WASHINGTON, January 24, 2001 Amid signs of a slowdown in the global economy, a new World Bank report says that improving social safety nets and making them permanent features of developing country economies could help poor countries reduce poverty more vigorously and gain more of the benefits of globalization with fewer of its risks.
According to its new social protection strategy report From Safety Net to Springboard which is currently being piloted in various Latin American countries, including Argentina, Colombia, Dominican Republic, Jamaica, Guatemala and Uruguay, the World Bank says that less than a quarter of the world's population is protected at any time by government safety nets. Less than 5 percent can rely on their own savings, land, or other private assets to weather crises such as economic downturn, civil war, or natural disasters such as last week's earthquake that devastated El Salvador, killing hundreds of people and leaving many thousands more homeless. In fact, between 1990 and 1997, more than 80 percent of all developing countries experienced at least one year of negative per capita output growth as a result of these setbacks.
| Korea - Second Structural Adjustment Loan Project - $2,000 million, October 1998 The Government of Korea launched a series of reforms in response to the East Asia economic crisis, supported, in part, by the second structural adjustment loan from the World Bank. Labor market reforms and strengthening the social safety nets were among the key areas of action. Unemployment insurance coverage was expanded to include unemployed workers of all firms. In addition, public works programs, means-tested non-contributory income support and 'work-fare' programs were strengthened, as were the targeting procedures for safety net programs generally. |
While social protection programs in high-income countries have become steadily more sophisticated since the birth of the welfare state, many developing countries view safety nets as measures of last resort, to be used in times of emergency and subsequently shelved once a crisis passes. The Bank warns that the recent East Asia crisis, which battered emerging markets from Russia to Brazil, not only underscores the urgency of protecting poor and vulnerable populations during times of economic upheaval and change, it also shows that safety nets need to be in place before crises strike to have the best chance of success. Once a crisis occurs, it can be very difficult for governments to quickly find the political support, money, and expertise needed to respond to social emergencies.
Safety nets become standard features of national life as developing countries participate more fully in the global economy. But, perhaps more importantly, the Bank believes that the development purpose of social protection must move beyond being a periodic rescue system for the poor and vulnerable, and give people the opportunity to escape from poverty more permanently.
"The debt crisis of the 1980's in Latin America, and then the recent East Asia Crisis, have shown just how quickly people's lives are turned upside down by steep recession, and how the poor suffer the most during these times," says Eduardo Doryan, the World Bank's Vice President for Human Development, and a former Costa Rican Education Minister, 1994-98. "So social safety nets are vital to catch people who lose their jobs, become hungry or sick. But a system that solely concentrates on helping poor people deal with a crisis once it happens runs the risk of keeping them in a poverty trap by not providing any opportunities. We need to embrace a more holistic approach that makes social protection more like a springboard that lets people jump into more secure lives."
Developing countries have long been concerned with risk and vulnerability associated with crop failure, conflict, violence, or job losses. But several trends are pushing these governments and development agencies towards a fundamental re-thinking of social protection.
Argentina - Second Social Protection Project -TRABAJAR program - $200 million, June 1997
The Second Social Protection Project provides temporary income support to poor, unemployed workers hired in the TRABAJAR public works program. TRABAJAR supports small, labor-intensive projects proposed by municipal and provincial governments, private groups, and national organizations. Examples of such projects include minor construction, repair, expansion, or remodeling of schools, health facilities, basic sanitation facilities, and small roads and bridges. Bulgaria Child Welfare Reform Project - $11.5 million
[Pending: March 2001]
The percentage of institutionalized children in Bulgaria is among the highest in Europe. In addition, there has been an emergence of street children. The project will try to improve child welfare and protect children's rights in Bulgaria through promoting community-based child welfare, supporting de-institutionalization, and preventing child abandonment. The project focuses on street children and Roma, groups particularly at risk of poverty and social deprivation. The project will support the National Agency for Child Protection and other ministries in reforming the child protection system. It will build upon existing small-scale initiatives of other donors and Non-Governmental Organizations (NGOs). |
Globalization presents enormous opportunities for developing countries to prosper, but also exposes these countries to greater risk, unless they adopt the economic, social, and institutional reforms necessary to exploit the potential of the global economy; technological change accelerates the pace of development, but at the same time it tends to widen the gulf between the "haves" and the "have-nots," both within and among countries; and increased political openness improves the quality of public governance to larger segments of the population. As a result, poor people are finding their 'voices' and asking for help in managing the risks that they face. Lastly, the HIV/AIDS epidemic is also causing development planners to broaden their thinking on social protection, by placing a tremendous strain on the economic and social fabric of the most affected societies.
A plan for going forward managing social risk
The World Bank's new approach to helping developing countries protect their poor and vulnerable populations recognizes that all individuals, households, and communities are exposed to multiple risks from different sources. They can be natural (such as earthquakes, floods, and illness) or man-made (such as racial, cultural, or gender discrimination, unemployment, environmental damage, and war).
Poor people are more vulnerable than other population groups because they are typically more exposed to risk and have few ways to manage it. Being poor, and hence vulnerable, makes individuals very risk-averse, and therefore unwilling or unable to engage in high-risk/return activities such as growing new cash crops that earn more money for farmers but which could be vulnerable to bad weather or a period of fluctuating prices.
This new view on social protection has embraced a new definition, namely "public interventions to assist individuals, households, and communities to better manage risk, and provide support to the critically poor." This new definition gives social protection a forward-looking role for lasting poverty reduction.
Dealing with risks involves recognizing the source and economic characteristics of the risks; for example, whether they affect individuals in an unrelated manner or simultaneously. The most appropriate combination of risk management arrangements (informal, market-based, or publicly-provided or mandated) and risk management strategies (prevention, mitigation, or coping) in any given situation depends on the type of risk and on the costs and effectiveness of the available instruments.
