Social Protection and Social Risk Management: Poverty as the Inability to

Manage Risks

Amartya Sen and the Evolution of the Concept of Poverty

Leland Joseph R. de la Cruz

Director, Development Studies Program

Triggers for a new approach

World Bank and IMF structural adjustments led to safety nets.

Social welfare adjustments in transition countries.

Increased globalization

East Asian crisis

Globalization

Generates benefits but the benefits are not shared by all.

Increased inequality.

Increased vulnerability.

Reduced ability by the government to respond.

East Asian Crisis

Recognition that non-poor can become poor.

Shocks can have long term consequences.

“Sound macroeconomic policies, while of great

importance, are not sufficient for sustained

poverty reduction”.

Vulnerability to economic risks

Economic crisis or transition

Change in prices of basic needs

Unemployment

End of source of livelihood

Low income

Other sources of vulnerability

Environmental risks

Social/ Governance risks

Lifecycle risks

Environmental risks

Flood, rains

Earthquake

Landslides

Drought

Social/ Governance

Political instability

Exclusion/ losing social status/capital

Crime or domestic violence

The poor are especially vulnerable

The poor are most exposed to diverse risks.

The poor are affected most by various shocks.

The poor have the fewest instruments to deal with risks. They thus resort to coping strategies which are counterproductive.

The poor have the least capacity to take risks.

Government cuts back on programs for the poor during crises.

Poor women are even more vulnerable.

Less education

Less property rights

Other highly vulnerable groups

Child

Labor

Disabled

Unemployed Youth

Orphans

Poverty

Inability to manage risks

Why the poor are vulnerable

Lack of human capitalEducation, health

Lack of savings

Lack of access to social assistance

Voicelessness

Informal labor

Informal business

Insecure property rights

Coping strategies of the poor

Reduce consumption of goods and services.Reduce consumption of food or alter the menu.

Withdraw children from school.

Make children and women work.

Sell (productive) assets.

DS

Risk Management MechanismsAfter the event (ex post)

Coping strategies: relieve the impact of risk once it has occurred.

Before the event (ex ante)Prevention strategies

Prevent or reduce the probability of risk occurring.

Mitigation strategiesReduce the impact of the risk event.

Risk Management Arrangements

Informal

Market-based

Public

Informal and market based arrangements are not effective in handling macro-risks. (War and conflict, widespread AIDS, price volatility, drought, macro-economic shocks)

Strategies and Arrangements for Social Risk Management

Public Mitigation Strategies

Public Prevention Strategies

Public Coping Strategies

Public

Market-based Mitigation Strategies

Informal Mitigation Strategies

Risk Mitigation

Market-based Prevention Strategies

Informal Prevention Strategies

Risk Prevention

Market-based Coping Strategies

Informal Coping Strategies

Risk Coping

Market-basedInformal

Informal Coping Strategies

Transfers

Child Labor

Dissaving in Human Capital

Sale of Assets

Migration

Borrowing from neighbors/ relatives/ friends.

Public Coping Strategies/ Social Assistance Strategies

TransfersCash, in-kind benefits, food stamps, shelter provision, community-based social services, mobile health and education services

SubsidiesFood subsidies, health subsidies

Public Works

Market-based Coping Strategies

Sale of financial assets

Borrowing from banks

Informal Prevention Strategies

Multiple jobs

Migration

Hygiene and disease prevention

Proper feeding

Less risky production

Public Prevention Strategies

Labor market policies

Infrastructural improvements

Macroeconomic policies

Disease prevention

Conflict prevention and resolution

Pre-service training

Child labor interventions

Public labor standards

Market-based Prevention Strategies

In-service training

Market-based labor standards

Informal Mitigation Strategies

Multiple jobs

Investment in human, physical and real assets

Investments in social capital

Share tenancy

Public Mitigation Strategies

Pension systems

Asset transfers

Support for financial services to the poor

Mandated insurance

Market-based Mitigation Strategies

Investment in multiple financial assets

Microfinance

Insurance

Social Protection and Social Risk Management

Social protection has been associated with particular policies such as social assistance, labor market policies and pension provision.

Social Protection and Social Risk Management

Lenses through which we can understand and deal with poverty.Identifies many forms of risks and vulnerabilities.Identification of strategies involving public, market, or informal arrangements that prevent risks or help affected sectors mitigate or cope with the effects of risks.

Sources

World Bank (2001), Social Protection Sector Strategy: From Safety Net to Springboard.

Holzman, Sherburne-Benz and Tesliuc (2003), Social Risk Management: The World Bank’s Approach to Social Protection in a Globalizing World.

Ortiz (2001), Social Protection in Asia and the Pacific.

Social Protection and Social Risk Management: Poverty as the Inability to

Manage Risks

Amartya Sen and the Evolution of the Concept of Poverty

Leland Joseph R. de la Cruz

Director, Development Studies Program