How to Expand Social Protection - Sustainably

Since the 2008 financial crisis, unemployment and inequality have crept up, at the same time that funding for social protection policies has been stretched thin. Vulnerable groups have borne the brunt, and drawn attention to the fragility of social protection – the array of schemes from child benefit to pensions aiming to mitigate risks across the human life cycle. Rethinking its funding and delivery is key to meeting the mantra of post-2015 development, ‘leave no-one behind’.

“The international community now recognises the importance of social protection as a cross-cutting way of achieving the Sustainable Development Goals,” says Alicia Martin-Diaz, programme officer in DEVCO’s Employment, Social Inclusion and Migration unit. “International recognition is an important step. But there’s a long way to go in terms of implementation.”

Less than a third of the world population is adequately covered by social protection policies, and only 1% of the population in Sub Saharan Africa. Implementation in developing countries has often been haphazard, with limited coverage, high start-up costs and no economies of scale.

“Countries are now moving away from a panoply of small fragmented programmes mostly managed and funded by donors or implemented by NGOs in very small local contexts,” says Nicholas Taylor, former head of Social Inclusion and Employment in DEVCO B3 and co-author of a new concept paper on the subject. “[They are moving] into a very different framework where countries want to have this as part of national social policy.”

“Most countries, including the least developed countries in the world and the partner countries we’re working with, are developing national systems of social protection,” says Taylor. Designed for the often informal economies of developing countries, these often differ widely from European-style social protection systems. “Finding appropriate solutions is essential.”

With this in mind, the EC saw a need to raise awareness among development practitioners of the history, challenges, and potential models for social protection strategies. Their new concept paper traces the evolution of social security, from Bismarck and Beveridge (see below) to financial crisis-era Europe. It examines the existing frameworks for social protection systems and their funding, before outlining elements which should inform EU programming.

“Understanding the background helps us to understand the politics and practicalities of the world we’re faced with and the influences on governments trying to take forward national systems,” says Taylor. Tying in with the post-2015 agenda, Sustainable Development Goals and newly-launched EU Social Protection Systems Programme, “now is a good time to make sure we understand what we’re talking about.”

Finding the funds

“The biggest challenge for social protection is financing,” says Taylor. “To be sustainable, social protection has to be paid for. You have to be able to afford it for the foreseeable future.”

Developing countries spend much less on social protection than their developed counterparts. While OECD countries spend over a fifth of GDP on social protection, low and lower-middle income countries spend an average of 1% of national income on social protection, according to the World Bank.

The EU, the largest aid donor, believes social protection should be based on governments’ “ability to raise tax revenues or mobilise contributions rather than rely on debt or donor finance.”

According to Francesca Bastagli, head of Social Protection at the Overseas Development Institute, “there are a range of financing options available to governments”, in addition to borrowing and external assistance. These include reallocating spending; improving management of public expenditure; debt restructuring; and raising tax revenues. This last could be achieved in several ways, including by tackling exemptions, tax avoidance and evasion, and by increasing taxes on land, property and wealth. “What is available and feasible will depend on the country context.” 

In Bangladesh, for instance, pensions paid to retired government workers consume 24% of the social security budget, compared to 3.9% for the non-contributory social pension for the poor, according to the EC concept paper. Reallocation of spending, just within the budget for pensions, could make a significant difference.

Elsewhere, reallocating resources from one sector to another – such as energy subsidies into social assistance programmes - could be a way forward. Several Middle East and North African countries spend over 4% of GDP on fuel subsidies, according to the World Bank, compared to 1% of GDP on social safety net programmes.

Reforming tax systems is a third way to generate revenue for social protection. Tax takings as a percentage of GDP are comparatively low in developing countries, due partly to the informality of many jobs. To take an example, over 80% of the workforce in Zambia are employed informally. Rather than leaning on direct taxes such as income tax, developing countries rely more heavily on indirect and consumption taxes, which can be regressive (they hit lower-income individuals harder).

 “The development of tax systems, making them fair as well as efficient, can be a powerful development and redistributive tool on its own,” says Bastagli. “We spend a lot of time looking at the incidence and distributional impact of social spending, at spending on education, health and social protection. But of course, the source of the financing for the spending – the tax system – interacts with spending to determine the net impacts of policy. If we don’t take into account the financing angle, we’re only telling part of the story.”

New nation-wide approach

Money aside, implementing social protection systems requires political will. Advocates of social protection must contend with fears that social protection will lead to dependency and laziness, claims disputed in the concept paper. In addition, they must work with governments’ focus on austerity and reducing spending. In 2014, 122 governments reduced public expenditure, 82 of which were developing countries.

Nevertheless, many countries are stepping up protection in response to increased demand. In South Africa, two-thirds of citizens now live in a household receiving a social grant. Mexico has introduced a social pension scheme covering all people over 65; Rwanda is scaling up a health insurance scheme to reach universal coverage; and Nepal has introduced universal child benefit in one of its poorest regions.

“Expanding social protection on a sustainable basis is a huge challenge,” says Taylor. “It requires serious thought by governments, which have a lot of ambition, committing themselves to national social protection systems. We will have to face that challenge with our partners.”
 

Further reading

Francesca Bastagli on why taxes matter, and on bringing tax into social protection planning

Group

Public Goup on Employment, VET and Social Protection

This collaborative piece was drafted with input from Alicia Martin Diaz from DEVCO, with support from the capacity4dev.eu Coordination Team. 

Photo credit: Pepe Pont license