private sector and social protection
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IICPSD Global Partnership for Business-led Solutions to Social Development Challenges
1-2 November 2012
Mitigating Vulnerabilities and Promoting Sustainable Growth Sequencing, cost-efficiency and fiscal-sustainability of social
protection A policy dialogue proposal
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• Support the development of inclusive and competitive markets and inclusive business models
• Foster private sector engagement and advocacy for the achievement of the MDGs and other IADGs
• Become a center of excellence in terms of capacity development activities that harnesses Trilateral Development Cooperation and South-South partnership
• Convene business and supporting actors to expand dialogue and create actionable partnerships
Objectives:
UNDP and the Government of Turkey established IICPSD to leverage private sector-born solutions to development challenges
IICPSD AND BUSINESS- LED SOCIAL PROTECTION REFORM– LAUNCHING THE DEBATE
Inclusive Market Development
Over the last three decades…
• Technological progress has accelerated
• Competition in the global marketplace has deepened
• Capitals have increased mobility
• Bargaining power of unions has progressively decreased
Consequently:
• Labor’s shares in National Income distribution have declined from above 70% to as low as 50% (i.e. wages increased at a lower pace than productivity)
• Human Development Index average growth rate has declined
• Inequality between capital owners and labor suppliers has deepened
• Aggregate demand too low to restore growth / Deflation
• Social distress is growing
0.00
0.50
1.00
1.50
2.00
2.50
Norw
ay
Australia
NewZeeland
UnitedStates
Ireland
Netherlands
Canada
Sweden
Japan
Korea
Switzerland
France
Israel
Finland
Iceland
Belgium
Denmark
Spain
HongKong,China
Greece
Italy
Luxembourg
Austria
UK
UAE
Malta
Cyprus
Hungary
Bahrain
Portugal
Chile
Argentina
Latvia
OECD
Non-O
ECD
ArabStates
EastAsiaandPacific
EuropeandCentralAsia
LatinAmerica&theCaribbean
SouthAsia
Sub-SaharanAfrica
Sub-SaharanAfrica
Romania
HumanDevelopmentIndex(HDI)- averageannualgrowthrate(%)
1980-1990
1990-2000
2000-2010
1980-1990 1991-2000 2001-2010
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85.00Labor's share in % of GDP in selected OECD countries 1990-2012
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Labor’s share as % of GDP in OECD countries 1990-2012
Changes in bargaining power
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2
4
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14
16
Au
str
ali
a
Au
str
ia
Be
lgiu
m
Ca
na
da
Ch
ile
Cze
ch
Re
pu
bli
c
De
nm
ark
Est
on
ia
Fin
lan
d
Fra
nc
e
Ge
rma
ny
Gre
ec
e
Hu
ng
ary
Ice
lan
d
Ire
lan
d
Ita
ly
Jap
an
Ko
re
a
Lu
xe
mb
ou
rg
Me
xic
o
Ne
the
rla
nd
s
Ne
w Z
ea
lan
d
No
rw
ay
Po
lan
d
Po
rtu
ga
l
Slo
va
k R
ep
ub
lic
Slo
ve
nia
Sp
ain
Sw
ed
en
Sw
itze
rla
nd
Tu
rk
ey
Un
ite
d K
ing
do
m
Un
ite
d S
tate
s
OE
CD
co
un
trie
s
% o
f L
ab
or F
orc
e
Decline in union density 2000-2007
Declining labor’s shares have…
• Reduced social security contributions and taxes
• Discouraged employment / deepened unemployment trap and created labor market rigidity
• Replaced earning- with borrowing- based consumption
• Polarized growth and enlarged the Bottom of the Pyramid (BOP)
• Reduced personal investment in long term gains (education, health)
• Prompted the need for a revised social model
Public – Private Sector nexus in social protection
“ Social protection is the most subtle State intervention in the market”, Mattei Dogan und Dominique Pelassi (1990) “How to Compare Nations”
• Public promises buy votes at the expense of future stability
• Young men will contribute more to the system than they will receive back (Exp: in Estonia (335%), Hungary (296%) and Slovakia (183%))
• European social security implicit debt exceeds 30,000 Bill Euro
• Passive social protection- not enough to live, but more attractive than work
• Governments borrow to offset declining tax revenues, labor suppliers borrow for basic consumption, capital owners do not save enough
• Inclusive business models, a bridging solution from passive to active social measures
• Businesses call for more flexible labor markets to grow
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35
40
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Youth
Unemployment rates 1999-2011Youth unemployment rate 2011 European Union (27 countries)
Euro area (16 countries)
Belgium
Bulgaria
