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Chapter 2 The 2010 <strong>European</strong> <strong>Report</strong> on Development households <strong>for</strong>go profitable high-return opportunities. Profitable specialisation is avoided in favour of safer crops, assets or technology. 142 These choices result not only in higher poverty - they also reduce efficiency in the economy, caused by failing insurance markets. For example, fear of not being able to pay back fertiliser credit due to crop risk has been shown to result in lower fertiliser adoption and lower returns in cereal production in Ethiopia. 143 The dependence on mutual support systems to cope with shocks also involves costs, possibly leading to clientilism and patronage relationships - undermining the local economy. 144 In general, in high-risk environments with limited <strong>protection</strong>, innovation and investment are stifled, reducing growth. 145 2.2 SOCIAL PROTECTION: INSTRUMENTS AND FUNCTIONS Social <strong>protection</strong> is one of the tools to combat the persistence of poverty and vulnerability. In this <strong>Report</strong>, it is defined as the specific set of public actions to address the vulnerability of people’s life through <strong>social</strong> insurance, offering <strong>protection</strong> against risk and adversity throughout life; through <strong>social</strong> assistance, offering payments to support and enable the poor; and through inclusion ef<strong>for</strong>ts, enhancing the ability of the marginalised to obtain <strong>social</strong> insurance and assistance. Following Drèze and Sen 146 , the focus here is on public actions, those of the state at national or local level, as well as those of others, such as non-governmental organisations or civil society organisations, working collaboratively or even adversarially alongside the state. The focus is nevertheless implicitly on the state, because it has a central role in achieving <strong>social</strong> <strong>protection</strong>. This does not mean that the government should be the sole agent <strong>for</strong> implementing policies or that the instruments used to achieve should all be confined to government programmes and interventions - far from it. The private sector, micro-insurance institutions and community-based insurance networks could improve <strong>social</strong> <strong>protection</strong>. But well-known market failures in insurance provision limit the role of private insurance markets. And problems of collective action and the scale requirements <strong>for</strong> efficient risk-sharing mean that, <strong>for</strong> many risks, micro-insurance or community-based mechanisms may not be effective, and government is likely to be essential. This will be the case <strong>for</strong> covariate or catastrophic risks. Furthermore, as adverse selection means that markets may exclude some of the most vulnerable and poor, an active <strong>social</strong> <strong>protection</strong> policy will be essential <strong>for</strong> their inclusion. One of the key concerns is to balance the state, private and more in<strong>for</strong>mal or community-based mechanisms <strong>for</strong> <strong>social</strong> <strong>protection</strong>. The definition of <strong>social</strong> <strong>protection</strong> focuses on three closely interlinked means of achieving <strong>social</strong> <strong>protection</strong>: <strong>social</strong> insurance, <strong>social</strong> assistance and <strong>social</strong> inclusion ef<strong>for</strong>ts. Box 2.1 below lays out examples of the range of different <strong>social</strong> <strong>protection</strong> instruments according to whether they fulfil an assistance, an insurance or an ‘access’ role. These functions may of course overlap, and many <strong>social</strong> <strong>protection</strong> interventions aim to achieve more than one objective. Box 2.1: Examples of <strong>social</strong> <strong>protection</strong> instruments, by function Social insurance • Contributory pension schemes • Health insurance • Unemployment insurance • Disability insurance • Work injury insurance. Social assistance • Child support grants • School feeding programmes • Public works/workfare programmes/employment guarantee schemes • Cash transfer programmes/income guarantee schemes • Emergency relief • Social pensions and other old age benefits. 142 Barrett and Carter 2006; Dercon 2004. 143 Dercon and Christiaensen 2010. 144 Fafchamps 2004; Dercon 2004. 145 World Bank 2006, chapter 5. 146 Drèze and Sen 1988. 33
