EXTENDING SOCIAL SECURITY TO ALL. Changing the development policy paradigm: Investing in a social security floor for all

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1 EXTENDING SOCIAL SECURITY TO ALL Changing the development policy paradigm: Investing in a social security floor for all Michael Cichon and Krzysztof Hagemejer Social Security Department, International Labour Office The paper briefly reviews social security coverage that the world has achieved and summarizes economic and social benefits of a national social security system. It then goes on to argue that social security systems are a necessary part of the institutional framework of any effective market economy, creating among other things societal cohesion that is needed for long-term economic development. It makes the case that the introduction of basic social protection in developing countries is both a desirable and an affordable investment in their social and economic development. It estimates the global minimum investment cost to provide basic social security and finally suggests international instruments to introduce a global social security floor. There is no in dus tri al ized coun try that does not have a fairly ex ten sive so - cial se cu rity sys tem. Na tional so cial se cu rity sys tems are part and par cel of na tional so cial and eco nomic de vel op ment pat terns. There was a wide - spread consensus in most rapidly developing industrial countries that the pro tec tion of work ers and their fam i lies as well as of the whole pop u la tion should be pro vided and in creased as so ci et ies grew more pros per ous. Dur - ing a good num ber of de cades, that prin ci ple was never ques tioned. The wel fare state, as com pre hen sive so cial se cu rity sys tems were also dubbed by many af ter the Sec ond World War, be came a part of the so ci etal fab ric of the de vel oped mar ket econ o mies. Max i miz ing in come and over all so cial security was an ex plicit or im plicit pol icy ob jec tive of most in dus tri al ized and many developing countries at least till the second half of the 1980s. Based on that largely un ques tioned con sen sus, so cial se cu rity was con - sid ered a uni ver sal ne ces sity as ex pressed in in ter na tional la bour Rec om - men da tion No. 67 con cern ing In come Se cu rity (1944) and later an ex plic itly The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

2 Changing the de vel op ment pol icy par a digm: In vest ing in a so cial se cu rity floor for all 170 rec og nized hu man right that was cod i fied in Ar ti cle 22 of the Uni ver sal Dec la ra tion of Hu man Rights in So cial se cu rity as a hu man right is part of the ILO s man date 1 and is en shrined in a se ries of in ter na tional la - bour Conventions, most prominently Convention No. 102 (Minimum Stan - dards), 1952, which be came the blue print for the Council of Europe s 1964 European Code of Social Security. One thus has to bear in mind that any State that has de cided to be a mem - ber of the UN and the ILO has the gen eral and fun da men tal le gal ob li ga tion of putt ing in place de cent so cial pro tec tion pro vid ing so cial se cu rity to all its peo ple. The re al ity, how ever, looks dif fer ent. Even in the in dus tri al ized countries, national social security systems came under political pressure when, fol low ing the two oil cri ses, eco nomic de vel op ments slowed down and the fis cal space for cash and in-kind trans fers con tracted or at least no lon ger ex panded. The per ceived need to con tain so cial se cu rity ex pen di ture be came even more pro nounced when glob al iza tion took off in full force at the be gin ning of the new mil len nium. The ne ces sity to per form in a global competitive environment, with its downward pressures on national tax rates and la bour costs, led to a rise in sup port for a short-sighted view of social se cu rity as a cost to so ci ety rather than a po ten tial ben efit and an investment in econ o mies and peo ple. As long as this view pre vails, a race to the bot tom of pub lic so cial ex pen di ture will be hard to avoid. Per haps sadly, in to day s glob al iz ing world we will only be able to stop the race if we can show that so cial trans fers are good for eco nomic de vel op ment while in pre vi ous de cades it might have suf ficed to dem on strate their pos i tive so cial results. The international social protection policy debate has become one on na tional fiscal space for transfers in the face of global forces pushing down the overall tax rates. This pa per briefly re views the so cial se cu rity cov er age that the world has achieved and sum ma rizes the po ten tial so cial ben efits of na tional so cial se - cu rity sys tems. It then goes on to ar gue that so cial se cu rity sys tems are part of the institutional framework of any effective market economy, necessary in or der to cre ate among other things so ci etal sta bil ity that is needed for long-term eco nomic de vel op ment. It makes the case that the in tro duc - tion of ba sic so cial pro tec tion in de vel op ing coun tries is both a de sir able and an af ford able in vest ment in their so cial and eco nomic de vel op ment. It roughly quan ti fies the global min i mum in vest ment cost to pro vide ba sic social se cu rity and finally suggests instruments to introduce a global social floor. 1. See the Dec la ra tion of Phil a del phia (1944), on the aims and pur poses of the Inter na tional Labour Orga ni za tion. Arti cle III pro vides a broad def i ni tion of social pro tec tion. In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

