Assessing the Pros and Cons of Social Protection from Three Perspectives: Welfare, Political and Economic

In January 2017, the Oxfam reported that eight men have an aggregate wealth equivalent to the assets of 3.6 billion people who constitute the poorest half of the world. Out of 10, one survives on less than US $2 a day. These figures from Oxfam prove the deepening problem of inequality across the globe. The rich wields growing power and influence in a way that has further limited social mobility. From what could be an ideal of improved living conditions, more are bearing the brunt of poverty made more complicated by high inflation, lack of employment and income opportunities, and a rapidly aging population.

Yet pursuing social protection requires not just compassion and sympathy; it demands foresight, a proactive approach, and a better understanding of issues on the ground. In rich economies, people would argue that social protection, while ought to be responsive to the needs of the poor and vulnerable, should not lose sight of the rest of the population. It also has to be dynamic in the administration of resources to ensure that benefits from the use of the same does not exclude those on whose taxes government survives. In the same way that social protection facilitates and promotes social and economic well-being, it could also fall like a Sword of Damocles when carried out with a narrow view of development.

Understanding social protection requires an appreciation of differing views from at least three perspectives: welfare, economic, and political. These are perspectives through which social protection schemes are designed and operationalized, and continued to be adopted in the midst of growing disparity between the rich and the poor. World Bank’s definition encapsulates the essence of social protection: “Social protection and labor systems help the poor and vulnerable cope with crises and shocks, find jobs, invest in the health and education of their children, and protect the aging population.” In a greater sense, social protection is an investment on human resource. It is in part a fulfillment of the social contract that the government holds with the people. But whether social protection is to be embraced as a universal right, thus grants everyone the same access and benefits, is a contentious issue that pulls the breaks on efforts to pursue an institutionalized way of giving more.

3 Major Categories of Social Protection

To have a better grasp of the pros and cons of social protection, it is essential to have a quick rundown of the different types of social protection. They are varied and are clustered into three major categories: (a) social insurance, (b) social assistance, and (c) labor market programs.

Under the first category of social insurance are health insurance, pension schemes, and unemployment insurance. Social insurance tends to be contributory — it requires one to be employed, and oftentimes factors in a cost-sharing mechanism (the employer contributes towards the pension funds of the employee based on a certain percentage of the employee’s income). The downside to this is the requirement of employment. For those in the informal sector, there is low possibility of benefits from a cost-sharing mechanism. Singapore’s Central Provident Fund (CPF) is a good example of social insurance. The CPF requires mandatory savings under three different categories that enable Singaporeans to later apply accrued benefits for medical, educational, housing, or retirement purposes. Hong Kong also has a similar social insurance scheme known as the Mandatory Provident Fund (MPF); but unlike Singapore’s MPF, the CPF is less comprehensive and could likely benefit only roughly 15 per cent of Hong Kong people in the long run. The CPF’s income-based contribution is capped, proves insufficient by retirement age for majority of the Hong Kong people, and does not show ROI potential at a return of roughly 2 per cent. Perhaps making up for the CPF’s inadequacy is Hong Kong’s generous public healthcare system, which oversubscription makes services inefficient due to long waiting time. For the unemployment insurance, as in the case of South Korea, employees who lose their jobs due to involuntary circumstances are entitled to government subsidy computed based on a certain percentage of their income. The amount is enough to get by and is deemed temporary until a specified period of time when one has to gain new employment.

For the second category of social assistance, social protection comes in transfers, either from government to recipient or from private organizations, civil society or charitable institutions to recipients. Common forms of transfers come in four types: conditional (where the use and purpose for the amount given are set, i.e. amount be used specifically for food and school supplies for children going to school), unconditional (where, provided qualified, amount used is left to the discretion of the beneficiary), in-kind (what is given in lieu of cash are basic essential items, i.e. rice, food vouchers), and price subsidies (direct deduction from receipts or bills, such as for medical care, food, utilities).

The third category of public works involves infrastructure development (i.e. highways, bridges, government buildings) that pumps up employment demand, particularly for low-skilled workers. Albeit periodic or short-term, government intervention through public works fill in the gap in the labor market. These labor-intensive opportunities provide minimum wages that gradually ease up pressures from unemployment and poverty, and help economic activities among the poor pick up.

Examining Pros and Cons 

In operationalizing social protection, the World Bank proposes a multi-pillar approach characterized by a combination of informal transfers, voluntary savings, mandatory risk-pooling, and non-contributory schemes. The Asian Development Bank noted though that in social protection, majority of the beneficiaries are those who are employed; the poor, the unemployed and those in the informal labor sectors continue to be a minority. One of the reasons given was how social protection in most countries, particularly health insurance and pension schemes, are still heavily contributory. This means, unless you met the minimum income either through employment or private enterprise, there are slim chances you are enrolled in either a health insurance or a pension fund program.

The debate in rolling out social protection then gravitates towards four questions: (1) Should promoting the well-being of citizens override economic considerations? (2) Should it be a state function or an individual responsibility? (3) Should it be universal or selective and conditional? And, (4) Should it be free or contributory?

