Why We Need Stronger Social Protection to Forge a New Social Contract

By Isabel Whisson | Special Assistant for Strategy, BRAC Ultra-Poor Graduation Initiative, and Max Gollin | Communication Coordinator, BRAC Ultra-Poor Graduation Initiative

Our current system has left behind the people it should be serving. Even before the COVID-19 pandemic, nearly 700 million people lived in extreme poverty on less than $2 USD per day. As this pandemic claims millions of lives and threatens to push another 150 million people into extreme destitution by the end of this year, it should be obvious to the international community that our societies have failed to protect the people who are most marginalised (World Bank, 2021).

It is insufficient to focus only on recovery. If we limit ourselves to building back the systems which did not meet this crisis, we are rebuilding something which is insufficient. We need global actors, with governments at the helm, to forge, as Director of the LSE Minouche Shafik puts it, a new social contract — one where everyone is empowered with the agency and resources they need to live life with dignity (Shafik, 2021).

A participant of the recently completed DOLE Graduation pilot in the Philippines serves a customer from her nego food cart in Salvacion, Negros Occidental

Connect people who are the most marginalised to government services

One pathway to reach those left behind under the current status quo is by identifying the people who are most marginalised and connecting them to government services they were previously unable to access. In doing so, government programmes can scale more effectively, make social protection systems more inclusive of people in extreme poverty, and drive inclusive growth.

The Graduation approach, an evidence-based anti-poverty intervention pioneered by BRAC, helps governments achieve this. It combines linking extremely poor populations to social protection with social and economic empowerment components, making government services more inclusive and the intervention more cost-effective. LSE research found that even seven years after entering BRAC’s Graduation programme, participants achieved on average a 37 percent increase in earnings, a 361 percent increase in work productivity, a ninefold increase in savings rate, and a twofold increase in household assets (Bandiera, 2016).

Make society more equitable through expanded social protection programmes

Expanding social protection systems — both through interventions like the Graduation approach and through increased funding — can make society more equitable under a new social contract. In doing so, countries can advance human development and inclusive growth along the way. Investments in social protection are essential for equitable economic recovery, increasing human capital, empowering women, and building resilience to future shocks. New research from the International Trade Union Confederation (ITUC) underlines these extensive macro-level benefits of investing in social protection systems (ITUC, 2021).

Contrary to what is commonly understood, social protection investments largely or completely pay for themselves. Countries with limited fiscal space should consider that a one percent increase in funding for social protection leads, on average, to 1.1 percent GDP growth and a 1.8 percent increase in tax revenues. Finances spent on social protection programmes drive economic growth by improving human capital and growing aggregate demand.

This growth is driven from the bottom up by disproportionately benefiting people with the lowest incomes — as they improve their standard of living, they consume a higher proportion of their income gains than wealthier people. As domestic demand grows, and the labour force becomes better educated and more productive, the economy grows. As the economy grows, the tax base for domestic resource mobilisation expands, enabling governments to collect more revenue than they spent on social protection to begin with (Ghatak, 2020).

Social protection makes economies more inclusive and equitable

Social protection investments do more than drive economic growth. They make economies more inclusive and equitable. Bottom-up growth raises the standard of living for people from marginalised communities and uplifts entire countries. A one percent increase in social protection investments can lower national poverty rates by seven percent and lower the Gini index by one percent. In fact, funding social protection is responsible for a large proportion of all people lifted out of poverty worldwide. A study by the World Bank suggests social protection systems are responsible for enabling 36 percent of all people who escape extreme poverty to do so. Through this improvement the wellbeing of people in poverty, social protection reduces inequality — which is also a drag on growth (IMF, 2015).

In addition to reducing wealth inequality, social protection investments also decrease gender inequity in the labour market. On average, a one percent increase in social protection spending leads to a 0.6 rise in employment rates, and women benefit even more than men, with their employment rates increasing by up to 1.1 percent. Social protection policies that mainstream a gender lens can be transformative for advancing women’s empowerment. For example, paid parental leave can make gender relations more equitable by sharing unpaid care work, providing women and their partners the same opportunity to care for their loved ones and make a living (UN Women, 2019).