3 The development patterns and the state of global coverage In the major established market economy countries, the historical develop - men tal pat terns of so cial se cu rity cov er age have mir rored de vel op ments in the la bour mar kets. Cov er age be gan to in crease fol low ing the In dus trial Revolution, as formal, wage and salary employment in industry increased and the workforce migrated from rural areas into towns. Coverage is a multidimensional concept, and can be understood only in terms of the spec i fi ca tion of a num ber of as pects. The cov er age ra tio fig - ures quoted for the de vel op ing world are of ten low, but it should be noted that such fig ures gen er ally re fer to for mal so cial pro tec tion sys tems, and con sid er able care should be taken in in ter pret ing such fig ures as an in di ca - tion that peo ple out side the for mal econ omy have no so cial se cu rity to any de gree. Tra di tional modes of so cial pro tec tion, i.e. largely ex tended fam ily and com mu nity sup port sys tems, still cover wide sec tions of de vel op ingcountry populations. The ILO report to the International Labour Confer - ence in 2001 com pared the es ti mated over all level of trans fers in the re gions of the world with the lev els of for mal pub lic so cial trans fers (ex pressed as per cent ages of na tional GDPs) as re corded in of fi cial sta tis tics. It was observed that the pro por tion of for mal trans fers (im ple mented through for - mal so cial se cu rity sys tems) is strongly cor re lated with the level of coun - tries eco nomic de vel op ment. It ap pears likely, there fore, that the changes in fam ily and so cial struc tures that nor mally ac com pany eco nomic de vel - op ments, and lead to in creas ing re li ance on for mal so cial trans fers, will be re flected in in creas ing lev els of so cial trans fers, as a pro por tion of the over - all na tional in come. Such in creases also reflect increasing population cov er - age, an increasing degree of redistribution and the increasing sophis tication of benefit schemes. The most im por tant source of in come se cu rity for a worker re mains a de - cent job. Such de cent jobs not only pro vide rel a tively re li able in come, ad - equate enough to be shared with other fam ily mem bers, but also cov er age by na tional so cial se cu rity schemes that guar an tee ac cess to health ser vices and re place ment for lost em ploy ment in come in the case of old age, dis abil - ity, the loss of the bread win ner, un em ploy ment, sick ness or ma ter nity, and in the case of em ploy ment in jury or an em ploy ment-re lated dis ease. Ben efit entitlements are of ten di rectly linked to the con tin u a tion of for mal em ploy - ment and ben efit lev els are linked to lev els of in come from work. Un for tu - nately only a mi nor ity of the global la bour force en joys the rel a tive se cu rity brought by such de cent jobs (of ten called also for mal econ omy jobs. Con - se quently na tional so cial se cu rity or so cial pro tec tion sys tems need to reach The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

4 Fig ure 1. Es ti mated to tal trans fers and their com po si tion in se lected regions, early 1990s (as a per centage of GDP) Transfers as % of GDP Formal public transfers Informal private transfers E Africa SE Asia E Europe W Europe N America Source: ILO, 2001, p. 85. Note: This es ti mate of the to tal nor mal so cial trans fer ra tio as sumes that all those in the eco nom i cally ac tive pop u la tion (in clud ing un em ployed per sons) earn in come (from wages, prof its, etc.) and share this in come with chil dren, in ac tive per sons of work ing age, and per sons past the ac tive age. It is as sumed here that the re la tion of an eco nom i cally in ac tive per son s con sump tion to that of an ac tive per son is to 1. This is, of course, a dis cre tion ary as sump tion. It as sumes im plic itly that a shift of de pend ants be tween old and young age groups will not nec es sar ily change the over all de gree of shar ing. Added to cash trans fers are crude es ti mates for the re gional cost of healthcare, which are largely trans fers in kind be tween groups as well as within groups. The costs of trans fers to un em ployed per sons have been left out, since the es ti mates of un em ploy ment are not fully com pa ra ble be tween the de vel oped and developing world. See also Cichon et al., 2004, Chapter 1.6, pp out be yond the bound aries of the for mal econ omy. How ever, achieve ments so far are far from sat is fac tory. Ta ble 1 sets out the level of ac cess to birth at ten dance by skilled health per son nel and the level of ac cess to pro fes sional pre na tal care in dif fer ent parts of the of the world. These in di ca tors show a rea son able de gree of cor - re la tion, and if it were as sumed that they might serve as prox ies for the level of ac tual cov er age of peo ple for ba sic healthcare ser vices, the fig ures would sug gest that be tween one third and one half of the pop u la tion in the de vel - op ing world lacks access to effective health services. Fig ures on cov er age by cash so cial se cu rity ben efits are even more dis - turb ing. Es ti mates, ad mit tedly based on fairly crude as sump tions, nev er - the less sug gest strongly that no more than 20 to 30 per cent of the global In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

5 Ta ble 1. Prox ies for ac cess to healthcare ser vices, by WHO re gion, mid-1990s to 2003 (%) Re gion An te na tal care cov er age Births at tended by skilled health per son nel Africa Amer i cas South-East Asia Eu rope East ern Med i ter ra nean West ern Pa cific Source: WHO, pop u la tion have ac cess to mean ing ful cash ben efits. Data emerg ing from the test ing phase of the new ILO So cial Se cu rity In quiry as well as a re cent Asian De vel op ment Bank study of six Asian coun tries (see Baulch, Wood and Weber, 2006) seem to con firm the or der of mag ni tude of such es ti mates. Fig ure 2 shows cov er age in di ca tors (ben e fi cia ries as a per cent age of the elderly pop u la tion, and pro tected per sons as a per cent age of the work ingage pop u la tion) for old-age pen sions in a num ber of se lected coun tries from dif fer ent re gions. Ta ble 2 pres ents ag gre gate cov er age in di ca tors for all ex - ist ing so cial pro tec tion pro grammes for six Asian coun tries, cal cu lated as the av er age of ben e fi ciary cov er age ra tios of all the schemes. There ex ists also a sig nif i cant gen der im bal ance in cov er age ra tios: as many so cial se cu - rity schemes are em ploy ment-re lated and em ploy ment rates are lower for women than for men, even in de vel oped coun tries ac tual cov er age rates are for some of the ma jor con tin gen cies much lower for women than for men. For ex am ple, an ILO study on the so cial pro tec tion sys tem in Po land re - vealed that while nearly all men at age 70 or over are re ceiv ing one or an - other type of pen sion com ing from their own so cial se cu rity rights, the same is true only for less than 70 per cent of women at the same age (Hagemejer, Liwinski and Woycicka, 2001, pp ). More than 30 per cent of el derly women ei ther never acquired rights to their own pension or found that the benefit appeared to be lower than the survivor pension of their deceased husband. We con clude, there fore, that be tween 70 and 80 per cent of the global pop u la tion live in a state of more or less se vere so cial in se cu rity, i.e. have no access to formal social security beyond the often limited possibilities of fam i lies, kin ship groups or com mu ni ties to se cure their stan dard of living. Among those 70 to 80 per cent, 20 per cent live in deep pov erty the The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

