Social Safety Nets and Developing Countries: A Chance to Get it Right

Nearly every wealthy country has an established system for providing support to the most vulnerable members of the population, and increasingly, developing countries are moving to establish their own social safety programs. This is a huge opportunity to improve lives— only a third of the world’s 1.2 billion poorest people are currently covered by social safety nets, and extending these programs improves health and education access, reduces poverty, and strengthens resilience in the face of crises and disasters.  The challenge for developing countries will be designing and implementing social safety net programs that not only meet the needs of their populations but will remain sustainable and effective over the long term.

The modern welfare state is a relatively recent innovation.  Otto von Bismarck, Germany’s first Chancellor, introduced state-backed pensions, accident insurance, and medical care in the late 1800s.  These programs were quickly emulated throughout Europe, and following the great depression, in the United States. A social safety net system is broadly defined as a set of services— which could include healthcare, unemployment benefits, and disability insurance— provided by the state to protect impoverished and vulnerable members of society.  The proliferation of these programs coincided with the industrial revolution, and the joint progress of technological advancement and modern social support helped undergird an era of unprecedented economic advancement. Today, one of the hallmarks of a modern, developed state is a social safety net system to help support the poor, disabled, and elderly within society.

Social Security
President Franklin D. Roosevelt signed the United States’ Social Security Act into law over 80 years ago.

It is understandable and logical that developing countries are following a similar track and establishing their own social safety net systems.  As countries become wealthier and collect more taxes, populations demand greater accountability and expect their governments to address social challenges through social programs and spending.  That process is already underway— more than half of the 1.9 billion people enrolled in social safety net programs around the world are located in low and middle-income countries.  This expansion is ongoing: the number of countries with national social protection strategies in place grew from 19 in 2009 to 68 by 2014.

There are existing examples of developing countries that have implemented effective social safety programs. In Brazil, then President Luiz Inacio Lula da Silva introduced “Bolsa Familia” in 2002 to help address extreme poverty and economic inequality. Ten years after the program’s introduction it reached roughly 25 percent of the population; over the same period, Brazil’s extreme poverty rate fell from 9.7 percent to 4.3 percent. Mexico established its own conditional cash transfer program in 1997 to encourage mothers to send their children to school and the hospital. The program, now known as Prospera, has been credited with improving education levels, strengthening nutritional status, and reducing poverty.  Elements of Prospera have been replicated in more than 50 countries.

There are numerous criticisms of social safety net systems: that they disincentive work, that they dilute communal ties, that the systems don’t encourage “graduation” and of course that the systems for demographic, technological and inflation reasons become too expensive to finance.   The most serious critique levied against social safety net programs is that they are not financially sustainable in the long term.  OECD countries are staring down huge expenditures on social programs— average social expenditure among OECD countries was over 21 percent of GDP in 2014— while also managing limited fiscal resources.  Economic crises in Greece, Spain, and Ireland can (at least in part) be traced back to unsustainable social program spending.

While these concerns have merit, the reality is that the potential benefits offered by social safety nets will be very attractive to policy makers in developing countries. The average developing country spends only 1.6 percent of GDP on social safety nets, a far cry from the high levels of spending seen in OECD counterparts. More than that, developing countries designing and implementing social safety programs today have nearly 150 years of past success and failure to learn from.  Developing country policy makers can look to lessons from the Germany, the United Kingdom, and the United States, but can also lean on contemporary examples in Brazil and Mexico.

In a democratic country, the political reality is that it’s nearly impossible to remove or cut back on these programs once they are in place.  This means it’s critical to design a system that is not only effective but also sustainable in the long term. It’s important that you get program design right the first time because you only get one shot.  The hope is that developing countries can leap frog over the mistakes made in Europe, the United States, and elsewhere.

International assistance donors and multilateral development banks have the expertise and budget resources to help support developing countries as they design their own social safety net programs. World Bank studies have shown that that implementing a social safety net program has an immediate impact on reducing poverty and boosting prosperity.  Supporting the creation of social safety nets can be a great investment in development progress if the potential pitfalls are recognized and navigated, but it requires a political and financial commitment from developing country governments themselves.  The international community should be ready to support those countries willing to make the commitment.

Article Published in on August 29, 2016.

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