A participant of the PROFIT Financial Graduation pilot in Samburu, Kenya visits a medical clinic as part of integration into the Natl. Health Insurance Fund (NHIF) (BRAC/BOMA Project 2019)

Social protection improves human capital

Investing in social protection enhances the human capital of individual households and countries as a whole. The greater the scale of social protection investments, the more these micro-level increases in human capital translate to human capital growth at the macro level. IMF research finds higher spending on social protection translates to higher life expectancy, more average years of education completed, and greater human development overall (IMF, 2020). Mainstreaming gender into social protection can amplify these systems’ impacts on human capital, as women who receive social assistance tend to gain decision-making power in their households and spend more on average on their children’s health, education, and nutrition (Coates, 2020).

Social protection leads to more inclusive economic growth

The human right to a decent standard of living is enough reason to fund comprehensive social protection systems. If that is not enough, a diverse body of research confirms that increased spending on social protection translates to a wide array of macroeconomic benefits. Funding social protection — including through new international financing mechanisms like a Global Fund for Social Protection — can kick off a virtuous cycle where inclusive growth leads to more domestic resources which can be reinvested in crucial government programmes (Global Coalition for Social Protection Floors, 2020).

Integrating the Graduation approach into existing social protection systems, meanwhile, helps ensure better-funded programmes reach those they are intended to serve. This intervention has empowered over 2.1 million households to escape extreme poverty in Bangladesh alone, and it has the potential to reach 4.6 million more globally by 2026 (BRAC, 2020). Our new social contract must empower people who have been left behind in the past, and robust social protection systems, including those that integrate Graduation programmes to become more inclusive, are fundamental to achieving this.

References

Lackner et al. (2021) Updated estimates of the impact of COVID-19 on global poverty: Looking back at 2020 and the outlook for 2021. World Bank Blogs. Accessible: https://blogs.worldbank.org/opendata/updated-estimates-impact-covid-19-global-poverty-looking-back-2020-and-outlook-2021

Shafik, Minouche. (2021). What We Owe Each Other. IMF. Accessible: https://www.imf.org/external/pubs/ft/fandd/2021/04/what-we-owe-each-other-book-minouche-shafik.htm

Bandiera et al. (2016) Labour Markets and Poverty in Village Economies. London School of Economics. Accessible: https://sticerd.lse.ac.uk/dps/eopp/eopp58.pdf

ITUC. (2021) Investments in social protection and their impacts on economic growth. Accessible: https://www.ituc-csi.org/IMG/pdf/investments_in_social_protection_and_their_impacts_on_economic_growth.pdf

Ghatak et at. (2020). What would make India’s growth sustainable? Ideas for India. Accessible: https://www.ideasforindia.in/topics/macroeconomics/what-would-make-india-s-growth-sustainable.html

Dabla-Norris et al.(2015) Causes and Consequences of Income Inequality: A Global Perspective. IMF. Accessible: https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf

Elson, D., and A. Seth. (2019). Gender Equality and Inclusive Growth: Economic Policies to Achieve Sustainable Development. UN Women. Accessible: https://www.unwomen.org/-/media/headquarters/attachments/sections/library/publications/2019/gender-equality-and-inclusive-growth-en.pdf?la=en&vs=3753

Mathai et al. (2020). Social Spending for Inclusive Growth in the Middle East and Central Asia. IMF. Accessible: https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2020/09/25/Social-Spending-for-Inclusive-Growth-in-the-Middle-East-and-Central-Asia-49669

Brixi, Hana and Coates, Lindsay. (2020) Investing in women and girls: How governments can drive inclusive recovery. World Bank Blogs. Accessible: https://blogs.worldbank.org/voices/investing-women-and-girls-how-governments-can-drive-inclusive-recovery

Global Coalition for Social Protection Floors. (2020). Accessible: http://www.socialprotectionfloorscoalition.org/

Originally published at https://socialprotection.org on May 26, 2021.

Breaking the cycle of extreme poverty by providing a pathway out of persistent uncertainty and destitution through our Graduation programs.

Breaking the cycle of extreme poverty by providing a pathway out of persistent uncertainty and destitution through our Graduation programs.