6 Figure 2. Selected coverage indicators for old-age pension benefits Coverage ratio (% of the population in this age group) Beneficiaries (65+) Protected persons (15-64) Azerbaijan Brazil Burkina Faso Ghana Kazakhstan Mongolia Senegal Sri Lanka United Rep. of Tanzania Thailand Viet Nam Source: Pre lim i nary re sults of the ILO So cial Se cu rity In quiry. Ta ble 2. Ag gre gated so cial se cu rity cov er age ra tios for se lected Asian coun tries (%) Coun try Cov er age rates Ban gla desh 10.2 In do ne sia 34.6 Mon go lia 53.6 Ne pal 10.5 Pa ki stan 6.5 Viet Nam 21.7 Source: Baulch, Wood and Weber, 2006, Ta ble 3, p. 15. In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

7 cru el lest form of in se cu rity. While the global pov erty headcount may slowly im prove, en demic pov erty and so cial in se cu rity pre vail in many parts of the world, most no ta bly in Af rica, and show lit tle or no sign of ame - lio ra tion. The re duc tion of pov erty is stated as the very first of the Mil len - nium Goals spe cif i cally the halv ing of pov erty (mea sured at the level of in come of US$ 1 a day) but prog ress to wards achiev ing this goal in many coun tries is extremely slow and its timely achievement is in serious doubt. Social impact of social security: A brief reminder Social se cu rity sys tems pro vid ing so cial trans fers are the key in stru ments of fer ing a ve hi cle for the ab o li tion and pre ven tion of pov erty which is di rect and fast in a way that the pu ta tive ben efits of trickle down ef fects of eco n - omic growth can not match. The 2004 tsu nami in Asia and re cent hur ri canes in North Amer ica have shown how im por tant pub lic so cial ser vices are, in - clud ing not only eas ily ac ces si ble healthcare but also so cial se cu rity cash trans fers in the case of death, dis abil ity or un em ploy ment, in cop ing with the con se quences of such mass nat u ral di sas ters. These events have shown once again that so cial se cu rity is also an im por tant foun da tion for so cial co - he sion. If sys tems fail in such sit u a tions, the trust peo ple may have in the rel e vant in sti tu tions is un der mined and the ability of society to cope with other crises deteriorates significantly. There is clear ev i dence from Eu rope and the OECD coun tries that so cial trans fers suc cess fully re duce pov erty and so cial in se cu rity (see Cichon et al., 2004, pp ). Fig ure 3 shows the net es ti mated ef fects of pub lic trans - fers and taxes on pov erty rates (as mea sured by the pov erty headcount index) in OECD coun tries, i.e. those with fairly ex ten sive so cial trans fer sys - tems and well-de vel oped tax sys tems. The ef fects are noth ing less than dra - matic. The re duc tion of the pov erty rates ex ist ing be fore taxes and trans fers ranges from a min i mum of about 10 per cent age points, es ti mated in the United States, to a high of around 30 percentage points, found in Sweden. It is not pos si ble to draw such clear-cut con clu sions in re la tion to de vel - op ing coun tries, since over all vol umes of so cial trans fers are com par a tively small. How ever, some ba sic so cial pro tec tion trans fers, such as ba sic noncon trib u tory pen sion schemes, have proved to be po tent means in the fight against pov erty. A va ri ety of coun tries have in tro duced uni ver sal pen sion schemes in re cent years, and while they have mostly pro vided ben efits at mod est lev els, their pov erty-re duc ing ef fects for whole fam i lies have been very pos i tive. Ben efits are pro vided overtly for older peo ple and those with dis abil i ties, but in prac tice ben efits pro vided for individ uals whose sta - tus in their fam i lies is of ten sig nif i cantly en hanced through their re ceipt of a The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

