social protection growth 2011-17

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CSAEWorkingPaperWPS/201117

SocialProtection,EfficiencyandGrowth

StefanDercon1,UniversityofOxford

September2011

Abstract

Socialprotectioncanplayanimportantroleinpovertyreductionandmakinggrowthinclusiveofthe

poor.Attimes,itisalsoarguedthatsocialprotectioncandirectlycontributetogrowthandeconomic

efficiency.Thepaperrevisitstheevidenceonthecostofsocialprotectiontoreducepoverty,andits

contributiontoefficiencyandgrowth.Associalprotectionmayovercomemarketfailuresincreditand

insurance,thepaperalsoconsiderstheroleofalternatives,suchasmicrocreditandmicroinsurance.

Theevidenceonsocialtransfers(incashorinkind,conditionalornot)suggeststhatwhiletheyhave

substantialpovertyandequityimpacts,theirefficiencyandgrowthimpactisunlikelytobehighnot

dissimilartothelimitedgrowthimpactofmicrocredit.Theimplicationisthatthemainmotivationfor

socialtransfersmustlieintheirequityorpovertyimpacts.Theevidenceoncontingenttransfers,made

inresponsetoshockssuchasillness,droughtorunemployment,asinsocialinsurance,isthattheir

contributiontoresolvingmarketfailuresmaybehigher,leadingtopotentiallymoresubstantialgains,

especiallywherechildrenaretargeted.Giventheproblemswithdevelopingmarketbasedsolutionsvia

microinsurance,thereisastrongcaseforsocialprotectioninitiativesinthisareafromanefficiency

pointofview,tocomplementcontributionsbasedsocialinsuranceandmicroinsuranceinitiatives.

Conditionsinconditionalcashtransferscanalsobeusedtoenhanceefficiencygains,forexampleif

conditionstargetactivitiesorinvestmentswithclearsocialexternalities.Thepaperendswiththree

areaswheretherecouldbepotentiallyhighgrowthimpacts:socialprotectionfocusingonchildren,

especiallybeforetheageoffive;socialprotectionmeasurestomakemigrationsmootherandcities

moreattractiveplacestoliveforlowskilledworkers,possiblyviaurbanworkfareschemesfocusingon

urbancommunityassetbuilding;andsocialprotectiontargetedatadolescentsandyoungadults,

includingtransfersconditionalontrainingfocusedonurbanlabourmarkettransitions.Inallthesecases,

standardcashtransfersmaybetooblunttohavehighimpacts,suggestingtheneedformorecontext

specificsmartersocialprotectionschemes.

1ThispaperiswrittenfortheABCDEconferenceMay2011.ItdrawssomeinspirationfromtheEuropeanReport

onDevelopment2010onSocialProtectionforInclusiveDevelopment,towhichIcontributedasacoreteam

member.However,theviewsexpressedherearemine,asaretheerrorsandinaccuracies.


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1. IntroductionThereappearstobegeneralacceptancethatsocialprotectionhasaroletoplayinpoverty

reductionandinmakinggrowthinclusive.Largecrisessuchasthefoodcrisisortheeconomic

downturntendtomaketheprinciplemoreacceptable.Reasonablegrowthinthedeveloping

andemergingeconomiescreatesthespacetolookforadditionalinstrumentstomakegrowth

inclusive.Mostofthekeydecisionsonbroadeningsocialprotectionareinherentlypolitical:

socialchoicesonthefairnessoftheallocationinsociety,ontherightsandentitlementsof

thoselesssuccessfulinwealthcreationandthosefacinginsecurelivelihoods.Manyofthe

challengesaremanagerialtheorganisationofinstitutionalisedsystemsofsocialprotection,

thatoffersecureandcosteffectiveaccesstotheseentitlements.Thispaperrevisitsthe

economicargumentsforandexperiencewithsocialprotection.Itsfocusisontheuseofsocial

protectioninsomeofthepoorestsettings,notleastinAfrica,theregionwherearguablyits

spreadisstillmostlimited.

Inparticular,thepaperexplorestheevidencefortheeffectivenessofsocialprotectionin

reducingpovertydirectly,butalsoviaimprovingefficiency(correctingmarketfailures)andby

stimulatinggrowth.Inmuchdiscourseonsocialprotection,contributingtoincomechangeof

thepoor,improvingefficiencyandstimulatinggrowthareoftenusedasiftheyarethesame;

aswillbedevelopedfurther,theyarenot.

Socialprotectionisabroadconceptwithmanymeanings;infact,noneofthewellknown

dictionariesappeartohaveadefinition,illustratingthelackofasharedmeaning,anddifferent

organisationstheWorldBank,ILO,UNRSID,DFIDallseemtouseadifferentdefinition.Inthis

paper,adefinitionisusedasintheEuropeanReportonDevelopment(2010)onSocial

Protection,whichreferstothreefunctions:offeringsocialinsurance,socialassistanceand

effortstoensureaccesstosocialinsuranceandassistance.2Inthepaper,thefocusisonthe

transactioninvolvedintheseschemes:offeringatransferincashorinkindtopoorand

vulnerablegroups.Inthecaseofsocialinsurance,itisastatecontingenttransfer(i.e.

dependentonsomethingoccurring,suchasillness,droughtorunemployment),andwhile

usuallysocialinsuranceisunderstoodtobelinkedtocontributions,herewetreatissomewhat

broader,andincludingnoncontributorystatecontingenttransfers.Socialassistanceismore

simplyatransfer,irrespectiveofsomeeventoccurring.Bothcouldneverthelessbeconditional

onsomething:somebehaviour(suchassendingachildtoschool,asinConditionalCash

Transfers),someinitialconditions(suchasbeingpoorordisabled,asintargetedtransfers)or

2ERDdefinesitasaspecificsetofactionstoaddressthevulnerabilityofpeopleslifethroughsocialinsurance,

offeringprotectionagainstriskandadversitythroughoutlife;throughsocialassistance,offeringpaymentsandin

kindtransferstosupportandenablethepoor,andthroughinclusioneffortsthatenhancethecapabilityofthe

marginalisedtoaccesssocialinsuranceandassistance(ERD(2010,p.8)).


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havingpaidacontribution(asinmoreclassicsocialinsurance,suchasforhealth,

unemploymentprotectionorapension).Thetransferscanbeincashsuchasinthecaseofa

socialpension,orinkind,intheformofgoodsorservices,suchasfoodaid,schoolfeeding,supplementarychildfeeding,trainingwhenunemployed,ortreatmentatahealthfacilitywhen

ill.

Treatingsocial3protectionasessentiallyasetoftransferschemesforthepoorandvulnerable

isarguablycontroversial,notleastwhenmanydefinitionsliketoemphasizenotsomuchthe

transactionsinvolved,butratherthepurposeandentitlementsofthesystems(offering

prevention,protection,andpromotionasinrecentWorldBankdocuments4,or

transformativesocialprotectionasinSabatesWheelerandDevereux(2008),inwhichthe

fundamentalchangeinpeoplelivesandpositionisemphasised,althougharguablythelatter

wouldencompassafarwidersetofactionsandpoliciesthanenvisagedhere).Whilesomemay

considerthisspin,itismorethanthat:itisastatementofintentofwhattheobjectivesofsocial

protectionare,andthewayallpartsofthesocialprotectionsystemareintegratedtoachieve

theseobjectives.Designingintegratedsystemswithdefinedambitionsisimportant,and

objectiveswillgovernwhattypesandformsoftransferschemesarebeingoffered.These

objectivesareinherentlydependentonsocialandpoliticalcontextsandchoices.

Here,thefocusismorenarrowlyontheactualtransferofresources,andtheeconomic

justificationforthesetransfers.Aretheyaffordable?Aretheythebestwaytospendresources

toalleviatepoverty?Dotheycontributetoefficiency,viaaddressingmarketfailures?Howdotheycomparewithalternativemechanismstoachievetheseobjectivesforthepoorand

vulnerable,suchasmicroinsuranceinsteadofsocialinsurance,ormicrocreditinsteadof

transfers?Whatistheevidenceforgrowtheffects?Andhowcansocialprotectionbemore

efficiencyorgrowthenhancing?

Thefirstsectionwillbrieflyexplorethesizeofthechallengeandthecostinvolved.Italsolooks

attheevidenceforthepovertyimpactsofsocialprotectiononincome,consumptionandother

indicatorsinanumberofrecentsuccessstories.Asseenfromthatperspective,costsarerather

substantialbutwithoutdoubt,successescanbeclaimed.Next,thepaperfocusesonthe

contributionofsocialprotectiontoincreasedefficiencyandgrowth,andonhowtodeliver

socialprotectionefficiently.Muchofthejustificationforusingsocialprotectioninsomeofthe

poorestsettingsthesedaysappealstoefficiencyandgrowtharguments.Thetheoretical

argumentsthatchangesinthewealthdistributionincludingviatransferscanhaveefficiency

3Thesocialreferstotheroleofpublicaction;theprincipleisthatatleastpartlythesetransactionsoccuroutsidemarketmechanisms.Ofcourse,thereisnoreasonapriorithatmarketbasedprovisionandallocationaretotally

excluded,andarolefortheprivatesectorispossible,suchasforexampleusingprivateinsuranceandhealth

providers,asintherecentRSBYhealthinsuranceschemeinIndia.4Inparticular,intheconceptnotefortheconsultationforanewSocialProtectionandLaborStrategy20122022.


