Poverty, the crisis, and social policy responses in developing countries

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1 Poverty, the crisis, and social policy responses in developing countries Armando Barrientos, BWPI, University of Manchester ISS Development Research Seminars , The Hague 15 October 2012 Page 1 of 17

2 Three main points: The impact of the financial crisis on poverty in the South The contribution of large-scale antipoverty transfers Challenges and lessons Page 2 of 17

3 The impact of the financial crisis on poverty in the South has been muted Share of population in poverty and extreme poverty in Latin America % in poverty % in extreme poverty Data Source: Panorama Social 2010 and because of sustained growth and social policy? In Latin America, The impact of the crisis was short-lived BUT diversity in outcomes across countries variation Page 3 of 17

4 Social Policy, Social Protection, and Social Assistance Basic service provision Education, health, housing, etc. Social Policy Social protection Social insurance: Social assistance: contributory budget financed programmes programmes addressing life cycle addressing poverty and employment and vulnerability contingencies Labour market policy: active and passive Social Policy versus Development approaches Expansion of social assistance in developing countries in the last decade Page 4 of 17

5 Social assistance in development: A quiet revolution? Growth in direct assistance to households in poverty Globally ~ 0.75 to 1 billion people reached by transfers Fraction of households reached by social assistance Fraction of households reached by social assistance Ethiopia Mexico Brazil In Brazil, the only social policies with greater reach than Bolsa Família are health, education and social insurance South Africa 0.5 Page 5 of 17

6 Social assistance in developing countries Pure transfers non-contributory pensions in South Africa and Brazil, but also Namibia, Botswana, Lesotho, India, Bangladesh, Nepal Child Support Grant in South Africa; Family Subsidy in Argentina and Uruguay Social transfers in Zambia Transfers combined with asset accumulation/protection India s National Rural Employment Guarantee Scheme and Ethiopia s Productive Safety Net Program Human development: Bolsa Familia in Brazil, PROGRESA/OPORTUNIDADES (Mexico), PRAF (Honduras); PATH (Jamaica); Familias en Acción (Colombia), Bono de Desarrollo Humano (Ecuador) Integrated anti-poverty programmes Chile Solidario Minimum Living Standards Schemes in China Resource: Social Assistance in Developing Countries Database version 5 available at Page 6 of 17

7 Design issues Programme objectives Beneficiary selection: categorical; geographic; community; means test; proxy means test; self-selection Conditions links to basic service utilisation Level of the transfer Duration and exit strategies Page 7 of 17

8 Social assistance and the financial crisis Social assistance programmes not specifically designed to address financial crisis - Fixed level transfers/ no insurance components/ medium term but proved effective in a crisis context because - Secured a floor to consumption among beneficiaries (extreme poor) - Had a role in preventing asset depletion and dysfunctional response to the crisis - Provided governments with established implementation structures (identification, eligibility, agency coordination, local delivery, financial structures) - which did not require legislation/budget reallocation experiences to date raise several issues for social assistance - Policy formulation: new versus old poor/ poverty indicators/ scope - Finance and low income countries - The separate contribution of social assistance? Page 8 of 17

9 Policy formulation: are crises bad for social policy? Policies formulated at a time of crisis often prove dysfunctional in the medium term Indonesia and the 1997 crisis price subsidies, rice distribution and human capital interventions Latin America in the 1980s social funds Argentina Unemployed Heads of Household 2001 public works Jamaica in 2008 food price subsidies then PATH Mexico in 2010 Vivir Mejor food price subsidies Why? Governments under pressure to focus on the new poor Reinforced by poverty headcounts Distinction between emergency and social assistance becomes blurred Page 9 of 17

10 Instead, countries with established social assistance programmes Accelerated registration of beneficiaries Raised the level of transfers Extended coverage to vulnerable population Targeted additional transfers to social assistance beneficiaries Addressing the effects of financial crises cane be more effective if social assistance institutions and instruments are already in place Page 10 of 17