8 Figure 3. Poverty rates before taxes and transfers vs. poverty rates after taxes and transfers in selected OECD countries, mid-1990s (percentage of total populations) Poverty rate (%) Before taxes and transfers After taxes and transfers Australia Belgium Canada Denmark Finland France Germany Ireland Italy Netherlands Norway Sweden United Kingdom United States Source: Förster and Pellizari, 2000, Figure 5.1. cash in come ef fec tively sup port whole fam i lies. Re dis tri bu tion of that cash in come within the house hold means that more fam i lies of trans fer recipients than hith erto are able to fi nance school fees, med i cines, etc. (see HelpAge, 2004). Strong ev i dence of pos i tive ex pe ri ence co mes from coun - tries as di verse as Brazil, Mau ri tius, Namibia, Ne pal and South Af rica. The ILO has re cently cal cu lated that the pro vi sion of such a ba sic pack age of so - cial trans fers in many de vel op ing coun tries of Af rica and Asia would cost be tween 1 and 2 per cent of GDP, which equates roughly to be tween 5 and 10 per cent of na tional bud gets (see Pal et al., 2005; Mizunoya et al., 2006). Im ple ment ing such a pack age in many coun tries could rep re sent a rapid first step in a broader attack on the kind of deep-rooted and chronic poverty often found within countries in these regions. So cial pro tec tion pro vides a means ar gu ably the best means of ad - dress ing and man ag ing a spec i fied range of life risks. How ever, so cial pro tec tion em braces a much wider range of is sues. Ar gu ably the most im - por tant of these is that of eq uity (which, as noted ear lier, stands to be in ter - In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

9 preted broadly). Pro vid ing ef fec tive in come se cu rity to the poor re quires en hanced eq uity not only eq uity of wealth and in come but also eq uity of op por tu nity, to a de gree which it seems mar ket forces will not pro duce if left to them selves. An im prove ment in eq uity in this way should en able the poor to par tic i pate in the out comes of eco nomic growth and hence, for ex - ample, increase the public acceptance of globalization. Income redistribu - tion has to be pro vided through pub lic so cial se cu rity in ter ven tions and pos si bly tax sys tems and can not be del e gated to pri vate ar range ments whether mar ket-based or those of a tra di tional na ture based on ex tended family or community income-sharing. These mechanisms cannot be ex - pected to achieve the nec es sary de gree of re dis tri bu tion. Re dis tri bu tion of in come in this sense means chang ing the dis tri bu tion of in come, as shaped orig i nally by mar ket forces alone, to al low the in flu ence of other, nonmarket cri te ria. Log i cally, no (fully) pri vate mar ket-based mech a nism can be ex pected to do this. On the other hand, a role can be en vis aged for extended fam i lies or small lo cal com mu ni ties, which are usu ally rel a tively homogeneous with re spect to in come. Individ uals (com pared with so ci ety as a whole) are all rel a tively ei ther poor or rich. Re dis tri bu tion of in come within such groups does not, however, significantly affect the re dis tri bu - tion within the broader society, so that the potential for promoting much greater equality is limited. 177 Debunking the equity vs. efficiency myth So cial pro tec tion sys tems widely proved to be ef fec tive not only in re duc ing and pre vent ing pov erty but in gen er ally re duc ing in come in equal ity (see also Townsend, 2007). For some, how ever, these eq uity ef fects of so cial se - cu rity sys tems are seen as one of the rea sons for lower eco nomic growth rates in many de vel oped coun tries and are be com ing a main ar gu ment in fa vour of con tain ing the scope and costs of so cial se cu rity sys tems there. Is there re ally a trade-off be tween equity, economic efficiency and growth? Since about the mid dle of the 1970s (i.e. af ter the first oil price cri sis), coun tries with well-es tab lished so cial pro tec tion sys tems en tered a pe riod of wel fare state con tain ment. Ma jor wel fare states like Aus tria, France, Ger - many, the Neth er lands and oth ers broadly kept their so cial ex pen di ture shares in GDP at the lev els reached around that time. The con tain ment meas ures re flect a dom i nant po lit i cal and eco nomic view that has pre vailed for at least 20 to 25 years, which claims that low Eu ro pean growth rates in the 1980s and 1990s were mainly a re sult of too high and wrongly de signed (badly struc tured) so cial pro tec tion pro vi sions. If that were true, one would ex pect fur ther re duc tions of the so cial ex pen di ture ra tios in fu ture. In any 2007 The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

10 178 case, such moves would have to be im ple mented against coun ter act ing so - cial trends, like in creased un em ploy ment, grow ing healthcare costs, chan - ging fam ily struc tures or ris ing old-age de pend ency rates, which all in ten - sify so ci etal in se cu rity in the in dus tri al ized coun tries. Thus far, what can be ob served is that so cial ex pen di ture in the OECD (mea sured as a per cent age of GDP) has sta bi lized at long-term lev els, which ap plies equally to lowerand higher-growth coun tries. Most ob vi ously, con trary to main stream ex - pec ta tions, this pol icy has not led to higher eco nomic growth at least not ev ery where. First, it has to be ob served that eco nomic growth rates have come down to mod er ate lev els since the mid-1970s. It is since then that growth rates have hov ered around a quite sta ble 2 per cent trend. Whether a re ver sal of GDP growth rates up to higher av er age lev els will take place is an open ques tion. However, it seems obvious that such a reversal will not likely be triggered through the stabilization of social spending. The sta tis ti cal ana lysis of long-term growth rates in the OECD coun tries shows that the cor re la tion be tween growth per for mance and the share of GDP that is al lo cated to so cial ex pen di ture is weak. Fig ure 4 maps the av er - age growth rates in the same coun tries be tween 1980 and 2001 with so cial ex pen di ture s av er age shares of GDP dur ing the pe riod. While the regres - sion shows a slightly neg a tive slope, the R 2 is also very low (i.e. 0.09). Lim it - ing the pe riod to the de cade only mar gin ally changes the pic ture. The ana lysis con firms the ear lier ob ser va tion that there is vir tu ally no di - rect re la tion ship be tween the per ca pita GDP or the rate of growth and the level of the so cial ex pen di ture ra tio. Swe den and the United King dom, for ex am ple, have sim i lar lev els of GDP per ca pita but a more than 7-per cent - age-point dif fer ence in so cial ex pen di ture ra tios. In both coun tries so cial ex - pen di ture is largely of a pub lic na ture. Thus, dif fer ences in the com po si tion of to tal so cial ex pen di ture as be tween pub lic and private expenditure do not affect the comparability. Sim i larly, Ire land and Lux em bourg, for ex am ple, have com pa ra ble longterm growth rates while the av er age so cial ex pen di ture ra tio is 4 per cent age points lower in Ire land than in Lux em bourg. It aly, on the other hand, has a sim i lar long-term so cial ex pen di ture ra tio to Lux em bourg but its long-term growth rate is only 40 per cent of Lux em bourg s. Aus tra lia s growth per - formance is sim i lar to that of Nor way while it has only 40 per cent of the Norwegian social expenditure ratio. The above ob ser va tions as well as other stud ies 2 lead to one con clu sion. First, the size of so cial se cu rity sys tems as mea sured by so cial ex pen di ture 2. See, for exam ple, a very com pre hen sive study by Lindert (2004), ana lys ing trends in social expen di ture in selected coun tries over the past two cen tu ries and show ing that high lev els of social spend ing have no neg a tive impacts on eco nomic dynam ics of the coun tries. In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