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gainsarebothwellfoundedandwellresearched.Marketfailuresininsurance,creditand

labourmarkets,linkedtoinformationalandenforcementproblems,aswellasexternalitiesall

leadtoinefficiencies,andinmanymodelconfigurations,notleastwhenaccompaniedsomenonconvexities(suchasindivisibilitiesintechnologies),redistributioncouldbewelfare

enhancing,whilethepotentialgrowthconsequenceslinkedtothepoliticaldynamicsintheface

ofinequalitysimilarlyofferefficiencygainsfromredistribution.5

Butistheevidencereallytheretosupportthisasajustificationforsocialprotectionspending?

Morespecifically,issocialprotectiontheappropriatesolution?Here,theconceptualarguments

forusingsocialprotectionhavetobemoresubtle,andtheevidenceisoftennotencouraging.

Inshort,asimpleargumentthatsocialprotectionisanessentialpartofagrowthstrategy

becauseithashighefficiencygainsinaworldofmarketfailureandcontributestogrowth

directlyhastobetakenmorenuanced.Anumberofmorespecifictypesofsocialprotection

interventions,especiallyinthespaceofsocialinsuranceandcontingenttransfers,wouldseem

tosatisfythiscriterion,butnotall,atleastaccordingtotheavailableevidence.One

interpretationoftheevidenceisthatmostsocialprotectionistooblunttogenerateoverall

efficiencygains.Afinalsectiondevelopssomepossibleareasofdirectcomplementarity

betweensocialprotectionandgrowth,focusingonsocialprotectionprogrammesthatcould

contributetothevariousprocessesofeconomictransformationthatarerequiredtomake

growthbothsustainableandmoreinclusive.Coreexamplesdevelopedarerelatedtosocial

protectiontosupportinternalmigration,citydevelopment,childrenandyouthlabourmarkets.

Standardsocialprotectioninstrumentsarelikelytobetooblunttobeeffectivetohandlethese

challenges.Carefulcostbenefitanalysisisrequiredtoensure

2.SocialProtectionandPovertyReduction

Howbigisthechallengeforreducingpovertyviatransfers?Thescopefortransfersto

contributetopovertyreductionisconvenientlyexpressedbyusingasimplepovertygap

measureofpoverty.6Whenusingitonmonetaryvaluesofthestandardofliving,itgivesa

senseofthesizeofthetransfersneededtobringeveryoneuptothepovertyline,andhow

muchintotalwouldneedtoberaisedforthat.Forexample,usingChenandRavallion(2008)sdataonglobalpovertygaps,relativetoa$1.25dollaradaypovertyline,thepovertygapis

about7.6%ofthepovertyline,or9.5centsperpersonperdayacrossallthedevelopingareas

5ReviewsareinBardhanetal.(1999),theWorldBanksWorldDevelopmentReport(2006),andBowlesetal.

(2006)6

,inwhichP1standsforthepovertygap,anditismeasuredastheaveragegapinasocietywith

populationNbetweenthepovertyline(z)andactualincomelevels(y),expressedasafractionofthepovertyline,

withthegapzeroforthose(NP)aboveit.


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theyconsider.7Whilethesemayseemsmallnumbers,theyareequivalenttodailytransfersof

about520millionUSdollarsatPPPvalue,orabout190billionUSdollarsayearinPPPof2005.

ForsubSaharanAfricaalone,(withahigherpovertygapof21%),thiswouldbejustover25centsadayperday,orthiswouldbeequivalentabout200milliondollarsaday,orabout73

billionperyear.AnotherwaytolookatitinsubSaharanAfricaisthatitisabout5%ofGDP

expressedatPPPof2005,oraboutathirdoftaxrevenue.Yetanotherwayofexpressingthisis

thatthetotalresourcesneededtogetridofpovertyisnowforthefirsttimeinhistorymoreor

lessequaltototalnetOfficialDevelopmentAssistance(atleastifwetrytocorrectitforPPP),

bothforsubSaharanAfricaorthedevelopingworldasawhole.8Thearithmeticforacountry

likeEthiopiaissimilar,withthepovertygapabout7.4%ofGDP,about40%oftaxrevenues,but

withcurrentaidlevelsrecentlymovingwellabovetheequivalentlevelofGDP.9

Thiswouldseemgoodnews:fightingpovertydoesnotseemoverlycostlyandaidhascaught

up.10Anappropriatemixofsocialprotectionschemescouldresolvepoverty.Whatmixis

required?Someofthispovertyhastransientelements,whileotherpartsaremorechronic.

Onecaneventrytoquantifythis.UsingdatafromDerconetal.(2005),thiscanbedonefor

Ethiopia.Usingdataonpaneldataonlivingstandards(proxiedbyconsumptionpercapita)and

detaileddataonshocksfortheperiod1999to2004,acounterfactualcanbeexploredofhow

highpovertywouldhavebeenifsocialprotectionwouldhaveremovedcontingentlosseslinked

tospecified(andarguablyinsurable)shocks,basedonaregressionmodel.Startingfromabout

44percentpoverty,thenifallshockswereinsured,theheadcountwouldbeabout31percentinotherwords,effectivesocialprotectionwouldhaveremoved13%orabout30%ofthepoor

frompoverty.Fortherest,contingenttransferswouldnotbeenoughtoliftthemoutof

poverty,andsocialassistancewouldberequired.Amoreappropriatecalculationrepeatsthis

forthepovertygap,asthiswouldrepresenttheactualresourcesneeded.Herewefindaneven

higherpercentagethatcanbecoveredbysocialinsurance:contingenttransfersinsuringall

7WhichareallareasofthedevelopingworldasusedinWorldBankpublications,buteffectivelyAfrica,EastAsia

andthePacific,SouthAsia,MiddleEastandNorthAfrica,CentralAsiaandLatinAmerica.8AbackoftheenvelopecalculationbasedonOECDfiguresoftotalODAtosubSaharanAfricasuggestsanincrease

incurrentUSdollarsofabout36to48billionbetween2005and2009;in2009thiswouldbeequivalenttoabout

75billionUSdollarsinPPP(of2005);asimilarcalculationforglobalODAtothedevelopingworldsuggestsafigure

ofabout200billionUSdollarsin2005PPPby2009.Toobtainthisfigure,actualODAismultipliedwiththeratio

ofGDPatPPPin2005andnominalGDPincurrentUSdollarsin2005.9Ethiopiahasarelativelylowpovertygapincomparisontoitspovertylevel,accordingtoofficialstatistics,

reflectingrelativelylowinequalityamongthepoor,whilethePPPcorrectionmakespovertybelowtheAfrican

average,contrarytomostotherlivingstandardindicatorsforEthiopia,suchasenrolment,malnutritionor

mortality.Thepovertygapisabout10%.10Usingtaxrevenuestoarrangeforredistributivetransfersisnotquiteyetonthecardsinmostofthepoor

countries,suchasinAfrica:Ravallion(2010)calculatesthemarginaltaxratesrequired,andtheywouldreach100%

formanycountries.


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shockscouldcover40%ofthepovertygap,whiletheremaining60%wouldneedtobecovered

bysocialassistancepayments.

Ifonlyitwasthateasy.Experienceshowsthatfightingpovertyusingtransferswouldrequire

substantiallymoreresourcesthanthepovertygap.First,incomeisonlyonedimensionof

poverty,andwhileplayingaroleinachievingotheroutcomes,investmentsinhealthor

education,tonamejusttwo,arerelevanttoo,andwouldrequireadditionalinvestmentsto

improve.

Therearewellknownotherproblems.Targetingisone,asnotallresourcescaneasilybe

transferredtothepoororatzerocost,andtargetingerrorsarelikely.Meanstestingcanbe

costly,andinmostofthepoorestcountries,someformofadministrativeorlocalidentificationofpovertyhastobeused.Whilelocalinvolvementinidentificationhasadvantages,itdoesnot

avoidpoliticaleconomyproblems,oftenleadingtopoortargeting(ConningandKevane,2002).

Definitionsandconceptscanbecontestedandidentificationofthepoormaysufferfrom

patronageandcapture.ForexampletheBelowthePovertyLineassessmentsinIndia,thebasis

ofgainingaccesstovariousprogrammes,arerifewithpoliticalmeddling(Besley,etal.2008).