11 Finance How best to finance an expansion of social assistance (in a crisis context)? Accumulated fiscal surpluses only available to middle income countries Raising tax revenues Value Added Tax and Corporate taxation Revenues from natural resources Bolivia and hydrocarbons/ SSA Borrowing - Mexico What about low income countries? Note: Financing social protection is not just about resource mobilization, but also about effectiveness and legitimacy Page 11 of 17

12 Change in extreme poverty The separate contribution of social assistance Bolsa Familia's potential contribution to poverty reduction in Brazil Change in extreme poverty (percentage points) Atributed to BF Source: Soares, S., de Souza, P. H. F., Osório, R. G., & Silveira, F. G. (2010) Os impactos do benefício do Programa Bolsa Família sobre a desigualdade e a pobreza Page 12 of 17

13 Lessons and Challenges To date, the impact on poverty from the financial crisis has been muted Because of sustained growth and social policies but the persistence of the crisis might change this, with low income countries especially vulnerable The expansion of social assistance since the turn of the century has proved essential to protecting the poor and poorest from the adverse effects of the crisis Social protection institutions are an essential component of effective development strategies; but it is important to take account of their limitations in dealing with crises (environmental, food, financial) Finance is a challenge, especially for low income countries, but it is not just a matter of resource mobilisation, effectiveness and legitimacy are important too. Sustained economic growth and resources revenues are opening potential for investment in social protection in LICs; but taxation is key Social assistance in the South is evolving very differently to the North Page 13 of 17

14 Barrientos, Armando. (2011). Poverty, the crisis, and social policy responses in developing countries. In K. Farnsworth & Z. Irving (Eds.), Social Policy in Challenging Times. Economic crisis and welfare systems (pp ). Bristol: Policy Press. Barrientos, Armando, and Niño-Zarazúa, Miguel. (2011). 'Financing social protection for children through crises'. Development Policy Review, 29(5), Barrientos, Armando. (2010). A assistência social no mundo pós-crise. In M. F. Pinheiro Coehlo, L. M. de Souza Tapajós & M. Rodrigues (Eds.), Políticas sociais para o desenvolvimento: Superar a pobreza e promover a inclusão (pp ). Brasilia: MDS and UNESCO. Barrientos, Armando, Niño-Zarazúa, Miguel, and Maitrot, Mathilde (2010). Social Assistance in Developing Countries Database Version 5. Report Manchester: Brooks World Poverty Institute. Page 14 of 17

15 Effectiveness short run effect on poverty Difference in difference estimates of the poverty reduction effectiveness of Progresa/Oportunidades in Mexico two years after its introduction Poverty reduction (%) Poverty headcount Poverty gap Poverty gap squared Data source: Skoufias, E Progresa and Its Impacts on the Welfare of Rural Households in Mexico, Washington: International Food Policy Research Institute Page 15 of 17

16 Effectiveness medium run effect on human development (nutrition) Difference in height for age between OPORTUNIDADES treatment (joined 1998) and control (joined 2000) groups in 2000 and 2003 for 2-6 year olds difference (cm) height for age after 2 years height for age after 6 years Gertler and Fernald [2006] Vol III ch. 2 Impacto de mediano plazo del programa Oportunidades sobre el desarrollo infantil en areas rurales Page 16 of 17

17 Effectiveness longer run effect on human capital Simulated schooling outcomes from alternative interventions in rural Mexico - Mean completed years of schooling Mean completed schooling - Boys Mean completed schooling - Girls Junior secondary school in each village PROGRESA subsidy Baseline Source: Todd and Wolpin (2006) Assessing the impact of a school subsidy program in Mexico AER Page 17 of 17

Social Protection in the post-2015 Development Agenda

Social Protection in the post-2015 Development Agenda armando barrientos and david hulme, brooks world poverty institute, school of environment and development, university of manchester, uk text: Armando