THE LINKS BETWEEN ECONOMIC AND SOCIAL POLICIES

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THE LINKS BETWEEN ECONOMIC AND SOCIAL POLICIES
JOSÉ ANTONIO OCAMPOUNDER-SECRETARY GENERAL
ECONOMIC AND SOCIAL AFFAIRS
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INITIAL CONSIDERATIONS

• 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

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INITIAL 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

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FOUR MAJOR LINKS BETWEEN THE ECONOMIC AND SOCIAL
SYSTEMS

• 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

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FOUR MAJOR LINKS BETWEEN THE ECONOMIC 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

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INCOME GENERATION

• 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

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NOT ALL GROWTH IS EQUALLY PRO-POOR
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CONTRIBUTIONS OF INTRA-COUNTRY INEQUALITY TO
WORLD INEQUALITY
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POOR EMPLOYMENT GENERATION
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RISING LABOR MARKET DUALISM
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INCOME GENERATION

• 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

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POLICY IMPLICATIONS

• 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

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ECONOMIC INSECURITY

• 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

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ECONOMIC 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 production
• Agricultural price variations affect smallholders

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POLICY IMPLICATIONS

• 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

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DEVELOPMENT OF CAPABILITIES

• 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

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DEVELOPMENT 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

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POLICY IMPLICATIONS

• 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

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IT IS POSSIBLE TO MAKE MAJOR ADVANCES EVEN AT LOW
LEVELS OF DEVELOPMENT
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FINANCING AND DESIGN OF SOCIAL POLICY

• 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

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FINANCING AND DESIGN 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

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SIGNIFICANT DIFFERENCES IN THE LEVELS OF SOCIAL
SPENDING AT COMPARABLE LEVELS OF DEVELOPMENT
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SOCIAL SPENDING PARTICULARLY, SOCIAL
PROTECTION IS ASSOCIATED WITH HIGH LEVELS OF
DEVELOPMENT
LLMIE lower income, UMIE upper middle, HIE
high income
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SOCIAL SPENDING HAS BEEN INCREASING IN MIDDLE
INCOME COUNTRIES
LLMIE lower income, UMIE upper middle, HIE
high income
Source Kelly and Saiz-Omeñaca
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POLICY IMPLICATIONS

• 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

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POLICY 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

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INSTITUTIONAL 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

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INSTITUTIONAL 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)

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INSTITUTIONAL 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

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THE LINKS BETWEEN ECONOMIC AND SOCIAL POLICIES
JOSÉ ANTONIO OCAMPOUNDER-SECRETARY GENERAL
ECONOMIC AND SOCIAL AFFAIRS