workers every year. Chapter IV of the present study discusses some migration trends within this region.

These demographic trends have serious implications for social protection policy. The recent trends in the ESCAP region of low fertility and mortality, resulting in lower population growth rates and in population ageing, place serious burdens on economic and social support and health-care systems. Moreover, because females generally live longer than males, there will be an excess of elderly women, a situation which is typically viewed as problematic because it reflects high levels of widowhood. Elderly women, and especially those without spouses, suffer greater disadvantages than elderly men because they are less likely to have occupational skills, pensions or resident caregivers. Moreover, older people in the region currently reside primarily in rural areas; in view of urbanization trends, the percentage of older people living in rural areas is expected to decrease. Furthermore, the decrease in the percentage of older persons living in extended families will leave more dependent elderly people living alone, forcing them to look to Governments for assistance in meeting their housing needs and living standards.
Many policy issues concerning the protection of migrants have also arisen. Theoretically, overseas labour migration can bring employment and financial benefits to migrants and their families. However, the many recruitment agencies and the difficulties in regulating them have resulted in migrants being cheated out of their savings and salaries. Migrants overseas are often very vulnerable to exploitation because they do not know the language or the laws of the host country or how to seek redress for grievances. Unauthorized migrants are especially vulnerable, as they fear that they would be expelled if they file any complaint with the authorities (Abdul-Aziz 2001).

Female migrant workers, mainly employed as domestic and service workers, are often subjected to sexual exploitation in the workplace by their employers. Male migrants workers are often concentrated in construction or industry. Many are engaged in somewhat hazardous occupations; yet they often lack health insurance or other forms of social protection. An accident can leave the worker injured and in debt. The demand for inexpensive labour and the poverty of large segments of the population in Asia have resulted in human trafficking on a large scale. Many of those trafficked are women and children, of whom it is estimated that a quarter million a year are trafficked in South-East Asia alone (IOM 2000).
While Governments accept that a certain number of international labour migrants may be beneficial for the economy, they usually intend that such migrants reside in the country only temporarily. However, large migration flows nearly always lead to some amount of long-term or permanent settlement, and few Governments have addressed the consequences of such settlement (Komai 2000). A well-thought-out policy could enable both Governments and the migrants to maximize the development benefits from such settlement.

Policies and programmes aimed at increasing employment in both rural and urban areas are of particular importance in alleviating poverty. As the urban youth population will continue to increase during the coming decades in this region, employment generation in urban areas should be emphasized. Providing these young people with skills, employment, health care, including reproductive health care, and other services will be a major challenge for social protection. Additionally, the increasing informalization and casualization of jobs will add to the insecurity and lack of social protection for this group of workers, a large number of whom are women.

C. TYPES OF SOCIAL PROTECTION SCHEMES PREVAILING IN THE ESCAP REGION

The situation of countries in the ESCAP region has been diverse, to say the least, with social protection schemes that range from the formal to informal and from public to non-governmental and private sector. Formal protection systems would include programmes of social assistance, social security/insurance, employment schemes and area- and microbased programmes. Box V.1, illustrates some social protection components arranged in terms of their degree of formality, stability and performance.

Many of the terms used in social protection analysis are given different meanings in different institutional publications. In this study, “formal” is used to describe social protection provided by State and market-based actors (through direct provision, statutory insurance, public works or private insurance firms), while “informal” covers individual and collective arrangements which fall outside these systems (household income diversification, assistance among kin, mutual aid societies).

1. Informal social protection

Poor population groups in developing countries are for the most part not reached by formal social protection systems. In fact, more than half of the world’s population is not covered by any type of formal social protection, with the Asian region generally being worse than other parts of the world except Africa. In South Asia, statutory security coverage is estimated at 5 to 10 per cent of the working population and is decreasing in some countries. In South-East and East Asia, health insurance coverage can vary between 10 per cent in Cambodia and 100 per cent in the Republic of Korea (Yoshitomi 2001). The formal social protection system in most Pacific island countries (Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Vanuatu and recently Tonga) is limited in its coverage as well (ILO 2001b). Overall, social protection remains at dismally low levels in the region.

The poor are largely dependent on social protection mechanisms provided by non-State institutions, including family and kin, “community”, religious bodies, NGOs, mutual savings and credit groups, and forms of “traditional” insurance such as burial societies (ADBI 2001). In the development literature of the 1990s, this trend is referred to as “social capital”, that is, organizational capacity, linkages and networks, which poor people can mobilize for the management of social risk and protection from absolute destitution.

All population groups, but especially the poor, are vulnerable to four main types of risks: (a) those related to the individual life cycle, (b) economic, (c) environmental and (d) social and governance-related (ADB 2001a:2). Another way to categorize the risks is as follows: (a) covariant (common) risks (climatic shocks, seasonality, policy shocks) and (b) idiosyncratic (individual) risks (orphanhood, widowhood, old age, unemployment). Box V.2 lists some of the informal strategies employed by the poor to cope with these various risks.

The intrahousehold arrangements reflect the “safety-first” principles observed in interhousehold (“community”) relationships. In many societies, women settle for unequal and exploitative relationships with their husbands (and their husbands’ relatives) because these relationships also entail some reciprocal responsibilities and protection, at least in theory (cultural ideal), if not always in reality (cultural practice). Several reports attest to these household strategies, which were put under stress with the onslaught of the crisis starting in 1997 (White and Sharma 1999). Often women also bear the disproportionate burden of providing social protection as caregivers for dependent family members such as children, elderly parents, the sick or persons living with HIV/AIDS.

Common property resources comprise another crucial fall-back in the livelihood strategies of the poor in rural societies. Fish from rivers and lakes, timber and non-timber products from forests, and animals such as frogs, crabs and birds may all be essential to the consumption and income of rural households (Seidensticker and others 1991).

In many societies, organized religions provide a refuge of last resort for the completely destitute. For example, temples in many countries will offer shelter and food to those, particularly women, who lack kin to support them in their old age. In some societies, religious conversion may enable the convert to rise above ascribed social identities, and the confines of impoverishment and high-risk social situations. During widespread distress, religious groups frequently provide a “bridge” between the local environment and external sources of support (for example, local religious organizations in cushioning the impact of natural disasters, frequently draw on contacts with other better-endowed NGOs in their global network).