The 2010 <strong>European</strong> <strong>Report</strong> on Development Social <strong>protection</strong> to fight persistent poverty and vulnerability Ef<strong>for</strong>ts to improve access to <strong>social</strong> <strong>protection</strong> • Labour market and work place regulation • Rights based entitlements to income, work and other <strong>for</strong>ms <strong>social</strong> <strong>protection</strong> • Affirmative action or universal coverage arrangements • Awareness campaigns • Regulatory frameworks or support <strong>for</strong> private or community-based insurance provision. 2.2.1 SOCIAL INSURANCE Offering <strong>protection</strong> through <strong>social</strong> insurance is one of the most classic roles of <strong>social</strong> <strong>protection</strong>: helping people cope with adverse shocks and events. The transfers are contingent on certain events or triggers. They usually have a contributory element, not unlike premium payments as in insurance, 147 though this may be subsidised or at times even waived, with resources supplemented by public or other resources. 148 Pension schemes and contributory health and unemployment insurance schemes are common examples. The importance of <strong>social</strong> insurance is clear from the discussion in the previous section: adverse shocks can trigger a vicious downward circle towards persistent poverty. For the poor, it can make them slide ever deeper into destitution; <strong>for</strong> the non-poor, it puts them at risk of poverty. Social insurance thus goes beyond standard safety nets and relief, avoiding structural and dynamic processes of poverty and destitution. Furthermore, the emphasis on <strong>social</strong> insurance rather than some generic relief or safety net is important as well: it suggests a contractual arrangement, a right and entitlement to <strong>protection</strong> from adversity. The ex-ante expectation of being entitled to be insured against risks is rein<strong>for</strong>ced by the usual contributory nature of the <strong>social</strong> insurance programmes. This feature is not only important within a right-based understanding of <strong>social</strong> <strong>protection</strong>. It is also functionally important as a mechanism to reduce the sense of insecurity that is central to vulnerability: bad things can spell ruin. This fear of bad outcomes leads to avoiding risky but potentially profitable livelihood opportunities. Providing guaranteed <strong>protection</strong> against various <strong>for</strong>ms of adversity allows the poor to take advantage of emerging opportunities, which in turn could be a key mechanism to ensure that the poor are included in growth and economic <strong>development</strong>. But <strong>for</strong> this to be credible, a clear right and entitlement has to be established. It there<strong>for</strong>e also connects to a specific institutional and political capacity of long-run commitment to protect and en<strong>for</strong>ce effectively such right and entitlement. The definition also highlights the role of <strong>social</strong> insurance across the life-cycle - at various moments in life, timely and sufficient <strong>protection</strong> against adversity is especially crucial. Specific <strong>for</strong>ms of <strong>social</strong> insurance <strong>for</strong> families with young children, such as avoiding nutritional deficiency in early childhood, has especially high returns in avoiding future poverty, with likely benefits <strong>for</strong> economic growth through the link to human capital <strong>for</strong>mation. 2.2.2 SOCIAL ASSISTANCE Protecting against further hardship is unlikely to be sufficient <strong>for</strong> many of the poor whose assets, health or human capital have reached critically low levels, so that escaping from poverty through their own ef<strong>for</strong>ts is hardly possible, and who risk remaining in persistent poverty. The second function of <strong>social</strong> <strong>protection</strong>, <strong>social</strong> assistance, aims to address this problem: by providing support <strong>for</strong> these groups, but also to enabling them to escape poverty. Social assistance encompasses all <strong>for</strong>ms of public action designed to transfer resources to groups deemed eligible due to the deprivation. It is usually financed through a government or donor budget, without prior contributions by the beneficiaries. It can be targeted through some means testing or some other identification of specific need, or provided universally within some general category, such as the elderly or children of a particular age group. It often aims to reach categories of people who could not be reached through contributory or other insurance schemes. Instruments that classically fall within <strong>social</strong> assistance are varied, ranging from school feeding programmes to public works and non-contributory (‘<strong>social</strong>’) pensions. A substantial majority of these instruments can be identified as a <strong>for</strong>m of <strong>social</strong> transfer. 147 The insurance element is understood here as “the elimination of the uncertain risk of loss <strong>for</strong> the individual or household, by combining a larger number of similarly exposed individuals or households into a common fund that makes good the loss caused to any one member” (van Ginneken 1999, p.6). 148 For wage earners, premiums can be linked to earnings, but they could also be directly collected from members. In some cases, government and the market can both support insurance as is the case of a classic tripartite contributory pension scheme (individual, government and employer). 34
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