Localidentificationoftheneedymayalsoleadtopotentialexclusionfromsafetynetsof

particulargroupsduringcrisis.Forexample,CaeyersandDercon(2011)showhowaccessto

foodaidinEthiopiaduringthedroughtof200203washighlycorrelatedwithconnectiontothe

localauthorityinchargeofdistributionwhetherthisisforpoliticalreasonsorjustreflectinglackofinformationbyotherscanbedisputed.Butintheend,targetingisimperfect.

Thereisalsotheissuethateachdollarspentmayhavealowerreturn(intermsofpoverty)than

thevaluethatreachesthehousehold.Thisisnotaboutthepoorspendingthismoneywrongly

butthereareotherfactors.First,therecouldbecrowdingout:inresponsetoahousehold

receivingapublictransfer,privatetransfersmaygodown(forexamplefromfamilyornetwork

members).WorldBank(2001)hasarguedthatbetween20and91percentofprivatetransfers

maybedisplacedifsocialassistancewereexpandedinthedevelopingworldwhichobviously

wouldraisehugelythecostofremovingpoverty.Morerecentandarguablymorecareful

evidenceismoremixed.Jensen(2003)estimatedthateachrandincreaseinpublicpension

incomefortheelderlyinSouthAfricaleadstoa0.250.30randreductionintransfersmadeby

children.Coxetal.(2004)suggestthatadeclineinprivatetransferby$0.4foreachdollarspent

forthepooresthouseholdsinthePhilippines.MorerecentworkinAsiahasnevertheless

suggestedthattheeffectsarenotsohigh,withatmosta0.08reductioninprivatetransfers

(Gibsonetal.2006).Thesizeoftheeffectwilldependontheschemeandthecontextinany

case,itwillmakefightingpovertymoreexpensive.


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Asecondwayinwhichthevalueintermsofincreasesinlivingstandardshouseholdsislower

thantheamountactuallyreceivedhastodowithpovertytrapslinkedtothresholdsorsome

nonconvexityintheopportunitysetforattaininghigherlivingstandards.Toillustratethis,supposethereisapovertytrapinthefollowingway,withadynamicprocessgoverninghow

incomeequilibriaareobtainedasdescribedinfigure1.Incomeatt+1isontheYaxis,income

attisontheXaxis.Theprocesstranslatingincomeattintoincomeatt+1isgovernedbytheS

shapedfunction,withasteepconvexarearesemblingalmostathreshold;incomeskeepon

changinguntilincomesattandt+1areequal(i.e.reachedequilibrium).Thekeyimplicationis

thatifincomeisbetweenaandbatanymomentintime,thenincomewouldtendtowards

equilibriumA,i.e.itsettlesatthelevela.Ifincomeisbetweenbandcatsomemomentintime,

itwouldgrowtowardsequilibriumC,withincomec.Supposenowthatpovertyishaving

incomesomewherejustbelowb.Ifsocialtransfersareusedtoliftpeoplebelowbuptothepovertyline,thenthesewillhaveazeroimpactonpoverty:anyspendingisirrelevant,asall

thesepeoplewilldrifttowardsAwithincomea.Theseresourceswouldeffectivelybewasted,

evenifthemoneyisputinpeoplespockets.Onlytransfersthatliftpeoplebeyondbwillhavea

nonzeroreturn.Whethertrapslikethisexistisanempiricalanddisputedissue.Forexample,

Dasgputa(1997)arguesforsuchtraps,basedonhowinsufficientnutritionbelowsomelevels

translatesintoaninabilitytobeproductivelyemployedandquicklydrifttowardssuchlow

equilibrium.Unlessthetransferisbigenough,themarginalreturntomorenutritionwouldbe

insufficient.Ingeneraltheevidenceforactualtrapsisnotthatstrong,butatthesametime,the

evidencepointstoslowdynamicprocessesthatwouldbeleadtoprocessesofpersistence,withsimilarpolicyimplications(Ravallion,2008).Wereturnbelowtotheideaofthresholds

motivatingbutalsoconstrainingsocialprotectionschemes.


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Allthesefactorssuggestthatthecostofreachingthepoorviatransfersisgoingtocostmore

thanthecostofthepovertygapwouldimply.Evenabout190billiondollarperyearishardly

appealingoreasilyaffordable,andgivensomanycompetingdemandsongovernment

resourcesanddevelopmentspending,spendingonsocialprotectioninasmartwayisessential.

Theremaybewaystodothisintermsofhowonespendsonsocialprotection(forexample,choosingwaysofspendingthatreducetransactionsortargetingcosts),spendingonitemsthat

helpeconomicefficiency(forexample,maximizingpositiveexternalitiesorresolvingother

marketfailures),orsocialprotectionspendingasinvestment,forexamplebybuildingassets

withatleastasocialreturn.Inthenextsection,theseoptionswillbediscussed.

Beforeturningtothis,itisworthreflectingonhoweffectivesomecountrieshavebeenin

expandingtheirsocialprotectionprovisionbothintermsofcontingenttransfersasinterms

ofsocialtransfers,andthecostinvolvedaswellanythingthatisknownabouttheiroverall

impact.Table1alsoshowsthepovertygapasapercentageofGDPtobenchmarkthecostsinvolved,usingthe2dollaradayinPPPpovertyline(RavallionandChen2008)asformostof

thecountriesinvolvedthiswouldbeamorerelevantpovertyline,asitwouldbeclosertothe

nationalpovertylinesusedlocallyastheyareLatinAmericancountries,aswellasSouth

Africa.ForIndiaandEthiopia,theearlierbenchmarkof$1.25perdayisused.First,wecansee

thatforalltheseprogrammesthecostinvolvedisrelativelylargeinrelationtothepovertygap

asa%ofGDPthesearebigprogrammes.Relativelyspeaking,theEthiopiaprogrammeisthe

smallestinrelationtothepovertygap,butitisthelargestsocialtransferandworkfare

programmesoperatinginsubSaharanAfrica,withapproximately8millionrecipients.The

Incomeatt

Incomeatt+1

45O

B

C

a b c

Figure1PovertyTrapandTransfers


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IndianNREGA(NationalRuralEmploymentGuaranteeAct)programmecoveredabout34

millionpeoplein200708,offering1.4billionworkingdaysofwork.Oportunidadescovered5

millionhouseholds,offeringconditionalcashtransfers,andBolsaFamiliaofferedconditionalcashtransfersto11millionhouseholds2006.Themainpartofthesocialgrantsprogrammein

SouthAfricaisthesocialpensioncomponent,reachingabout90%ofthoseeligibleonmeans

testinggrounds;overallabout15%ofthepopulationgetonesocialgrantoranother.Finally,

theJefesandJefasworkfareprogrammewasthekeypolicyresponsetothecrisisinArgentina

in200203.

Table1 Somewellknownlargesocialprotectionprogrammes

Country Programme Cost

(as%ofGDP)

Povertygapusing

$2/day(as%ofGDP)

Impact?

Brazil BolsaFamilia

(transfer)

0.4 0.6 Povertygapof

thosereached

wentdownby

12%200105

Mexico Oportunidades

(transfer)

0.4 0.4 19%povertygap

declineinrural

areas199606

SouthAfrica SocialGrants

includingsocial

pensions

3.0

(2.0pensionsonly)

1.7 Positivebenefits

documentedbut

notonoverallpoverty

Ethiopia ProductiveSafety

NetProgram

(workfare)

1.5 7.4

(basedon1.25$

perday)

Limitedimpacton

consumptionand

nutrition;some

asset

accumulation

Argentina JefeyJefas

(workfare)

0.8 0.2 Counterfactual

poverty53%

ratherthan67%

amongrecipients,

mainlystoppingpeoplefallinginto

povertyduring

crisis

India NREGA

(workfare)

1.0(allSP

programsabout

2.0)

2.2

(basedon1.25$

perday)

Nosystematic

impactevaluation.

UsingdatafromWorldDevelopmentIndicators(2011),EuropeanReportonDevelopment(2010)andsources

therein.Brazilrefersto2005povertydata,Mexicoto2000,Ethiopia2005,SouthAfrica2000,Argentina2000.

Notethattheseestimatesareapproximateestimates,anddependonvariousassumptionsusedinthesources

mentioned.Also,theinterpretationoftheimpactevidencecouldbecontested.


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Thetablealsoreportsonpovertyimpacts,althoughtakenfromacrossthevariousstudiesand

programmes,itisnotalwayspossibletodistilcomparablefindings,whilemethodsarenotalwaysconvincing.Ingeneral,povertyimpactsareratherpositive,althoughinIndialittle

systematicnationalevidenceisthusfaravailable.11Still,thedifficultiesofbringingdown

povertygapsdowniswellillustratedbythescaleoftheimpactsreported.12Forthoseforwhom

therearedataavailable,theymakepositiveevenifarguablystillmodestinroadsintopoverty.