Various forms of developmental and charitable organizations (local, national and international) are significantly involved in social protection efforts. Local and international NGOs generally operate with a strong value-based motivation, many concentrating on assistance to the poorest of the poor. NGOs have pioneered work in assisting the poor in developing the organizational forms to manage their own resources (credit and savings groups). They have also initiated innovative approaches in working with women, people with disabilities and other marginalized groups. Van Ginneken (1999) discusses an important aspect of social protection that is not extensively studied in the development literature, namely, the inclusion of insurance functions in multifaceted local-level organizations such as cooperative associations and rotating savings and credit associations. Burial societies, for example, accumulate regular contributions paid by their members. The accumulated funds are then used to pay for funerals and other ceremonies at the time of a member’s death. These cooperative associations play a major role in preventing debt and hardship in households which have already been dealt a major blow in the loss of a family member. Many such mutual aid groups run revolving funds (such as “tontines”) to which each member contributes a fixed amount. The proceeds are distributed to the members in rotation. The rules often require an agreed-upon schedule of deposits and withdrawals by members. As many such groups are kinship- or friendship-based, there are strong social control and payment ethics. Studies indicate a wide range of rotating savings and credit associations or institutions (including the extended family) that provide protection against risks such as disability, old age, death, illness and maternity (Ardener 1996).

Informal social security entitlements are offered by traditional solidarity (such as support payments, gifts, dowries and bequests, which are all based on generalized reciprocity), indigenous self-help (such as burial funds, savings clubs and community support, which are all based on balanced reciprocity) and modern self-help, which can be initiated from above, such as cooperatives, trade unions, charities or NGOs. They can also be initiated from below such as through farmers’ organizations, religious groups or self-help groups on their own behalf. Unconventional social security may provide food (food for work), loan insurance, employment security (guaranteed employment) and a strengthened capacity for solidarity.

Evidence shows that in Thailand in the aftermath of the financial crisis, at both the family and community levels, social capital institutions that form the traditional, non-formal safety net were used extensively and even expanded. For instance, Thai families, relatives and friends continued to help each other with cash gifts and remittances during the crisis. At the household level, Thai families continued to protect their essential expenditures on necessities, their children’s education and basic health needs. Thai families also managed household budgets so as to cut back on luxury purchases and “vices” such as alcohol and tobacco (Thailand Social Monitor 2000, third issue, Thailand and the crisis).

The above examples illustrate some of the parameters of household- and community-based social risk management and social protection schemes. They are often far from ideal, but a resource nonetheless, which should be understood and incorporated when policy makers attempt to design State instruments of social protection. These informal arrangements typically focus on mitigating and coping with risk: small-scale, informal social protection arrangements cannot generally generate resources of the scale or diversity necessary to reduce long-term, extensive life risks. Informal social protection arrangements may also “buy” social protection in the short term at the cost of long-term poverty traps.

2. Formal social protection

Among the lessons learned from the financial crisis is that the informal family and community-based mechanisms on which traditional societies rely as the main form of social protection cannot cope with nationwide shocks that could bring down a great number of households simultaneously. This painful experience highlighted the need for more formal institutionalized mechanisms for managing risk and protecting the poor and vulnerable in society. Several countries have been adapting existing institutions to the evolving social conditions and establishing new ones, in order to cope with the social impact of the crisis.

Formal social protection policies and projects in the region may be usefully categorized as social assistance, social insurance, employment schemes and area- and microbased programmes. Table V.1 summarizes the information available on the major areas of formal social protection in Asia and the Pacific. However, in view of the complexity of policy developments, this table should be seen only as an illustrative list of key programmes put in place in these countries and regions. The shape of each country’s social protection regime is greatly influenced by cultural and value patterns and policy developments in previous years.

(a) Social assistance

Social assistance is equivalent to transfer payments offered to those who are living in poverty or at immediate risk of becoming poor. Social assistance can be provided through Governments and the informal sector (including CSOs, NGOs, religious groups). Social assistance and welfare services provide protection to those who cannot qualify for insurance payments or would otherwise receive inadequate benefits. Social assistance programmes are designed primarily to enhance social welfare by reducing poverty directly. Programmes aimed at child support for indigent families can also promote longer-term growth by encouraging greater investment in human capital.

Social assistance interventions may include:

(a) Welfare and social services, institutionalized or community-based, for highly vulnerable sections of the population, such as persons with disabilities, orphans and substance abusers;
(b) Cash or in-kind transfers such as public assistance, food stamps and family allowances to vulnerable groups;
(c) Temporary subsidies, such as energy “life-line” tariffs, housing subsidies or support of lower prices for staple food in times of crisis;
(d) Safeguards: in cases of a rise in prices or loss of entitlements for the poor, adequate mitigation measures are needed to prevent any adverse effects on the poor and the vulnerable; in the case of infrastructure, it should be designed to enable people with disabilities to benefit from public investments.

State-provided social assistance is typically lacking in low-income countries. As table V.1 shows, most of the low-income countries (especially in the South Pacific) have no such schemes in place. Social assistance may be a means to other social policy ends; for example, the provision of free school meals not only meets nutritional needs but can encourage poor families to keep their children (and especially girls) in school.

In Indonesia, following the 1997 financial crisis, the Government introduced several social assistance programmes to enable continued access to critical social services through the introduction of a basic health card system, the subsidization of generic drugs and the provision of student scholarships and block grants (Irawan and others 2001). It also introduced public works and microcredit programmes. Most important, however, it improved food security by introducing a rice subsidy programme, which replaced a general subsidy programme that was in place before the crisis. This revised programme was a targeted price subsidy programme aimed directly at poor households.

In Thailand, which had no national poverty programme in place prior to the Asian financial crisis, support was provided for the following social assistance measures: (a) a health card system for low-income groups and assistance to HIV/AIDS sufferers, (b) educational loan programmes and lunch programmes for pre-elementary school children, (c) special programmes for disadvantaged and abandoned children, disadvantaged youth and women and homes for the elderly and (d) programmes for other vulnerable groups such as tribal groups, welfare and social services for low-income individuals and families, emergency loan programmes for the poor, in-kind programmes for the destitute and support for people in disaster situations (Pongsapich 2001).

