Social protection in developing countries, between problems and hopes

By Alessio Bertolini (Staff Writer)

“We must ensure that the global market is embedded in broadly shared values and practices that reflect global social needs, and that all the world's people share the benefits of globalization.”
Kofi Annan

The economic recession seems to have accelerated a process of welfare retrenchment, a process which has been looming over all Western countries in the past handful of decades. Globalization has been seen as the principle driver of the pressure to reduce public expenses: as governments try to make their countries more competitive they reduce the burden of excessive taxation and promote more efficiency in the public sector. Although not all countries have embraced this neoliberal agenda with the same enthusiasm, common trends have been observed in most Western countries. The 2008 economic recession, and its consequent strain on public budgets, accelerated this process, with countries further cutting on welfare provisions and reducing entitlements. From this short description, the picture that emerges, especially for the left-wing or socially inclusive amongst us, is quite grim.

However, this Euro-centric or Western-centric view hides positive changes in social protection on a global level. Indeed, in the years immediately before the economic crisis, many countries in the so-called South of the World started to conspicuously expand their social protection systems, sometimes building them from scratch, at the very time when many Western countries were cutting their own. Undoubtedly, the promising economic performances of many developing countries in past years has helped to provide such jurisdictions with more resources to spend on welfare. However, when we compare commonly held economic theories, a different perspective arises. During the ‘80s and ‘90s expansion of welfare systems was seen as a threat to economic growth, but in the 2000s developing countries started embracing welfare protection as part of a broader strategy towards economic development, recognising the important role that social safety nets play in providing a healthier and better educated workforce, increasing productivity and reducing the costs of poverty and insecurity. These countries had taken lessons from the Latin American and Asian economic crises of the 1990s, and concluded that social protection might have a positive role in overcoming economic breakdown, stabilizing demand and fostering both short-term and long-term economic development.

The 2008 crisis triggered a further expansion in those systems of social protection, as waning demand for imports from developed countries led such governments to introduce new measures to foster domestic-led growth. This is not to say that developing countries have completely filled their gap in social protection, but that there is encouraging improvement on this front – particularly during a period in which developed countries pushed (and were pushed) in the opposite direction. In what follows, I will present some of the most important policy advancements developing countries have made in several areas of social protection[1], highlighting their positive aspects while also presenting problems which still need to be faced.

Health care is considered to be one of the most important forms of social protection: it protects all individuals, no matter their age or employment situation. Needless to say, lack of such protection may have severe consequence on the life of the individual. However, as of 2015, almost 38.9% of the world’s population is still without any health coverage, a figure made all the more stark when compared with the universal health coverage provided in almost all developed countries (with the notable exception of the US). Furthermore, even when people do have access to health care in developing countries, a high proportion of the expenditure on such care comes from out-of-pocket payments. This, in turn, undermines affordability and equality in treatment and hinders access for the poorest segments of the population. Promisingly, then, several countries have recently introduced far-reaching reforms to expand access to health care and have, notably, made significant efforts to reduce the personal cost at point of delivery. The most successful example of this can be found in Thailand, which managed to achieve universal coverage in less than a decade after introducing its policy on the matter. In addition, China is currently building the largest public health system ever created, with the objective of reaching universal health coverage by the end of this year. And Indonesia has articulated a similar objective, hoping to achieve such coverage by 2019. Although other countries, such as India and those located within the Sub-Saharian region of Africa, are still lagging behind (leaving the majority of their populations uncovered by health care), recent efforts made by many governments in the developing world are very encouraging.

As populations age and life expectancies increase in the South of the World, the need for pensions and social security in old age becomes another pressing issue for many countries. Although in 2000 only 34 countries covered more than 90% of their working population with some sort of pension scheme, this number rose to 45 in 2012. Countries like Swaziland made astonishing progress, covering more than 90% of their workers in 2010, a significant increase from less than 2% they covered in 2000. Other countries like Nepal, Lesotho, Bolivia and Thailand also made significant progress. China – again - provides another remarkable example: it started reforming its pension policies in 2009 by changing  a pension system previously reserved for some urban workers and civil servants (around 23% of the population aged 15 and above), and expanding it to other employment categories, including previously unacknowledged rural workers. Their pension system now covers about 75% of their working age population and it is further increasing its coverage. In many other countries, the expansion of pension schemes was partly led by a desire to reduce inequalities, especially between urban and rural areas, and to foster domestic demand which, in turn, contributed synergically to economic growth. Therefore, the expansion of pension systems has been seen as a way to reduce private savings and increase consumption expenditure.

However, all that glitters is not gold. Pension schemes in developing countries still have to overcome a multitude of problems. First of all, being entitled to a pension does not mean that workers will be able to survive on that source of income, as the pension benefit available might still be too low to allow for a decent standard of living. Secondly, many workers, especially those workers in the informal sector might be excluded from those schemes unless the system is properly designed to include them, avoiding the creation of a spiral of insecurity in working age and poverty in old age.

Another policy area which has witnessed large expansion is that of unemployment benefits. Although the percentages of people covered by a form of unemployment insurance continues to remains low, some progress has been made in a number of developing countries, from Latin America to Eastern Asia. Some countries, such as South Africa and Brazil, have made considerable progress in protecting workers at the margins of their formal economy, thus domestic workers and fishermen are now entitled to pension benefits. Some countries have chosen a different route and have introduced employment guarantee schemes for different categories of workers, even those employed in the informal sector. In India, for instance, the Mahatma Gandhi National Rural Employment Guarantee Scheme, introduced in 2005, offers 100 days a year of paid work to every rural household, mainly employing people in public works, to help them during a season in which there is no, or very little, agricultural work. These public employment schemes have the double advantage of providing work to poor households while improving road construction and water management systems, as people are mainly employed in building this kind of public infrastructure.

Many other improvements have been made in other welfare areas, including child benefits, maternity allowances and other forms of family-related support. Often such benefits take the form of conditional cash transfers, which require the claimant to fulfil certain obligations, such as attending school or ante-natal/post-natal medical check-ups. Thus, these schemes aim to financially support individuals while indirectly improving their access to other relevant welfare services, creating a virtuous cycles.

However, in order not to avoid accusations of a Panglossian view, several problems in the development of social protection systems in those countries have to be highlighted. First of all, the least-developed among developing countries still lag behind in the provision of most forms of welfare protection. Second, legal entitlement does not necessarily translate into effective coverage, as issues of implementation and enforcement, limited institutional capabilities, corruption and problems in welfare delivery may severely undermine any actual ability to provide social protection. Finally, some of the welfare programmes introduced in recent years still lack a legal foundation. The importance of having welfare policies clearly regulated by law should not be underestimated: legal foundations better guarantee individual and collective rights, stabilize resources and limit rent-seeking behaviour. In that respect, these countries still have a long way to go.

However, despite these problems, the progress made in recent years should make us optimistic, as it evidences that globalization and neoliberal ideology do not necessarily have to be understood as two sides of the same coin, and that economic growth does not always have to be at the expense of social inclusiveness and equality.

[1] All examples and data are taken from the following ILO Reports:
ILO (2011) World Social Security Report. Providing coverage in times of crisis and beyond, International Labour Office, Geneva
ILO (2015) World Social Protection Report. Building Economic Recovery, Inclusive Development and Social Justice, International Labour Office, Geneva