Czech Republic
Denmark
Germany (including former GDR from 1991)
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
Croatia
Turkey
Norway
United States
Japan
Minimum wage impact on youth unemployment
Interpretation of fixed effects regression results 22 countries 1995-2010
• 88% of variation in youth unemployment due to
variation in minimum wage
• 1% increase in minimum wage leads to 0.14% increase
in youth unemployment (i.e. every 10% increase in
minimum wage leads to 1.4% increase in youth
unemployment
• Robustness: Error in confidence >95% is 0.265
20
25
30
35
40
yun_
spa
in
500 550 600 650 700 750Annual amount
Regression Results
Youth unemployed variation against minimum wage-Spain
510
15
20
25
yun_
port
ug
al
5 10 15 20 25Annual amount Portugal
Regression Results
Youth unemployed variation against minimum wage-Portugal
16
18
20
22
24
yun_
rom
an
ia
0 50 100 150MW Annual amount_Romania
Youth unemployment versus Minimum wage ROMANIA
Unemployment Trap (tax in % from wage minus unemployment
benefit)
Perspective on the social dimension of the New Economy
• Social welfare paradigm of redistributive growth versus social investment still standing.
• Shifting pro-poor growth to inclusive growth received a slow institutional response due to gaps between
expectations and opportunities.
• Balancing Competition and Solidarity remains a common denominator of governance efforts worldwide
through social dialog and corporate social responsibility
• Current social models : responsible for fiscal imbalances, labor market rigidity, high long-term
unemployment, youth vulnerability and social exclusion , intergenerational discrepancies in terms of
returns to mandatory contributions
• Social investment unable to overcome age-driven productivity deficit, misallocation of skills (over 50% of
employed labor force performing jobs requiring different skills than those acquired through education –
ILO Global Wage Report 2010/11), leading to declining competitiveness
• Institutional cost-effectiveness analysis shows highly regulated social systems responsible for growing
informality
• Social agenda increasingly political, time-framed to government’s terms in disregard of economic trends
• Decreasing union’s power worldwide doesn’t reduce liabilities against promises made to current generations, but offers opportunity for radical social reforms to restore sustainability and create pro-
cyclical mechanisms / optimal, growth restoring spending.
• Generous social schemes may encourage labor force migration and reduce capital relocation (capital
flows channeled towards less social costly markets)
Risks posed by declining labor’s shares • Higher distribution of income towards capital owners as opposed to
labor may increase inequality
• Marginal propensity of consumption is higher as opposed to capital owner’s inclination to saving. Consequently, declining shares will lead to declining demand
• Slower pace of labor’s share increase will trigger a similar pace of adjustment of earnings related social benefits
• Without addressing declining labor’s shares, monetary policies will continue to lead to low interest rates due to the absence of inflationist pressure, discouraging savings, encouraging debt-led consumption, reducing capital inflows and maintaining the status –quo
• Without reflecting declining labor’s shares into production functions (Cobb-Douglas, CES), potential GDP (demand excess) will be erroneously determined
The way forward
• Bring private sector in the public policy space for revised social models
• Begin social reforms from below (new social protection arrangements for new comers)
• More active social protection measures to reduce passiveness
• Replace social protection with business solutions for poverty reduction
• Join IICPSD in a global debate on a new social model
• Use post 2015 Development Agenda consultations to refine social protection reform strategy for sustainable human development and growth
• Seek optimal parameters for labor, goods and capital markets to grow together
IICPSD – A PARTNERSHIP FOR INCLUSIVE GROWTH BUILDING
Introduction
IICPSD is part of a global network of UNDP thematic centers The only one to focus on and involve private sector actors in development
International Policy Centre for Sustainable Development(Brasilia, Brasil): “Global forum for policy dialogue… equipping policymakers in the developing world with the skills necessary to design, implement and evaluate policies and programmes towards the attainment of high inclusive growth.”