Japan, with a public social assistance programme dating back to 1874, bases its schemes today on a few basic principles: (a) public assistance to people in need is a responsibility of the State, (b) all citizens have a right to claim public assistance provided that they meet the economic criteria for receiving such assistance, (c) the State guarantees to all citizens a minimum level of healthy and cultural life and (d) public assistance is a supplement to all resources available to the applicant. Assistance is mainly given to elderly households, single mother households and households with ill persons and persons with disabilities (ADBI 2001).

(b) Social security and insurance

Social protection must include an ex ante insurance function through social security in order to mitigate against possible life-cycle risks and some disasters. Reducing these risks enables workers who have lost their jobs to search for a good alternative, removes barriers that might otherwise discourage workers from acquiring education and training and helps to ensure that the health and education of their children are not sacrificed in an economic downturn. Social insurance programmes mitigate the risks by providing income support in the event of illness, disability, work injury, maternity, unemployment and old age. Such programmes include the following:

(a) Employer liability schemes: Employer benefit schemes normally place sole responsibility on the employer for providing cash benefits and medical care services to employees who suffer work-related injuries or occupational disease. The employer provides the benefits directly or through an insurance company. Such schemes have several shortcomings such as employers’ resistance to pay claims. As a consequence, such schemes are normally converted into social insurance schemes to which the employers generally contribute;

(b) Provident fund schemes: A provident fund is a compulsory savings scheme wherein contributions from both employers and employees are accumulated in an individual account of the employee. Provident funds are basically old-age protection schemes wherein the accumulated savings plus interest are paid in a lump sum when the employee attains retirement age or upon his/her disability or death. Although provident funds can play a valuable role in promoting self-help, they are in some ways deficient, because payments are made in lump sums without regard to the long-term needs of the recipient. Such funds are therefore based on individual responsibility and are not a form of risk-sharing among contributory members. As a consequence, many provident funds are converted into social insurance schemes;

(c) Social assistance: As discussed previously, social assistance schemes are non-contributory schemes financed from general tax revenues. While basic social assistance schemes exist, such as for the indigent poor, elderly and disabled persons in many developing countries, their scope and outreach are limited;

(d) Social insurance: Social insurance schemes are usually compulsory contributory schemes wherein contributions are paid to a common fund from which the costs of benefits and administration are met. Contributions can be paid by employers and/or the employee and are sometimes subsidized by Governments. This type of scheme, such as unemployment, old age and health insurance, is widely implemented in the developed and some developing countries. The idea of social insurance is to extend protection to entire populations. However, so far no countries, not even the richest ones, can claim to have attained complete universal coverage. Moreover, coverage under these social security schemes is often limited to workers in the formal sector. The self-employed, agricultural workers, informal sector workers and domestic and casual workers are not covered (Pongsapich 2001).

Japan has introduced a universal health insurance and pension scheme, and in April 2000, a long-term health-care insurance scheme (ADBI 2001). As in the Republic of Korea, the introduction of these schemes was facilitated largely by a political consensus that had emerged in the country. These schemes are systematically refined and expanded. The social insurance schemes in many industrialized countries face similar problems, which mainly relate to the ageing of the population, rapidly increasing costs of services and changing employment patterns. These problems have led to difficulties in financing old-age pensions and to deficits in the health insurance schemes.

The formal social protection systems in most Pacific island countries (Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Vanuatu and recently Tonga) are limited to schemes in this area of social security – provident fund and health-care benefits (ILO 2001b). As in most other countries, however, the coverage of provident funds is mainly confined to formal sector employees, including those in public service.

(c) Employment schemes

There is a category of social protection instruments comprising neither contribution-funded insurance nor tax-funded assistance per se. Labour-market policies that facilitate fuller and more rewarding employment recognize that as economic development proceeds, employment will become the major source of economic support for most workers and their families. Improving labour-market operations is an important element of strategies to reduce poverty, facilitate human capital development and address gender discrimination. Such improvements will also help to allocate national human capital resources to their most productive uses, enhance general economic welfare and encourage growth and development.

Labour-market improvements to enhance social protection would include labour-market assessments describing demographic trends, labour-absorbing sectors, unemployment and migration flows. Information on the size of the informal sector, as well as the reasons for its existence, can help to identify a country’s needs and development options.

Active labour-market programmes include the following: (a) direct employment generation (promoting small and medium-sized enterprises and public works), (b) labour exchanges or employment services (job brokerage and counselling) linking the supply of labour with the demand for it and (c) continuing skills-development programmes (training and retraining of labour).

Passive labour-market policies include the following: (a) unemployment insurance, (b) income support and (c) an appropriate legislative framework that strikes a balance between economic efficiency and labour protection. An appropriate legislative framework would include provisions on issues such as minimum age, maximum hours of work and overtime, labour contracts, industrial relations, special protection appropriate for new mothers and anti-discrimination provisions to protect women and minorities. Internationally recognized labour standards, when ratified, should be part of the legislative framework. The Core Labour Standards being promoted by ILO do not need explicit ratification and consist of the following: (a) freedom of association and the effective recognition of the right to collective bargaining, (b) the abolition of all forms of forced or compulsory labour, (c) the elimination of discrimination in respect of employment and occupation and (d) the elimination of child labour.

(d) Area- and microbased programmes

Area- and microbased programmes are considered new and innovative approaches in social protection that are especially relevant to reach some sections of the population, especially the poor and vulnerable groups, which have so far been excluded from social security coverage. They consist mainly of microinsurance schemes, public works programmes and social funds. They are labour-intensive and require grass-roots participation. In addition, area-based programmes such as public works and social funds are not limited to transfers but also contribute to economic growth through productive investments.

(i) Microinsurance

Microinsurance involves voluntary and contributory schemes for the community, handling small-scale cash flows to address major community risks. Often such schemes are of a local character and have a very small membership. The primary aim of many of these schemes is to help their members to meet the unpredictable burden of out-of-pocket expenses, such as a hospital emergency, death or funeral expenses. In recent years, groups of workers in the informal economy have set up their own microinsurance schemes, normally assisted by grants or government subsidies. Such schemes may operate within the context of a microfinance scheme, which has already had experience in collecting contributions and administering payments.

Microinsurance is an emerging topic with high potential. Microinsurance can provide social insurance at affordable prices, expand coverage when there is a realistic understanding of the problems that communities face and promote community involvement. Options for the future include pooling existing organizations, promoting reinsurance and providing private-public partnerships. More effort needs to be made in marketing microinsurance, as a large percentage of the target population is not well informed of the benefits of being insured and the credibility of microinsurance needs strengthening.

