THE LINKS BETWEEN ECONOMIC THE LINKS BETWEEN ECONOMIC AND SOCIAL POLICIESAND SOCIAL POLICIES

JOSÉ ANTONIO OCAMPOUNDER-SECRETARY GENERAL

ECONOMIC AND SOCIAL AFFAIRS

DESA

The “United Nations Development Agenda” recognizes the central role of the social, gender and environmental dimensions of development

But this integrated view is far from being reflected in practice

Rather, a “leader/follower” model prevails, in which economic policy is determined first, and other policies are called for to manage its social, gender and environmental outcomes

INITIAL CONSIDERATIONSINITIAL CONSIDERATIONS

To implement the “United Nations Development Agenda”, we should thus move towards “mainstreaming” the social, gender and environmental dimensions into economic decision-making, at the global as well as at the national levels

INITIAL CONSIDERATIONSINITIAL CONSIDERATIONS

Ability of the economic system to offer opportunities for adequate income generation

→ Employment plays the central role.Management of risks generated by the

economic system and associated insecurity

FOUR MAJOR LINKS BETWEEN THE FOUR MAJOR LINKS BETWEEN THE ECONOMIC AND SOCIAL SYSTEMSECONOMIC AND SOCIAL SYSTEMS

Ability of the social system to facilitate the accumulation of capabilities, and the associated effects on the functioning of the economic system (human capital)

Capacity of the economic system to provide adequate resources for that task, and the implications of the way the provision of services is organized

FOUR MAJOR LINKS BETWEEN THE FOUR MAJOR LINKS BETWEEN THE ECONOMIC AND SOCIAL SYSTEMSECONOMIC AND SOCIAL SYSTEMS

Growth facilitates the reduction of poverty, but not all growth is equally “pro-poor”

Two major concerns in this regard• Fairly widespread increase in income

inequality• Poor employment generation, and rising

labor market dualism

INCOME GENERATIONINCOME GENERATION

NOT ALL GROWTH IS NOT ALL GROWTH IS EQUALLY “PRO-POOR”EQUALLY “PRO-POOR”

Upper middle income

Lower middle income

Low incomeUpper middle income

Lower middle income

Low income

-8%

-6%

-4%

-2%

0%

2%

4%

-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

Annual average per capita GDP growth

An

nu

al a

vera

ge

gro

wth

ra

te o

f p

ove

rty

(1

do

llar

a d

ay)

1981-1990 1990-2001

CONTRIBUTIONS OF INTRA-COUNTRY CONTRIBUTIONS OF INTRA-COUNTRY INEQUALITY TO WORLD INEQUALITY INEQUALITY TO WORLD INEQUALITY

Contribution of countries to world inequality

0.150

0.175

0.200

0.225

0.250

0.275

0.300

1980 1990 2000

Po

ints

of

Th

eil

coe

ffic

ien

t

Large countries World total

POOR EMPLOYMENT GENERATIONPOOR EMPLOYMENT GENERATION

0

2

4

6

8

10

12

14

16

18

20

Developedcountries

Transitioneconomies

EasternAsia

South Asia LatinAmerica

andCaribbean

Middle Eastand Africa

Ave

rage

une

mpl

oym

ent

rate 1980-1981 1990-1991 2000-2001

RISING LABOR MARKET DUALISMRISING LABOR MARKET DUALISM

0

10

20

30

40

50

60

WORLD Developedregions

EasternEurope

WesternEurope

OtherDeveloped

NorthernAfrica

Sub-Saharan

Africa

LatinAmerica

Asia

Sel

f em

plo

ymen

t as

a pe

rcen

tage

of

non

agr

icul

tura

l em

ploy

men

t

1980-1990 1990-2000

It is hard not to see here the adverse effects of market based reforms without adequate mechanisms in place to guarantee acceptable social outcomes

Also, growth may be more effective (indeed, essential) to reduce high levels of poverty, but redistributive policies may be essential at low levels of poverty

INCOME GENERATIONINCOME GENERATION

Employment generation should be at the center of economic policy, including macroeconomic policy and structural reforms

Accumulation of productive assets of the poor Rural development is the crucial issue in poor

countries, but economic opportunities for the urban poor become critical in middle-income countries

Need to consider bringing issues of income distribution to the center of economic policy

POLICY IMPLICATIONSPOLICY IMPLICATIONS

High risks of real macroeconomic volatility, particularly employment risks

Structural change requires a change in the structure of employment

In developing countries, the real exchange rate is crucial for both dimensions

ECONOMIC INSECURITYECONOMIC INSECURITY

Financial risks• Financial risks associated with pensions are

increasingly shifting to households• Interest rate variations affect house mortgages• Interest rate variations also affect smallholder

credit and productionAgricultural price variations affect

smallholders

ECONOMIC INSECURITYECONOMIC INSECURITY

Adaptability of the labor force to change should be a major policy concern

…but pure labor market flexibility with inadequate social protection has many downsides

Safety nets for macroeconomic crises should evolve into a component of well-designed and universal social protection systems

Need for a broader risk management framework, through public interventions or creation of markets to manage risks faced by the poor

POLICY IMPLICATIONSPOLICY IMPLICATIONS

Human development: the capabilities provided by social policy are more than “human capital”; they directly affect the well-being of individuals and societies, and other dimensions of development (e.g. political participation)

Low levels of human capital are a crucial element of the “poverty trap”

DEVELOPMENT OF CAPABILITIESDEVELOPMENT OF CAPABILITIES

However, the links running from human development to economic development are not linear

Important risk: in the absence of opportunities, there may be considerable “waste” and loss of human capital