Ofcourse,iftheseprogrammeswerenotcredibleandpeopleperceivethatthisisonlyaone

offopportunity,consumptionsmoothingwouldhaveencouragedpeopletosavemuchofthe

contributions,soaonetooneimpactonpovertyshouldnotbeexpected.Overall,this

illustrateswellthattryingtogetaneffectivesocialprotectionprogrammethatwillfightincome

povertywillneverbecheap,howeversmallpovertygapnumbersmayseemtobe.Fightingpovertyisnotsimplyamatterofspending.

Othershaveappearedtoarguethecontrary.TheILOhastriedtocalculatethecostofabasic

packageofsocialprotectionincludingfreebasichealthcare,childbenefit,cashtransferstothe

poorandunemployed,anddisabilityandoldagepensions,allatmodestlevelsneverpayinga

directtransferofmorethan$1inPPPperday(ILO,2008).Theysimulatedthecostfora

numberofcountries,suchasEthiopia,Kenya,Tanzania,Cameroon,BurkinaFaso,Indiaand

Pakistan,andsuggestedthattoofferthispackagewouldcostabout3.7to10.6%ofGDP.13In

relationtotypicaltaxreceiptsof1018%,thisissubstantial.ILO(2008)considersthisneverthelessafeasibleplanworthallocatingresourcestointheshortrun.

Still,thisisnottosaythatsocialprotectionisjusttooexpensive.Povertyreductionisan

importantgoalandmanyotherinterventionsmaywellhavealowerpovertyimpact.For

example,inLatinAmericaorinSouthAfrica,itishardtothinkofalternative,defined

interventionsoutsidesocialprotectionthathavehadorcouldhavethispovertyimpact.Butthis

comesatacost,andrathercarefulthoughtneedstobegiventowhatworksandhowmostcan

begainedfromsocialprotection.Intheend,politicalsupportforsuchschemesiskey,andthe

wayneedsandrightsofthepoorarticulatedinpoliticalchoices.Belowwefocusoneconomic

benefits,whichmayhelpinarguingforthesechoices.

11AsmallscaleimpactevaluationstudybyRaviandEngler(2009)suggestedthatfoodexpenditureincreased15%

forparticipants,andevenmorecomparedtothosewhowantedtoworkbutsomehowwereexcluded.12AnexamplefromChina,reportedinRavallion(2007)confirmsthisforaprogrammeaimingtobringallurban

householdsaboveaparticularpovertyline,theMinimumLivelihoodGuaranteeScheme.By2003,22million

peoplewerecovered,or6%ofurbanhouseholds.Althoughambitious,thepovertygapwasonlyreducedby12%.

Thepovertyheadcountamongtherecipientswasreducedfrom57to45%duetotheprogramme.13TheEuropeanDevelopmentReport(2010)questionedtheassumptionsandsuggestedthatacostof5to12

percentwasmorerealistic.


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3. Efficientsocialprotection

Inthissection,weaddresstwoquestions.First,dotransfersorcontingenttransfersimproveeconomicefficiency?Andsecondly,aretherewaysofdeliveringtransfersthatpromotemore

economicefficiencyaswell?Theargumenthereisnotthatallsocialprotectionmustimprove

efficiencybutitwouldpossiblyhelp,inaworldofconstrainedresources,tospendonthose

programmesthatmayhavetheseeffects.Intheprocess,wecontrastsocialprotectionto

alternativemoremarketorientedinterventionsthataimtoresolvesimilarmarketfailures,

microcreditandmicroinsurance,andforwhichsimilareconomicbenefitsasforsocial

protectionarebeingclaimed.

SocialassistanceandcreditmarketfailureIsthereareturntoofferingsocialtransfers?Therewouldbeoneifthosepeoplereceivingthe

transferswouldhavebeenconstrainedintermsofinvestmentsinassetsandactivities.Ifcredit

constraintsbind,thenprofitableopportunitiesmayhavebeenforegone.Asthepoorhavefew

assets,theycannotoffercollateralbuttransfersmayimprovetheirassetpositionorofferthem

directlythecashrequiredtodotheinvestments.Similarly,ifinsurancemarketsorinformal

substitutesaremissing,thenshockswouldleadtoassetdepletion,andlowerfuturereturns

wouldfollow,aprocessthatcanbeavoidedifcontingenttransfersofferprotection.

Furthermore,withoutinsurance,fearofbadoutcomeswouldleadtolessrisktakinginactivity

orassetportfolios,leadingalsotolowerreturns.Thepromiseofhavingaccesstocontingenttransferswouldalsoavoidthis.

Howmuchevidenceistherefortheseprocesses?Quiteafewmodelspredictthattransfers,by

boostingassetlevelsofthepoor(andreducinginequality)wouldleadtomoreaccesstocredit

andthereforehelptoovercomethemarketfailure(BanerjeeandNewman(1993),Benabou

(1996),DasguptaandRay(1986),Bardhanetal.(1999)).Introducingthresholdsor

indivisibilities,sothatquitelargeinvestmentsumsareneededtoenterlucrativeactivities

wouldsuggestpotentiallyevenlargereffects,providedtransfersarelargeenough(andhelpto

overcomethethreshold,asdiscussedintheprevioussectionandfigure1).

Thereisplentyofsuggestiveevidencethatcreditconstraintsmatterformanypoor,even

thoughhardevidenceisdifficulttocomeby,asotherexplanationsforobservedbehaviours

cannotbeeasilydismissed(Ray(2008)).Still,overallevidenceseemstosuggestthatcredit

constraintsmatterformanyinthedevelopingworld(BanerjeeandDuflo(2005);WorldBank

(2006),Ravallion(2006)).Evidenceonpovertytrapsishardertocomeby,butsomedynamic

behavioursconsistentwithpovertytrapsarefoundinKenyaandIndia(Lybbertetal.,(2006),


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DerconandOutes(2011)).Asseenfromthisperspective,offeringtransfersaspartofsocial

protectioncouldhavehighreturns.

Isthereevidencefromsocialtransfersprogrammethatthetransfersappeartoovercomecredit

marketfailureandleadpeopleintovirtuouscycleofproductiveinvestments?Here,the

evidenceisnotverystrong,atleastforphysicalassets.Formostprogrammes,thereportsshow

someinvestmentinproductiveinvestmentswithhighreturns.Gertler,etal.(2006)foundthat

12%ofPROGRESA(thepredecessorofOportunidades)beneficiariesinvestedsomeoftheircash

intotheproductiveactivitiessuchasmicroenterprisesandagriculture.Theyreported30to

50%returnsontheseassets.Whilethesereturnsarehigh,thenumberofinvestorsinvolved

(12%)issmallifcreditconstraintsforproductiveinvestmentshadbeenhigh,thensurely

morewouldhavetakenadvantage.InEthiopiasPSNP,whereassetbuildingbytheseruralhouseholdswasacentralobjective,andassetpovertytrapshadbeenarguedtoexistasa

motivationfortheprogramme,therewassomeimpactonassetaccumulation,butwellbelow

expectations.Gilliganetal.(2009)reportedthatlivestockincreasedamongstthebeneficiaries

byabout9%,butformost,assetlevelsremainedwellbelowthelevelsinitiallysetfor

graduationacrossthepovertythreshold.Initialtargetshadsuggestedthatallbeneficiaries

weremeanttograduateby2009throughthevirtuousgrowthprocessesofincomesandassets

linkedtoaccessofthevariouscomponentsoftheprogramme.Butofthemorethan8million

households,only1.3%hadgraduatedby2009.14

Inshort,theseefficiencygainsviatransfersappeartoberelativelysmallinsomeofthelarger

programmes.Maybetransfersarenotthebestwayofovercomingthis?Infact,afarmore

commoninterventiontoovercomecreditmarketconstraintsinmanycountriesismicrocredit,

andatleastintermsofuptake,thatwouldseemaverysuccessfulactivity.Wouldthatoffera

betteralternativetogenerateefficiencygainsthanoffercashtransfers?

Infact,therelativelylowreturnstocashtransfersformosthouseholdsareratherconsistent

withtheemergingevidenceonmicrocredit.Foralongtime,ithasbeenhardtofindclearand

undisputedevidencethatmicrocreditoffersthetransformationoflivespromised(Armanderiz

deAghionandMorduch,2005).Morecarefulevaluationstudieshavebeenimplementedin

recentyears,andgenerally,theyarenotfindinglargeeffectsonpoverty,assetholdingsand

ambiguouswelfareeffects.AnumberofrecentRCTsinurbanareashavefocusedonwhether

microcreditleadstohighreturnfrombusinessinvestmentinIndiaandthePhilippines,

targetingareaswherehighreturnsshouldhavebeenexpected.Theyhaverecentlyfoundthat

theaveragereturnwaszeroforfemalesreceivingloans(Banerjeeetal2010,KarlanandZinman

14Thisdoesnotbodewellforcurrentplans,wherewithinthenextfiveyear,beneficiarieswillbereducedtobelow

1.5million,meaningthattherestisexpectedtograduate.