There are more than 40 microhealth insurance schemes in Bangladesh, India, Nepal, the Philippines and Thailand (Hashemi 2000). They are all operating on a non-profit basis with the objective of extending health-care services to poor family households. Most schemes are managed by community-based organizations, professional organizations, trade unions and religious groups. Sometimes provincial governments are responsible for managing the insurance schemes.

(ii) Agricultural insurance

Agricultural insurance provides protection to farming communities. It is a financial mechanism in which the uncertainties of farming in terms of potential loss are minimized by pooling a large number of uncertainties that could have an adverse impact on agriculture so that the burden of loss can be distributed. The loss may be due to a number of natural perils such as storms, floods, droughts, hail, frost, earthquakes, volcanic eruptions, plant and animal pests and diseases. The risks of loss can be spread temporally or spatially. With reinsurance, the risks can be further spread across national boundaries. For instance, during natural disasters of widespread proportions, other countries could help to share the burden. Agricultural insurance should be re-examined as an effective tool for the development of the rural economy when implemented as part of a package of support services in rural areas, cautiously accompanied by adequate reinsurance mechanisms.

As with all insurance schemes, agricultural insurance is better suited to the modern sector as opposed to the traditional sector. Marginal, subsistence-oriented, small-scale farmers typically lack the discretionary income to contribute to conventional crop insurance schemes. For their part, private sector financial institutions are often wary of insuring crops, on the grounds that the possibility of widespread crop failure would result in unacceptable exposure to covariant shocks. Experience to date has not been promising: one review concluded that “crop insurance programmes have been a disaster nearly everywhere” but noted that organizational innovations borrowed from microfinance institutions might offer a means to realize the theoretical potential of such schemes (Morduch 1999).

(iii) Social funds

Social funds have evolved as mechanisms to channel public resources to meet particularly pressing social needs. They are generally supported from external sources. Community-based social funds are facilities, typically managed at the local level, empowering communities, NGOs and local governments that provide finance for small-scale projects, such as infrastructure schemes and livelihood programmes to community groups. They provide direct poverty relief and encourage skills development while contributing to a community’s social capital. The financial crisis and the growth in the number of countries undergoing economic transition have led to an increase in social fund projects in Asia. Social fund methodology is currently used by local governments to promote good local governance and test, on a pilot level, decentralized management and financing of small-scale infrastructure in some Asian countries.

(iv) Disaster preparedness

Disaster preparedness and management are essential to assist communities at risk in coping with and mitigating the affects of disaster, from floods, earthquakes, etc., where people are injured or made homeless. Victims of catastrophes are usually assisted by public relief programmes; however, given the important economic and human loss caused by disasters, the critical issue is to invest in disaster preparedness. Several countries in the Asian and Pacific region have established disaster management centres to assess hazards, plan risk reduction and monitor programmes, provide emergency assistance and strengthen local-level risk-reduction capacity (ADB 2001a). Two principal trends have developed over the past decade in disaster management: (a) improved hazard forecasting through computer models on climatic behaviour and (b) an increased focus on local vulnerability in view of the fact that community-based preparedness is the best mechanism to reduce loss of human life and the scale of damage.

(e) Labour market programmes

(i) Public works programmes

Public works programmes typically provide unskilled manual labour with employment for a short duration on labour-intensive projects such as road construction and maintenance, irrigation infrastructure, reforestation, soil conservation and waste management. Bangladesh and India have developed significant experience with public works programmes (Ravallion 1991). In other countries, such programmes are playing an increasingly important role as well. If well designed and implemented, such programmes could transfer benefits and provide income stabilization benefits, in addition to building much-needed infrastructure. Experience with such programmes has shown that they can reach the poorest quintile of the population (Culhane 1997).

Public works programmes provide immediate transfer benefits to able-bodied poor people willing to participate in short-duration jobs. Depending on the timing, programmes also confer income (consumption-smoothing) benefits. To this extent, such programmes lessen the risk of starvation for those surviving on the edge. Public works programmes, if well designed, can help to construct infrastructure that is often beneficial to the poor themselves. Such programmes are also amenable to geographic targeting. Poor areas and communities can benefit from such programmes directly. In addition, other objectives such as those promoting the participation and empowerment of women and household food security can also be realized if the programme is carefully designed and implemented.

D. ISSUES IN PROGRAMMING AND IMPLEMENTATION

Studies of social protection interventions introduced in China, India, Indonesia, Malaysia, the Philippines and the Republic of Korea, among others, suggest that these schemes suffered from such weaknesses as limited funds, low benefit size, leakages in targeting, inadequate monitoring of outputs and insufficient coverage.

One key social safety net measure undertaken by the Republic of Korea was a public works project aimed at stabilizing the livelihood of the unemployed poor (ADBI 2001). In retrospect, this programme covered only 38.9 per cent of the unemployed, the majority of whom were over 60 years old and not the initial target group. Occupational retraining budgets were also increased during the period concerned; however, there were loopholes through which private companies tried to subvert the system. Another response to the crisis was an increase in the budget and coverage of the unemployment insurance scheme. While the unemployment scheme illustrated a crucial mechanism and good practice in social protection not common in this region, the amount of the benefits was below the poverty line, so its effectiveness was more limited than expected.

These problems were highlighted in country studies commissioned by the ESCAP secretariat and included the following:

(a) Under-coverage is a serious drawback in many social protection regimes. Workers in the informal sector as well as those in rural areas constitute the majority of the workforce that are the most vulnerable and are often excluded from public social services;
(b) The design and choice of targeting mechanisms require further study to take better account of specific country situations. Trade-offs were evident in terms of economic incentives, fiscal objectives and political acceptability;
(c) The involvement of civil society organizations and the private sector in programme implementation and monitoring is essential to enhance the efficiency and coverage of social protection policy. The question that remains is how best to establish effective working partnerships between the Government, CSOs and the private sector.

(i) Fragmentation

Social protection should be treated as an overall development issue rather than by a series of patchwork or unrelated programmes. For example, research suggests that at both the national and subnational levels, social security policy and administration are fragmented among different departments such as General Administration, Labour, Social Welfare, Women’s Welfare and Health (van Ginneken 1999:187).
Given the breadth of policies and the bewildering range of governmental policy actors and institutions which relate to social protection, it is not particularly surprising that institutional fragmentation occurs in terms of financing and budgeting, targeting and monitoring. This situation clearly creates a major challenge for government structures in terms of social protection policy development.