11 Figure 4. Average social expenditure vs. long-term economic growth, OECD countries, GDP growth (%) Average real growth Predicted values Average social expenditure Source: Authors own calculations. alone does not ex plain over all na tional eco nomic per for mance and does not have a significant impact on economic growth. Obviously national policies and so cial se cu rity sys tem de signs can lead to a wide range of dif fer ent levels of so cial expenditure at each level of GDP. On fur ther re flec tion one might ar gue that lev els of GDP per ca pita are de ter mined by a va ri ety of other fac tors that are clearly not pre dom i nantly in flu enced by the av er age level of the so cial ex pen di ture ra tio, such as the demographic structure and consequent national levels of demographic de - pend ency be tween ac tives and inactives in a so ci ety, the na ture of the na - tional phys i cal and hu man cap i tal stock, the av er age number of hours worked per worker, etc The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

12 Figure 5. Labour productivity and social expenditure, OECD countries, 2001 Productivity (per hour worked) ,000 4,000 6,000 8,000 10,000 12,000 Total public social expenditure per capita (PPP) y = x R = Source: ILO calculations based on OECD/SOCX data base. So cial se cu rity pro vi sions might, on the other hand, di rectly in flu ence the level of employment by providing incentives or disincentives to labour market participation. When correlating social expenditure ratios (SERs) and em ploy ment lev els, we face a chicken-and-egg prob lem. On one hand high lev els of un em ploy ment lead to high trans fer ex pen di ture, while on the other the avail abil ity of trans fers may lead to high with drawal rates. How ever, a re gres sion ana lysis of the SERs and the em ploy ment-to-pop u la - tion ra tios of the age group for OECD coun tries shows vir tu ally no association be tween the two and the in flu ence on the SER on employment levels is statistically not sufficiently significant. In an at tempt to ex clude all these ef fects, par tially coun ter act ing, we have ana lysed the ef fects of so cial ex pen di ture on hourly pro duc tiv ity (see also ILO, 2005a). The ana lysis shows that that in the OECD there is a strong pos i - In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

13 Figure 6. Health expenditure and productivity, non-oecd countries, 2001 Productivity (per hour worked) Israel Argentina Malta 20 Cyprus Slovenia Singapore Lithuania Chile Estonia Croatia Uruguay 10 Bulgaria Costa Rica Latvia Thailand Brazil Panama 0 Kyrgyzstan 0 1,000 2,000 3,000 4,000 Health expenditure per capita (PPP) 181 Source: ILO, 2005b; IMF, tive cor re la tion be tween so cial ex pen di ture (per ca pita of the pop u la tion) and la bour pro duc tiv ity (GDP per hour worked). The above re la tion ship also seems to hold true for non-oecd coun tries. The data sit u a tion is weaker, so we limit our selves to ana lys ing the re la tion - ship be tween health ex pen di ture per ca pita and hourly and per-worker pro duc tiv ity. Health ex pen di ture is seen as the part of over all so cial ex pen - di ture that has the most di rect im pact on main tain ing the pro duc tiv ity of work ers. The above ob ser va tions can be sub ject to dif fer ent (and to some ex tent contradictory) interpretations: one person could interpret social expendi - ture as a pre req ui site for growth, while some one else could sim ply ar gue that as over all lev els of GDP in crease, in line with pro duc tiv ity in creases, so cial spend ing (al most re act ing as a lux ury good in eco nomic the ory) also in creases. Un for tu nately we will not be able to de duce cau sal ity from the above macro-level cor re la tion. While that is re gret ta ble, fully de lin eated cau sal ity is not even nec es sary for the case we are mak ing here. For our pur The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

