Keynote Address on Social Protection and Human Capital: Empowerment for Inclusive Development

Keynote address by Ursula Schaefer-Preuss, ADB Vice President, at the Regional Conference on the Quality of Growth: Approaches to Inclusive Development in Asian Societies, New Delhi

Social Policy Considerations for Inclusive Growth

Good morning ladies and gentlemen. It is a great pleasure to share with you some thoughts on key linkages between social policies and inclusive growth in the context of the global economic slowdown. I would like to extend my appreciation to Germany's Federal Ministry for Economic Cooperation and Development, and the Indian Planning Commission, for providing this timely platform to explore the quality of growth and approaches to inclusive development in Asia.

Let me start by offering a few key messages based on the Asian Development Bank's experience during the recent economic and financial troubles.

  • Asia is a success story for growth. But this growth has been neither inclusive nor sustainable on its recent trajectory. What has been missing is adequate investment in human capital, and basic social protection systems to reduce poverty, vulnerability, and people's exposure to risks like illness and unemployment.
  • The global slowdown has hit Asia hard, imposing substantial social costs that will be felt for years.
  • A key difference with the Asian Crisis of 1997-1998 is the fact that those affected by the current slowdown tend to be the vulnerable poor living near the $2/day poverty line, rather than those in extreme poverty. Many have lost their jobs and have experienced dramatic wage cuts. They include educated urban youth, many women working in the manufacturing and export sectors, and foreign migrant workers.
  • The current crisis comes with an opportunity to improve social support systems in the region, and to mitigate the emerging health and other social implications of climate change. The large stimulus packages provide fiscal space for strengthening these systems (and not only for supporting infrastructure development and tax cuts).
  • India, Indonesia, the People's Republic of China (PRC), and Viet Nam provide examples on how to look into the crisis in a way to also improve their social protection and poverty reduction mechanisms.

Progress in Reducing Poverty, but Social Dimensions Require More Attention

Perhaps the region's most significant development story over the past 30 years has been the dramatic reduction in the proportion of Asians living under the poverty line. High growth rates in the last decade in many countries have lifted hundreds of millions of people out of poverty. India, for example, has reduced income poverty, based on the $1.25 international poverty line, from 69% of the population in 1977 to 41.6% in 2005. India's success is closely linked to the macroeconomic reforms that the country began two decades ago. In Sri Lanka, however, one finds much better poverty indices and social indicators, despite lower growth rates. Both India and the PRC have experienced high growth rates over the past decade, and have reduced the share of the population living in poverty. However, in India's case - despite a decrease in the incidence of poverty - today there are actually more poor people than there were 20 years ago. These examples show that growth itself is not sufficient to reduce poverty, especially when we also consider poverty's social and environmental dimensions.

Asia's performance in achieving the Millennium Development Goals (MDGs) varies greatly across countries. Here in South Asia, the numbers are disturbing. For example, South Asia comes second only to sub-Saharan Africa in the proportion of people who are undernourished (21% in 2008), and ranks the worst in the proportion of children under 5 who are underweight (48% in 2007). South Asia accounts for one-third of the world's maternal deaths, an estimated 490 deaths per 100,000 live births.

Economic Slowdown has Added to Asia's Social Challenges

Existing social problems in Asian countries have been made worse by the economic and financial crisis. Had the region's high growth continued in 2009, we would now have more than 60 million fewer poor people, and 100 million fewer individuals vulnerable to poverty. The number of those who would have avoided poverty if growth had not been interrupted may rise to 80 million before the end of the year, and 130 million by 2010. These large numbers indicate that although the slowdown affects the vulnerable (urban) poor the most, its negative impacts trickle down to the masses of the (rural) very poor.

Here in India, the UNDP reports that - because of a sharp reduction in incomes - there are instances of workers giving lower priority to children's education and health care, and cutting down on food intake. The situation is made worse by the poor rainfall in northern India - perhaps an early indication of the impact of climate change. This has contributed to higher prices for basic commodities upon which poor people depend. In the PRC, the employment situation remains serious. According to researchers at the Chinese Academy of Social Sciences, up to 41 million workers have lost their jobs, and more than half of them remain jobless.

The slowdown has not had the same impact on everyone, with gender differences very pronounced in certain areas. In Cambodia, for example, the UNDP reports that women will be affected more as they make up most of the labor force. The country's growth has declined sharply, and slowing demand from Europe and North America has led to more than 60,000 job losses in the garment sector. The laid off workers tend to be mostly younger women who traditionally remit a large share of their monthly salaries to their poor families living in rural areas. Effects of the slowdown on the rural poor are already visible.

Reasons to Act in the Social Sphere

There are indications that Asia's growth is slowly recovering. The growth has been spurred by stimulus packages that many governments have launched. Large-scale public investment programs have provided more fiscal space for infrastructure investment, tax cuts, and enterprise promotion. However, comparatively little has gone toward increased social spending. One sees major reforms in the economic and financial sectors, but few moves have been made so far to address post-crisis education, health, labor, and other social protection needs.