(ii) Fiscal sustainability

Another issue is the “fiscal crisis of the State”. The scarcity of resources, in particular government revenues, is a common problem. This problem, in some cases, is due to policies of trade liberalization, which restrict some sources of revenue (e.g., tariffs) that were previously available to Governments for funding national social expenditures. In addition to the increasing restrictions on trade tariffs, there is a broad-based move away from payroll taxes towards indirect taxation in order not to disadvantage companies. A further significant trend is the increasing capacity of transnational corporations to find ways of reducing tax demands through practices such as transfer pricing.

These discussions demonstrate the importance of putting social protection in the context of significant relationships with other areas of policy. First, social protection comprises part of the broader field of social policy. The linkage between social protection and broader social policy analysis is important to the analysis and prioritization of public expenditures and public policy choices. Particularly in poorer countries, difficult choices need to be made in relation to the capacity of the State and the need to allocate financial, institutional and human resources in different essential sectors, including health, education and water as well as social protection. Second, it is important not to view social protection as a field that deals only with residual problems of human welfare; it is a form of policy which enhances human potential and promotes equality of opportunity as well as of outcome. The use of statutory forms of social insurance to provide pensions and other benefits to workers in uneconomic State enterprises, for example, has been shown in practice to increase inequality in many developing countries, by effectively taxing poorer workers to provide benefits for the non-poor (van Ginneken 1999).

Fiscal sustainability will become an even bigger challenge, in view of the population-ageing trend in the Asian and Pacific region. A shrinking working-age population will adversely affect tax revenues or contributions and aggravate fiscal sustainability. Lee (2001) examines the problem of fiscal sustainability in the context of social spending for the elderly in the Republic of Korea. Figure V.1 demonstrates the results on the fiscal burden of pension, health insurance and other social expenditures for the elderly. The results imply that the current social protection scheme will face serious fiscal sustainability problems unless the structure of benefits and contributions is drastically reformed.

(iii) Incentives

A related problem is that of incentive compatibility. Experience from Western welfare States shows that social protection schemes lacking incentive compatibility will undermine economic growth and ultimately social welfare itself. In a study of 11 members of OECD, data from 1960 to 1996 revealed that all countries experienced a drastic drop in labour participation with the expansion of social benefits. Most notable was the decline in the labour-market participation rate among the elderly. In the early 1960s, the labour-market participation rate of men aged 60 to 64 was more than 70 per cent in all countries, with several countries showing a rate above 80 per cent. By the mid-1990s, the rate had fallen to below 20 per cent in Belgium, France, Italy and the Netherlands and to about 35 per cent in Germany, 40 per cent in Spain, 53 per cent in the United States and 57 per cent in Sweden. Even in Japan, which is regarded as an exception in terms of labour-market participation, the rate recorded a drop to 75 per cent (Lee 2001).

These results indicate that, in view of the social impact of demographic changes, which require the reform of social security, “solutions must be incentive-compatible and promote growth” (Lucena and de Macedo 1996:75). Moreover, given the strong attachment to work incentives and the fiscal limitations in many countries in the ESCAP region, it is important to avoid creating a culture of dependence (Blomquist 2001:11).

(iv) Targeting and coverage

While financial constraints are challenges in themselves, the overall sustainability or viability of public provisioning of social services also depends on targeting efficiency. Targeting efficiency ensures that the most needy are the actual beneficiaries of social protection interventions. Illegal receipts and mismatches of the intended beneficiaries and actual beneficiaries are the most commonly observed examples of ill-targeted social protection (Lee 2001).

Other incidences of ill-targeting may be found in public works programmes. In an ESCAP-sponsored survey on two major public works programmes in Indonesia, female respondents reported a systematically greater reduction in income after the outbreak of the 1997 crisis than male respondents. Labour-market figures also showed that a higher proportion of female than male workers were underemployed. However, the public works programmes that were implemented were more biased towards male participation (Lee 2001).

One reason behind this ill-targeting in gender terms may lie in the fact that the types of jobs offered in the programmes were more suited to male workers, for example, construction, repair and renovations. Information on the programme and application procedures was disseminated only through government and social leaders and not through the news media, thereby excluding particular groups from receiving the information. It is also very likely that gender bias was at play: women were seen traditionally as secondary income earners; priority was, therefore, given to providing male-oriented works programmes.
In some arenas there is a debate on whether to target subsidies for the poorest of the poor. Views diverge on this point. One argument is that targeting the poorest and excluding the middle class could result in the continued provision of poor-quality services to such voiceless groups, because the middle class is able to pay for private and better services. This approach also undermines cross-class cohesion and solidarity. In China, for example, this problem is a major concern. Many poor people in China choose not to go to subsidized public hospitals and clinics because of the poor quality of the services offered there; instead, many choose to delay treatment until they can afford the more expensive private services (ADBI 2001). However, this type of targeting may provide the optimum solution in some severely constrained countries, provided that public expenditures do not end up subsidizing the pensions and salaries of a privileged class while ignoring the needs of the more disadvantaged, who are not covered.

E. SOME POLICY CONSIDERATIONS FOR STRENGTHENING SOCIAL PROTECTION INTERVENTIONS

Improving national social protection systems is of major importance to all countries in the ESCAP region. However, the motivation for reform and the approaches adopted will differ dramatically from one country to another. In much of the region, the debate is dominated by concerns about reducing poverty, expanding coverage of formal and informal social protection services and identifying adequate financing mechanisms to meet the vast social protection needs of the population. In the economies in transition, there is a need to adjust programmes and institutions to reduced budgets under a market economy. In some countries, reforms are motivated by a desire to insulate social protection systems from political interference. The reform debate in developed countries such as Japan tends to focus on dealing with the costs of an ageing society. Country priorities differ substantially, and this will determine the different design and solutions of each country.

In view of the broad variety of reform priorities and possible combinations of interventions (labour-market, social insurance, social assistance, area-based schemes and informal social protection), the strategy selected will set the parameters for prioritizing investments. This would be based on the principles of reducing vulnerability and poverty, strengthening country focus and enhancing strategic alliances and partnerships with development agencies, the private sector, including labour and employers’ organizations, voluntary organizations and other parts of civil society. The selection of policy interventions will require a needs assessment within each country, an evaluation of available resources, institutional capacity and the political economy of reform.

