Social Protection in Modern Society
By Mark Raygan E. Garcia, Director, Office of Information and Publications
Social protection in modern society varies from one country to another. While the ultimate goal of protecting the poor from vulnerabilities, shocks and risks is shared, the approaches to implementing social protection are not exactly standard. As the World Bank argues, implementing social protection instruments — from social insurance, social assistance to labor market interventions — does not follow a cookie-cutter. This means, what may work for rich countries may not be effective when applied in poor countries. Designing social protection schemes therefore consider the variables of public budget allocation and prioritization, political will, perceived government legitimacy, and socio-economic demographics.
Debate on social protection revolves around it being a right, its entitlement presupposed in the 1948 Universal Declaration of Human Rights and treaties and conventions that most countries are signatories to. But despite this notion of social protection being universal and a right, the International Labor Organization reveals that only around 20 per cent of the world’s working-age population and their respective families enjoy comprehensive social protection schemes. And this does not factor in yet an aging population in high-income Asian economies which is estimated to hit around 30 per cent in two decades. Figures also peg aggregate global social protection spending at 17 per cent against GDP – while this could be assumed substantial, poor countries only account for a fraction; rich countries claim a big chunk of it.
In Nordic countries, social protection is characterized as highly distributive, with social welfare spending at around 26 per cent of GDP. Income taxes range from 40 per cent to as high as 60 per cent, as in Denmark. In East Asia, Japan, Korea and Taiwan are big spenders on social protection ranging between 10 to 15 per cent of GDP.
Notwithstanding the sustainability of financing, wealth reallocation through social protection seems to work for many rich countries in buffering off risks from changes in economic activities or policies. Benefits after all from proactive savings and insurance schemes and risk pooling strategies tend to be inclusive, felt top-down. In the case of Europe, the European Union cited how social protection has reduced the poverty risk among its member nations by 36 per cent, and correspondingly slashed poverty incidence by more than 50 per cent.
The implication of social protection on the economy was not, however, a concern in the early 1990s. Discussions around development in Asia were more focused on the hard (public works, infrastructure) and soft (information technology, communications) resources. While poverty remained on the policy table, institutionalized public transfer arrangements to subsidize public consumption, provide for the basic needs of the most vulnerable in the society, and facilitate capacity-building and asset accumulation took a secondary role. The World Bank describes social protection to be an “afterthought” in the development debate. It was only after the East Asian crisis in the 1990s that rocked the world, causing stock markets crashing, economies plummeting, businesses folding up, and many losing jobs that policymakers started to realize the equal importance of social protection instruments and social risk management schemes. In the failure to prepare the most vulnerable in the society for shocks caused by informal arrangements, market-based mechanisms or public arrangements, governments undermined their own poverty reduction programs.
But the space within which governments pursue redistributive measures to benefit the poor grows limited in capitalist societies. In “big market, small government” arrangements, such as what prevails in the global city of Hong Kong, spending for social welfare remains conservative compared to developed economies within its league. It avoids imposing higher taxes that could impact on its friendly investment climate and trigger critical capital flight. Although dubbed one of the East Asian welfare states – together with Japan, South Korea, Taiwan and Singapore – Hong Kong lags behind with respect to social protection instruments that address its high Gini coefficient of around 0.53 — highest among developed economies — and protect its fast-aging population. Debate continues on the sufficiency of its efforts to provide a comprehensive retirement protection scheme outside the Mandatory Provident Fund, what is a short-sighted version of Singapore’s successful Central Provident Fund. Retirement protection, after all, is a priority, especially among countries with fast-aging populations and those that seek to curb the vicious cycle of inter-generational poverty. As proposed by the World Bank, an effective retirement protection framework is multi-pillar — a combination of informal support or private transfers, voluntary savings and insurance, mandatory risk pooling, and non-contributory social pension and assistance. However, true to most countries, retirement protection schemes are either heavily self-financed or proving insufficient vis-a-vis actual basic needs by retirement age.
The line “the spirit is strong but the body is weak” could also be applied in understanding the pace at which social protection is being undertaken in poor countries. Echoed by multilateral development organizations and governments themselves, the poor are the most vulnerable to risks — from natural (typhoons, drought) to manmade (conflicts, inflation) to health (medical care, illness, nutrition) to political changes (policy reforms, revolutions). Confronted with shocks, social protection diverts the poor away from usual coping strategies that exacerbate their condition, such as pulling children out of school, delaying healthcare, and disposing of assets. The poor are at the topmost rung of the ladder in terms of vulnerability but at the bottom in terms of measures carried out to put their day-to-day activities back into the mainstream.
It is in the spirit of sustaining inclusive growth that social protection deliberately targets the least and the most in need, cognizant of the fact that failure to uplift their social conditions holds repercussions on the economy as a whole. From a concept of individual responsibility, social protection is now viewed as a driver of both social and economic development. It is elevated as a form of resource management that optimizes the potential of people, helping develop those in the marginalized sectors to become healthy, active and productive citizens. This means programs that facilitate social mobility, ranging from education, housing, nutrition and health, employment and credit financing to achieving active aging. Consequently, there is more push for social protection to veer away from being curative to developmental and proactive. From schemes that are stop-gap or band-aid, governments are pressed to devise programs that enable the people to be more resilient, self-reliant, and forward-looking in preparing for their future.
Beyond the “social” in social protection, social protection is now more accepted in modern society as an economic driver. It is seen as a bridge that puts the poor back into the economy, reconnecting them to the production-consumption cycle. This was not, however, the case before. Social protection was opposed for it being an unnecessary burden on government budgets, allocating resources towards a particular sector of the society and surfacing the issue of equality and fairness. In Asian societies of rich Chinese heritage in particular, social protection was argued to be an obligation of one’s self and family; thus, moving out of poverty is a mobility that combines self-determination and family support.
More to the reservation over social protection was how it breeds the culture of dependency and tolerance, and how mechanisms could be prone to leakages and abuse that would in turn make social protection counterproductive on the whole. But one financial crisis to another and the widening gap between the rich and the poor across the globe reinvented the orientation about social protection. There was rethinking on how social protection can be better extended, broadening the participation base from what traditionally were informal/private and public/government to include the private sector, civil society and charitable organizations. Economic development then meant providing means as well for the poor to be employed (and be granted modest subsidies in the event of unemployment and externalities), to be healthy, to age with a better sense of security, to have access to credit and livelihood, and to be able to nurture families of their own with a certain autonomy. For judicious and efficient allocation of resources, public transfers required means-testing or conditions, either for availing of social protection (social assistance) or the use of the same.
On a political level, social protection is also a tool to legitimize authority. It builds within the people an assurance that their government is working for them. Social protection tends to be more generous and comprehensive in democratic countries though. Under a democracy, in order to maintain power and earn public regard, leaders need to provide tangible proof that their political statements are not mere rhetoric. Leaders need to translate intentions to improvement of the living conditions of the poor who constitute majority of the voting public in developing countries. Uprisings or revolutions oftentimes capitalize on grassroots and marginalized concerns, thus social protection is also a political instrument to quell, appease or stabilize social conditions. This political advantage of social protection is, however, double-edged: what could mobilize public support and cooperation could also be exploited for personal advancement or party interests.
(Mark recently completed his degree of Master of Public Policy and Governance [Social Policy specialization] at the Education University of Hong Kong (EdUHK), Hong Kong, on a collaborative scholarship in advanced studies in Asia among the United Board for Christian Higher Education in Asia, Commission on Higher Education of the Philippines, and the Department of Asian and Policy Studies of EdUHK.)