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2010).MirroringthesestudiesbutnowofferinggrantstowomeninSriLankaandGhana,itwas

foundinSriLankathatthereturnwasalsozero,andinGhanathatonlyforthosewitha

businessinthetop40%ofthedistributionofinitialfirmsize,didthecashtransferhaveapositivereturn(deMeletal2008,Fafchampsetal.2011).InIndia,Banerjeeetal.(2010)find

thatthosealreadyinvolvedinentrepreneurshipinIndiausetheloantoexpandbusiness,

withoutnecessarilyguaranteeingareturn.Overall,Banerjeeetal.(2010)concludethat

microcreditisnotforeveryhousehold,orevenmosthouseholds,,anditdoesnotleadto

themiraculoussocialtransformationsomeproponentshaveclaimed.Thesameappearstobe

trueforsocialtransfersaspartofsocialprotectionspending:formany,thereturnstothese

grantsareunlikelytobehigh,andtheirtransformativepowerisnotobvious.

However,itcanbecorrectlyarguedthatthenonmonetaryreturnstothesecashtransfers(orindeedmicrocredit)maybeasimportant.Justasmicrocreditsmainresultappearstobe

impactsonfemaleempowermentandnonmonetaryeffects(ArmanderizdeAghionand

Murdoch,2005),thesameseemstoapplytosocialtransfers.Transfersmaybeinvestedin

otherassets,suchashealthoreducationofchildren.Itmaymoregenerallyleadtosocial

emancipation.Thereisindeedevidenceofsomesucheffects.

Conditionalcashtransferstendtoimposeconditionsintermsofschoolattendanceorhealth

clinicattendanceofchildrenonparentsaccesstocashtransfers.Whilemanyofthese

schemes,suchastheProgresa(Oportunidades)havefoundpositiveimpactsonhealthandeducation,itwouldnotbequiterighttodirectlyattributethesetothecashpartofthetransfer.

However,exploitingvariationinthecashtransfergiven,Gertleretal,(2009)havearguedthat

thecashpartwasrelevantforimprovedhealthoutcomes.Thesocial(oldage)pensionscheme

inSouthAfricaalsoappearstohavefurthereffectsbeyondcashreturns:Duflo(2003)finds

positivehealthandnutritioneffectsonyoungchildrenofthefamily,whileEdmonds(2006)

reportsreducedchildlaboursupply.15SomeoftheschemesinLatinAmerica,suchasJuntosin

Peru,canbecreditedwithofferingmarginalizedgroupssuchasAndeanpeasantssomething

concretefromthestate,ratherthanexperiencingitsoppressionandviolence.

Finally,ifmicrocreditandcashtransfershavesimilarreturns,whynotpromotemicrocredit,as

itsurelywillbecheaperifsomeresourceswerebeingrepaidwithlittlelossofthebenefits?Itis

notsosimple.Onekeyargumentformoresocialassistanceisthatmicrocreditprogrammesfind

itnotoriouslydifficulttoreachthepoorest(ArmanderizdeAghionandMurdoch,2005).And

creatingobligationstoberepaid,ifreturnstoassetsarenothighformany,wouldmakecredit

15Socialprotectionishowevernotnecessarilyleadingtobeneficialchildlaboureffects:Woldehanna(2009)finds

thatchildlabouractuallyincreasedamongbeneficiariesofthePSNP,asparentsleavechildrentomindthe

householdwhiletheytakeontheworkfare.


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notasuitablesolutionforthepoorest.Nevertheless,thesuccessofmicrocreditprogrammesof

reachingmillionsacrosstheworldillustratesapossiblelessonforsocialassistance

programmes.Microcreditinvolvesaclearcontractbetweenproviderandborrower,withclearlyspelledoutrightsandobligations.Socialprotectionoftenlacksthiscontractualaspect.

Contingenttransfersandinsurance

Thediscussionthusfarhasfocusedonsocialassistancetransfers;butwhatabouttransfers

contingentonparticularevents,suchasharvestlossesorillness?Mostpoorliveinrisky

environmentsthatconstantlythreatentheirlivelihoods.Themajorityofthepoorareself

employed,inagricultureorintheinformalsector;othersareininsecurecasualwagelabour

jobs.Healthrisksarerifeinurbanandruralareas;rurallivelihoodsstronglydependonagro

climaticconditions.Mutualsupportandrisksharingmechanismsarewidespread,whilehouseholdsalsouseavarietyofselfinsuranceandriskmanagementstrategies.However,

extensiveresearchinthelast20yearsorsosuggeststhatatbestallthesesophisticated

livelihoodstrategiesofferonlypartialinsurancetothepoor(Dercon,2004).Typically,they

cannotoffersufficientprotectionagainsteconomicdownturns,climateshocksandserious

healthshocks.

Fundamentally,thisislinkedtomissinginsurancemarkets,orfurthermarketfailuresinsavings

andcreditmarkets,thetypicalmarketbasedsubstitutesforlackofinsurance.Welldesigned

socialprotectionofferingcontingenttransferscouldfillthisgap.Examplesareworkfare

programmestohandleeconomicdownturns(suchasJefesyJefasinArgentina)orthe

employmentguaranteescheme(NREGA)inIndia,offeringupto100daysatrelativelylowpay

toanyone.Freeorsubsidizedhealthcaretospecificgroupswouldbeameanstooffera

contingenttransferinkind;morestandardsocialinsuranceforhealthcouldtaketheformof

publiclyrunorsupportedhealthinsuranceschemes,suchasthestronglysubsidizedRSBY

hospitalizationinsuranceinIndia.Welldesigneddroughtreliefandotherfoodaidschemes

couldalsohavetheirrole,forexampleinthefaceofweatherorpriceshocks.

Socialprotectionmayresolvesomeofthemostpertinentinsurancemarketfailures.However,

whilenodoubtmuchhumanhardshipcouldberesolved,wouldthisofferasufficientlystrong

economicargumenttospendresourcesonit?Thiswoulddependonthesizeofthelosses.

Therearetwotypesoflosseslinkedtoriskworthdistinguishing.First,thereisthelossof

variousassetsandhumancapital.Secondly,therearetheprofitableopportunitiesmisseddue

toriskashouseholdsandfirmsneedtoavertriskduetolackofprotectionagainstdownside

risk.


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Largeorrepeatedshocks,withoutgoodinsuranceorsocialprotection,forcepeopletoselloff

assetstosustainnutritionandconsumptionwithrisksofpersistentpoverty:astateofdeep

povertywithlittlehopeoropportunityofescape.Thenarrativeofassetpovertytrapsinspiredbytheanalyticsinfigure1appearsconsistentwithmanyofthelifehistoriesofthosein

persistentpoor:theyfacedepletedproductiveassets,withsuchlowreturnsthattheyarelikely

toremainstuckindeeppovertyforever.Inahighriskenvironment,onecouldeasilyfallwhen

aseriousshockstrikes,butthenfinditveryhardtoescape.Iftheselossesarelargeand

widespread,theefficiencylossesmaybeveryhigh.

Thereisevidenceforsuchprocessesoperatinginsomeofthepoorestsettingsintheworld,in

theformofassetorincomepovertytrapsinKenyaandIndia(Lybbertetal.,(2006),Derconand

Outes(2011))andincomedynamicsleadingtopovertypersistenceinChinaandEthiopia(JalanandRavallion(2004),Dercon(2004)).Thesizesofthesedynamiceffectsfortheaffectedgroups

canbelarge,andattimesmanyareaffected:forexample,alargepartoftheruralpopulation

wasaffectedbythefamineof198485inEthiopia,andinthe1990s,itwasfoundthatduringa

periodofgrowthandrecovery,theyhadabout6percentlowergrowthinincomeperyearthan

thosenotaffected(Dercon2006).InTanzaniaandEthiopia,incomesofthoseaffectedby

droughtsmorethan10yearsearlierwerestillfoundtobelowercomparedtounaffected

communities(Beegleetal.2008,Dercon,2006).

Thesizeoftheseeffectsisevenbetterillustratedbytheimpactoflargedroughtandconflictshocksonhumancapital,intheformofhealthandeducation.Catastrophichealthshockswere

foundtohavelargeeffectsonconsumptioninIndonesia(GertlerandGruber,2002).More

dramaticconsequenceswerefoundfromcrisesaffectingyoungchildren.Evidencefrom

ZimbabweandEthiopiafromcrisesinthe1980sfoundthatupto20yearlater,youngchildren

affectedbythesecriseswerefoundtohavepermanentlossesintermsofheightandeducation,

suggestingpermanentincomelossesofbetween7and15%(AldermanandHoddinott,2004;

DerconandPorter(2010)).MaternalorphanhoodinTanzaniawasshowntoleadtosubstantial

heightandeducationlosses,andabout9%lowerearningsatadulthood(Beegleetal.2010).In

short,aseriouscrisisatanearlyagehaslifelongimpactsonproductivityandincomes.

Someofthekeyimpactshereworkthroughnutritionaldeprivationrelativelyearlyinlife.The

crisesdiscussedinmostofthesepapersarelargelycovariate,inthatalargepercentageofthe

populationisaffected.Buttheseeffectsareunlikelytocomeaboutonlyfromcovariateshocks.

Stuntingisstillveryhighmorethan40%ofchildreninsubSaharanAfricaandSouthAsiaare

stunted,linkedtodeprivationsinearlychildhood.Causallinksbetweenstuntingandcognitive

development,andthereforeearningspossibilitiesarewellestablished(GranthamMcGregoret

al.,2007).


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Inshort,theavailableevidencesuggestslongtermefficiencylossesfromtwokeysources:at

thelevelofhouseholds,largeuninsuredshocksinincomestendtohavelongtermincomeconsequences,linkedtolossesofassets,whileespeciallychildrenbearanimportantcostinthe

longrun,intermsofeducationandhealth,affectingtheirproductivityinlaterlife.

Hardertoquantifybutpossiblysubstantiveaswellarethecostsofforegoneopportunitiesdue

torisk.ThereisevidenceofactivityandassetportfoliochoicesinagricultureinIndiaand

Tanzania,suggestingthatreturnstoassetsareabout25to50%lowerforthosenotableto

protectthemselvesagainsttheconsequencesofbadharvests(BinswangerandRosenzweig,

1993;Dercon,1996).Thereisalsoevidenceofloweruptakeinagricultureofprofitableinputs

andtechnologiesinIndiaandEthiopia,linkedtothelackofprotection(DerconandChristiaensen,2011;Morduch1995).Dercon(2006)hasmoreexamples.

Thiswouldsuggestaratherstrongcaseforsocialprotectionmechanismsthathelptoavoid

consequencesofclimaticriskorserioushealthshocks.Fewofthelargesocialassistance

schemesinoperationhaveasystemofcontingenttransfersincluded,forexamplewhere

transfersincreaseorcoverageisbroadenedwhenincomeshocks,suchaslinkedtopoor

harvestsoccur.DeJanvryetal.(2006)neverthelesssuggestthatProgresahelpedchildrento

stayinschoolwhenharvestsfailed,althoughtheyalsoarguethatamorestatecontingent

systemoftransferswouldmakethesystemmoreeffective.

Inanumberofcountries,effortsareunderwaytoexpandhealthinsurancesystemsfor

hospitalizationcosts.InGhana,theNationalHealthInsuranceschemeistryingtooffermore

widelyaccesstohealthinsurancetoreduceoutofpocketexpenditures,althoughevidence

suggeststhatthepoorestremainexcluded(EuropeanReportonDevelopment2010).InIndia,

theRSBYlowcosthospitalizationinsuranceschemeoffersanambitiouslargescaleattemptto

ensurethepooravoidlargehealthexpendituresandprotecttheirhealth.Whileenrolment

appearstobehighandrathersuccessful(WorldBank,2011),earlyevidenceonitsfunctioning

israthermoredamningaboutitssuccess.Rajasekharetal.(2011)reporthowinKarnataka,85%

oftheeligiblehouseholdsknewaboutthesystem,and68%hadbeenenrolled.Butinpractice,

aftersixmonths,utilizationrateswerevirtuallyzero,withbeneficiariesnotreceivingcardsor

informationwheretogetcare,andwithenrolledhospitalsnothonouringtheircommitments,

askingforcashorturningawaypatientswithRSBYcards.

TheNREGAemploymentguaranteeschemeinIndiawouldinprincipleofferoneidealformof

contingenttransfers,byofferingpermanentlyaccesstoupto100daysofworkatwagesthat

makeitonlyofinteresttoeitherthepoorestorthosetemporarilyfacinglowincomes,asit


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wouldguaranteeasourceofincomewhenruralincomesarelowduetopoorharvestsand

limitedrurallabourmarketopportunities,whilealsocontributingtobuildupcommunityassets

(Ravallion,2008).Itsimpactisnotentirelyclearatthemoment,andtheprogrammeisrifewithimplementationproblems.Forexample,DrezeandKhera(2009)findintheirsurveythat98%of

thepotentialworkersstatedthattheywerereadytoworkfor100daysintheyear,whichisthe

upperlimitoftheNREGA,butonly13%reportedtobeabletogetthisnumberofdays(seealso

WorldBank(2011)).

Ifuninsuredriskiscostly,andfewprogrammesappeartofunctionwell,couldinsurancemarket

developmentnotofferanalternative?Inmostricheconomies,publicorsubsidisedsolutions

forhealth,unemploymentanddroughtinsurancearestandard,butthisdoesnotmeanthatin

settingswithlimitedresources,theremaynotbeefficiencygainsfromusingmoremarketbasedsolutions.Indeed,alotofeffortisputintotryingtodevelopmicroinsurancesolutions

forthepoor,usingexactlythesamemotivationasusedforthedevelopmentofsocial

protection(e.g.seeDerconandKirchberger,2009).Itisdefinitelyworthwhiletoexplorewhat

theplaceofeitherwouldbeinanefficientsystemgearedtowardsreducingvulnerabilityofthe

poor.

Experiencewithdevelopingmicroinsurancemarketshastaughtusalotoflessons.Inpractice,

whiletherearealotofmicroinsuranceinitiatives,coverageisstillverylow.Forexample,Matul

etal.(2010)estimatedthatonly2.6%ofthepopulationunder$2adayinsubSaharanAfrica

hadaninsurancepolicyfrominsurancecompanies,NGOsandcommunitybasedsystems,and

morethanhalfofthesewereinSouthAfrica,wherefuneralandlifeinsuranceiswidespread.

Morecarefulimpactevaluationsofdroughtorhealthinsuranceproductsalsofindlowuptake

(Coleetal.2010,Derconetal.2011).Thesemarketsareclearlyhardtodevelop,forvarious

reasons.First,insuranceisadifficultconceptandthereforeadifficultproducttosell

anywhereintheworld(Coleetal,2010).Furthermore,trustisakeyissue(Caietal,2010,

Derconetal.2011).Notethekeydifferencewithsellingmicrocreditproducts:inthecaseof

insurance,thesellerfirstcollectsmoneyandthecustomerhastotrustthatthesellerwill

honourthecontractifabadeventoccurs;incredit,thesellergivesmoneyandhastofinda

waytoensurethecustomerrepays.Partingwithmoneyasinthecaseofinsurancewillbeseen

ashighlyriskybythepoor,addingtotheirvulnerability.

Thesewouldseemreasonsforinvolvementofthestate,especiallytoensurethatsomeofthe

poorestarecoveredaswell;contributionbasedsocialinsuranceschemesclearlycanhavetheir

role,withpossiblysubsidisedaccessforsomeofthepoorest.Butifunderstandingandtrust

areproblemsforprivatecontracts,thesewouldsimilarlybeproblemsforstaterun


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programmesiftrustingovernanceofpublicschemesisnotpresentwhichcouldbeaproblem

inmanysettings.

Therecouldbeotherreasonswhysocialprotection,possiblyworkingwithprivateinsurance

systems,hasaclearspace.Insuranceproductsforsomeofthemostcatastrophicand/or

covariateshockstendtoberatherexpensive,withcostlyreinsuranceforprivateinsurance

contracts.Renewalsbycustomersarealsoattimeshardtoachieveifnoshocksoccurredinthe

lastyear.Finally,privateinsurancemarketshaveincentivestoguardthemselvesagainst

adverseselection,bykeepingsomeofthehighestrisksoutoftheriskpool,leadingtoexclusion

ofsomeofthepoorest.Involvementofthestate,includingviaguaranteesandsubsidiescould

ensurethepoorestarecovered,evenforthelargestrisks.Morestandardcontributionsbased

socialinsurancecouldthenbefurtherdevelopedfromspecificpublicsocialprotectionactivities.

EfficiencyinDeliveryofSocialProtection

Withlimitedbudgetsandpotentiallyhighcosts,findingwaysofdeliveringsocialprotectionat

lowcostmustalwaysbeapriority.Manyoftheseissuesrelatetodesigningmanagerialand

governancesystems.However,therearecertainelementsinthedesignoftheproducts

involvedthatprovidepotentialefficiencygains.

