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

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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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12

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16

Au

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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

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Hu

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ary

Ice

lan

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Ire

lan

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Jap

an

Ko

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Me

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Ne

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lan

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Po

lan

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Po

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ga

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Slo

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ep

ub

lic

Slo

ve

nia

Sp

ain

Sw

ed

en

Sw

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Tu

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Un

ite

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Un

ite

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OE

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co

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% o

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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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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

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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