Social Protection Strategy - Strategic Principles for Social Protection Interventions

Table of Contents

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I. Introduction

II. Overview of Social Protection

III. Priorities for Social Protection

A. Identifying Country Priorities

B. Strategic Principles for Social Protection Interventions

IV. Operational Implications

V. Recommendation

Social Protection Strategy : III. Priorities for Social Protection

B. Strategic Principles for Social Protection Interventions

21. Once one or a combination of social protection policies within the five different components (labor markets, social insurance, social assistance, micro and area based approaches, and/or child protection) have been selected in a determined DMC, the design of the specific program selected should attempt to balance several trade-offs to effectively reduce poverty and vulnerability and promote human development. The assessment should focus on the following considerations:

the program's coverage and benefits,
its effectivity in targeting vulnerable groups and specific gender issues,
the sustainability of the program (except perhaps for certain temporary interventions motivated by an economic crisis) and the adequacy of its institutional arrangements, and
the program’s integrated approach.

Investments in program design may not to be worthwhile where the program does not contribute to reduce poverty and vulnerability, sustainability is open to question, coverage is likely to be limited, and population groups in need are not served.

1. Coverage

22. Expanding access to social protection programs should be the main objective of the formal social protection agenda of Asian and Pacific DMCs. In most DMCs, both public and private sectors have failed to provide effective social protection to the population. The rate of expansion will vary across countries in the region and depend on the financial and institutional resources available. Coverage gaps occur due to statutory exclusions, poor enforcement, or the lack of attractive benefits despite high contributions for particular groups.

23. Statutory Exclusions. Labor market regulations and standards and contributory social insurance programs designed for universal coverage in the medium/long term, have serious coverage gaps in the Asia and Pacific region. These programs normally cover the larger enterprises in the formal sector. Smaller employers, particularly in industries that compete with the informal sector, are often excluded from many of the provisions, as are household workers, daily laborers, farmers, fishermen, and many urban self-employed. The informal sector thus operates outside the scope of regulations, with low and unstable levels of income, and poor working conditions. The result of the statutory exclusions is that many of the most vulnerable people are not protected.

24. The first priorities for the poor and the informal sector are strengthening prospects of survival and improving incomes, rather than investing scarce resources in social insurance schemes. The poor normally have shorter lives due to hardship–only 5 percent of the Asia and Pacific population is over 65. Additionally, old people in the informal sector who are fortunate enough to live beyond that age do not retire but are likely to remain economically active as long as they can, to support themselves and help their families survive. Efforts to expand coverage should start by addressing the needs of the poor and informal sector clientele: improvement of their productive potential and their employment and income-generating capacity, improvement of the household’s welfare, and mitigation of risks that keep households in poverty. A major area of development for informal sector groups in both urban and rural areas is microinsurance for health care, death of the breadwinner, and short-term risks, through voluntary schemes established by mutual benefit societies, cooperatives, and similar organizations, or civil society groups that rely on trust engendered through occupational groupings or community solidarity.

Box 6: Expansion of Social Protection Coverage in Japan

Since the 1880s, when Japan's Meiji revolution modernized the country, mutual aid societies were formed to protect workers in leading industrial and mining companies. However, poverty was a widespread phenomenon in rural areas; after World War I and the Great Depression, the economic crisis raised the levels of rural household poverty. In the 1920s, the Japanese government asserted that poverty was a sign of backwardness and that modernization required the eradication of poverty. The main social protection policies on which Japan based its poverty reduction strategy were:

labor markets, mostly wage and employment policies; and
social insurance, focusing on health.

The Japanese embraced the principle of full employment as a value to be preserved in a stable society and labor market imbalances were seen as a national problem. As Japan developed and industrial restructuring was needed, the Government supported firm’s skills upgrading and training programs to preserve employment and find alternative production suitable for the changing market. In 1922, the Diet (the Japanese Parliament) passed the first health insurance law, modeled on the German sickness funds.

The lack of adequate and affordable medical care had been a focal point of the peasants’ protest, as many farmers suffered from starvation, malnutrition, and infectious diseases associated with poor living conditions.

