Social protection allows people to live in dignity. This right, recognized by the Universal Declaration of Human Rights, is far from being a reality for everyone. Only 27% of the world’s population benefits from adequate social protection. It is for this reason that in 2012 the Member States of the International Labour Organization adopted the Social Floors Protection Recommendation n° 202. It involves introducing basic social protection guarantees in countries that do not have them, providing universal access to healthcare, and lifelong income security. Valérie Schmitt, Chief of the Social Policy, Governance and Standards at ILO, and Helmut Schwarzer, Social Security Coordinator, Latin America and Caribbean.
Is social protection a sustainable investment?
Social protection is a long-term investment at all stages of life. It is an investment for future generations: for young people, it gives access to education, health, and provides the stability required to start a family. It also makes it possible for elderly people to live in dignity by receiving a pension, and to take care of dependent persons.
Social protection is a powerful mechanism for the redistribution of national wealth. It reduces household poverty, increases social cohesion and stability, and thereby contributes to economic development. Our latest World Social Protection Report 2014/15 shows that in countries like Finland, where in 2010 only 7% of the population was living in poverty, it is estimated that this proportion would rise to 32% if the social protection transfers and tax measures were abolished.
In what way does it promote economic development in countries?
Social protection leads to a virtuous circle for development and growth. Implementing social protection floors provides families with social services that allow them to send their children to school, which facilitates their employability in the long term. Guaranteeing access to healthcare promotes the wellbeing of the population and the productivity of workers. Social protection has a positive impact on the productivity of companies in several ways: by reducing absences in the event of illness, thanks to a better prevention and early treatment of illnesses, facilitating access to healthcare, motivating and gaining the loyalty of employees and reducing their turnover . In countries that establish floors, household consumption increases, which benefits the development of the domestic market, the economy as a whole, and contributes to increasing State tax revenues.
Social protection ensures the stability of the economy and mitigates the impacts of crises by guaranteeing workers benefits in the event of unemployment, allowances to support their children, and healthcare benefits. It also contributes to the creation of new economic sectors: the introduction of health insurance generally leads to the development of public and private health facilities, and to job creation in the country, thanks to the “solvency” created for demand for these goods and medical services. Similarly, the implementation of long term care systems in countries where the ageing of the population has started – such as Thailand, Vietnam or China – will contribute in the coming years to developing new “business” based on taking care of elderly dependent people: provision of services to individuals, appropriate medical equipment, preparation and delivery of meals for elderly people, etc. It is estimated that the Personal Autonomy Allowance (APA) has directly or indirectly created 600,000 jobs in France.
What returns on investment can be expected following the implementation of social protection policies or systems?
We often hear that social protection is too expensive, that countries do not have the means to implement it, whereas it very rapidly becomes a system which finances itself thanks to the growth generated. It has a direct impact on poverty reduction and therefore promotes consumption. More individuals are in a position to contribute to its financing via taxes, duties or social contributions. For example, in Brazil, it has been calculated that each Real spent in the social field produces 1.33 in the economy the same year and 1.85 in family incomes. The effect of the increase on GDP depends on the sectors, but it is always above 1 (1.85 for education, 1.70 for health, 1.44 for the transfers from the Bolsa Família Program and 1.38 for the allowances, for example, from which the poorest families benefit).
Conversely, the lack of social protection can destabilize the economy. During the crisis, countries with no unemployment insurance experienced a flight of their labor force. In Central America and Mexico, the lack of unemployment insurance prompted many workers to leave for the USA, for example. It constitutes a net loss of human capacity and this weakens the labor market.
In the implementation of social protection, should the poorest be targeted or should there be a universal approach, and why?
The target should be universal coverage, as social protection is a right which must be a reality for everyone, whatever the level of income of people. Everyone needs it, the poor and less poor. In order to achieve universal coverage, certain situations will require combining different approaches. Targeted programs may be necessary to help the poorest via specific measures. Social assistance can include universal measures coupled with measures targeting the poorest households to ensure there is social inclusion.
We do not necessarily see a conflict between universality and targeted policies, but we are well aware that the latter do, however, have drawbacks. The first is that assisted people, once they have come out of poverty thanks to the social transfers, are then no longer eligible and may consequently fall back into poverty. Between 1999 and 2009, in Ethiopia, less than 40% of people who had managed to come out of poverty finally managed to stay above the poverty line in rural areas… The second is that the targeted policies lead to a fragmentation (or “balkanization”) of the social protection system, where there is a set of programs with no coordination or unity, which generally leads to overlaps and the waste of resources. In countries where there are very marked inequalities, with the vast majority of the population living “around” the poverty line, as is the case in Thailand, the threshold effects brought about by targeted policies can also be difficult to justify.
The targeted approach has a cost in terms of defining criteria which may be misunderstood, with the feeling expressed by some of being “shortchanged” or “overlooked”. A number of errors of exclusion (people who should however be included) and inclusion (people who do not meet the criteria) can be seen in all the targeted programs.
Today, no country can justify not having social protection, as a well designed universal social protection system is less expensive than fragmented systems or no system.
How to finance these social protection policies?
Social protection expenditure includes investment expenditure in the implementation of systems and capacity building, and current expenditure to cover benefits and administrative costs.
While part of the investment expenditure can be financed by external donors, current expenditure must, however, as far as possible be covered by national resources. These resources come from the social contributions of workers and employers, and from taxes.
Social security schemes must also be innovative and simple in order to ensure that the development of new forms of employment (part-time, self-employed, micro-enterprises, etc.) does not lead to an increase in informal work (the “black economy”), causing a reduction in the number of people covered and in social security revenues.
Taxes make it possible to finance universal and social assistance programs. Various types of tax are possible – taxes on companies, on household incomes, Value Added Tax, etc. – some being more redistributive than others.
The use of new information and communication technologies makes it possible to combat fraud and increase the revenues of social protection systems, while covering a larger number of people.
Whatever the financing strategies for social protection systems, it is essential to guarantee that there is a sound and effective management of the schemes. This requires tracking down the waste of resources (for example, avoiding excessive management costs) and adopting sound investment policies for reserves, in particular for systems that provide long-term social security benefits.