The London School of Economics is where the welfare state was invented. Social protection is now needed more than ever, everywhere, to address rising challenges of high inequality and political upheaval. A new social contract is needed, in all countries. Higher income countries have designed their welfare states, but developing countries are now in their ‘Beveridge moment’.
These messages were how Minouche Shafik, director of the LSE, opened a one-day LSE-IMF workshop on social protection on 2nd November. It was great – inspiring – to be back in the college I attended in the mid-eighties. (My undergraduate degree started during a year-long strike of UK mineworkers; during the ‘Miners’ Strike’, we were a revolting bunch of students who, at one point, had our very own police van parked permanently outside the college awaiting our next spontaneous protest). I was attending the workshop to represent Development Pathways, along with thirty or so LSE academics, senior IMF and World Bank staff and other seasoned academics.
Minouche was referring to William Beveridge, ex-director of the LSE, and his report Social Insurance and Allied Services, which was published in 1942 and became a blueprint for social protection in the UK. Its key message was to abolish the ‘charity’ model of means-tested, philanthropic programmes for ‘the poor’ and replace them with a rights-based system where all contribute and all can access support, ‘from the cradle to the grave’. When the Beveridge Report was published, people queued around the block to buy it. It is famous now for helping secure the social contract in the UK and strengthen the post-Second World War peace (as well as helping the Labour Party win the first post-war election, by a landslide).
I turned up at the workshop ready to argue the merits of an inclusive social protection system while challenging the advocates of poverty-targeting. I was girding myself for a bit of a struggle. The names around the table were well-known, including Professor Nick Barr, from the Department of Economics, who had taught me Public Policy way back in those undergraduate days. I knew my arguments weren’t purely theoretical and that I had recent first-hand experience. Development Pathways colleagues and I have recently been working with governments in Kenya and Uganda that are increasingly supporting inclusive programmes, as are governments in other countries in Africa such as Mozambique, Zambia and Zanzibar. But among many donors and international financial institutions, support for poverty-targeting persists.
I needn’t have worried. Minouche added, in her messages, that there is a pressing need for a new social contract and that ‘universal benefits have a social logic which we economists have lost’, that universalism must be looked at as a way of building the social contract in countries around the world, and that, conversely, poverty-targeted programmes are ‘vulnerable to poor quality and lack of support’. She was saying Beveridge knew what he was doing.
So why does support for poverty-targeted programmes in developing countries remain so widespread? The argument goes that, while universalism may be the answer in the long-term, in the short-term, with tight resources, poverty-targeting is the best that can be done. The World Bank – Michal Rutkowski, Senior Director for Social Protection and Jobs, presented in the workshop – advocating ‘progressive universalism’: poverty-targeting now, universalism when it can be afforded (although there is no evidence of the Bank actually promoting this on the ground). But there is a problem with this. Programmes that take three years to develop have a habit of sticking around into the medium-term and this can detract from setting up the universal building blocks for the long-term. Also, poverty-targeted systems tend to attract less resources than universal programmes (I think of the protection of the state pension in the UK verses the various means-tested benefits getting squashed into the much-criticised new Universal Credit.) This delays support to those that need it. And, of course, most low- and middle-income countries can afford to begin implementing universal programmes now: it’s just a question of political commitment. (During my work in Kenya, I was privileged to see how quickly the government shifted from support for poverty-targeting to implementing the Inua Jamii Senior Citizens’ pension, once it had gained confidence in what it was doing).
Again, I needn’t have worried as a range of academics expressed support for universalism. Professor David Pichaud, from the Department of Social Policy, said it ticked the boxes of generating widespread political support and not reducing work incentives. And, Professor Barr said that, in supporting the South African government in developing the nation’s Child Support Grant, he and colleagues concluded that government capacity meant targeting by age was the only way forward. Effective poverty-targeting in low capacity environments has been proven to be impossible – it is hard to distinguish the poorest from the ever-so-slightly-less poor – while people’s incomes change quickly from one period to the next. (Indeed, it is hard enough in developed countries, as I knew from my years in the UK’s Department of Work and Pensions). Here I disagreed with part of Minouche’s statement. She said that the efficiency of poverty-targeting – in terms of getting support to where it is most needed – attracts economists. The evidence for developing countries shows exclusion in poverty-targeted programmes is typically over 50 percent, as Andrew Fischer of the Institute of Social Security in The Hague pointed out.
The academics, on the whole, stuck to Beveridge. There are challenges, for sure: for example, government capacity in the most fragile states can make any kind of national programme a challenge while increasing migration can raise issues of who should have rights to social security. But, as I mentioned, developing countries themselves are showing the way and increasingly supporting universal programmes, despite push-backs from international institutions.
There was also widespread agreement in the workshop – including from Michal Rutkowski, Santiago Levy, Vice-President at the Inter-American Development Bank, and others – that there were limits to what can be funded from contributions to social insurance in developing countries – and that a wider fiscal base, general taxation, is going to be the most important source of funding for social protection. This relates to the challenges of expanding social insurance into the informal sector and the persistence of informality – two phenomena which are related as social insurance tends to discourage formalisation. But social protection programmes should be funded from earnings when risks are linked to employment.
The World Bank stuck to its line on poverty-targeting, though in fairness, it has shifted its public rhetoric – though not its practice – from an exclusive focus on poverty-targeting to its ‘progressive universalism’. And the IMF listened. It sees its job as supporting those working on social protection design – a welcome evolution in IMF policy in recent years – while it, itself, should stick with higher-level funding issues (again, though, often not followed in practice).
A progressive moment
The support for universalism in the workshop felt significant, indeed a progressive moment. The key message was: we have to think about the social contract, about building a sustainable, holistic system for the long-term. We have to think about the value of designing systems that will be there for the long-term, that will attract support and resources from the whole population and deliver benefits way off into the future (we get such a distorted view thinking about small-scale programme benefits over the short-term which detract from thinking about national systems over the long-term). As Minouche said, it is about securing the welfare state everywhere and going with the grain of political economy and creating a mutually supportive relationship between citizen and state that is the bedrock of growth and development. It is about supporting developing country governments as they address their Beveridge moment. It’s time for a change.
Matthew Greenslade is a Development Pathways Senior Associate and independent consultant on social protection and value for money in developing countries. He has worked across two decades on the design and implementation of social protection systems, on monitoring and evaluation, economic aspects of social protection (economic development, value for money, affordability, links to tax systems), facilitating knowledge management, capacity strengthening, and supporting system development on the ground, including in Kenya, Uganda, Tanzania, Nigeria, Bangladesh and Ghana.