At present, many social assistance schemes suffer from poor targeting. They fail to assist those most affected by the slowdown - such as unemployed youth coming into the labour market. They also do not address growing challenges related to aging societies, or financing for health care for poor people. However, governments are starting to consider major policy changes. They are doing this because, in the short-term, social protection measures are seen as essential for helping those most affected by the slowdown.

It is more and more recognized that a well-funded social protection system unleashes savings which can help stimulate economic growth. A good example of this is provided by the PRC's recent reforms to their health insurance and pension system. Looking forward, robust social protection measures can contribute to necessary rebalancing of the economy, and help to reduce the negative social impact of the next slowdown. Finally, social protection is an investment in human capital, an essential component of a productive economy enjoying sustainable growth.

The State's Role in Developing a Social Development Framework

Of course countries do not start from "zero"; all have had some social protection measures in place before the slowdown began. Here in India, for example, the National Rural Employment Guarantee Act was launched nationally in 2006. It provides a guarantee for one hundred days of employment in every financial year to adult members of any rural household willing to do public work-related unskilled manual work at the statutory minimum wage. The central government outlay for schemes under this act is about $8 billion in FY 2009-10. The assured wage has helped to soften the blow of the economic slowdown on poor rural residents in the country.

In Viet Nam, the government has increased its budgetary allocation for existing social assistance programs, such as "Program 135," a poverty reduction scheme targeting ethnic minority and people living in mountainous areas, as well the health insurance program for those in poverty or just above the poverty line. Bangladesh has strengthened safety net programs, and introduced new programs - including an enhanced employment generation program for the "hardcore poor." Pakistan's Government introduced the Benazir Income Support Program (BISP) for 2008-2009 to cover almost 15% of the country's population, including 40% of the population below the poverty line. The program provides a monthly income supplement to beneficiaries in all four provinces of Pakistan.

These examples highlight government attention to the social impacts of the economic slowdown. However, the measures have tended to be somewhat ad hoc in nature, and not always targeted effectively, and may not address the core problems of the current crisis. We do not see countries using the economic slowdown crisis to develop a more comprehensive social policy framework promoting equitable and sustainable improvements in the physical, social, and economic well-being of individuals and social groups, especially of those that are socially or economically disadvantaged.

To ensure that future growth is inclusive and does not leave disadvantaged and vulnerable people behind, countries will need to develop a comprehensive framework that provides everyone with access to basic health care and education, old-age pensions, disability benefits, child support (e.g., for orphans), and other targeted assistance to assist poor and at-risk groups. Countries that have made strides in developing their social policy frameworks include Japan, South Korea, Thailand, Uzbekistan, and Viet Nam. It was the last major economic crisis, 1997/1998 in the region that stimulated Korea to substantially increase social expenditures.

ADB's Contribution to Strengthening Safety Nets

ADB's long-term strategy highlights our commitment to support inclusive growth in its developing member countries. This means supporting policies that ensure that all have the opportunity to benefit from economic growth, and are not left behind.

Over the past year, ADB has significantly boosted its lending and guarantee operations to address impacts of the economic slowdown in its developing member countries (DMCs). In June of this year, we launched a new, time-bound instrument - the Countercyclical Support Facility - to provide countercyclical support to countries eligible for borrowing from ADB's ordinary capital resources. The instrument is designed to help middle-income countries sustain critical development expenditures for fiscal stimulus to counter the adverse impacts of the slowdown. ADB has already confirmed allocations of between $400 million and $500 million per country for Bangladesh, Indonesia, Kazakhstan, the Philippines, and Viet Nam.

In addition to this special financing tool, ADB has continued to work with governments to develop projects that aid vulnerable groups. For example, in December 2008, we approved a $400 million loan focused on maternal and child health in Punjab, Pakistan. This year, we have approved loans and grants with social protection provisions for the PRC, Mongolia, the Philippines, and Viet Nam. However, it should be noted that only a few of these programs actively promote reform in the social sectors. A good example is the Social Sectors Support Program in Mongolia, where ADB is helping to reduce out-of-pocket expenditures of poor households for health care, and increase micronutrient consumption to combat malnutrition. In addition, policy measures adopted with the program's support will improve the long-term sustainability of social expenditures through better targeting and rationalization of social transfers in the health, health insurance, education, and social welfare sectors.

As many of you know, ADB and 9 development partners will organize a major international conference in Hanoi on "The Impact of the Global Economic Slowdown on Poverty and Sustainable Development in Asia and the Pacific." The conference will feature the release of numerous papers reporting on the specific impacts of the slowdown, and on steps that countries can take to limit vulnerability and social risk. As a part of its mandate to promote knowledge sharing, ADB will make all of these papers available to inform decision makers in governments and international donors.

Conclusion

Ladies and Gentlemen: Having recorded significant gains in poverty reduction, Asia has now reached a point where its traditional growth models are no longer adequate to reach those who remain poor or who lack access to adequate education, health, and other essential services.

As the region bounces back in the months ahead, countries should not miss this great opportunity to put in place measures to bring more of their people fully into the development process, making inclusive growth a reality. They have the tools at their disposal, access to resources and advice, and the experience of others from which to learn. All that remains is for governments to channel the necessary energy and effort to making the policy changes that are possible, and which could significantly improve the fortunes of many millions.

Thank you for your attention. I look forward to the presentations and discussion.