Growth, inequality and social protection: The missing links

Issues related to social protection are becoming very crucial in the aftermath of the global financial crises, but also in the growing inequality in the developing world. Indeed there is a growing consciousness of the importance of social benefits as a measure to protect people from becoming trapped in poverty, to empower them to seize opportunities, to help workers adjust to changes, to deal with unemployment. The importance of social policies and social protection systems that address inequality for long term sustainability and inclusive growth should be taken into consideration when thinking about development policy.

The 14th Global Development Network’s Annual Conference on ‘Inequality, social protection, and inclusive growth’ is taking place in Manila, the Philippines from June19-22nd 2013 in partnership with Asian Development Bank (ADB), East Asian Development Network (EADN) and The Philippines Institute fro Development Studies (PIDS). The opening plenary session, a policy roundtable discussion, set the tone for what will be discussed over the next three days of the conference regarding the overall nexus between inequality, social protection and inclusive growth.

While social protection holds a lot of promise, it faces significant challenges of sustainability. Despite increasing growth, social inequality and unemployment is on the rise. Countries might be doing very well in terms of their fast escalating growth rates, however social inclusion schemes is by far overlooked. Although recent trends and inequality vary substantially among various regions, the speakers from the session agrees that  poverty and inequality levels are decreasing in in Africa, Asia and Latin America. Yet sustainable path for social development is still questionable. Santiago Levy, Vice President for Sectors and Knowledge, Inter-American Development Bank (IADB), in his paper ‘Latin America’s Social Policy Challenge: Education, Social Insurance, Redistribution‘ argues that some of the social programs in LAC has pioneered and have been by large very effective in reducing poverty and inequality, however sustainable growth cannot be expected to thrive where social protections program are progressing and human capital productivity is stagnant. As we move ahead, it is difficult to sustain quality social programs that are not based on a coherent set of incentives that generates savings, productivity and a consistent growth pace. Levy claims that the missing link is productivity.

Despite the global economic crisis Africa’s robust growth has since continued. Many reasons contributed to the continued growth in Africa, amongst which enhancement in commodity prices, improved macroeconomic situation, improved access to jobs and microeconomic reforms. Ernest Aryeetey, GDN board of Director and Vice Chancellor, University of Ghana argues that Africa is growing fastest than historically known before, yet it has not overcome poverty and inequality challenges. Despite Africa’s high growth rates, it still suffers high illiteracy and poverty levels, disease prevalence, and high child and infant mortality. Inequality seems to persists in terms of income distribution, access to education and health services, and access to job opportunities.

“Explosion of growth is not reaching the poor. There is not enough employment but is not transferring the African Economy” (Steve Kayizzi-Mugerwa, Director of Development Research, African Development Bank AfDB)

Asian experience is not very different from Africa and Latin America, Changyong Rhee, Chief economist of Asian Development Bank ADB, explains that rising inequality is one of the most debatable policy issues in Asia. Even though Asia experience high growth rates, education disparity is increasing, contributing to rising social tension. This gives policy makers in Asia on one more thing to consider.

There is a great challenge that the explosion of growth in developing countries is not reaching the poor, and it is not sufficient to reduce poverty ultimately, but also the sector where development is happening might not be the sector where reducing poverty is required, and not transforming the relevant economies. Social protection schemes need a different architecture to be address today’s shortcoming and challenges.

Changyong Rhee, Chief economist of Asian Development Bank ADB “About 25% to 30% of the rise of inequality is linked to educational disparity in Asia”

Why should we care?
Social protection schemes can support the achievement of poverty reduction; raising income inequality in the short run allow people to build their assets; this will then accelerate growth with positive spillovers at the community level. Promoting inclusive growth via social protection policies can also help in political stability in developing countries, though local governments need to pay more attention to the mechanisms and the channels through which social protection and social policy affect the most vulnerable poor in developing countries and countries in transition.

But is this progress sustainable? If a small fraction of the population is the one who enjoy all the benefits, then it is believed that the situation is not sustainable. The people of North Africa have come out in the Arab Spring; it might become the Sub-Saharan spring  one of these days. The burden lies on policy makers, not just researchers, to steer the political economy towards inclusion at the political, social and economic levels.

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One Response to Growth, inequality and social protection: The missing links

  1. Click here says:

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