Once a set of specific social protection interventions has been chosen, project design should aim at balancing trade-offs to effectively reduce poverty and vulnerability and to promote human development. This would be guided by related policy and programme considerations including (a) coverage and benefits, (b) targeting of vulnerable population groups and gender issues, (c) programme sustainability and governance issues, (d) administrative arrangements, including optimal delivery mechanisms, and (e) an integrated social protection framework.

1. Assessing country priorities

Social protection strategies will vary from one country to another as a result of differences in needs, existing institutions and available resources. Country preferences will also be influenced by the political support and social consensus needed to implement reforms. An analysis of these four factors determines the social protection priorities of a country.

The main objective of social protection is to reduce risks, vulnerability and poverty. A vulnerability and risk profile will help to determine country-specific social protection needs. A description of major risks to the population, demographic structures, levels of urban-rural population, poverty and the size of the formal sector influence the type of social protection mechanisms that are feasible and appropriate. Where population projections show that significant numbers of young people will enter the labour market in the near future, social protection should address the needs of the young. Where population growth rates are low or even negative, and there will be a rapidly ageing population and high old-age dependency ratios, social protection systems should address the priorities of the elderly. Where the most acute risks lie with victims of natural disasters, migrant workers or any other vulnerable population groups, social protection planning should accommodate these specific country needs.

A summary labour-market analysis will reveal employment patterns and should further help to determine country priorities, not only in social protection, but also in the identification of other development interventions. The size of the formal and informal sectors, the sectoral distribution (population engaged in agriculture, industry and services), the rural and urban active population, the evolution of real wages, the role of women in the labour force, working conditions, compliance with national and international labour laws and standards, including the reported existence of child or bonded labour – all will provide additional information to help to determine the priorities for country interventions. Where the rural areas have to shoulder a disproportionate burden of a country’s social problems, strengthening rural systems such as rural job creation and social protection schemes for the informal sector workers may be priorities. The country labour-market analysis should evaluate which sectors/subsectors and geographical areas have a demand and which have excess labour and help to identify the right mix of public policies. Labour-market analysis is a key element in the strategic link between economic growth and poverty reduction and should provide recommendations for planning efficient and inclusive development patterns.

The quantitative evidence gathered in the vulnerability profile and labour-market analysis provides the basis for the country social protection needs assessment and will enable a rational and well-demonstrated prioritization of possible development interventions. Collaboration among ESCAP and other United Nations agencies, as well as financial institutions, is essential to ensure coherent perspectives and avoid a repetition of surveys, profiles and analyses.

2. Coverage

Expanding access to and coverage of social protection programmes should be the main objective of the formal social protection agendas of developing countries in the region. Both the public and the private sectors have failed to provide effective social protection for the population. The coverage of people and the scope of the needs addressed would depend on the financial and institutional resources available; gaps occur because of statutory exclusions, poor enforcement or the lack of comprehensive benefits despite high contributions for particular groups.

There is a need to extend coverage to the informal sector. In this region, labour-market regulations and standards and contributory social insurance programmes designed for universal coverage in the medium and long terms have serious coverage gaps. These programmes provide mainly for public sector employees and workers at larger enterprises in the formal sector. Smaller employers are often excluded from many of the provisions, as are home-based workers, daily labourers, farmers, fisherfolk and many of the urban self-employed. The informal sector often operates outside the scope of regulations, with low and unstable levels of income, and poor working conditions. The result of the statutory exclusions is that many of the most vulnerable groups are not protected.

The poor and informal sector workers place more importance on strengthening prospects of survival and improving incomes but have limited resources to invest in social insurance schemes. Many rural elderly usually do not retire but are likely to remain economically active in the informal sector as long as they are physically able to do so in order to support themselves and help their families to survive. Efforts to expand coverage should start by addressing the needs of the poor and informal sector clientele and aim at their self-sufficiency through improving their productive potential and their employment and income-generating capacity, improving the household’s welfare and mitigating the risks that keep households in poverty. A major area of development for informal sector groups in both urban and rural areas is microinsurance for health care and making provision for the loss of the breadwinner and short-term risks through voluntary schemes established by mutual benefit societies, cooperatives and similar organizations, civil society groups that rely on trust engendered through occupational groupings or community solidarity.

There is also a need to strengthen and broaden coverage for formal sector workers. Even where most formal employees and self-employed people are covered according to the statutes, the reality may be quite different owing to lax enforcement. Where enforcement is lacking or lax, labour-market regulations are likely to have little impact, even for those who are nominally covered. Poor enforcement can also undermine the protection offered under contributory social insurance, because benefit entitlements usually depend to some degree on how contributions have been collected. Effective enforcement requires institutions that have the necessary statutory authority to establish liabilities and enforce collections. These institutions must also have adequate operating budgets and the willingness and ability to sustain the enforcement effort. For these reasons, assessing social protection coverage necessarily involves assessing the effectiveness of the implementing institutions.

Market-based schemes have often found that servicing low-income communities is unattractive, compared with the higher returns that can be received from servicing higher-income groups. The poor have discontinuous income and are more prone to risk. Thus, for example, the higher transaction costs involved with servicing the poor are unattractive to insurance companies. Efforts should be made by Governments to arrange public-private sector partnerships that offer low-income communities access to social protection services.

Many systems in the region are underbudgeted or receive erratic yearly funds, so that the adequacy and range of benefits are affected. Often, the transaction costs are greater than the benefits provided. It is critical, therefore that social protection systems be designed efficiently to provide effective protection with the resources available. Benefits should not be so generous that they generate disincentives. Continuity and predictability about the conditions under which benefits are to be provided and the approximate amount to be made available are necessary in order to realize the social gains promised by social protection programmes.

