Cash transfers, hand outs or life lines for disadvantaged children

Children left behind by the economy and social fabric face issues which may persist throughout the course of their lives. Investment which addresses disadvantage and inequality experienced in the early years of an individual’s life has significant long term economic and social returns.

Child sensitive social protection measures are important tools for assisting those children left behind as well, mitigating shocks, including economic, social and natural stresses and crises which often have a disproportionate impact on all children. Cash transfers are one social protection measure that have had widespread success, particularly in Latin America and the Caribbean.

A study by the London School of Economics which focused specifically on Uruguay and children's birth outcomes found that participation in a generous cash transfer program contributed to a 15% reduction in the incidence of low birth weight (Amarante V et al, 2011). Further a study by the International Development Bank which focused on a program for young children in Nicaragua, found that cash transfers had a positive effect on child development, specifically regarding their cognitive development, and that there was no 'fade out' of impacts 2 years after the program and the transfers stopped (Macours K et al, 2008).

Interestingly within this project no evidence was found to suggest that child development outcomes were better for households who received larger transfers, however other factors such as the social awareness marketing that accompanied the program and giving the transfers to women were deemed to have significantly contributed to the positive outcomes (Macours K et al, 2008). Another study conducted in Europe also found that with cash transfers, when assessing income poverty scores, the size of the transfer wasn’t the most influential factor and that its design and relevance to context were also of great importance (Social Protection Committee, 2012).

Cash transfers are not perceived as effective strategies the world over. Indeed in some developed and developing country contexts, they are perceived as simple hand outs which nurture dependency. Independent of these opinions, when considered specifically in relation to children who experience disadvantage and inequality, their effectiveness at averting and addressing lifelong damage makes them a worthwhile investment.

References: 

Amarante V et al (2011) Do Cash Transfers Improve Birth Outcomes? Evidence from Matched Vital Statistics, Social Security and Program Data, London School of Economics

Macours K et al (2008) Cash Transfers, Behavioural Changes, and the Cognitive Development of Young Children: Evidence from a Randomized Experiment, International Development Bank

Social Protection Committee (2012) SPC Advisory Report to the European Commission on Tackling and Preventing Child Poverty, Promoting Child well-being, European Commission, 27 June 2012

Hannah Chadwick

Wikichild Coordinator

Covering the “missing middle” in social protection

by Juan R. de Laiglesia from the OECD Development Centre 

Providing social protection to the informal middle classes will foster social cohesion, and doesn’t cost the earth.

As citizens across the globe demand new economic models, the OECD’s newly released Perspectives on Global Development 2012 puts social cohesion on the table as a broader social development objective. Social cohesion compounds inclusiveness, equal opportunity and a sense of belonging to society, of shared destinies. Strong growth in a large part of the developing world has transformed the ways development challenges can be addressed. 

The final declaration of the 4^th High Level Forum on Aid Effectiveness held in Busan last week reminds us that poverty and inequality remain a central challenge in global development.  The OECD’s Perspectives on Global Development 2012 find that 83 countries more than doubled OECD per capita growth rates over the past decade. You would be right to think that faster than 1.8% growth is hardly impressive; but in fact 49 countries grew at more than 3.75%. In the 1990s, only 12 countries managed that.

How growth has changed the picture

First, the poor no longer live mostly in poor countries. Research by Andy Sumner,  at the Institute for Development Studies , finds that 70% of the world’s poor live in middle income countries. Two decades ago, 93% of the poor lived in Low Income Countries. This means that most of the poor live in countries where per capita incomes are above USD 2.75 a day, and more in purchasing parity terms. In other words, more countries can use redistributive instruments – from taxes to transfers to health provision – to eradicate poverty. Indeed, countries such as India or China have up-scaled social protection interventions in recent years.