Answering these questions would then require an assessment of the pros and cons of social protection. As mentioned earlier, there are three perspectives through which the assessment can be made: (a) welfare perspective, (b) economic perspective, and (c) political perspective. As much as policy makers and economists support the concept of social protection, they also express reservation over its scope and coverage, and how it is designed and delivered.

Welfare Perspective

A broader concept of the provision of social protection that promotes the welfare and well-being of citizens is an item contained in any country’s constitution and national legislations. This reinforces the Universal Declaration of Human Rights championed by the United Nations. Similarly, an enabling environment made possible by social protection is a commitment that United Nations-member countries have subscribed to.

Viewing social protection from a welfare perspective is hinged on the non-negotiability of the need for countries to create socially just societies. This is reflected in every political platform to alleviate, if not eradicate, poverty. The welfare perspective then demands on government to look after the needs of the most vulnerable (poor, elderly, children, women), facilitate their integration into the society, empower and decide with at least minimum economic autonomy, and provide programs that keep them healthy and productive. Forward-looking, the International Labor Organization’s Minimum Standard Convention of 1952 has in fact bound countries to an arrangement where their respective working populations are afforded a certain amount of income, in case of involuntary loss of earnings. But even as the Convention’s objectives are noble and presumably binding, the extent to which governments are able to fulfill this (in the same way as South Korea, Japan, Australia and the Nordic countries) and the impetus behind doing so differ in many ways.

The income support function of social protection from a welfare perspective minimizes disruptions in the economic activities of people. It prevents them from resorting to counterproductive practices, such as pulling children out of schools, delaying health and medical care, and running to loan sharks. In the event of shocks that are outside ordinary people’s control, such as an economic slump or currency devaluation (as the one that hit East Asia in the 90s), people continue to be motivated to work harder and find value in employment, as the income support function of social protection tides them over without significant and drastic changes to their lifestyle. For those in developing countries with high poverty indexes, social protection, in the form of social assistance (i.e. cash transfers) plays a catalytic function in that it allocates minimal capitalization to shoulder certain basic household expenses.

Because social protection from a welfare perspective is redistributive in nature, it is helps achieve social justice. It may not completely bridge the gap, but it fills in for what in terms of market opportunities the poor are unable to avail of. Financing social protection from a welfare perspective puts in motion the trickle-down effect — high incomes and wealth are cascaded to the lower strata of society through programs in education, child benefits, nutrition, healthcare, and skills training and capacity-building, among others.

Although the prospects of getting a good life with the aid of social protection are promising, there is also a downside to social protection. Development workers point to the urban-rural disparity. Those that reach the rural areas are contingent on road accessibility. Delivery of social protection programs tend to be concentrated in the urban areas. For example, the number of health centers and health workers is limited, and they are oftentimes situated in town centers. This does not address access issues among those in hinterland communities who, on top of worrying where to source resources for their daily expenses, would now have to look for means of transportation.

Seemingly inherent in some social protection schemes are gender bias and racial discrimination. In highly patriarchal countries, men enjoy better employment and pay. Women remain trapped in a traditional set-up that assumes their role as housewives. In the context of social insurance, this puts women at a disadvantage. Women are unable to set aside enough or are hardly able to be part of insurance schemes due to low or absence of requirement employment. This takes away from them the same economic autonomy afforded men — more a burden that women carry when they become bread winners or single mothers. The matter of social protection specific to racial minority is also hotly contested. While the pressures of adjustment, acculturation and availing of equal income opportunities are heavy on racial minorities, those who constitute the majority culture — from whose taxes social protection for minorities are utilized — bewail unfairness. Thus, while social protection aims for inclusiveness, it could also potentially create, if not exacerbate, marginalization.

Political Perspective

In modern society, social protection is accepted as a political instrument, a means for government leaders to achieve their goals by winning public support through programs that strike a chord with the people. A classic example of the political influence of social protection is the use of social insurance by the late Chancellor Otto von Bismarck in Germany in between the late 18th and early 19th century. He was the first to use old-age insurance, primarily as a political instrument to outmaneuver the Social Democratic party which was soliciting votes from industrial workers. His proposal, albeit liberal and non-conventional at that time, resonated across Germany that the term “state socialism” (which was coined by an opposition but was later adopted by Bismarck) became a byword.

In legislation or policy formulation, social protection also brings to the consciousness of key players concerns that in capitalist markets have played a secondary role to the need for more economic initiatives that attract more trade and investments. Social protection has also become a mainstay in political agenda, given birth in various forms — from the National Health Insurance in Taiwan and the United Kingdom to the Patient Protection and Affordable Care Act (Obamacare) in the United States to the New Rural Cooperative Medical Care System in China, to name a few. These are products of community-driven demands escalated to the consciousness of policymakers, put to test by socio-political and socio-economic events, and refined over the years. Interestingly, social protection in itself is also used as a leverage by the poor with government. It can be a bargaining tool as in the case in Taiwan during the reelection bid of then president Ma Ying-jeou on his take on the labor and farmer’s insurance. Then president Ma proposed that the amount be reduced after questioning its sustainability and fearing that Taiwan would suffer economically with its continuation. But the farmers, who had a powerful voice and comprised a critical voting bloc, protested. Giving in to demands, president Ma conceded.He won reelection, and only instituted the necessary reforms to the same insurance during his second term.