14 182 poses it suf fices to ob serve that there is noth ing in the em pir i cal find ings on the cor re la tion be tween pro duc tiv ity and so cial ex pen di ture sug gest ing that high spend ing on so cial pro tec tion is as so ci ated with low pro duc tiv ity. On the con trary, there seems to be strong em pir i cal ev i dence in di cat ing that high productivity (only) materializes if accompanied by high social spending. If one jux ta poses that find ing with the very low level of cor re la tion be - tween employment levels and the social expenditure ratio, the conclusion has to be that some so cial se cu rity sys tems may dis cour age la bour force par - tic i pa tion. This is not a gen eral rule, as the cases of Nor way, Swe den and Swit zer land show: here, rel a tively high lev els of so cial ex pen di ture co in - cide with high lev els of em ploy ment. Ap par ently the in sti tu tional ar range - ments that gov ern the trans fers can cre ate mi cro ec o nomic in cen tives as well as dis in cen tives and in ef fi cien cies. So cial ex pen di ture thus may fa cil i tate high lev els of GDP through the pro duc tiv ity con duit but it may not lead to a full exploitation of countries production potential if badly designed. How - ever, like wise, there is thus no rea son to be lieve that rel a tively high levels of social expenditure automatically lead to a compression of potential levels of GDP. In any case, high eco nomic per for mance and high so cial spend ing can co - ex ist. That is enough to de bunk the fa mous myth that there is an in ev i ta ble trade-off be tween eco nomic per for mance and lev els of re dis tri bu tion. And cer tainly, pro vi sion of at least ba sic so cial se cu rity ben efits and ser vices to ev ery body in de vel op ing coun tries will not do harm but, on the con trary, help to make the eco nomic growth trans late into sus tain able so cial and economic development. To make such a provision possible everywhere in the glob al ized econ omy with free move ments of cap i tal and re sult ing downward pressures on taxation levels, the international community needs not only to agree what would be such a min i mum set of ba sic ben efits or global so cial se cu rity floor but also to assume some responsibility in helping the poorest countries to achieve this. Making the case for a global social security floor Al most un no ticed, the global com mu nity has al ready as sumed more re - sponsibility for the provision of basic social services in some developing coun tries. In Ghana and the United Re pub lic of Tan za nia, for ex am ple, di - rect bud get sup port from do nors al ready ac counts for sub stan tial pro por - tions (4 and 50 per cent re spec tively) of the national health budget. These trends open up new op por tu ni ties and chal lenges for the global society. The acceptance of a global responsibility for anti-poverty policies, In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

15 as in di cated by a global ac cep tance of na tional Pov erty Re duc tion Strat egies as a cen tral ve hi cle for in ter na tional aid and debt re lief in ex change for strengthened national anti-poverty policies, gives hope for the emer gence of global social solidarity. A possible definition of a global social security floor The time seems to be right to de fine a ba sic set of so cial pro tec tion ben efits that should be achieved by all coun tries in the short est pos si ble time. This could be the min i mum ben efit pack age as part of a global so cio eco nomic floor that was ad vo cated by the World Com mis sion on the So cial Di men - sion of Glob al iza tion (see ILO, 2004a). That floor could also con tain min i - mum so cial and la bour rights that go be yond the bor ders of so cial pro tec - tion. The World Commission argues: As long as coun tries how ever poor are able to col lect some taxes and con tri - bu tions, they can afford some lev els of social pro tec tion... A global com mit ment to deal with inse cu rity is crit i cal to pro vide legit i macy to glob al iza tion (ILO, 2004a, p. 110). Al ready three years ear lier the In ter na tional La bour Con fer ence (ILC) in its general discussion on social security had asked the International Labour Of fice to launch a ma jor cam paign... in or der to pro mote the ex ten sion of cov er age of so cial se cu rity (ILO, 2001, p. 5). The cam paign of fi cially com - menced in 2003, since when a num ber of na tional cam paigns were launched and the So cial Se cu rity De part ment of the ILO un der took a ma jor re search ef fort to ex plore the dif fer ent op tions to ex tend cov er age. About 25 re search pa pers were pub lished. Since about mid-2005 re search has fo cused on the affordability of min i mum tax-fi nanced cash ben efits and the fea si bil ity of pluralistic financing systems for healthcare. The Department now considers that com bi na tion of such ba sic cash and health ser vice entitlements to be the prin ci pal op tion to close the global so cial se cu rity def i cit. It sug gests in its re cent policy consultation paper that the global social security floor should consist of: Ac cess to ba sic healthcare through plu ral is tic na tional sys tems that con - sist of pub lic tax-fi nanced com po nents, so cial and pri vate in sur ance com po - nents and com mu nity-based com po nents that are linked to a strong central system. A sys tem of fam ily ben efits that per mits chil dren to at tend school. A sys tem of self-tar get ing ba sic so cial as sis tance (cash-for-work pro - grammes) that helps to over come ab ject pov erty for those able to work. De vel op ing a sys tem of ba sic uni ver sal pen sions for old age, dis abil ity and survivorship that in ef fect sup ports whole fam i lies (ILO, 2006, p. 34) The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