Oslo Governance Centre (Oslo, Norway): “Provide policy guidance and technical support to the more than 130 UNDP Country Offices around the world.”
The Drylands Development Centre (Nairobi, Kenya): “Carries out research and analysis of policies that affect communities in the drylands, and provide advice and policy-making support to decision-makers.”
Source: Centres’ websites
Seoul Policy Centre for Global Development (Seoul, South Korea): “Through promotion of global learning, networking and dialogue, … will help to foster comparative experiences and approaches of new development partners.”
IICPSD
(Singapore) Public Service Excellence
….Together with UNDP’s corporate partners
Businesses
… including its network of academic institutions…
7 in Eastern Europe and the CIS
13 in donor countries
6 in Latin America and
the Caribbean
9 in sub-Saharan
Africa
3 in MENA
11 in Asia and the Pacific
IICPSD Business Process
IICPSD & partners
Research and Development
- Academic Partnerships - Advisory Board (AFD, IFC, EBRD, WEF, JICA, CIDA, Danish Confederation, KOC University, TOBB and others)
Multi-Stakeholder Partnership Platforms & Inclusive Value Chains
- Open partnerships with governments and business community
Training and Capacity Development
- Training Licensing in inclusive and responsible entrepreneurship - Network of Experts
UNDP Turkey
UNDP BERA/ BDP/BCPR
UNDP RBEC RBx
Government of Turkey
IICPSD
IICPSD
I ICPS D
I ICPS D
UNDP COs
GOVERNMENTS CORPORATE WORLD
ACADEMIA
IICPSD’s Partnership Ecosystem
The IICPSD engages in different types of partnership arrangements
•Example: Thematic events
•Example: Research Fellows
•Example: Advisory Board members
•Example: Implementation of development projects
Formal operational partnerships
Advisors / thought leaders
Informal activity-based
collaboration
Institutions engaged through
individuals Sourav Mukherji, Associate Professor, Indian Institute of Management, Bangalore
Olayinka David-West, lecturer, Lagos Business School
Dr. Eduardo Aninat, former Minister of Finance, Chile, and former IMF Deputy Managing Director
Jane Nelson, Senior Fellow and Director of CSR Initiative, Harvard Kennedy School, and Director of Strategy, IBLF
Organization of a global expert workshop on impact assessment methodologies
Organization of a LDC-IV side event on Financial Inclusion through G2P Payments and Emergency Cash Transfers
Joint project of IKEA Foundation and UNDP India to empower 2.3 million poor women across 4 States
Joint project of WEF Business Alliance Against Chronic Hunger, UNDP Kenya and Ministry of Agriculture to spread irrigation solutions for improved food security and youth empowerment
IICPSD Signature Alliances and Programmes • Signature Alliances:
– Building Tomorrow’s Markets
– Energy Access for Productive Use (SE4ALL)
– Strengthen & Improve Sustainable Development Impact of Extractive Industry
– Economic Recovery and Employment Creation in Fragile States
– Better Than Cash (Financial Inclusion)
– Transport and Trade facilitation
• Signature Programmes:
Research, business model design, training and capacity development in:
– Inclusive Business / Value Chains
– Impact Investment
– Inclusive Procurement
– Low Cost Housing
– Green Commodity
– Financial Literacy and Inclusion
– Public-Private Partnership for Skills Development
– Transport and Trade Enhancement
IICPSD Goals
Along with business and government partners we:
• Enable economic environments in emerging markets to foster inclusive growth employing untapped resources
• Design inclusive business models and build PPP platforms to offset lower yields of the income pyramid
• Contribute to reduction in passive social protection costs by including poor and disadvantaged in supply chains and productive work
• Build markets from below enhancing local content and balancing competition and solidarity
• Broker private sector’s relationships with governments for reinforced complementarities
IICPSD promotes development gap offsetting exchanges including through SSC
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