Clear though from the depiction of the political perspective of social protection is how social protection can be an equalizer in the debate between which should hold priority: economic development or social development. Although development aid agencies would argue that one ideally complements the other, the percentage of allocation across the globe for social protection and social welfare spending against GPD remains low and disproportionate. In the case of the rich global city of Hong Kong, social welfare spending is at a measly 5 per cent of its GPD.

On the reverse of social protection being a political tool is its equally high susceptibility to abuse. Social protection can be capitalized on by politicians as a means to bolster rhetoric, stay on in power, advance selfish and party interests, and manipulate the system away from fair play. Social assistance, as in the case of conditional cash transfers, could easily be misconstrued and marketed for a “personal” act of kindness or generosity. In democracies that are highly personalistic, the public would tend to consider social protection as a debt of gratitude entitled the political (person) than the government (institution). This culture opens up space for predatory tactics among politicians, using the same social protection as a form of control over people. Consequently, the same also legitimizes interest group politics lobbying, which, as in the case of the Philippines, have found to be anomalous. Approved in the budgets of bicameral representatives, funds intended for Filipino farmers and poor constituencies were siphoned off by politicians and their culprits by channeling them through non-government organizations which, while accredited, ran bogus operations and questionable transactions.

Economic Perspective

The Asian Development Bank has clustered the social protection spending across income groups in 35 countries. These four are the following with their corresponding spending against GPD: (a) high-income countries — 10.2 per cent; (b) upper middle-income countries — 4.0 per cent; lower middle-income —3.4 per cent; and low-income 2.6 per cent. Divided into regions, geographical distribution of social social spending is as follows: East Asia — 24 per cent; Central and West Asia — 15 per cent; Southeast Asia — 9 per cent; Pacific Islands — 7 per cent; and South Asia — 6 per cent. The figures put together by the Asian Development Bank indicate a seeming direct proportionality of social protection spending to the income level or poverty concentration of countries. Where GDP is low, social protection spending is likely low, too. Add to that the striking findings that of the total social protection beneficiaries, 83 per cent are actually “non-poor” — meaning even in the framework of social protection, specifically social insurance, disparity reins high as the employed and the middle class are easy beneficiaries.

Renowned social scientist Richard Titmuss staunchly advocated for how social protection programs should be redesigned to redistribute wealth and resources. Titmuss  was critical of restrictive conventional social protection programs. And over the years, countries have gone along the lines of Titmuss, albeit not in full. Many share in his view that at the core of social protection programs should be the spirit of altruism and the genuine intent to foster equality and social solidarity. But while rich countries have managed to redistribute wealth through generous subsidies for healthcare, as in the case of Canada, United Kingdom, Taiwan and Japan, those in the developed world remain struggling over issues related to financing.

Social protection infuses hope to the poor. It empowers them and makes them feel that government is equally concerned about them, and thus, they are as much part of the society as the rest are. This drives them to be more supportive and cooperative with government, and pursue initiatives that improve their living conditions and at the same time promote social well-being. As well, social protection lifts the burden off on the poor to fulfill certain responsibilities (i.e. finding the means to put their children to school, putting food on the table) and instead focus more on other aspects of family and social life (i.e. starting a small business through micro-financing, having more resources to set aside for asset accumulation, higher productivity in the workplace). Social protection also prevents the poor from disposing of assets that are essential in the build-up of intergenerational social mobility, and reactivates their participation in the economic cycle of production-consumption.

An impediment to social protection is how it could breed chronic dependency and complacency. When the system makes it convenient and easy for those who are physically able to receive benefits that help them achieve minimum standard of living, they could potentially lose momentum to find work and work harder. This creates unfair conditions for the rest of the population, especially the working class whose taxes are utilized by government in its redistributive programs. Likewise, social protection could discourage savings. Beneficiaries may lose the ability to see beyond their present conditions and prepare for the future. They may fail to factor in conditions and externalities that may be beyond their control. On the part of government, and even to the other sources of social protection financing (such as the private sector, non-government organizations, charitable and religious organizations), when the design is curative rather than developmental, social protection could be a very expensive social contract fulfillment. Failure to foresee implications of inflation, abrupt changes in foreign trade and investment policies, and regional security concerns may result to government going bankrupt.

On the whole, social protection is necessary in bridging the gap between the rich and the poor. Not all governments may have the means to finance comprehensive social protection programs, but every government ought to provide mechanisms that ensure an enabling environment for the poor and vulnerable. The concerns on resource allocation for social protection as being unfair and possibly breeding complacency can be allayed when social protection is carried out alongside equitable programs that reflect equal concern for the welfare and well-being of those in the upper strata of society. Without necessarily transferring the burden from government, trisector partnership is key in the design, financing, and implementation of social protection programs.

(Term essay submitted as a requirement in the class ‘Social Protection Arrangements’ under the MPPG program, The Education University of Hong Kong. E-mail for list of references.) 

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