DEVELOPMENT OF CAPABILITIESDEVELOPMENT OF CAPABILITIES

Human development should be at the center of any development strategy

It is possible to make major advances even at low levels of development

A major effort to break out of the poverty trap of low-income countries should be at the center of international cooperation

Need to better understand ways to maximize the effects of social policy on economic development

POLICY IMPLICATIONSPOLICY IMPLICATIONS

IT IS POSSIBLE TO MAKE MAJOR IT IS POSSIBLE TO MAKE MAJOR ADVANCES EVEN AT LOW LEVELS OF ADVANCES EVEN AT LOW LEVELS OF

DEVELOPMENTDEVELOPMENT

NigeBurk

Mali

Buru

Guin

Cent

Cong

Chad

Mala

Zamb

Cote

Beni

Rwan

Sene

Gamb

Maur

Nige

Mada

Keny

Zimb

LesoCong

Togo

Paki

Came

Nepa

SudaBang

Swaz

PapuGhan

Bots

Indi Moro

Guat

Egyp

Sout

Nica

HondBoli

Indo

Alge

Syri

Guya

El S

Iran

EcuaDomiSri

TuniChin

Turk

Para

PeruPhil Fiji

Jama

SaudThai

Oman

ColoBraz

VenePana

Mala

Trin

Mexi

UrugCost

Kuwa

Chil

Hung Arge

Malt

Kore

Barb

Port

Sing

Gree

Hong

Isra

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2 2.5 3 3.5 4 4.5

log of per capita GDP in 1975

Ann

ual r

ate

of g

row

th o

f th

e H

DI,

197

5-20

02

There are significant differences in the levels of social spending at comparable levels of development; countries spending little should raise it

There is also strong evidence that social spending –and, particularly, social protection— is associated with high levels of development

The redistributive effects of spending may be more important than those of taxation, though the latter are not irrelevant

FINANCING AND DESIGNFINANCING AND DESIGN OF SOCIAL POLICY OF SOCIAL POLICY

The stability of social spending is crucial. Instability reduces the efficiency of social investments

Universal policies may have stronger effects than targeted interventions if the aim is to reduce inequalities

The state always plays the central role, but social and private participation can help

FINANCING AND DESIGNFINANCING AND DESIGN OF SOCIAL POLICY OF SOCIAL POLICY

17.8

22

26.3

Bhutan Oman Bahamas

Belarus

Croatia

Denmark

0

5

10

15

20

25

30

35

40

45

50

Lower income Upper middle income High income

Tot

al s

ocia

l exp

endi

ture

as

a p

erce

ntag

e of

GD

P

Low Mean High

SIGNIFICANT DIFFERENCES IN THE LEVELS OF SOCIAL SPENDING AT

COMPARABLE LEVELS OF DEVELOPMENT

SOCIAL SPENDING – PARTICULARLY, SOCIAL PROTECTION— IS ASSOCIATED WITH HIGH LEVELS OF DEVELOPMENT

LLMIE – lower income, UMIE – upper middle, HIE – high income

LLMIE UMIE HIE

Economic grouping

0.00

5.00

10.00

15.00

20.00

25.00

30.00

% o

f G

DP

5.93%

3.04%4.93%

6.61%

4.6%

5.4%

15.88%

7.26%

10.91%

health

education

social protection

LLMIE – lower income, UMIE – upper middle, HIE – high income

Source: Kelly and Saiz-Omeñaca

LLMIE UMIE HIE

Economic grouping

0.00

5.00

10.00

15.00

20.00

25.00

30.00

To

tal s

oc

ial s

ec

tor

sp

en

din

g a

s a

% o

f G

DP

Year1995199719992001

SOCIAL SPENDING HAS BEEN INCREASING IN MIDDLE INCOME COUNTRIES

Adequate and stable levels of social spending should be explicit objectives of economic policy

Some universal policies are essential even at low levels of development

It is important to guarantee access of the poor to social services: targeting should be seen as an instrument, rather than as a substitute for universality

POLICY IMPLICATIONSPOLICY IMPLICATIONS

But a broader system of social protection may be impossible

The design of specific, targeted interventions should be, in the long run, part of universal systems

Private sector participation should be done in a framework that guarantees the basic principles of universality and solidarity

POLICY IMPLICATIONSPOLICY IMPLICATIONS

Poverty-reduction strategies can become the major instrument of integration of economic and social policies, particularly in poor countries

It is essential that, in this process, needs assessment become a regular practice…

… and that the leader/follower model be abandoned

INSTITUTIONAL IMPLICATIONSINSTITUTIONAL IMPLICATIONS

In broader terms, it is essential that social objectives are explicitly mainstreamed into economic policy-making:• Start by making “visible” the social effects of

economic policies• Regular analysis of the social implications of

budgets and tax reforms• Also, regular analysis of the distributive effects

of other economic policies (e.g. agricultural and industrial interventions)

INSTITUTIONAL IMPLICATIONSINSTITUTIONAL IMPLICATIONS

Go beyond “inflation targeting” towards the explicit incorporation of employment and output, as well as real exchange rate targeting, in monetary and exchange rate policy in developing countries

INSTITUTIONAL IMPLICATIONSINSTITUTIONAL IMPLICATIONS

THE LINKS BETWEEN ECONOMIC THE LINKS BETWEEN ECONOMIC AND SOCIAL POLICIESAND SOCIAL POLICIES

JOSÉ ANTONIO OCAMPOUNDER-SECRETARY GENERAL

ECONOMIC AND SOCIAL AFFAIRS

DESA