Monday, April 18, 2011
Protecting the Social Fabric
The International Labor Organization (ILO) has released a report titled Sharing Innovative Experiences. The eighteenth edition of the book gives examples of social protection programs, similar to what Social Security is for the US, that have helped to improve a developing nation's economy. The focus is on eighteen countries that have implemented policies that created retirement plans, allowed children to go to school, and families to receive adequate health care. With these programs in place, thousands of people in developing countries were able to improve their living situation and lift themselves out of poverty.
As people who read this blog know, I am a fan of Amartya Sen's Capabilities Theory. In fact, I wrote an entire thesis on it. It has been proven time and time again that raising a country's Gross Domestic Product (GDP) does not mean the people living in that country will be able to live a better life. But the Capabilities Theory puts the emphasis back on the people and what they need to live. The ILO uses this theory in their research and promotes policies that will increase people's quality of life, rather than increase a companies profit. The emphasis on Social Protection Programs is a direct result of this theory, and as I will show here, not only helps people live a better life but grows the countries economy as well.
Those living in the developing world (and are lucky enough to have a job) often do not earn enough to pay for themselves and their family's medical needs. Not to mention the ability to save for retirement or pay for their children to go to school. The ILO looks at social protection programs as a way for governments to invest in their people (sound familiar?). But in the developing world, just 1 in 10 people have some sort of retirement pension, and even less (1 in 20) are enrolled in a health care plan. Social protection programs are needed so families can focus on their current situation, and in some countries have proven to reduce poverty in half. These policies make it easier for families to obtain food, an education, and health care, which not only make it easier for families to live their lives, but builds a stronger labor force for the future.
According to the ILO, over a billion people have been helped from Social Protection programs. It has been "one of the most impacting tools to change quality of life of the poor and vulnerable," according to Francisco Simplisio head of the Division for Program and Knowledge Management at the United Nations Development Program. In an interview I conducted upon publication of the new update, Simplicio explained, "that's the key portions of experience in collecting developing countries perspectives implementing it and making it possible for implementation. That's one of the innovations of this book. And then of course it makes the case it's possible, which is the second major step."
The first example in the book comes from Argentina where there is the Universal Child Allowance (AUH). In 2002, 60 percent of Argentina's children were living in households that were recognized as below the poverty line. This program covers children 0-18 years old where families are given allowances of $46.20 per month and must prove they are in school and registered for health care services. The program is divided by two subsystems called the contributory where all formal sector workers are registered in the system; and the non-contributory subsystem comprised of retirees.
Today, 85 percent of Argentina's children are covered by AUH. To make sure the money was not being wasted, parents must sign affidavits, and letters must be signed by teachers and doctors affirming the child has been attending school and receiving treatment. Books, which are considered legal documents, are also kept by the government. Since the allowance is distributed through bank accounts, if a large amount of money is taken out at once it would be suspicious and violators risk not receiving allowances in the future and the possible facing prosecution. Nine million children and over two million retirees receive these benefits. With families receiving these allowances, they no longer have to worry about arbitrary policies that can force them to lose their home or job, and now have more certainty going into the future.
But in order to pay for these programs a combination of private and public sector investment is needed. The Director of the ILO's Economic and Labor Market Analysis Moazam Mahmood told me, "the beginning of the report says demand issues are critical as well. So you need to generate the level of aggregate demand to generate employment." Greater employment leads to more revenue and enables governments to expand their programs and cover more people. But the state still needs to lay a foundation for companies to invest in their country. "But it also has to come to from the public sector" Mahmood said "and we note the depressing statistics in terms of the production of the role of the public sector and much needed infrastructure because the report also notes the shortage of infrastructure has the potential to reduce GDP growth 2 percent a quarter."
It is not expensive to implement these policies. Less than 2 percent of global GDP is needed to provide a basic set of social security benefits to the world's poor. With over a billion people living on $1.25 a day, there is, of course, starvation. But several countries have implemented social programs that that allow families to buy food. The ILO has calculated an investment of 4 percent of the worlds GDP can reduce the food poverty rate in low income countries by 40 percent.
By investing in their people countries have been able to invest in their future. With their basic necessities in place, individuals can focus on obtaining better skills to get a better job. They are also able to work harder because they are well educated, plus physically and emotionally fit. When this is the case, multinational corporations are more willing to invest in a country because it will be easier to make a profit. And they're right. The more education a population receives the more versatile they become for companies who are willing to pay them more.
I know, all this sounds simplistic, but there is vast amounts of evidence to show these policies work. Social Protection Programs are needed in all societies, and Sharing Innovative Experiences is meant to show developing countries a way to improve their economy while at the same time improving their citizens' quality of life. There are a lot of lessons we can learn from the recession; one is that the fabric of society is delicate and it is important to protect the people in it. These programs help do that, and need to be promoted throughout the developing world.