Francois Gerard, Clement Imbert and Kate Orkin recommend that developing nations provide social protection to their most vulnerable citizens through broad ‘safety nets’ during the COVID-19 crisis. They outline three strategies governments can use.
COVID-19 lockdowns, across the globe, have carried heavy economic costs, but those in developing countries have been hit particularly hard because of lower income levels and larger unorganised economic sectors (in India, this comprises enterprises owned by individuals or self-employed workers, employing less than 10 people).
Usual strategies to overcome economic shocks aren’t effective at such times. Francois Gerard, Clement Imbert and Kate Orkin propose in a paper that the governments of such nations need to provide social protection in the form of broad safety nets for the poor and vulnerable. They also describe and categorise the kinds of safety nets governments of developing countries can provide.
And here’s a podcast where Clement Imbert and Kate Orkin discuss the recommendations in their paper:
Drawing from the paper and the podcast (and with some additional explanations and links of our own), here’s our summary of their recommendations and thoughts.
The Nature of the Problem: Observations by Gerard, Imbert and Orkin
- The economic shock suffered by developing countries is huge and unusual (since this is the combination of a health and economic crisis). To give you a sense, a survey conducted by the NGO BRAC in Bangladesh concluded that due to COVID-19 lockdowns, household incomes are down by 70%, employment by 60% and consumption by 20-30%.
- Due to the nature of this crisis, with the lockdown and the fear of the virus necessitating social distancing, common strategies people use to mitigate the effects of such a shock, such as migrating to urban areas or asking neighbours and family for assistance, are unavailable. And so safety nets are the only feasible option to save a large number of people from the worst effects of this shock.
- We must keep in mind, however, that raising money to provide, will be a challenge for developing nations at a time of such reduced economic activity, trade, prices and tax revenues. The G20 meeting and decision to postpone debt payments for the least developed countries may have provided some relief, but this problem looms large still.
The Nature of the Solution: Three Strategies
What kind of social safety net should a developing country’s government ideally provide? Gerard, Imbert and Orkin divide up the options into three kinds of strategies: Social Insurance, Social Assistance and the involvement of local governments and non-state actors.
Social Insurance:
Social Insurance, defined simply, is a public insurance program that provides citizens or groups of citizens protection against various economic risks, such as loss of income due to old age, sickness or unemployment. Participation is often compulsory and employers often pay the premiums, wholly or in part, for their employees.
- In developing nations, implementing an effective Social Insurance scheme is difficult. Many people are employed in unorganised sectors of the economy (informal and unregistered businesses which don’t contribute to Social Insurance programs), many others though employed in the formal sector are on informal contracts, and a sizable number are self-employed. Also the government Social Insurance programmes in developing countries are more limited, when compared to higher income countries— even in the formal sector, the proportion of workers eligible for Social Insurance programs is much lower.
- An alternative solution could be job retention schemes through which the government subsidizes firms to prevent them from laying off their workforce, even if they aren’t working. Besides social protection this also ensures productivity. The idea behind this is that workers have ‘firm-specific’ human capital (they are more productive in their existing firms). If a worker is laid off and employed somewhere else later, the economy experiences a loss of productivity. Brazil, South Africa, Morocco and Thailand have implemented versions of these schemes.
- Even if such schemes are not feasible, the government could still offer firms tax relief or delay tax payments. In the case of firms having to let their workers go, governments could implement mandatory severance pay or top up the payment workers are already receiving.
- For the self-employed, there may be creative alternatives like those implemented by Brazil: the introduction of emergency low interest credit lines and unconditional monthly cash transfers.
Social Assistance:
Social Assistance, very simply put, is support the government provides to those in need, through cash transfers, or in-kind assistance.
- As mentioned already, Social Insurance may not be very effective in developing countries. Its alternatives, mentioned above, may have a limited reach too. This is where the strategy of Social Assistance comes in. Besides cash and/or in-kind (eg. food and medicine) transfers this could also be executed through public works programs.
- The governments of developing countries have the requisite tools with which to make much more of an impact with Social Assistance. World Bank data shows 80% of households in Asia are covered by at least one Social Assistance program or the other. So most developing nations already have some kind of Social Assistance infrastructure which they could expand upon.
- Transfers, especially in-kind transfers, are especially useful when the usual supply chains have broken down. Eg. India’s increase in ration distributions for the poor through an existing PDS system, during the COVID-19 crisis, and Indonesia’s increase in the amounts and frequency of its cash transfers (which are quicker and give beneficiaries more flexibility in terms of meeting their needs).
- While public works programs are not easily compatible with social distancing, their frameworks and infrastructure can be used to provide payments, in the short term, even when working is not possible for many people.
- Identifying the correct beneficiaries for such transfers is necessary. This can be done through the creation of bank accounts and with the help of census data, as was done in Peru.
- Equally important for the success of such programs is the flow of information to all citizens in order to be able to extend Social Assistance programs to new beneficiaries. To this effect, public information programs help to ensure schemes and transfers reach the maximum number of beneficiaries. Pakistan’s expansion of its old Social Assistance program, ‘Ehsaas’, to millions of new families is an example of this.
- The dangers of fraud, corruption, leakages, and assistance programs reaching those who do not require them were standard concerns for policy makers in the pre-covid era. However, it has now become clear that trading off thorough targeting for a quicker dispersal of assistance is imperative. Emergency fast cash to the poor has been described as a ‘no regrets’ policy (besides humanitarian arguments, it is a smart investment towards long term poverty alleviation), and even warrants, to an extent, any loss of resources due to corruption or Social Assistance reaching those who do not require it.
- Even if Social Assistance programs fail to reach a proportion of the poor and vulnerable, they should still be carried out because intended beneficiaries often share the benefits they receive; both within their households as well as with other households, in the form of loans, leading to a greater overall effect on the economy.
Involving Local Governments and Non-State Actors
- Although many of the programs described above are top-down in nature and led by central governments, local governments and non-state actors working at the grassroots level are essential to expand their reach, ensure the flow of information stays unbroken and to encourage communities to sign up for programs.
- We can already see the role of local governments in facilitating programs such as MGNREGA in India, as well as the benefits of the Panchayat System as a whole. In Kenya each village of 120 to 200 households has a village leader who reports to the lowest rung of civil servants. These institutions, along with non-state actors, like self help groups, can play a much-needed role in assisting difficult-to-reach populations.
- They can encourage beneficiaries to sign up for programs if the beneficiaries do not have information. Eg. South Africa had a network of early childhood community caregivers whom the government used to help families enrolling in child support grants before the COVID-19 crisis— they could be used in these times; in terms of non-state actors, India used savings and loan associations to help people to sign up for health insurance schemes (again, before COVID-19).
- Local structures can be used to identify individuals in dire need of social support as well as assist in passing on crucial information from the ground to decision makers.
- They can also serve as a part of the delivery infrastructure of Social Assistance schemes. Eg. In instances where governments cannot directly deliver benefits, like cash handouts, due to a shortage of bank accounts, the state would have to rely on local institutions and/or non-state actors to deliver these.
Francois Gerard is Assistant Professor of Economics at the Queen Mary University of London; Clement Imbert is Associate Professor at the Department of Economics of the University of Warwick; Kate Orkin is Senior Research Fellow in Behavioural Economics at the Blavatnik School of Government.
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