16 184 Sup port for that pol icy po si tion grows. The Di rec tor Gen eral of the ILO in his re port to the ILC in 2004 an nounced that the Of fice will fur ther ex plore that sug ges tion and will ex plic itly test the fi nan cial fea si bil ity and deliver - ability of ba sic non-con trib u tory pen sions, ba sic health ser vices and ac cess to ba sic ed u ca tion (ILO, 2004b, pp ). The UK-based ini tia tive Grow up free from pov erty (2006), a co ali tion of 21 lead ing NGOs, pro motes a so cial min i mum, a so cial pack age con sist ing of a ba sic set of cash trans - fers sim i lar to the ones listed by the ILO as a cru cial tool in the com bat against pov erty in de vel op ing coun tries. This po si tion is fully en dorsed by the re cent White Pa per on de vel op ment pol icy of the UK gov ern ment (see DFID, 2006, pp ). The gov ern ments of Bel gium, France and Por tu gal have been sup port ing the ex ten sion of health se cu rity through a com bi na - tion of com mu nity-based and cen tral gov ern ment ap proaches for sev eral years through the ILO STEP pro ject. The French gov ern ment launched a health insurance initiative for developing countries during the G8 meeting in Saint Pe ters burg in 2006 and is ac tively fol low ing up on the ini tia tive. The Ger man G8 pres i dency will pro vide con ti nu ity and will make health - care in Af rica and the so cial dimension and role of social protection two of its top ics in How ever, the global so cial se cu rity floor can only be cred i bly pro moted if it can be shown that it is lo gis ti cally fea si ble and af ford able. Lo gis ti cal fea si - bil ity can eas ily be dem on strated by ex am ples of suc cess ful ben efit de liv ery at reasonable administrative cost from Botswana, Brazil, Mexico, Namibia and South Af rica. The crit i cal ques tion re mains: Can low-in come de vel op - ing coun tries af ford a ba sic so cial se cu rity floor? The fol low ing sec tions first try to es tab lish the global cost of clos ing the so cial se cu rity gap and then ana lyse the costs and po ten tial ef fects of a social security floor in Africa and Asian countries. The estimated cost of closing the social security deficit through a global social security floor The In ter na tional Fi nan cial and Ac tu ar ial Ser vice of the ILO has con ducted a small ad hoc study de signed to es ti mate the level of re sources which would need to be mo bi lized, at the global level, to close the global so cial security def i cit. The so cial se cu rity def i cit was de fined as a lack of ac cess to: child ben efits and school ing; basic pensions; ba sic so cial as sis tance for the poor in ac tive age; ad equate healthcare. In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

17 The cost of ba sic ed u ca tion is cal cu lated here as the mar ginal cost to increase ca pac ity of the school sys tem. It is a cost that is con se quen tial on the pay ment of a child ben efit that seeks to re duce child la bour and bring chil dren into school. It has to be fi nanced by school fees or gen eral rev - enues. Al ter na tively, the num ber of peo ple with a daily in come be low US$ 1.08 (1993 pur chas ing power par ity PPP), rel a tive pov erty ac cord ing to the World Bank def i ni tion (i.e. a max i mum of US$ 1.08 (1993 PPP) and one third of av er age con sump tion), or peo ple with in come un der US$ 2.15 (1993 PPP) were taken into ac count in the cal cu la tions. In or der to tar get all the very poor, one prob a bly has to reach out to the rel a tively poor in na tional cir cum - stances as few coun tries would ap ply the in ter na tional pov erty line as a cut-off point for tar geted ben efits and peo ple near the very poor line would prob a bly have to be included (particularly in healthcare). The global cal cu la tions are dis played in Ta ble 3. Ben efit-level as sump - tions are dis played in col umn 2 and other as sump tions in the as sump tions and re marks col umn. The re sults give us a global so cial se cu rity def i cit amount ing to be tween 1.2 and 1.7 per cent of GNI in 2001 for the group of the very poor only, i.e. the tar get group of Mil len nium De vel op ment Goal num ber one. Even if some of the as sump tions are con ser va tive, one would be on the safe side in stat ing that less than 2 per cent of the world s GNI would be suf fi cient to pro vide all the world s poor with ba sic so cial se cu rity ben efits. One of the rea sons for the cau tion is that the cal cu la tions as sume per fect tar get ing, which is overly op ti mis tic. The full ba sic so cial se cu rity def i cit would be higher as some of the ben efits would not be tar geted (such as uni ver sal pen sions and child ben efits/school ing and healthcare). Most of these re sources could most likely be raised na tion ally, al though some trans - fers would be needed at the global level (be tween coun tries) to help the poor est coun tries with GDP per capita close to or below the global poverty line to cope with their problems. If one were to ex tend the ba sic so cial se cu rity floor to all per sons with out ac cess to a full range of ba sic so cial se cu rity ben efits then one would prob a - bly need re sources equiv a lent to 5-6 per cent of global GDP. For com par i - son, global in vest ments in tan gi ble as sets (gross cap i tal for ma tion) were in the or der of 22 per cent of global GDP in 2001 (World Bank, 2002, ta ble 3, p. 239). Global gov ern ment con sump tion ex pen di ture was in the or der of 17 per cent and house hold con sump tion in the or der of 61 per cent. We con - sider the pro vi sion of a ba sic so cial se cu rity floor to be an in vest ment in peo - ple and that in vest ment would thus only amount to less than one third of gov ern ment ex pen di ture and around one quarter of global investments in tangible assets The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