In the 1930s, the Japanese community health insurance scheme was supported by a 50 percent government subsidy, with a planned reduction of the subsidy as society modernized. Local societies were required to provide primary health care but left free to set contribution rates and decide on optional additional benefits. Most provided maternity benefits while a few also opted for funeral grants. Societies built clinics and employed medical staff. These societies eventually numbered 10,000 and formed the basis of the Japanese national health scheme—-full insurance coverage was achieved in 1961.

At the end of the twentieth century, Japan had accomplished the lowest infant mortality rate and highest life expectancy in the world. The success of the Japanese experience suggests some good development practices—the first being that poverty reduction requires political commitment and active government budgetary and technical support. It is interesting to note also that employment and primary healthcare were the first social protection priorities.

25. Even where most formal employees and self-employed people are covered according to the statute, the reality may be quite different due to poor enforcement. Lax enforcement often has the same impact as a statutory exclusion. Where enforcement is lacking or lax, labor market regulations are likely to have little impact even for those who are nominally covered. Poor enforcement can also undermine the protection offered under contributory social insurance, since benefit entitlements usually depend to some degree on how contributions have been collected. A close link between contribution payment and subsequent benefit entitlement helps to insulate a contributory program from the financial consequences of poor enforcement, but does this by reducing benefits and restricting protection. Effective enforcement requires institutions that have the necessary statutory authority to establish liabilities and enforce collections. These institutions must also have adequate operating budgets, the willingness and ability to use their resources and authority to enforce the law, and the political support necessary to sustain the enforcement effort. For this reason, assessing social protection coverage necessarily involves assessing the effectiveness of the implementing institutions.

26. Market-based schemes have often found servicing low-income communities unattractive, as compared to the higher returns received from servicing higher income groups. The poor have discontinuous income and are more prone to risk, thus the higher transaction costs are unattractive to insurance companies and customers. Efforts should be made by governments to arrange public-private partnerships that offer low-income communities access to social protection services.

27. Adequacy of Benefits. Many systems in the Asia and Pacific region are underbudgeted or receive erratic yearly funds so that the benefits they provide do not achieve their intended social objective. Often, the transaction costs are larger than the benefits provided. It is critical that social protection systems are built to effectively provide protection given available resources. On the other hand, benefits should not be so generous that they generate disincentives. Continuity and predictability about the conditions under which benefits are to be provided and the approximate amount to be made available is also necessary in order to realize the social gains promised by social protection programs.

2. Targeting Vulnerable Population Groups and Gender Issues

28. Where formal systems do not have sufficient human and financial resources to cover identified needs, the priority will be to target available resources to vulnerable groups. Progressively, comprehensive social protection systems will be developed but, in the short term, resources will be channeled to those most in need. Matching the results of the social expenditure reviews and vulnerability analysis will show the need to either pursue the development of a formal social protection system or concentrate scarce resources into priority needs. When the vulnerability analysis shows high child/adult dependency ratios and children exposed to risks, the country's social protection system should target children. When most vulnerable people live in the rural areas, resources should be decentralized and programs be put in place to target these priority population groups. A distribution analysis, as pointed out in the following section, should ensure any proposed social protection program achieves its targeted objectives.

29. Special consideration should be paid to gender issues. Although half of the population of all population are women, they receive much less assistance and opportunities than do men. Many poverty reduction and social development programs are focused on households and do not consider intrahousehold differences. Assets and labor are normally distributed in a different and unequal manner between men and women, boys and girls within a same household. Unless particular attention is paid to women’s unique problems and life patterns when social protection policies and programs are developed, approaches that might appear to be gender-neutral may actually disadvantage women. Positive discrimination maybe needed to ensure women's development in Asia and the Pacific. For example, labor market reforms must go beyond a purely traditional agenda to adequately address such special concerns of women as a higher incidence of home work, competing demands from household responsibilities, and the particular needs surrounding child bearing. In child protection, the benefits of investing in the girl child are large–educated girls become more responsible and better informed mothers. Social insurance programs need to be designed to take into account the longer life expectancies of women in most societies; the additional implications for women of the risk of loss of support due to death, abandonment, or divorce; and the less stable earning patterns commonly found among women.

30. The most vulnerable populations are often not reflected in household surveys–migrant workers, orphans, the homeless, victims of disasters, refugees, nomads and marginalized indigenous groups. These groups may require special attention owing to both extreme poverty and social exclusion. As with women, they may be seriously disadvantaged by programs that appear otherwise to be uniform and fair, owing to the effects of labor market discrimination and alternative cultural traditions. Special outreach strategies are normally required for those.

