Development Pathways economist Dr Nayha Mansoor shares her key takeaways from our new paper on the affordability of universal social security, written in collaboration with Act Church of Sweden and Action Against Hunger.
The ongoing global economic crisis means that millions more people are facing poverty and inequality. What if I told you that there is a way to start addressing these challenges by making universal social security affordable in every country? Is it too good to be true?
The recent report “An affordable and feasible pathway to universal social security” makes the case for its viability. As the economist running the data analysis for this report, I can see that the numbers add up. Let’s explore why universal social security is not only affordable, but how it can also be transformative for countries.
Affordability can be achieved by rethinking the narrative
For years we have been told that, while universal social security is a worthy ambition, it is largely unattainable in low- and middle-income countries. This paper dispels this myth, showing that countries at all income levels can achieve universal social security if they have the necessary political commitment.
Based on the experiences of a number of countries, the study demonstrates that investing in social security is not only morally right, but also economically feasible. Additionally, it demonstrates how low- and middle-income countries can learn from high-income countries that have built universal social security systems over time.
The first universal schemes were introduced by high-income countries when they were poorer than many middle-income countries are today. For example, when Finland introduced its universal child benefit in 1948, its GDP per capita was US$7,000 – well below that of Indonesia’s current GDP per capita of US$12,200.
The financing of social security through different mechanisms
The report shows that a universal system covering old age, disability, and child benefits can be delivered at a cost of between 1.5-3 percent of GDP for the countries included in the study. Nevertheless, finding that level of finance can be challenging for low- and middle-income countries.
One approach to reduce initial costs is to start with a smaller universal scheme and expand it over time, always keeping the principle of universality in mind so that governments continue to have the right incentives in place to continue to fund the policies. Consequently, to reduce the initial level of financing required, a universal lifecycle scheme could be introduced but initially only cover a small portion of those eligible.
As an example, a universal old age pension could begin with a high age of eligibility and, over time, be reduced to include slightly younger pensioners. As the systems expand gradually year after year, the additional spending required would be minimal. For example, in Uganda the government would only have to find an additional 0.07 per cent of GDP on the progressive expansion of the age eligibility for old age pension.
It is also possible for low- and middle-income countries to finance universal social security through other financing mechanisms. The principle of fair and progressive taxation, for example, can play an important role in achieving universal social security. Many countries, including those in the Global South, have the fiscal space to increase social spending by merely reallocating resources and improving their tax systems. Combating tax evasion, for example, can boost revenue significantly. A more equitable distribution of wealth and opportunities can be achieved if this extra income is channelled into social security programmes.
Embracing the principle of universality
Integrating universality into social security systems is crucial if policymakers want to ensure that they are robust and inclusive. Social security should be accessible to everyone, regardless of their income or social standing.
Social security systems with universal coverage are not only more efficient, but they are also more effective in reducing poverty and inequality, as the paper demonstrates. Poverty-targeted programmes, which are set out to identify and target only the poorest within a society, fail to acknowledge that most people in low- and middle-income countries are living on low and insecure incomes and would benefit from additional income support when they face various lifecycle contingencies.
This approach also fails to recognise that people’s incomes are always changing, and people move in and out of poverty, making it a near impossible task to accurately identify a static group of ‘the poor’ that can be targeted with support. Even among intended beneficiaries, global evidence shows that poverty targeting cannot be done accurately and always generates high rates of exclusion, despite high administrative costs.
By treating all citizens equally, universal programmes minimise exclusion errors, improve coverage, protect people’s rights, and promote social cohesion.
Universal social security leaves no one behind
Universal social security systems are cost-effective and provide a high rate of return on investment, playing a significant role in reducing poverty and inequality. The report demonstrates that even a small increase in investment can generate significant returns, making a strong case for the affordability of universal social security. For example, in Ghana, the introduction of a universal social security system could reduce the poverty rate by 49 per cent, assuming the national poverty rate is 60 per cent of the median consumption before the transfer.
Furthermore, one of the most persuasive arguments for universal social security is its potential to have a far-reaching and transformative impact on society. The report shows that universal social security has a strong redistributive impact on the well-being of the entire population and can also strengthen social cohesion and promote greater solidarity among citizens. When everyone is protected, we all benefit.
Investment in social security enhances economic growth
Universal social security is often viewed as a burden on the economy. Contrary to popular belief, the evidence indicates otherwise. Providing citizens with a stable income stimulates local economies, creates jobs, and fosters inclusive growth. Therefore, countries can benefit from a win-win situation: improving the well-being of their citizens and encouraging economic growth at the same time.
Building resilience to prepare for shocks and crises
As climate change, pandemics, and economic crises threaten human well-being globally, there is an increasing sense that we all face unpredictability and risk in our lives. Universal social security can help people cope with shocks and adapt to new challenges. It has become clearer than ever that countries with strong social security systems centred around core universal lifecycle programmes were better placed to scale up support to their citizens during the COVID-19 pandemic. Investing in universal social security will help countries build resilience and ensure that no one is left behind, even in the face of shocks.
How can we make universal social security a reality?
It is evident that universal social security is not only affordable, but essential for all countries. The multiplier effect, and the benefits to society as a whole, make this vision a compelling argument. Additionally, investing in universal social security can make countries more resilient and prepared to face shocks and crises.
But how can we make universal social security a reality? We must first challenge outdated narratives that portray it as an unaffordable or economically unviable option for low- and middle-income countries. Together, policymakers and citizens need to push for a more just and equitable world where everyone has access to the support they need.
In addition, countries should explore different financing mechanisms for social security programmes, such as progressive taxation. They can then ensure that costs are distributed fairly and that resources are available to invest in the well-being of their citizens to help realise their right to social security.
Finally, let us not forget the importance of sharing evidence. We can change perceptions about the feasibility of universal social security by demonstrating the positive long-term impacts of universal social security and thinking creatively about how countries might progressively build strong universal systems to realise these benefits. It is through sharing these stories that we can demonstrate the possibility of change – and unlock the door to a more equitable and brighter future.