18 Ta ble 3. Es ti mated cost of clos ing the global so cial se cu rity def i cit of the poor For US$ 1.08/day pov erty line Type of ben efit As sumed value of ben efit As sumed num ber of po ten tial re cip i ents for US$ 1.08 pov erty line (billions) As sumed num ber of po ten tial re cip i ents for rel a tive pov erty line (billions) As sumed num ber of po ten tial re cip i ents for US$ 2.15 pov erty line (billions) Cost (billions of US$) Cost (% of global GNI) In come trans fers US$ 0.45/ day = US$ 164/ year Healthcare US$ 70/year Ba sic ed u ca tion US$ 150/ year and child aged To tal ben efit cost Admin. cost As sumed 20% of ben - efit cost for de liv ery To tal cost US$ 461/ year/per son Cal cu la tion bases Base data 2001: bil lion poor (un der US$ 1.08/day); bil lion poor (un der US$ 2.15/day); bil lion poor (un der rel a tive pov erty line = max US$ 1.08/day, x mean con sump tion). Global GDP 2001: US$ 31.5 bil lion (in 2001, US$ 1 = 1.10 approx.). The key ques tion that re mains to be an swered is: Can de vel op ing coun - tries fi nance the clo sure of the so cial se cu rity def i cit? To tal of fi cial de vel op - ment as sis tance at pres ent amounts to only about US$ 70 bil lion a year (net dis burse ments); the cost of clos ing the so cial se cu rity def i cit for the poor est is here es ti mated to be in the or der of US$ 380 bil lion an nu ally, so ob vi ously even if the in ter na tional com mu nity were able to dou ble its ef forts dur ing the com ing years to come closer to the 0.7 per cent of GDP tar get, then the bulk of the fi nanc ing would have to remain the responsibility of nation States. In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

19 For rel a tive pov erty line For US$ 2.15/day pov erty line Cost (billions of US$) Cost (% of global GNI) Cost (billions of US$) Cost (% of global GNI) As sump tions and remarks Weighted av er age of three amounts: the es ti m ated cur rent value of the av er age pov erty gap (rel a tive line) for the ac tive pop u la tion, 30% of per ca pita GDP for pen sion ers, 15% of per ca pita GDP for chil dren About dou ble the fig ure set by the mac ro eco nomic com mis sion for health, ap prox i mately equal to com bined pub lic and pri vate av er age spend ing on healthcare for the non-poor Population structure of least de vel oped coun tries; per ca pita fig ure for Sen e gal, as sum ing that none of the chil dren liv ing in ex treme pov erty are cur rently not en rolled (Note: Enrolment rate for Sen e gal for chil dren aged is 68%) Cost of the de liv ery of uni ver sal pen sions in Namibia approx. 17% Can developing countries afford to close the def i cit? It has of ten been stated that so cial pro tec tion was un af ford able for lowincome coun tries, yet this judge ment does not hold. Ex am ples from a num - ber of coun tries show that ba sic so cial pro tec tion pro grammes are fea si ble and have a marked ef fect on the re duc tion of pov erty. Re cent ILO mod el ling stud ies have dem on strated that ba sic so cial pro tec tion ben efits are not out of the reach of low-in come coun tries in sub-sa ha ran Af rica and Asia, even though some in ter na tional as sis tance would be nec es sary for a tran si tional pe riod (see Pal et al., 2005; Mizunoya et al., 2006). Seven Af ri can coun tries (namely Burkina Faso, Cam er oon, Ethi o pia, Guinea, Kenya, Sen e gal and the United Re pub lic of Tan za nia) and five Asian coun tries (Ban gla desh, India, Nepal, Pakistan and Viet Nam) were included The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

20 Figure 7. Expenditure on basic social protection benefit package for 12 low-income countries, (percentage of GDP) % of GDP Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Utd. Rep. of Tanzania Asia Africa Source: ILO calculations. A complete basic social protection package was assessed, including a uni ver sal old-age and dis abil ity pen sion, uni ver sal ac cess to ba sic health - care and a uni ver sal child ben efit. A mod est ap proach was used to cal cu late the costs of pro vid ing a ba sic ben efit pack age based on coun try-spe cific data. The main as sump tions for this sce nario are as fol lows: real GDP growth as sumed as work ing-age pop u la tion growth plus 1 per - centage point; pro jected lev els of to tal gov ern ment ex pen di ture to in crease by 50 per cent of their cur rent level by the year 2034, with a max i mum of 30 per cent of GDP; $ gov ern ment rev enue (ex clud ing grants) as sumed to reach the pro jected ex pen di ture level by 2014 in or der to reach a bal anced bud get; In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/ The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion

21 Figure 8. Cost of basic social protection benefit package as estimated share of total government revenues, % of total cost Bangladesh India Nepal Pakistan Viet Nam Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Utd. Rep. of Tanzania Asia Africa uni ver sal pen sion ben efit at 30 per cent of GDP per ca pita (capped at US$ 1 (PPP) a day in dexed with in fla tion) for all those 65 years of age and above, and peo ple with dis abil i ties (i.e. 1 per cent of work ing-age pop u la - tion); ba sic healthcare costs based on ra tio of 300 med i cal staff to 100,000 pop u - la tion; med i cal staff wages in dexed in line with half of pro duc tiv ity and inflation; non-staff over head costs of 67 per cent of staff costs; child ben efit at 15 per cent of GDP per ca pita (capped at US$ 1 (PPP) a day in dexed with in fla tion) be ing pro vided to all or phans in the age bracket 0-14; administration costs of delivering cash ben efits equal to 15 per cent of ben efit ex pen di ture (un changed from base case) The au thor(s) Jour nal com pi la tion 2007 In ter na tional So cial Se cu rity As so ci a tion In ter na tional So cial Se cu rity Re view, Vol. 60, 2-3/2007 Pub lished by Blackwell Pub lish ing Ltd, 9600 Garsington Road, Ox ford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA