Social policy response to financial crisis in small states

Naren Prasad International Institute for Labour Studies, ILO

London 7 July 2009Commonwealth Meeting: Sustainable development in small states in a turbulent

global economy

Social Policy • Social policy “Social policy “is state intervention that is state intervention that

directly affects social welfare, social directly affects social welfare, social institutions and social relations. It involves institutions and social relations. It involves overarching concerns with overarching concerns with redistributionredistribution, , productionproduction, , reproductionreproduction and and protectionprotection and works in tandem with and works in tandem with economic policyeconomic policy in pursuit of national in pursuit of national social and economic goalssocial and economic goals””

» UNRISD. 2006. UNRISD. 2006. Transformative social policy: Transformative social policy: lessons from UNRISD Research, (p. 1)lessons from UNRISD Research, (p. 1)

• 16 lessons!

A UN Report of 1957

• Social policy should not be treated “as a housemaid whose function is to tidy up human suffering and insecurity left in the wake of economic development”.

• Social objectives should be built in on an equal footing with economic objectives into comprehensive social and economic planning”

• Report on a Co-ordinated Policy regarding Family Levels of Living, United Nations, 1957, Sales no. 57.IV.7 (p. 18). ).

Recovering from the crisis:A Global Jobs Pact

• Accelerating employment creation, jobs recovery & sustaining enterprises

• Building social protection systems & protecting people

• Strengthening respect for international labour standards

• Social dialogue: Bargaining collectively, identifying priorities, stimulating action

…the way forward: Shaping a fair and sustainable globalization

GJP: Generating growth

• Stimulus packages• Boosting demand• Wage maintenance

• Supporting enterprises • Green investments• Effective & efficient regulation to

promote employment generation

GJP: Protecting employment

• Employment-oriented stimuli • Public works & job guarantees, training & skills development,

and employment services • Supporting enterprises to retain workforce• Supporting job creation in enterprises, especially

smaller businesses• Protecting labour standards & strengthening labour

inspection • freedom of association, the right to organize & collective bargaining• prevention of forced labour, child labour & discrimination at work

… aiming for full and productive employment

Mauritius: Saving jobs – Riding our the global crisis: saving bobs-

protecting people-preparing fro recovery– Stimulus package

• saving jobs – 2,700 jobs saved through the Mechanism for Transitional

Support, by helping enterprises that are at the breakdown point, 3000 indirectly

• Public infrastructure • Manufacturing Adjustment and SME Development Fund (500

million rup, 0.2% of GDP)• Save jobs 4 billion rup (1.7% GDP)

– 14.7 billion to stimulate economy (6.1% GDP)– 27.4 bn rup for infrastructure & transportation development

(12% of GDP)» 126.3 bn rup over 10 yrs PPP

Mauritius: GDP growth

-2.0

-1.0

+0.0

+1.0

+2.0

+3.0

+4.0

+5.0

+6.0

2006 2007 2008 2009

GDPtextile

tourism

GJP: Guaranteeing social protection/security

• Introducing cash transfer schemes for the poor• Guaranteeing basic social protection for all

• access to health care• income security for the elderly & persons with disabilities• child benefits • income security combined with public employment guarantee

schemes

• Extending the duration & coverage of unemployment benefits

• Protecting temporary & non-regular workers• Avoiding deflationary wage spirals

Why social security?

• Social security – Human rights (article 22 of UDHR)

– “Everyone.. has the right to social security.. through national effort and international co-operation …”.

– plays a crucial role in protecting people from risks such as income loss, sickness or old age

– Old age, work injury, sickness & maternity, unemployment benefit, family assistance, other cash transfers

– it can boost demand, create consumer confidence and create employment in crisis times

Guaranteeing social protection

Type of social protection Social protection instrument Role in Crisis

Protective(social assistance)

Social transfersDisability benefitsPension schemesSocial services

Immediate protection and relief from poverty and deprivation

Preventive (insurance)

Social transfersSocial insuranceLivelihood diversificationSaving clubs

Prevents damage to coping strategies

Promotive(Economic opportunities)

Social transfersAccess to creditSchool feedingPublic works program

Promotes resilience through livelihood diversification and improves security

Transformative(addressing underlying social

vulnerabilities

Promotion of minority rightsAnti-discrimination campaignsSocial funds

Transforms social relations to reduce exclusion

Social security: Current status

• 20% of population covered by social security globally

• Developed countries– Generous welfare system

• Social democratic: Nordics• Conservative: Europeans• Liberal: Anglo-saxons

• Developing countries• Underdeveloped, informal employment

Old age social security• Pensions have a strong redistributive effect, and in reducing

poverty– But in developing countries, pensions only to formal sector

Distribution of public social spending by quintlies (average for 9 Latin American countries)

010

20304050

6070

I II III IV V

%

Education

Health

Social Security

Pension coverage

0

10

20

30

40

50

60

70

80

90

100

Pak

ista

n

Indi

a

Bol

ivia

Vie

tnam

Indo

nesi

a

Chi

na

Thai

land

Phi

lippi

nes

Mex

ico

Sri

Lank

a

Arg

entin

a

Bra

zil

Chi

le

Kor

ea

OE

CD

(30)

Ger

man

y

Fran

ce

Can

ada

Italy

US

Aus

tralia UK

Japa

n

%

– In Asia only 20% of the population have access to health care, 30% of the elderly receive pensions, 20% of those unemployed receive some kind of unemployment benefit such as training, public works (UNESCAP 2009).

– Latin America, less than 30% of the labour force are covered by any pension (Rofman & Lucchetti 2006).

Pension in small states

BHS

BLZ

BRB

CYP

DMA

FJI

GRDGUY

JAM

KIR

KNALCA

MLT

MUS

PNG

SLB

SYC

TTO

VCT

VUT

WSM

46

810

12P

ensi

on in

dex

0 5 10 15Social welfare spending (% GDP)

Current levels of revenue & spending

19.9

678

20.3

219

.831

954

4.33

24

2.46

081

21.5

771

21.6

607

3.85

301

4.97

327

3.55

251

17.9

332

18.5

321

1.09

747

5.45

578

3.55

732

32.8

386

33.2

248

12.4

736

5.57

99

6.37

722

010

2030

40

Africa Latin America Asia High income

Revenue Expenses Social security Education Health

% G

DP

Revenue, expenses % social security in small states0

1020

3040

50%

GD

P

BRB

CP

V

CY

P

FJI

JAM

KN

A

MD

V

MLT

MU

S

PN

G

SYC

TTO

revenue expenses social security

Developing/small countries social security

• Social security (& labour standards) – Too expensive - unaffordable– First we need development

• Universal pension – Mauritius (1958), Namibia (1990), Samoa (1990),

Bolivia (1996), Botswana (1996) and the City of Mexico (2001)

• Near-universal pension– South Africa, Argentina, Brazil, Chile, Cost Rica and

Uruguay

Social security: Its possible… – Suppose a country provides…

• Universal pension – 30 % GDP per capita to all 65+

• Basic health– 300 medical staff to 10,000 people

• Child benefit– 15% GDP per capita to all children 0-14

• Social assistance/employment scheme– 30% of GDP per capita to the poor, – 10% of working age population for 100 days per year

– What will it cost…..?

Basic social security (% GDP)

0

1

2

3

4

5

6

%

pension health child assistance

Its possible for small states

GJP: Recovering with employer-employee dialogue• To reduce social tensions• To inspire confidence in the results

achieved• To promote decent work solutions

What social policy works

• Evidence shows…– Minimum old age pensions and cash transfers to

families seem to have the biggest poverty impact with the lowest transactions costs

– Employment intensive schemes• Public infrastructure renewable energy sources, waste

management, low cost housing, sanitation, etc• Micro, small and medium-sized enterprise support• Skills development• Youth employment schemes• Improved public employment services

G-20 stimulus packages, 2008-2010%GDP (PPP-weighted)

Shaping a fair andsustainable globalization

• Using the decent work agenda to create a sustainable future

• Social protection, job creation, social dialogue, standards

• Investing in a green recovery• Ensuring developing countries have the fiscal

space to stimulate their economies• Reforming the financial sector

• to serve the real economy, promote sustainable enterprises & decent work, and protect people’s savings and pensions

Conclusion • Social policy & economic policy goes hand in hand• Universal provision of social security

– This is perhaps the only message you should take home and influence your policy makers….

• Tends to be universal policies • Multiple roles of social policy

– nation building, promoting development– Production, protection, reproduction, distribution

• Democratic and good governance– No 1:1 relation, but democracy provides space for social

articulation of interests• Governments associated with social justice

Conclusion

– State-led provision of social services• Education, health, • Strong political leadership and will to improve

welfare of citizens– State capacity & infrastructure to deliver– State as organizer, provider, ability to regulate & stimulate

non-state actors

– Countries with high growth tend to have better social policies

History….some reflections

• Preamble 1919– Whereas universal and lasting peace can be

established only if it is based upon social justice;

– … provision for old age and injury

Philadelphia 1944

• labour is not a commodity • poverty anywhere constitutes a danger to prosperity

everywhere • it is a responsibility of the ILO to examine and consider

all international economic and financial policies• policies in regard to wages and earnings, calculated to

ensure a just share of the fruits of progress to all, and in need of such protection;

• the extension of social security measures to provide a basic income to all in need of such protection and comprehensive medical care