Iftargetingcanbedonemoreefficiently,reachingthetargetpopulationwillbemorecost

effective.Imposingstricttargetingruleswouldmeanthatnoonenotdeservingthetransfer

receivesit.Ingeneral,targetingusingmeanstestingoradministrativemeanstendstobe

expensiveorsystemstendtomakeerrors.Theseerrorsareoftwotypes:includingthosein

schemesnotdeservingthetransferandexcludingthosethatshouldgetthetransfer.Ifone

wantstomakesurethatpovertyreductionisparamount,thenexcludingdeservinggroups

wouldcomeatahighpriceinsocialwelfare.Universaltransfers(insteadoftargetedtransfers)

havethereforebeenproposed,butobviouslywouldcomeatahighcost.

Onemeanstoexcludeanynontargeted(nonpoor)householdsistosetupselftargeting

schemes:socialprotectionprogrammesdesignedinsuchawaythatonlythosereallyneedingit

enrolortakeadvantageoftheprogramme(Ravallion,2006).Imposingconditionstoreceivea

transfersuchasinconditionalcashtransferschemescanencourageselftargetingifthe

conditionwouldbeconsidereddemanding,e.g.intime,tastesorevenshameforrichergroups.

AworkfareprogrammesuchastheemploymentguaranteeschemeinIndiaisoneexample,as

thebenefitrequireshardwork.Usinginferiorcommoditiesforpricesubsidies,whose

consumptiondecreaseswhenincomerisesisanotherexample.Itisnotalwaysclearthatthis


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willresultinbettertargeting:oneproblemisthatnotallthepoorcansatisfythecriterion.For

example,notallcanoffertowork,comingatthecostofexcludingsomegroups.

Whilebettertargetingoffersameanstodeliverschemesatlowercosts,thisisnotthesameas

providingefficiencygainstotheeconomyfromsocialprotection.Asthediscussioninthis

sectionhasargued,cashtransferstomostofthepoorasoperatingcurrentlyarenotlikelyto

havelargereturnforgrowthandefficiencyperse,althoughcontingenttransfersmayhave

largerefficiencygains.Conditionalcashtransfersmayoffersomefurtherbenefits,astheynot

onlytransfercashortypicallyfungiblecommodities,butalsoimposeratherpreciseconditions.

Conditioningtransferscanhavebenefitsforefficiencyiftheconditionimposedoffersdirect

efficiencygains.Forexample,onewayofreadingthebenefitsofconditionalcashtransfersasin

operationinmanyLatinAmericansettingsisthattheyresolveinefficienciesinhouseholdallocation:childrensbargainingpowerisinsufficientandtheirintertemporalbenefitsfrom

betterhealthandeducationareinsufficientlyvalued.Conditionsensurethatmoreofthegains

accruetothechildren(Dasetal.2005).Furthermore,therecouldbedirectbenefitsforthe

economyaswell.Ifinvestinginhealth,educationortraininghasexternalitiesfortheeconomy

asawhole,provide(private)transferstohouseholdswithconditionsforhealthandeducation

(asinOportunidades),orfortraining(JefesyJefas,Argentina)ensuremoreinvestmentthan

whattheunconditionaluseofthetransferhadoffered.Thesizeoftheexternalitiesremainas

disputedastheexactroleofhumancapitalforgrowth,whichespeciallyatlowerskilllevelsis

notresolved(GrowthCommission,2008).

Othergrowthexternalities

Therearealsopossiblyotherexternalitiesfromredistribution,thatmaybeimportantfor

growthbutworkmuchmoreindirectlyordynamically.Thistouchesonthemoremacrolevel

literatureontheroleinequalityongrowth,viapoliticaleconomyeffects.Thereisrelatively

strongevidencethatinequalityisbadforgrowth(WorldBank,2006).Theorymodelshave

suggestedvariousmechanismsincludingviapressuresofredistributionindemocraticsocieties

ortheimpactofsocialconflictallleadingtolowergrowth(PerssonandTabellini1994;Alesina

andPerotti1996).Importantly,whileitislessdisputedatpresentthatseriousinequalityleads

tolowergrowth,inmodelssuchasinPerssonandTabellini(1994)itisbecauseredistribution

leadstolowergrowth.TheevidenceinBanerjeeandDuflo(2000),thatchangesininequalityin

eitherdirectionisassociatedwithreductionsingrowth,mayfurtherlimittheroleoflargescale

socialtransfersasofferingadirectrouteforinequality,evenifinequalityinitselfisbadfor

growth.Ofcourse,itwouldbehardtoarguethatcurrentsocialprotectionschemesinmostof

thepoorerdevelopingcountrieshavethescalerequiredtoattractanylargenegativedynamic

growtheffects,whilethecontributiontoreducingsocialconflicttensionsinhighinequality

societiessuchasinLatinAmericamaywellbelarge.Aswithallregressionwork,the


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associationsimpliedareaveragesacrossaworldwithrelativelyfewcountriesofferingdata

pointsandhugeheterogeneityinsocialandpoliticalcontexts.Inthisreview,wehavelessto

sayondynamicgrowtheffectsviatheimpactofsocialprotectiononinequalitybylackofevidenceeitherway.

4. SocialProtectionandgrowth?

Thediscussionabovesuggeststwobroadtypesofsocialprotectionthatcanhavesubstantial

efficiencyorgrowthbenefits.First,giventheproblemswithriskandinsurancemarkets,

developingsocialprotectionspecificallytodealwithshockshasastrongappeal,notleastgiven

thelongtermcoststhelackofinsuranceappearstoimposeonparticulargroups.Secondly,

whilebroadbasedcashtransfersareunlikelytohaveahighreturnbeyondtheir(important)

redistributiverole,theideathateithertargetingspecificgroupsorincludingspecific(non

fungible)conditionstosocialprotectionseemsappealingtoachieveefficiencyandgrowth

goals.Alltargetingrisksexcludingcertaingroupsasaconsequence,soatradeoffbetween

efficiencyandequityconsiderationsloomslargeinthiscase.Belowwesuggesthowtransfers

tothreespecificgroupsthatcouldhaverelativelyhighefficiencygains,aswellasthepossible

typesoftransfersthatcoulddeliverthesebenefits.

TargetingYoungChildren

Thecasefortargetingyoungchildreniswellrecognised.Theevidencequotedaboveonthe

longtermdamagethatcanbedonefromnutritionalandotherdeficienciesinearlychildhood

arewelldocumented.Infact,eventheGrowthCommission(2008)recognisedtheneedfor

spendingonearlychildhoodprotectivemeasuresforgrowthreasons.Cashtransfersperseare

bluntinstrumentstoensurethatspendingbyfamiliesreachesthechildrenproperly.

Furthermore,themostcriticalagesforchildrenarepreschool,soschoolbasedsystemswould

notworkeither.Acombinationofconditionalcashtransfersaswellasformsofcontingent

transfersduringcrisestargetedatchildrenmayofferasolution,eventhoughtheyarelikelyto

beratherbluntinstrumentstoensurethatnolongtermlossesemergefromshortterm

deprivation.

Someoftheevidenceavailablesuggeststhatstandardconditionalcashtransfersareindeedtoo

blunttohaveaconsiderableimpactonearlychildhoodindicators.Eventhoughsomeimpacts

werefound,Schady(2006)argues,usingevidencefromGertlerandFernald(2004)(seealso

Fernaldetal.2009)thatProgresa/Oportunidadeswastooblunttohavemuchimpact.Targeted

foodsupplementstochildren,suchasaprogrammeinPeruofferingmilktochildrenalsomake

littleinroadsinnutritionaldeprivationandotheroutcomes(StifelandAlderman,2003).

Strongerimpactsarefoundfromspecialprogrammesencouragingattendanceatdaycareor


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preschoolfacilitiessuchasinthePIDIprogrammeinBoliva(Behrmanetal.2004).Themost

encouragingresultscomefromtheworkinJamaicabyMcGregorandcolleagues(1991,1997),

inwhichnutritionalsupplementsandchildstimulationwereoffered,withespeciallythelatterofferingveryhighreturnsinthemediumrun.Howtoscaleupsuchinterventionsinpoor

settingssuchasinAfricaisobviouslyaseriouschallenge.

MigrationandCities

Duringperiodsofgrowth,livelihoodsrarelychangesmoothly.Formany,itinvolvestakingrisks,

includingmigratingandenteringintoactivitiespreviouslynotperformed.Suchchangesare

essentialtoallowthepoortotakepartandbenefitfromeconomictransformationbutasthe

fastgrowingeconomiesinAsiaandLatinAmericahaveshown,whileimprovingmanylives,

migrationtendstoinvolveserioushardshipforsome,eveniftemporarily,andevenleadingtopersistentpoverty.Thiswillmakeothersreluctantparticipants,slowingpovertyreduction

duringgrowth.Atthesametime,theeconomictransformationrequiresareadysupplyof

workers,anddespiteperceptionstothecontrary,migrationinmanydevelopingcountriesis

oftentooslowleadingtoinefficiencies,andthelackoftheappropriateskillmixforlocallabour

markets.AuandHenderson,(2006)arguedthatlimitationsonmigrationinChinaleadtocities

thataretoosmallforgrowthandefficiency.Beegleetal.(2011)findurbanruralgapsinthe

standardoflivinginTanzaniaconsistentwithundermigration;similarevidenceexistsforIndia.