Informal Arrangements. These arrangements have existed for a long time and still constitute the main source of risk management for the majority of the world's population. Examples of this kind of arrangement include: the buying and selling of real assets (such as cattle, real estate, and gold), informal borrowing and lending, diversifying crops and field use, and the use of safer production technologies (such as growing less risky crops).
Market-Based Arrangements. Individual households will also take advantage of market-based institutions such as banks, and insurance companies when they are available. Evidence suggests that establishing a sound banking system and non-inflationary policies are crucial to reducing and managing risk. Because formal market institutions are reluctant to lend to households without secured earnings, micro-finance is also an important feature of social risk management.
Public Arrangements. Public arrangements for dealing with risk are relatively scarce and have very limited coverage in the developing world for economic and other reasons. When informal or market-based risk management arrangements do not exist, break down, or are dysfunctional, the government must provide or mandate (social) insurance programs for risks such as unemployment, old age, work injury, disability, widowhood, and sickness. For this reason, there is a great deal of public intervention in risk coping.
"The development community needs to move beyond thinking that social protection is just about money, which may help people cope with the symptoms of poverty for a while but does little to eradicate its causes," says Robert Holzmann, the World Bank's Director of Social Protection, and the lead author of the new report. "With this new risk management strategy, the Bank would offer developing countries, in consultation with their poor communities, help in tailoring their social protection plans to fit their own assessment of where they might be vulnerable. It may be they need access to basic medical care, or clean drinking water, or ways to stop their farms being flooded every year. If we can help them be proactive about reducing their exposure to risk in the first place, communities can do more to shield themselves from preventable misfortune, and thereby lead more secure lives."
Risk management can take place at different momentsboth before and after the risk occurs. The goal of proactive measures is to prevent the risk from occurring, or, if this cannot be done, to mitigate its effects. Individual efforts can prevent risks, but in many cases they require government support (for example, disaster prevention). Coping also requires government support since poor people are typically less able to weather crises on their own and, therefore, often experience irreversible negative effects. For this reason, there is a great deal of public intervention in risk coping.
1. Reducing Risk
Reducing the probability of downside risk is a powerful instrument of social risk management. Many risk reduction efforts remain outside the scope of social protection, such as maintaining macroeconomic stability, creating sound financial markets, adopting growth-oriented policies, and establishing preventive measures against natural disasters. Some social protection instruments that support risk reduction are, however, essentially linked to the labor market, namely better job and skills training and eliminating harmful child labor.
2. Mitigating Risk
Not all risks can be eliminated in life. However, the absence of risk-mitigation makes people (especially poor people) more risk-averse. Therefore, risk-mitigation measures )such as unemployment benefits) that maximize benefits while minimizing costs are needed. Another measure, which is particularly important with a rapidly growing population of elderly people worldwide, is old-age income security. But pension security has to go beyond formal sector pension schemes. More emphasis must be given to non-contributory schemes for long-term poor people, and savings schemes for others who work outside the formal, mainstream economy, as well as the many self-employed.
3. Coping with Risk
Coping with crisis once it has struck is where the government has an important role in ensuring rights to financial and real assets, such as saving accounts and land, that can be drawn upon in times of emergency; but for poor people who have no assets, the government is the provider of last resort.
The main forms of public risk-coping assistance include emergency cash payments; transfers of food, fuel and other emergency goods; and public works. The appropriate size and mix of programs will vary from country to country, and by its administrative capacity. Moreover, with all of these programs it is important to understand the cultural factors determining resource allocation within the household. For example, targeting strategies must recognize that, in many cultures, women and girls receive proportionately less food and other assistance than their male counterparts. Public works programs, which employ the unemployed or underemployed to build, repair, and upgrade roads, bridges, and other infrastructure, become central to helping poor households cope with risk.
"At the beginning of this new century, development practitioners are realizing that, while individual programs can improve people's welfare and reduce poverty, a more holistic approach is needed to make the quantum leaps necessary to lift most poor people in the developing world out of poverty," says World Bank Vice President Eduardo Doryan. "Many agencies are rethinking or developing their strategies for social protection using comprehensive frameworks that emphasize both risk and redistribution, such as the social risk management strategy presented in this paper."
Pilots of the social risk management framework are proving very promising in helping various Latin American countries to include social protection in the Country Assistance Strategy (CAS) process, which sets out a joint country/Bank business plan for achieving a country's development goals.
The new strategy has also been warmly endorsed by the UK's Department for International Development (DFID) which welcomes the Bank's emphasis on incorporating issues of vulnerability into the poverty debate and its risk management approach, and by one of Germany's leading government development agencies, Gesellschaft fuer Technische Zusammenarbeit (GTZ), which fully supports the World Bank's new Social Protection strategy for lasting poverty reduction.
The World Bank's role in social protection
With this new report, the World Bank has developed its first sector strategy for social protection. This process has offered it the opportunity to take stock of experience and shape its future work. It has also allowed the Bank to rethink the concept of social protection and cement the analysis, design, and implementation of social protection programs into an integrated poverty reduction framework.
As for its lending and technical assistance, the World Bank's portfolio in social protection reflects its concerned response to world conditions. Lending in the social protection area has increased more than six-fold since 1994. The lending volume in FY99 was $3.76 billion, 13 percent of the World Bank total (all monetary figures are in US dollars). While the response to the global financial crisis has driven much of the recent increase, annual lending levels for investment operations and non-crisis reform are about 3/4 billion and 1 billion dollars, respectively. In FY99, the social protection portfolio consisted of 92 purely social protection loans, with a commitment of $6 billion. Another 183 loans contained significant social protection components, adding $8.9 billion (making an overall portfolio of $14.9 billion).
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