3. Sustainability and Good Governance

31. The design of any social protection scheme is directly linked to an analysis of how it can be financed and how it can best be delivered. There is no prescription or preferred social protection model, as the structure and operations will change from country to country depending on the available financial and institutional resources. Social protection interventions should include assessments of how to ensure efficient and sustainable operations to deliver the proposed coverage of social protection needs.

32. Financing Sources. The variety of social protection programs (labor markets, social insurance, social assistance/welfare services, micro and area-based schemes, and child protection) may be financed through budgetary support, income-related contributions, charitable donations, or a mix of all these. Enforcement of revenue collection may result in higher tax collections, particularly in countries with young demographic pyramids. Higher tax revenues can in turn support the promotion of statutory programs. In addition to encouraging adequate tax collection, there is merit in systems in which individuals cofinance services, contributing individually or though community-based arrangements. This is the case for social insurance, micro and area-based schemes, social funds, and selected labor market and child protection programs. However, most programs, particularly those targeted to lower income groups, require a degree of public support. Financing from charitable or aid organizations is discontinuous and does not allow sustainable social protection programs. Such financing may help to fill the gaps on a temporary basis only. In social insurance programs, accumulated savings/contributions can be invested in financial markets¹⁷. Diversification of income sources is desirable to spread risks and ensure the overall sustainability of the program.

33. Potential financial commitments under a program need to be evaluated to be sure that they can be borne from the resources likely to be available, including the program's contingent liabilities¹⁸. Will insurance premiums cover projected losses? Will sufficient resources be available to cover operating costs once a facility has been created for delivering social services?

34. Redistribution Issues. Financing issues are directly linked to distribution aspects. The design of any social protection program should carefully evaluate its distribution impacts to

ensure that vulnerable and poor benefit; and
above all, avoid regressive redistribution issues, e.g., building systems with public resources that mostly benefit upper income groups.

Since the main objective of a social protection system is to support vulnerable populations to overcome their exposure to risks, it results in more equitable societies. Financing social protection systems implies some transfer of resources, either from taxed citizens to those outside the formal sector, or from the working age generation to younger and older people. Even when building contributory social insurance schemes, the normally expensive transition costs are passed to the public sector and thus financed by taxpayers. This does not imply that the purpose of a social protection system is merely income redistribution–the purpose is to build mechanisms that assist individuals to overcome vulnerability; for this, a degree of redistribution and support is needed. Identifying the adequate mix of financing resources to ensure, if needed, adequate redistribution and support to vulnerable populations should be assessed after careful cost-benefit evaluation of the proposed social protection program.

35. Social protection success depends on the effective administration of adequately designed programs. Common operational problems among agencies include corruption, cronyism, and favoritism; inadequate information processing, storage and retrieval systems; and organizational cultures that are hostile to customer service. Good governance is crucial for sound macroeconomic management, progressive taxation, and equitable allocations of funds for social development. The impact of basic social services is reduced by governance defects such as inadequate budgets and wasteful, inefficient, and unresponsive administrations. The poor suffer most due to poor access, low bargaining power, and little influence on local officialdom and service providers. The effects of such deficiencies in governance are exemplified by the highly unsatisfactory coverage in social insurance schemes. These schemes have been in force for decades in many countries but have failed to reach those most in need of protection. Fundamental governance issues that should be considered when designing any social protection scheme include identifying

the most appropriate social protection system to serve all citizens,
the most suitable institutional arrangements for the administration of schemes, and
the best way to achieve operational efficiency.

36. Institutional Structure. Often, public social protection programs do not have sufficient human and financial resources to cover identified needs. Most DMCs need to allow flexible and innovative institutional arrangements, bringing all possible development partners together under well-regulated sectoral policies, government’s administrative oversight to ensure good governance and affordable services. The four main social protection delivery mechanisms are (i) public-based, normally best to achieve expansion of coverage; (ii) market-based, normally best for efficient delivery for the formal sector of the economy and voluntary schemes for higher income groups; (iii) NGOs and charitable institutions, normally good to target low-income communities; and (iv) a mix of these. However, each mechanism has important limitations. A summary is presented in Table 4. The public sector should not crowd out the potential role of the private sector in delivering social protection. Instead, the public sector should concentrate its efforts to serve areas and populations that are not covered by the private sector. Decentralization of public programs offers the great potential to improve effectiveness of social programs and bring decision making closer to communities. The private sector is often not attracted to lower income groups and/or remote areas because the associated transaction costs are high and returns low. Private-public partnerships can be agreed between governments and private companies to secure inclusion of those excluded from any form of protection. Where NGOs are already significant providers of social protection programs, they can be encouraged to continue. However, NGOs often have limited and discontinuous funding and their presence is scattered, and normally not broad enough to ensure equal expansion of coverage, limiting their ability to reduce vulnerability. A mixed delivery system may be best to diversify risks and address social protection priorities.

37. Avoiding excessive administrative charges is a major challenge for certain kinds of social protection programs. Administrative charges siphon away resources from the intended beneficiaries, needlessly increasing the cost of social protection and reducing society’s capacity for providing protection. In addition to the threat they pose to program integrity, inefficient and unresponsive government bureaucracies often cause excessive administrative costs. The result is administrative resources wasted due to duplicative and inefficient service delivery structures.

Table 4: Typical Advantages and Disadvantages of Social Protection Service Delivery Mechanisms

38. Cost-Effectiveness. The development of social protection programs may be affected by the different viewpoints on the positive and negative links between social protection and economic development. It is easier to calculate the costs borne by taxpayers or contributors in the short term than to assess the advantages gained from each program. Expenditures on children and youth through education, health, and training programs are all investments in future generations, critical for long-term growth and poverty reduction. Evaluating the cost-effectiveness of social protection programs requires an impartial assessment of the following issues:

the cost of the programs (as a percentage of gross domestic product and total public expenditure), including contingent liabilities as a result of possible government guarantees to the programs;
performance (the percentage of vulnerable targeted groups covered by the programs, the percent of benefits going to poor and nonpoor groups, and the extent to which the benefits are adequate to servicing identified needs);
administrative cost (the administrative cost as a percentage of the total cost, and how the cost compares with other programs);
long-term social benefits; and
feasible options to improve cost-effectiveness, including the cost to society (determining who pays for reforms and which groups benefit from the proposed reform agenda).

Careful attention should be paid to the comparative value of social protection interventions against other necessary social development programs (e.g., health, education, and rural development programs). Social protection programs should be developed after careful evaluation of the country-specific priorities to reduce poverty.

4. Integrated Approach to Social Protection

39. Social protection should be seen as one of several measures that work together to promote socially inclusive human development, reduce poverty, and support enhanced productivity and growth. Close collaboration is needed to ensure that social protection and other development policies are consistent and mutually supportive. Many problems of existing social protection programs are due to lack of cohesion in social and economic planning or inconsistencies between different parts of the social protection system. For instance, serious difficulties in the labor market may lead to proposals for early retirement on advantageous terms as a part of the solution to over-employment in public enterprises, but without sufficient consideration of the long-term implications for pension funds. Another example of malpractice could be social protection interventions displacing necessary health and education investments. Integrated and coordinated national policies on social protection must be established. Sound policy formulation in social protection requires less emphasis on short-term priorities and the creation of medium- and long-term social development plans. Close coordination in policy formulation is vital when several government departments and agencies are involved.

40. Consulting institutions such as DMC's National Social Protection Coordination Commissions, with responsibility for strategic planning and coordination, can facilitate the formulation of an overall strategy for strengthening social protection. If inexistent or ineffective, such bodies can be created. This integrated planning machinery should include government, external funding agencies, and civil society groups in order to achieve consensus on priorities, objectives, and the necessity for encouraging pro-poor sustainable growth and social development. The role of ministries of finance and national planning authorities is crucial in working out balanced views on realistic and affordable priorities with the ministries directly responsible for the management and development of programs. Dialogues on these matters can improve mutual understanding of the wide range of issues involved, and the right sequencing of reforms. Aid agencies could provide necessary advise and help generate a consensus. Integrated planning is complex but essential for policy cohesion and the efficient use of resources. Controversial issues, including the extent of redistributive policies, changes in policies on subsidies in particular sectors, and increases in pension ages should be settled through this process. This participatory approach is critical to ensure long-term success.

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A. Identifying Country Priorities

IV. Operational Implications