Formulating a New Social Contract for Sustainable Social Development (Vision-2030)

Center for Economic Research Tashkent, 2015

The innovative approach to social policy: Looking through the prism of social contract

• Social Contract – an informal agreement for

mutual benefit between the government and social groups, formulated around the basic needs of the society

• Social groups explicitly or implicitly accept obligations (paying taxes, obeying laws) in return for the protection afforded by the state (maintaining order, ensuring well-being).

• The social contract as a basis for long-term economic and social development underpins development models in many countries: (“American dream” in the USA, “Welfare state” in Europe).

• Social contract identifies the model and nature of the society and creates the environment for economic development, human development and fulfillment of human rights.

It is social contract that forms the model of social policy at each stage of development

The notion of social contract also provides the framework for an inclusive growth

Notion of the Social Contract

Uzbekistan in Transition: Social Policy formulated within the Social Contract “Loyalty for Social Guarantees and Social Stability”

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Infant mortality (per 1000 live births))

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• In the difficult transition period the basic needs of the society boiled down to social stability and guaranteed income.

• Therefore, social policies were formulated within the social contract “loyalty for social guarantees and social stability”

• Implementation of this model of social contract allowed to:

• maintain social sustainability in the difficult period of reforms;

• implement structural reforms and achieve development goals.

• At further stages, the country will face new challenges

• Revision of the social contract may be required to reach development goals in future

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Per capita income in cash at PPP, USD

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Transformation of GDP structure and employment

Uzbekistan graduating from Transition: New Development Goals and Economic transformation

Economic Transformations: Development goals for the future:

• Ensure sustainable economic growth rate at 7-8% per annum;

• Transformation of GDP structure by increasing the share of manufacturing from 9% in 2012 to 22% in 2030;

• Reformation of the agricultural sector model: focus on efficiency and multiplier effects rather than providing guaranteed source of income for large groups of the population;

• Shift towards producing more sophisticated services, that will allow to increase the share of services in GDP from 45,1 % in 2012 to 55 % in 2030.

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Uzbekistan: Transformation of GDP structure to 2030, %

GDP structure: Uzbekistan VS groups of countries by income

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Uzbekistan graduating from Transition: New development goals and Social transformation

Social Transformations: Development goals for the future:

• By 2030 the number of labor force will grow from 18.2 million in 2012 to 22.1 million in 2030. The challenge is to ensure fulfillment of social, economic and political rights for these people.

• The transformations and high levels of economic growth will expose the growing gaps between those who participate economically and those who are left behind

• To bring about more inclusive development share of the middle class should grow to reach 60% of the population by 2030

• Transformations will affect social values and behavior, encouraging more striving for individual self-realization and more demands regarding gender equality

• It is important to find an optimum balance between retention of existing basic national values and introduction of the new ones

Uzbekistan: Transformation of the Structure of Society

Transformation of the Demographic Structure: 2012 vs 2030

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Will the Existing Social Contract Enable to Reach the New Development Goals?

Objectives of the economic and social transformations to 2030 are fundamentally different from the development goals of the transition period.

The question is: Will the existing model of social contract provide the opportunity to achieve the new development goals?

If the current model of social contract is retained:

• The economic growth will slow down to 3% per annum by 2030 Development goals will not be achieved

• 75-80% of the population will be out of (or almost out of) the social contract Greater mistrust and lower level of loyalty in society

To achieve the development goals by 2030 the model of social contract needs to be revised and transformed

If the current model of social contract is retained, the economic growth will slow down to 3%

What should be the New model of Social Contract for Uzbekistan?

The new model of social contract should: • Set up a base for economic breakthrough

and structural transformations • Ensure fulfillment of basic social, economic

and political rights of people To assure the economic breakthrough it is important to: • Boost average labor productivity from 9.5

to 29.4 in 2013-2030; • Enhance investments and increase the

savings rate to 35% of GDP. To fulfill basic rights of individuals it is required to: • Ensure employment for at least 15 million

people by 2030.

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Labor productivity, mln soum

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To meet these requirements the gap between wages and labor productivity will need to increase from 2.5 to 3-fold wages will grow at a slower rate than labor productivity

At the same time the wages should increase by 2.5 times in 2014-2030 to prevent the large-scale migration and growing risks of social tensions.

Labor Productivity and Wages: 2013-2030

The New Model of Social contract for Uzbekistan – “Loyalty in Exchange for Opportunities”

• A new model of social contract in Uzbekistan should • enable rapid growth of labour productivity with moderate growth of

wages; • at the same time, guarantee fulfilment of the social rights of individuals

including the right for income, education, social security, pensions. • In order to meet these requirements, the new social contract should provide

the opportunities: • Broad opportunities are needed to boost labour productivity and

economic breakthrough; • New opportunities will expand social rights of the people, and to a

certain extent compensate the lagging of wages from labor productivity growth;

• More opportunities for self-realization of all groups of people (especially, youth) will also ensure social sustainability in the medium- and long term.

