Growth Promoting Social Safety Nets

Harold AldermanSocial Protection Advisor

Africa Region

World Bank

Core Messages Social safety nets or social protection programs, are

ubiquitous in developed countries and are becoming common in developing countries

They are motivated by both equity and efficiency concerns and a desire to assist the least well-off members of society.

Additionally, such programs offset credit and insurance market failures. Thus, in addition to an intrinsic value of these transfers in creating a fair society, social protection programs have a role in promoting economic growth.

Safety Nets Create Public and Private Assets

Conditional Transfers These encourage schooling and health. Example:

Enrollment increased 22 percentage points in Nicaragua

Public WorksIf well designed these can improve infrastructure.

Example: Ethiopia focused on community capacity for design

Private SavingsEven low income households make small investments

from transfers. Example: Mexico

Safety Nets Protect Private Assets

Shocks can directly destroy assets, for example when livestock are lost

Shocks may also lead to asset sales when livelihoods no longer support minimum consumption

Faced with income shocks households invest less in schooling or health. The consequences for the next generation can be irreversible

Example: Drought in Zimbabwe lead to stunting and reduced schooling amounting to 14% loss of lifetime earnings

Safety Nets Permit Improved Resource Allocation

Poor households often adopt low risk livelihood strategies that also have low yields. They may also be reluctant to adopt new technology.

Similarly, a household may not take up credit even when it is available due to a fear that they may be unable to repay.

Studies in India and Tanzania indicate that such understandable behavior may cost households 25-50 percent of farm profits.

Safety Nets Permit Policy Reforms

Economic reforms that promote growth overall often incur costs of adjustment for some individuals

Safety nets can promote political acceptance of new policies by offsetting some of these costs

Example: Mexico introduced transfers to small farms when adopting freer trade. The program also led to increased production by serving as a source of cash for inputs and as a form of insurance

Safety Nets Reduce Inequality

A range of targeting approaches, using income proxies, detailed mapping and community transparency, assist in getting transfers to the poor.

This reduces inequality. Furthermore, while economists debate the point, many feel that reduced inequality promotes overall economic growth by enhancing social cohesion.

Concluding Points Community involvement – in project planning as

well as targeting – can increase growth impact The circumstances where conditionality is most

effective will be discussed shortly, but the overall value of linking transfers to health, education and child services is clear

The very poor often do not purchase insurance even when it is offered; some form of subsidies may be appropriate

Also local governments and farmer’s organizations may insure for timely response to shocks..