Social Protection of the Rural Population:The need to think outside the box

Robert Holzmann, World Bank

ISSA General Assembly, Beijing 2004ILO Session, Wed., Sept. 15, 2004

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Background and main ConclusionsSocial Protection for the rural area is a challenge: High coverage can be achieved, but essentially only at high fiscal costs which poorer countries typically can not afford69% of population in low-income countries (> USD 735) and 51% in low-middle income countries (> USD 2,935) live in rural areaLow and low-middle income countries constitute 40% and 39% of the population, respectively

Special challenges for rural population in LICs include:Natural forces and agricultural events/risks are more importantTraditional “social” contingencies receive low priorities (except health)Upstream measures of prevention crucial (e.g. non-agricultural employment)Attention on four risk management instruments: basic health, social pension, public works, and conditional cash transfersSocial funds and CCD – important processes to provide social servicesSocial insurance-type programs can be effective but are often not efficient

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Selected Underpinnings of Statements: Structure

Social protection and the role of risk management in developmentSocial protection in the rural contextIncome support for the elderly: Role and limits of social pensionsThe role and limits of social security organizations in the extension of coverage

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SP and the Role of Risk Management in Development

Its is increasingly understood that assisting individuals, households and communities in dealing with diverse forms of risks is crucial for accelerated poverty reduction and sustainable economic and human development

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Risk and Poverty

Time

Income

Poverty line

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Risk and Poverty

Time

Income

Poverty line

Shock

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Risk and Poverty

Time

Income

Poverty line

Shock 1 Shock 2

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Risk and Extreme Poverty

Time

Income

Poverty line

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Risk and Extreme Poverty

Time

Income

Poverty line

Shock

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Education Stock Development

Age

Education

0 %

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Education Stock Development

Age

Education

0 %

Shock 1

12

Education Stock Development

Age

Education

0 %

Shock 2

Shock 1

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Social Risk Management FrameworkBasic ThrustsThe poor are typically most exposed to diverse risks (natural and man-made)The poor have the fewest instruments to deal with these risks

The poor are the most vulnerable as shocks have strongest welfare consequences

The high vulnerability makes them risk averse and thus unable or unwilling to engage in higher risk/high return activities

A reduction in vulnerability is thus both an end and a means of development

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SRM leads from Intervention-based Definition of Social Protection …

Labor Market InterventionsLM regulation

LM programs (active/passive)Wage setting

Social SecuritySocial Insurance

9 contingencies a la ILO

Social Safety Nets/Social Assistance

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… to Objective/Risk-based Definition of Social Protection

Social Protection is defined as public strategies, policies, and programs that

(i) assist individuals, households, and communities better manage risk, and

(ii)provide support to the critically vulnerable

Other objectives consistent with the approach is the achievement “solidarity” in a society and a human rights based approach

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Social Protection in the Rural ContextThere is a difference between urban and rural population with regard to risk and vulnerabilityThe identified drivers for the vulnerability to poverty suggest other than traditional instrumentsThe crucial position of agricultural production reflected in the importance of two instruments

Food security, as public instrument, is gradually replaced by improvement of transport and marketsRural-rural migration as private instrument is much more important than rural-urban or South-North migration (example: East Asia crisis of 1997 and 1998)

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Annex Table 1: Incidence of Report Shocks in Guatemala, 2001 (in percentages) Type of Shock Rural Urban Total Earthquake 0.8 0.6 0.8 Drought 9.7 4.4 7.6 Flood 2.7 2.6 2.7 Tempest 4.6 2.9 3.9 Hurricane 2.5 1.0 1.9 Epidemic 23.1 13.9 19.6 Landslide 1.9 1.4 1.7 Forest Fire 1.2 1.3 1.2 Enterprise Closure 0.7 1.2 0.9 Mass Layoff 0.6 1.5 1.0 Public Protest 0.6 1.7 1.0 Other Covariate 0.7 1.2 0.9 Job Loss 3.6 15.4 8.2 Income Drop 5.7 17.0 10.0 Bankruptcy 1.1 2.8 1.7 Accident to Breadwinner 9.6 9.2 9.4 Death of Breadwinner 0.9 1.9 1.3 Death of Other 1.3 2.2 1.6 Abandonment by Breadwinner 0.7 1.2 0.9 Fire 0.4 0.0 0.2 Criminal Offense 1.7 4.9 2.9 Land Dispute 0.9 1.3 1.1 Family Dispute 1.0 1.1 1.0 Loss of Remittances 0.6 1.6 1.0 Terms of Trade Loss 4.4 4.7 4.5 Loss of Harvest 24.5 5.4 17.1 Other Idiosyncrasy 0.4 1.0 0.6

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Identified Drivers for the Vulnerability to Poverty

Risk and Vulnerability Assessments, as new analytical instruments in client countries (over 25 en route or done)Recent Kenya study identifies 5 main drivers:

Exposure to malariaLevel of access to non-agricultural activitiesLevel of fertilizer useLevel of literacyAccess to market outlets such as the existence of feeder roads

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Key Social Protection InstrumentsPublic Works Programs to stabilize income and poverty

The value of infrastructure to reduce vulnerabilityRisk diversification (supplementing cash crop) and risk taking (iff credible as available and implemented)Unemployment benefit scheme for highly informalized economies

Conditional Cash Transfers (CCT)Transfers to poor families contingent on certain behaviour (such as school attendance or health facility visit if children)Successful design and implementation in Mexico and Brazil (and under consideration in many other countries)

Creation of Employment in Rural AreasMost effective upstream/preventive measureCrucial to supportive productivity growth in agricultural production

Role of Risk Mitigating Instruments limited (health and pensions)

Issues of risk pooling (financing) and service supply (health)Difference in demand: high for health, low for pension products

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Income support for the elderly …Reduced importance of family-based arrangements due to globalization, urbanization, falling fertility rates, and HIV/AIDsCoverage extension more difficult than envisaged (ISSA, Stockholm 2001)Good reasons why demand for formal and mandated pensions among rural population limited

Many other risks that are more pressingLow credibility of public and private institutionsLow demand for annuity-type products if insurance market of other risks is incomplete

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…Role and limits of social pensionsIncreasing interest in and support of non-contributory pensions by NGOs, academia and international organizations (UN, ILO, WB)

Central question for LICs: Poverty and vulnerability status of elderly compared to other groups to determine trade-off

First empirical investigations in 15 AfricanSupport request to explore the contribution of NCP to poverty reduction and socio-economic developmentDo not support unconditional demand for implementation in all LICsCosts for benefits of 70% of poverty threshold at age 60 range from more than 1% to more than 3% of GDP2% of GDP in LICs is some 15% of tax revenue, and about 5-10 times the expenditure on social assistance for all other groups

Future work – design and implementation issues, such as how to distribute small amounts of money to thinly populated rural areas where the age of the beneficiaries cannot be established

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The role and limits of social security organizations in the extension of coverage

Rural population will continue to depend on government for provision and regulation of social protection services

Role of traditional (and centralized) public sector channels low compared to community driven approaches such as social funds (as government agencies), user associations, mutualities, and NGOsImportance of regulation and co-financing is potentially high

Role of traditional and employment-linked social security organizations is likely to remain limited for foreseeable futureExisting social insurance institutions (in rural area) can contribute to coverage extension, but only at the margin

Earnings-related old-age benefits have low priority, compared to access to basic health careDisability benefits are conjectured to have high demand, but supply has failed to materialize

There are encouraging signs that social protection is receiving more attention in the developing debate during the Poverty Reduction Strategy Paper (PRSP) process