Internalmigrantsareoftenperceivedtoliveinitiallyinsqualorsufferingpoverty.Intermsof

averagemateriallivingconditions,theevidencesuggeststhecontrary,atleastcomparedto

conditionsleftbehind;however,therisksofmigration,leadingtoheterogeneityinliving

conditions,aswellasthecostsofcongestion,andpoorpublicservicesintheformofaccessto

health,sanitationandeducationreducetheattractivenessofmigration.Astherewouldbe

efficiencygains,theeconomiccaseforofferingmigrantsandotherurbangroupsbettersocial

protectiontolowertherisksinmigrationmaybehigh,evenifcontroversial.Mostworkfare

programmesinthepoorestcountriesareruralbased,atbestbuildingupruralinfrastructure,

ofteninareaswithlimitedfutureforagricultureoremploymentinthelongrun.Introducing

workfareprogrammesinurbanareas,bothinsmallandlargercities,focusingonbuildingup

communityassets,suchassanitationorbetterhousing,couldhavesubstantialbenefits,andcontributetomakingurbanareasmoreattractiveforworkers,contributingtoamoreready

supplyofworkerstofeedintotherequiredeconomictransformation.Atpresentmanyofthe

ruralcommunityassetbuildingprojectssuchasinthePSNPorNREGAmaynothaveproduced

highqualityassets;itwouldbeachallengetoensurethiswouldhappeninurbanworkfare

programmes.


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Adolescentsandyoungadults

Anothergroup,largelyforgotteninsocialprotection,butbecominganeverlargerchallengefor

socialandeconomicpolicyarerelativelypooradolescentsandyoungadults.Themassiveriseof

enrolmentintoeducationandtheeconomictransformationtakingplacehasraisedthe

expectationsofthisgroup.Giventhewaydemographictrendshaveevolved,inmanycountries,

theyarecurrentlyorinthenextdecadeorso,thelargestsingledemographicgroup.Inmany

developingcountries,educationhasnotdeliveredguaranteedjobsinthesamewayasitwould

havebeenfortheirparents.Atthesametime,concernsaboutthequalityofeducationinmany

developingcountriesmeansthateventheircognitiveskillsarelimited;labourmarketsdooften

notappeartoconsiderthemeasilyemployable.

Aseconomictransformation,andtheinclusivenessofgrowthdependsontheextenttowhich

labourmarketscanabsorbtheserelativelylowskilledworkers,theywoulddeservespecific

attentiononefficiencygroundsfromsocialprotectionsystems.Designingconditionalcash

transfersconditionalonadditionaltrainingandlabourmarketpreparation,orapprenticeships,

maywellhavehighlongtermreturns,andhelpingtobridgetheabsorptionofthisgroupinthe

labourmarket.Itwouldinanycasebepreferabletousingsocialprotectionfundsforlargescale

selfemploymentorientedmicrobusinesstrainingwithcredit,afavouriteintervention:asthe

evidenceabovehassuggestedthisislikelytobebeneficialtoonlyalimitedandwelltargeted

groupofpotentialentrepreneurs.Preparinganarmyofworkersfortheinformalsectorwould

inthelongrunnotbetheappropriaterecipe.Asthehistoryoftheeconomictransformationin

richeconomieshasshown,relativelyfewarecalledtobesuccessfulinselfemployment,and

mostwillendupwageworkersandtogetherthisformsasuccessfulformulaforpoverty

reduction.

5. ConclusionEconomicgrowthandsustainedjobcreationareessentialforlargescalepovertyreductionin

thepoorerregionsoftheworld.Higherincomeswillmeanthatincreasinglyfewerpeoplewill

bestuckinpovertybutmorewillbeabletowithstandshocks.Therefore,doappealstoincreasesocialprotectiontoreducepovertynotsimplyshowthatthisprocessisnottakingplace?There

isdefinitelysometruthinthisargument.Manyofthepoorarestuckinpovertybecausethey

havelimitedopportunities.Muchoftheirvulnerabilitytoshocksandpersistentpovertyis

closelylinkedtotheirlivelihoodopportunities:workingonfarmsinhighlyriskyagricultureor

beingselfemployedinasmallbusinessinariskymarketenvironment.

Povertyreductionthroughouttheworldischaracterisedbytheabsorptionoflargepartsofthe

labourforceinstablewagejobs.Higherincomesforthoseremaininginselfemploymentand

agriculturewouldmeanopportunitiestobuildupassetsorothermeanstowithstandshocks


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23

andmisfortune.Formany,thethreatofpersistentpovertyandassetpovertytrapswouldbe

unravelled.Whilesomeparticularlyvulnerablegroupswillalwaysrequireformsofsocial

protection,thescaleofthetaskwouldshrinkwithsustainedgrowth.Socialprotectionisnosubstituteforthisprocess.

Nevertheless,socialprotectionhasanimportantroleinthisdevelopmentagenda.Itisone

mechanismformakinggrowthpropoor.Itoffersadirectandsimplemeansofredistributing

someofthegainsfromgrowthincludingtothosenotabletoproductivelycontributetothe

economysuchastheelderlyordisabledormoreingeneral,thosethatriskstaybehind.It

alsoofferswaystoensurethatshocksdontpushpeopleback.

Welldesignedsocialprotectionmaycontributetogrowth.Socialtransfersandothersocial

assistancecanoffertheproductiveassetsthepoorneedtoengageproductivelyinthe

economy,andallowthemtograduatefromdependence.Publicworksprogrammescanalso

buildrelevantpublicgoodsandinfrastructureinlocalcommunities,contributingtogrowth.

Welldesignedsocialinsurancecanpluggapsinprivateinsurancemarketsandcomplement

communitybasedsystems.Byovercomingmarketfailures,itcancontributetoefficiency,

allowinghouseholdstousetheirresourcesmoreeffectively,andencouragetherisktakingand

innovationessentialforgrowth(Ravallion,2006;Dercon,2005).Butdontexpectsocial

protectiontobeadriverofgrowth.Itwouldbenaivetoexpectthatthemacroeconomiceffects

viathedemandincreasesfromcashtransfers,withoutproductionandefficiencyincreases,

wouldbeanythingelsebutinflationary.Andtheevidenceonthecontributiontoefficiencyand

growthofsocialprotectionisjustnotthatstrong.

Socialprotectionisnotsimplythepanaceatomakegrowthinclusive.Itcouldaddressmarket

failuresbutitisnotnecessarilyoralwaysthebestinstrumenttodoso.Itwillsupportequity

objectives,andtheyremainparamount.Tradeoffsarethebreadandbutterofwelfare

economics,andexposestheneedforotherstomakethepoliticalchoiceswheresimple

economiclogicdoesnotofferanexactsolution.Expandingsocialprotectionwillremaina

matterofsocialtastes,butitdoesnotmeanthatitcannotbedone,northatitnecessarilywill

hinderefficiencyandgrowthprocesses.Whileitisnotasimpleawinwinsituation,choosing

bothdesignsandthefocalareascarefullywillhelptomaximizetheirreturntogrowthandpovertyreduction.

Butthereareareaswhereitcanhavestrongeffectsandatleastprovidetheoiltomakethe

growthengineworkmoresmoothly.Weidentifiedthreeareas.First,bothsocialinsuranceand

socialassistancecanprotectfamilyinvestmentsinhumancapital,suchaseducationandhealth,

byensuringthatchildrenstayinschoolorthatnutritiondoesnotsufferwhenafinancialshock

hits.Becausetheselossesinnutritionandeducationareoftenirreversible,theyimplythat

earliersocialinvestmentsarewasted,whichcouldhavebeenavoidedwithappropriatesocial


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protection.Thisisespeciallysointhecaseofveryyoungchildrenandseriouscrisesany

nutritionallosshaslargeandirreversibleimpactsontheirabilitytocontributeproductivelyin

adultlife.Secondly,socialprotectioncouldbetargetedtohelptheeconomictransformationbecomesufficientlylabourintensive.Areasofimportancewouldbesupporttomigrantsand

migration,andanythingthatcanhelpcitiesgrowinaninclusiveway.Thirdly,andrelated,use

socialprotectiontomakeadolescentsmoreemployable,andofinteresttofirmstoabsorb

themintotheeconomy.Inallthesecases,somesmartmechanismswouldberequired,

probablywellbeyondtheratherbluntstandardsocialprotectionmeasuresandcannotbedone

inisolationfromotherpoliciesrelatedtohealth,educationandemploymentskillsformation.

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social protection growth 2011-17

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