Developing countries need safety nets
Speakers at the conference’s concluding panel agreed that the biggest challenge was how to establish social safety nets that would not break the budget. In a globalized economy, all countries need social safety nets—either formal or informal—to help those adversely affected by change, but, as IMF Economic Counsellor and Director of Research Kenneth Rogoff noted, it was important to strike a balance between insurance and efficiency.
“Throughout modern history, there has been a tension between the need for a dynamic economy that embraces change and the need to provide social safety nets and social insurance that don’t lose the benefits of a dynamic economy,” he said.
“Globalization and change are good for some and bad for others. Technological change and global growth are good overall—there will be more people who win than lose. Over time, maybe whole generations will win,” Rogoff noted. “How do you deal with the fact that changes cause some people to lose, while at the same time retaining the benefits of a dynamic economy?”
While social safety nets could sap the energy of an economy by slowing change, Rogoff argued that this was not always the case. Indeed, the lack of a good public social safety net in Japan appeared to be blocking change because politicians were worried about the rise in unemployment that would result. Social insurance could help populations embrace trade openness and technological change.
Crisis of confidence
But providing insurance coverage is not easy, particularly for developing countries. Dalmer Hoskins, Secretary General of the International Social Security Association (ISSA), which works closely with the ILO, said that social security systems in many countries faced a growing crisis of confidence. Schemes in some countries were losing ground because of declining membership; in others, corruption meant that members would not receive the full payouts to which they were entitled.
“This creates a tremendous challenge for the ILO and the ISSA,” Hoskins told the concluding session of the conference. “It means that the models we relied on in the past have to be retooled and rethought. We have to assume that our existing models are not going to protect a large number of people in the rural and informal sectors.”
The ISSA, with a membership of over 400 institutions in 145 countries, serves as an international clearinghouse for information on social security policy and helps member organizations improve administrative and policymaking capacities.
Carol Graham, Vice President and Director of the Governance Studies Program at the Brookings Institution, said it was important to ensure that the middle class was protected, and not just the poor. “A satisfied middle class is important for markets and democracy. In my view, this suggests that we need to start thinking about a social contract in these societies that really includes the middle class and that no longer focuses only on the poor through ad hoc policies, such as social funds and other kinds of safety net policies.”
New models for protection
Graham, whose research focuses on Latin America, added that effective social safety nets did not have to mean the classic model of ”universal expenditures with high levels of taxation.” Many new models were evolving based on private contributions and nongovernmental organizations. “Nonstate actors can be very effective in providing social services,” she said.
Hoskins agreed but said fitting together the different systems of social protection was going to be messy. Countries could end up with combinations of social insurance, social assistance, and some noncontributory social benefits like those Brazil and South Africa were experimenting with. “Of course, a major part of it is going to be private sector–managed insurance for health or for pensions, and some of it is going to be the old ideas of the mutual benefit societies, cooperatives, and other grassroots-based organizations,” he said.
Fitting these pieces together will also be a challenge, Hoskins added. While the ILO and the ISSA have not yet developed a comprehensive approach, a key role for international organizations in this area in coming years will be to provide benchmarks for the different schemes, so that countries can compare how they are doing.
A transcript of the conference “Making Globalization Work: Expanding the Benefits of Globalization to Working Families and the Poor” is available on the website of the Carnegie Endowment for International Peace (http://www.ceip.org/files/events/events.asp?EventID=540).