Second, millions have been lifted out of poverty as average incomes have increased and emerged as a new – but vulnerable ­– middle class. As a result, half of the 2bn-strong global middle class live in emerging economies. But make no mistake, this middle class is unlike Western stereotypes of a couple with two children, a dog and one or two cars.  The emerging middle classes are vulnerable: many remain only just above the poverty line and do not have a stock of capital that would allow them to buffer major shocks such as illness nor to whether the changes in fortunes which come with old age. In Latin America, less than 10% of households have mortgage loans, and less than half of them are middle-class. Many in the emerging middle classes work informally. And yet, not being poor, they have the capacity to save and contribute to social insurance. Social protection plays a key role in buttressing their middle class status and preventing them from slipping back into poverty.

Social protection redux

Is this a job for social protection? In the past few years, the discourse around the role of social protection in development has changed dramatically. Through the work of the OECD’s Development Assistance Committee, the donor community has clearly stated the role of social protection in making growth pro-poor. Last month, the Social Protection Floor Advisory Group, chaired by Michelle Bachelet released its report entitled Social Protection Floor for a Fair and Inclusive Globalization. Social protection has moved from being viewed as merely a “safety net” built of targeted assistance to the poor to a key instrument in building fairer societies.

The past ten years have seen a true “quiet revolution” in social protection in the developing world. The rapid introduction of means-tested cash benefits has greatly increased the scale of social protection. South Africa’s Child Support Grant, introduced in 1998 covered 7.7 million children by 2008, China’s Minimum Living Subsidy Scheme (DiBao) was introduced in 1997 and reached 57 million households by 2007. The very popular conditional cash transfer (CCT) programmes in Mexico (Oportunidades) and Brazil (Bolsa Família) reach respectively 5 and 12.5 million households or about a quarter of the population in each country. The beauty of this quantum leap is that it has been made using home-grown instruments, tried and tested across developing countries. Often these new programmes coexist with contribution-based social security systems that cover formal employees.

The “missing middle”: a challenge for social cohesion

Put together, contribution-based social security and means-tested social protection for the poor leave a “missing middle” in social protection coverage. Indeed, research at the OECD Development Centre shows that the majority of middle-class workers in emerging economies such as Brazil  or Mexico are not formal employees.  Contributory pensions are open to independent workers and informal employees – those without contracts – but in practice only a minority participate in them. In the case of Brazil only 15% of the self-employed and 9% of informal employees in the middle income quintiles contribute to pensions systems.

Providing adequate instruments for the informal middle classes to insure or manage risk matters for social cohesion. First because today’s vulnerable middle class can become tomorrow’s poor. Many in the emerging middle classes lie close to the poverty line and can fall back in downturns. Second, it is a matter of horizontal equity. Social protection is a form of institutionalized solidarity: excluding certain categories from social protection deprives them of risk management instruments which are usually not available in the private market. Moreover, it runs the risk of alienating that segment of society. Finally, the middle classes have an important role to play in shaping the politics of poverty reduction. How likely are the informal middle classes to side with the poor on redistribution issues if they do not partake in the system that protects the poor?

Extending protection: more than one way forward

Social protection can be extended to cover the informal middle classes in several ways. Unbundling health, pensions and the other functions of social security helps, because they can be priced and provided separately. Contributory pensions and Unemployment Insurance Savings Accounts as implemented in Chile are examples of such unbundling. Certain instruments, like UISAs (compulsory savings accounts from which withdrawals are made during unemployment spells) can be extended to informal workers. Since they pool little risk across workers, they do not entail cross-subsidies or generate incentives to stay out of formal work. Subsidising contributions to the social security system is also possible – for example by governments’ matching deposits into retirement accounts. Matching-defined contribution pensions following that model are being implemented in Mexico, Colombia and Peru. Universal entitlements are also used today across the developing world, especially for basic healthcare and pension income.  In all cases, the key is to break the dichotomy between a social protection system for formal workers and one – or none – for informal workers. Such duality reinforces the segmentation between labour markets and contributes to deepen the fault line between formal and informal workers.

At stake is building a social protection system that not only alleviates poverty, but empowers citizens to build up and protect human capital and to participate in networks of organised solidarity. The past decade saw the emergence of a number of innovative instruments in social protection, born and bred in the South. Making inclusive systems out of these and other innovations remains work in progress.