3. Institutional arrangements

Where social protection programmes already exist, conscious decisions will have to be made about whether reform efforts should build on the existing institutions or whether new institutions should be created. Most countries have some form of formal social protection institutions, but the institutions that exist may be very weak or have very limited coverage. Where the existing institutions are weak, they may not impose serious constraints on the reform process. Where they are strong, their influence on policies relating to the structure and philosophy of social protection needs to be considered. The institutional history, including the relative credibility of the public and private sectors, and social protection commitments, will inevitably affect the scope and nature of any new intervention. A good stakeholder analysis of old and new providers and recipients of social protection may facilitate discussions during country programming and project design by making the trade-offs transparent. Reforming social protection policies is likely to be easier – and the odds of success correspondingly higher – if the new approach preserves an important role for the existing institutions.

Investment decisions in social protection will require an understanding of the country-specific institutional capacity to deliver reforms, including (a) the efficiency and coverage of existing social protection programmes and (b) the possible roles and risks involved in using public, market-based and civil society/NGO mechanisms for new social protection programmes. The institutional prerequisites of different social protection approaches need to be taken into account. The risks involved in engaging the public and private sectors need to be assessed to ensure that the proposed reforms will effectively reduce poverty and vulnerability. For instance, a market-based strategy will likely not cover the social protection needs of the poor and disadvantaged groups. An appropriate public-private sector arrangement is envisaged. Pension reform projects often involve construction of privately-funded mechanisms to encourage the development of sophisticated financial market institutions; however, these can function effectively only if the domestic capital market has already reached a minimum level of development. Where the preconditions for advance funding are absent, provident funds or basic pay-as-you-go approaches may be important transitional measures to ensure that the objectives of a social protection system are realized. Targeted poverty and social assistance interventions that rely on formal means-testing operate on the assumption that institutions have sufficient capacity to collect, process and store information.

Often, public social protection programmes do not have sufficient human and financial resources to cover all identified needs. Most developing countries allow flexible and innovative institutional arrangements, bringing all possible development partners together under well-regulated sectoral policies and government administrative oversight to ensure good governance and affordable services. The four main social protection delivery mechanisms are (a) public-based, normally best for achieving expansion/universal coverage, (b) market-based, normally best for efficient delivery to the formal sector of the economy and voluntary schemes for higher-income groups, (c) NGOs and charitable institutions, normally good for targeting low-income communities and (d) a mix of these. However, each mechanism has its limitations. The public sector should not crowd out the potential role of the private sector in delivering social protection. Instead, the public sector should concentrate its efforts on serving areas (especially remote areas) and populations (disadvantaged groups) that are not covered by the private sector.

Decentralization of public programmes offers great potential for improving the effectiveness of social programmes and bringing decision-making closer to communities. Private-public partnerships can be agreed between Governments and private companies to secure the inclusion of those excluded from any form of protection. Where NGOs are already significant providers of social protection programmes, they can be encouraged to continue. However, NGOs often have limited and discontinuous funding and their presence is too scattered to ensure equal expansion of coverage, thus limiting their ability to reduce vulnerability. A mixed delivery system may be best to diversify risks and address social protection priorities.

4. Targeting efficiency

The level of resources available for social protection will influence a country’s social protection choices. Many existing social protection systems and programmes are under-budgeted, receive random funding or have mistargeted benefits. An evaluation of the effectiveness of current programmes and resources to reduce poverty and vulnerability in a country will immediately point to the need for reforms. If a country lacks the fiscal resources to achieve the development of a comprehensive social security system with significant coverage, it should opt to concentrate on poverty reduction among the vulnerable groups and improvements in the labour force through a combination of labour-market policies and programmes, child protection, micro- and area-based schemes, social assistance and minimal social insurance benefits.
Progressively, comprehensive social protection systems will be developed, but in the short term resources will be channelled to those most in need, as identified in social expenditure reviews and vulnerability analyses.

Special attention should be paid to gender issues. Although half the population is composed of women, they receive much less assistance and fewer opportunities than men. Many poverty reduction and social development programmes are focused on households and do not consider intrahousehold differences. Assets and labour are normally differentially distributed between men and women, and boys and girls, within the same household. Unless particular attention is paid to girls’ and women’s unique problems and life patterns when social protection policies and programmes are developed, approaches that might appear to be gender-neutral may actually be disadvantageous to females. Labour-market reforms must go beyond a purely traditional agenda to adequately address issues of gender equity, particularly concerning the special concerns of women such as the higher incidence of informal and home work, competing demands in terms of household responsibilities and the issues surrounding childbearing and caregiving. In terms of child protection, the benefits of investing in the girl child are large: educated girls eventually become more responsible and better-informed mothers. Social insurance programmes need to be designed to take into account the longer life expectancy of women in most societies, the additional implications for women of the risk of loss of support because of death, abandonment or divorce and the less stable earning patterns common among women.

The most vulnerable populations – migrant workers, orphans, the homeless, victims of disasters, refugees, nomads and marginalized indigenous groups – are often not reflected in household surveys. These groups may require special attention owing to factors such as extreme poverty and social exclusion. As with women, these groups may be seriously disadvantaged by programmes that otherwise appear to be uniform and fair, owing to the effects of labour-market discrimination and cultural traditions. Special outreach strategies will normally be required (Lee 2001).

5. Sustainability and good governance

As discussed earlier, the design of any social protection scheme is directly linked to an analysis of how it can be financed and how it can best be delivered. There is no prescription or preferred social protection model, as the structure and operations will vary depending on the available financial and institutional resources. Social protection interventions should include assessments of how to ensure efficient and sustainable operations to deliver the proposed coverage of social protection needs.
Social protection strategies should be developed in a process led by Governments but involving extensive dialogue with civil society, including the private sector and people in poor communities. The involvement and consensus of a plurality of institutions from these groups is important in planning, implementing and monitoring these strategies. (This was one of the commitments of Governments at the Copenhagen Summit and more specifically the ESCAP Ministerial Conference in Manila, which adopted the regional Social Development Agenda).

(a) Financing sources

The variety of social protection programmes may be financed through budgetary support, income-related contributions, charitable donations or a mix of all of these. Enforcement of revenue collection may result in higher tax collection, particularly in countries with a young demographic age structure. Higher tax revenues can in turn support the promotion of statutory programmes. In addition to encouraging adequate tax collection, there is merit in systems in which individuals co-finance services, contributing individually or through community-based arrangements. This is the case for social insurance, micro- and area-based schemes, social funds and selected labour-market and child protection programmes. However, most programmes, particularly those targeted towards lower-income groups, require a degree of public support. Financing from charitable or aid organizations is discontinuous and does not allow sustainable social protection programmes. Such financing may help to fill the gaps on a temporary basis only. In social insurance programmes, accumulated savings/contributions can be invested in financial markets. Diversification of income sources is desirable in order to spread risks and ensure the overall sustainability of programmes.