The suggested model of the social contract for the future is “Loyalty in exchange for opportunities”.

Key elements of transition to a new model of Social Contract: 1)Transformation of the Employment Pattern

• To create the opportunities it is important to generate formal, productive and sustainable employment, that will require:

• Transformation of the economy structure

• Transformation of the pattern of enterprises: medium enterprises need to become a driver of the new quality of employment and human capital

• Provision of the opportunities for enterprises to introduce extra guarantees and bonuses for the ‘best’ employees multiplier effects

• Reduction of the consolidated tax burden from 30% in 2013 to 21.7% in 2030.

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Industry Agriculture Services

Transformation of employment structure: 2012 VS 2030

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Transformation of the pattern of enterprises: Value added

Transformation of the pattern of enterprises: Employment

Key elements of transition to a new model of Social Contract: 2)Critical mass of knowledge for economic breakthrough

and self-realization

• Improving the quality of human capital will enable to create the effective base for the breakthrough

• Quality education will expand the opportunities of people (for employment, income, self-realization).

• Being an institution of civil socialization, education can be an effective tool to mobilize the society to achieve the development goals

Creation of the critical mass of knowledge for economic breakthrough will involve two key elements:

А) Focus on Improving the Quality of Education

B) Enhance the enrollment in higher education up to 25% and transform the structure of higher

education (with the focus on engineers and natural science specialists)

Transformation of the structure of higher education, % Expansion of enrolment in higher

education, %

Key elements of transition to a New Model of Social Contract: 3)Introduction of the Mandatory Insurance in Healthcare and Pension

system

• Improvement in living standards + change in the demographic and social structure of society expanding demand for the high quality social services

• In the medium and long term transition to the insurance forms is important

In healthcare:

• Mandatory health insurance should be introduced from 2025 (with contributions of 5% of the payroll)

• 58% of the employed need to be covered by MHI by 2030

In the pension system:

• The problem will be resolved to a great extent by structural transformations

• In the long term, private retirement savings funds need to be developed

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Per capita health expenditures (2012=100%)

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The new model of social contract would form a basis for an inclusive growth and development in the medium and long-term

Inclusive Growth

Sustainable

Transformative

Equitable

• In the previous social contract inclusiveness was ensured, mainly, through the redistribution of resources

• Now, in the context of growing resource scarcities and high volatility of markets, it is important to develop new strategies for inclusiveness based on the spillover effects

• The suggested social contract will generate such spillover effects and ensure an inclusive growth at the new development stage

Within the new model of social contract

• Growth will create opportunities to fulfill social rights of both current and future generations Link with sustainable development;

• Growth will be sustained over time;

• Growth will be broad based across sectors, groups, regions.

Inclusiveness in the new model of social contract is not a restriction on growth, but rather a strategy that enhances growth. Time

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Why Social Contract is Important for Transformations? Some insights from Physics

• Economic and Social transformations: Analogy with physics:

• Now – phase transmission type 1 (Order parameter – 0.48)

• Tomorrow – phase transmission type 2 (Order parameter – above 0.67)

• To leap from phase 1 to phase 2 it is important to minimize the fluctuations in the system;

• To ensure effective social transformations the costs of interactions among individuals and groups need to be minimized Effective social contract needs to be developed

Social costs

Order parameter

Social costs

Order parameter

Today Tomorrow

Kinetic energy and fluctuations in the system = = Interactions among social groups

Findings:

• To attain the development goals towards 2030 the existing model of social contract needs to be revised

• To formulate the model of new social contract it is important to find optimum balances: between investment “now” and “tomorrow”; by state and non-state actors

• These balances are not static but rather dynamic

• There are no ready-made recipes. It is important to go beyond the conventional strategies and select institutions and instruments, that will work in the realities of the region

• The suggested model of social contract for the future is “Loyalty in exchange for opportunities”

• This new model of social contract will form a basis for the inclusive growth and sustainable development in Uzbekistan towards 2030

• Within the new social contract inclusiveness will not be a restriction on growth but rather a strategy that enhances growth

Questions for discussion

• Are we on the right path?

• Are there any dimensions, critical issues which were omitted, should get considered in more detail?

• What approaches, methods and indicators need to be revised?

• What’s next? How can we jump to formulating the detailed Action Plan and Road Map for the Vision? Suggested formats and models.

• Are there windows for synergies?

Thank you!

Next Development Dialogue: Date: February 13, 2015 from 11.00 Subject: “Sustainable Development and Sustainable Growth: Managing Resources more efficiently (Uzbekistan-2030)” For confirmation, please, contact info@cer.uz