A Better Future for All

This post first appeared on Wikiprogress partner, UNDP's  Let's Talk Human Development

In June 2012 world leaders will gather in Rio de Janeiro to seek a new consensus on global actions to safeguard the future of the planet and the right of future generations everywhere to live healthy and fulfilling lives. This is the great development challenge of the 21st century.

The 2011 Human Development Report offers important new contributions to the global dialogue on this challenge, showing how sustainability is inextricably linked to basic questions of equity—that is, of fairness and social justice and of greater access to a better quality of life. Sustainability is not exclusively or even primarily an environmental issue, as this Report so persuasively argues. It is fundamentally about how we choose to live our lives, with an awareness that everything we do has consequences for the 7 billion of us here today, as well as for the billions more who will follow, for centuries to come.

Understanding the links between environmental sustainability and equity is critical if we are to expand human freedoms for current and future generations. The remarkable progress in human development over recent decades, which the global Human Development Reports have documented, cannot continue without bold global steps to reduce both environmental risks and inequality. This Report identifies pathways for people, local communities, countries and the international community to promote environmental sustainability and equity in mutually reinforcing ways.

In the 176 countries and territories where the United Nations Development Programme is working every day, many disadvantaged people carry a double burden of deprivation. They are more vulnerable to the wider effects of environmental degradation, because of more severe stresses and fewer coping tools. They must also deal with threats to their immediate environment from indoor air pollution, dirty water and unimproved sanitation. Forecasts suggest that continuing failure to reduce the grave environmental risks and deepening social inequalities threatens to slow decades of sustained progress by the world’s poor majority— and even to reverse the global convergence in human development.

Major disparities in power shape these patterns. New analysis shows how power imbalances and gender inequalities at the national level are linked to reduced access to clean water and improved sanitation, land degradation and deaths due to indoor and outdoor air pollution, amplifying the effects associated with income disparities. Gender inequalities also interact with environmental outcomes and make them worse. At the global level governance arrangements often weaken the voices of developing countries and exclude marginalized groups.

Yet there are alternatives to inequality and unsustainability. Growth driven by fossil fuel consumption is not a prerequisite for a better life in broader human development terms. Investments that improve equity—in access, for example, to renewable energy, water and sanitation, and reproductive healthcare—could advance both sustainability and human development. Stronger accountability and democratic processes, in part through support for an active civil society and media, can also improve outcomes. Successful approaches rely on community management, inclusive institutions that pay particular attention to disadvantaged groups, and cross-cutting approaches that coordinate budgets and mechanisms across government agencies and development partners.

Beyond the Millennium Development Goals, the world needs a post-2015 development framework that reflects equity and sustainability; Rio+20 stands out as a key opportunity to reach a shared understanding of how to move forward. This Report shows that approaches that integrate equity into policies and programmes and that empower people to bring about change in the legal and political arenas hold enormous promise. Growing country experiences around the world have demonstrated the potential of these approaches to generate and capture positive synergies.

The financing needed for development—including for environmental and social protection—will have to be many times greater than current official development assistance. Today’s spending on low-carbon energy sources, for example, is only 1.6 percent of even the lowest estimate of need, while spending on climate change adaptation and mitigation is around 11 percent of estimated need. Hope rests on new climate finance. While market mechanisms and private funding will be vital, they must be supported and leveraged by proactive public investment. Closing the financing gap requires innovative thinking, which this Report provides.

Beyond raising new sources of funds to address pressing environmental threats equitably, the Report advocates reforms that promote equity and voice. Financing flows need to be channelled towards the critical challenges of unsustainability and inequity—and not exacerbate existing disparities.

Providing opportunities and choices for all is the central goal of human development. We have a collective responsibility towards the least privileged among us today and in the future around the world—and a moral imperative to ensure that the present is not the enemy of the future. This Report can help us see the way forward.

By Helen Clark

Administrator, United Nations Development Programme (UNDP)