Potential financial commitments under a programme need to be evaluated to ensure that they can be borne from the resources likely to be available, including the programme’s contingent liabilities. Will insurance premiums cover projected losses? Will sufficient resources be available to cover operating costs once a facility has been created for delivering social services?

(b) Redistribution issues

Financing issues are directly linked to distribution aspects. The design of any social protection programme should carefully evaluate its distribution impacts to ensure that the vulnerable and the poor benefit, and to avoid regressive redistribution issues, for example, building systems with public resources that benefit mostly upper-income groups. Financing social protection systems implies some transfer of resources, either from taxed citizens to those outside the formal sector, or from the working-age generation to both younger and older people. Even when building contributory social insurance schemes, the normally expensive transition costs are passed to the public sector and thus are financed by taxpayers. Such arrangements do not imply that the purpose of a social protection system is merely income redistribution – the purpose is to build mechanisms that assist individuals in overcoming vulnerability – and for this, a degree of redistribution and support is needed. Identifying an adequate mix of financing resources should be carried out after careful cost-benefit evaluation of the proposed social protection programme in order to ensure, if needed, adequate redistribution and support for vulnerable populations.

The success of social protection depends on the effective administration of adequately designed programmes. Common operational problems among agencies include corruption, cronyism and favouritism; inadequate information processing, storage and retrieval systems; and organizational cultures that are hostile to customer service. Good governance is crucial for sound macroeconomic management, progressive taxation and equitable allocations of funds for social development. The impact of basic social services is reduced by governance defects, such as inadequate budgets and wasteful, inefficient and unresponsive administrations. The poor suffer most because of poor access, low bargaining power and the limited influence they have on local bureaucracies, politicians and service providers. The effects of such deficiencies in governance are exemplified by the highly unsatisfactory coverage in social insurance schemes. These schemes may have been in force for decades in some countries but have failed to reach those most in need of protection. Fundamental governance issues that should be considered when designing any social protection scheme include identifying (a) the most appropriate social protection system to serve all citizens, (b) the most suitable institutional arrangements for the administration of schemes and (c) the best way to achieve operational efficiency.

(c) Cost-effectiveness

Avoiding excessive administrative charges is a major challenge for social protection programmes. Administrative charges siphon away resources from the intended beneficiaries, needlessly increasing the cost of social protection and reducing society’s capacity for providing protection. In addition to the threat they pose to programme integrity, government bureaucracies and service structures that are inefficient, unresponsive and duplicative often cause excessive administrative costs and wastage.
The development of social protection programmes may be affected by the different viewpoints on the positive and negative links between social protection and economic development. It is easier to calculate the costs borne by taxpayers or contributors in the short term than it is to assess the advantages gained from each programme. Expenditures on children and youth through education, health and training programmes are all investments in future generations, critical for long-term growth and poverty reduction. Evaluating the cost-effectiveness of social protection programmes requires an impartial assessment of the following issues: (a) the cost of the programmes as a percentage of GDP and total public expenditure, including contingent liabilities as a result of possible government guarantees to the programmes; (b) performance (the percentage of vulnerable targeted groups covered by the programmes, the percentage of benefits going to poor and non-poor groups and the extent to which the benefits are adequate for servicing identified needs); (c) administrative cost (the administrative cost as a percentage of the total cost, and how the cost compares with that of other programmes); (d) long-term social benefits; and (e) feasible options to improve cost-effectiveness, including the costs to society (determining who pays for reforms and which groups benefit from the proposed reform agenda). Careful attention should be paid to the comparative value of social protection interventions against other necessary social development programmes (e.g., health, education and rural development programmes). Social protection programmes should be developed after careful evaluation of country-specific priorities to reduce poverty.

6. Integrated approach to social protection

Social protection should be seen as one of several measures that work together to promote socially inclusive human development, reduce poverty and support enhanced productivity and growth. Close collaboration is needed to ensure that social protection and other development policies are consistent and mutually supportive. Many of the problems associated with existing social protection programmes are due to a lack of integration in social and economic planning or inconsistencies between different parts of the social protection system. For instance, serious difficulties in the labour market may lead to proposals for early retirement on advantageous terms as a part of the solution to overemployment in public enterprises, but without sufficient consideration of the long-term implications for pension funds. Another example of malpractice could be social protection interventions displacing necessary health and education investments. Sound fiscal policies are needed.

Integrated and coordinated national policies on social protection must be established. Sound policy formulation in social protection requires less emphasis on short-term priorities and the creation of medium- and long-term social development plans. Close coordination in policy formulation is vital when several government departments and agencies are involved.

Social expenditure reviews are a key instrument to facilitate better integration of social and economic policy. The reviews would determine fund allocations intrasectorally and intersectorally, showing the administrative costs of social protection, the relative weight as compared with other social expenditures, the distribution of funds among social protection programmes, the benefit incidence and effectivity in reaching vulnerable and poor populations and last, but not least, distribution issues – determining who is paying and who is benefiting. The matching of the social expenditure review with the country needs assessment provides the key to the necessary social protection reforms. Social expenditure reviews, in line with the public expenditure reviews developed by Governments and aid agencies, particularly ILO and the World Bank, will thus be critical in assessing the effectiveness of current allocations in reducing poverty and vulnerability and discussing the options for social protection reform.

Consulting institutions such as national social protection coordination commissions, with responsibility for strategic planning and coordination, could facilitate the formulation of an overall integrated strategy for strengthening social protection. If non-existent or ineffective, such bodies could be created. Such integrated planning machinery should include government, external funding agencies and civil society groups in order to achieve a consensus on priorities, objectives and the necessity for encouraging pro-poor sustainable growth and social development. The role of ministries of finance and national planning authorities is crucial in working out balanced views on realistic and affordable priorities with ministries directly responsible for the management and development of such programmes. Dialogues on these matters can improve mutual understanding of the wide range of issues involved and the proper sequencing of reforms. Aid agencies could provide necessary advice and help to generate a consensus. Integrated planning is complex but essential for policy cohesion and the efficient use of resources. All controversial issues should be settled through such a participatory approach, which is critical to ensure long-term success.