Social Protection for All: but How?

SocialInternational protection Labour for Review,all: But Vol.how? 139 (20 00), No. 2 129

Social protection for all: But how?

Roger BEATTIE*

t is absolutely clear that a very large proportion of the population in most I regions of the world does not enjoy any social protection or is covered only very partially. This is the case for the vast majority of people in developing countries, and even in some of the richest industrialized countries there are large gaps in social protection (ILO, 2000a). Precise measurement of the problem is not easy. In some cases, for example in health care, the most appropriate measure is the number of protected persons as a percentage of the total population. In other cases, for contributory benefits designed to replace earnings from work, the appropriate measure is the number of contributors as a percentage of the labour force. A further complication is that coverage often varies from one branch of social protection to another. For example, unemployment and employment injury insurance usually covers a smaller proportion of the workforce than old- age, invalidity and survivors’ insurance; health care and family benefits, on the other hand, often have wider coverage than pension insurance. Consideration must also be given to the level of the protection provided. To cite a real example, a country may have health care coverage for almost 100 per cent of the population, but it may reimburse on average only about 50 per cent of the cost of hospital care, leaving individual families to bear a large part of the risk. Furthermore, health care coverage may be relatively wide, but the quality of the care provided woefully inadequate. Thus it could be quite misleading to compare social protection coverage in different countries on the basis of any single measure. 1 What is clear from the figures available is that a high proportion of the workforce (typically 80 per cent or more) is covered in industrialized countries, usually for a wide range of contingencies, while in many countries of Africa and Asia a very small minority (less than 10 per cent) is covered, usually for a more restricted range of contingencies. In Latin America coverage ranges from more than 60 per cent to less than 15 per cent. Coverage in many sub-

*Social Security Department, ILO, Geneva and Head of the Special Team for the prepa- ration of the ILO’s World Labour Report 2000: Income security and social protection in a changing world . 1 Given the paucity of reliable data on coverage and the difficulty in interpreting them, it is useful to look also at data on social security expenditure, which can help to indicate the extent and quality of coverage provided (see ILO, 2000a, Statistical Annex).

Saharan African countries is estimated to be as low as 1 per cent of the labour force, e.g. in the Gambia, Niger and Chad (Bailey, 2000). It attains moderate levels in North Africa, namely 22 per cent in Egypt and 24 per cent in Tunisia, although these figures are thought to reflect coverage under the law, rather than actual compliance, which tends to be very low among the self-employed. The problem of low coverage is of course not new, especially in countries where large numbers of people work in subsistence agriculture. However, in recent years, prospects of resolving — or at least mitigating — it have taken a dramatic turn for the worse, as an increasing proportion of the urban labour force has had to resort to working in the informal economy. The result is clearly visible in table 1.

Table 1.Informal sector employment Country Year of surveyUrban informal sector employment in per cent of total urban employment Total Male Female

AfricaAfrica Benin1 1992 47.9 52.5 41.4 Botswana2 1996 19.3 12.3 27.6 Cameroon3 1993 57.3 ...... Côte d’Ivoire 4 1996 52.7 37.3 73.3 Ethiopia 1996 33.0 19.3 53.4 Gambia1 1993 72.4 66.1 82.7 Ghana 1997 78.5 ...... Kenya2 1995 58.1 ...... Madagascar1 1995 57.5 ...... Mali1 1996 71.0 ...... Mauritius2 1992 24.0 ...... Morocco1 1988 28.2 ...... South Africa 1995 17.4 11.1 26.4 Tunisia2 1981 38.6 ...... Uganda 1993 83.7 67.6 80.5 United Republic of Tanzania 5 1995 67.0 59.7 85.3 Zambia6 1993 80.7 ......

Asia Bangladesh7 1993 10.0 10.0 16.0 Fiji6 1990 43.0 ...... India 1993 44.2 ...... Indonesia8 1995 20.6 19.1 22.7 Iran, Islamic Republic of 1 1996 17.9 03.4 89.5 Kazakhstan 1996 17.3 ...... Kyrgyzstan 1994 11.9 ...... Myanmar9 1996 54.2 52.6 56.9 Pakistan1 1992 67.1 65.9 80.6 Philippines 10 1995 17.0 15.8 19.4 Sri Lanka 1985 ...... Thailand6 1994 76.8 75.3 78.6 Thailand 1994 47.6 46.1 49.4 Turkey1 1993 15.0 ...... Social protection for all: But how? 131

Table 1. Informal sector employment (cont.) Country Year of surveyUrban informal sector employment in per cent of total urban employment Total Male Female

Latin America and Caribbean Argentina2 1995 45.7 ...... Bolivia1 1996 58.5 54.0 63.8 Brazil2 1995 48.2 ...... Chile1 1997 30.3 31.9 27.4 Colombia11 1996 53.4 53.5 53.4 Colombia2 1995 51.5 ...... Costa Rica2 1995 39.6 ...... Ecuador1 1997 40.0 39.0 41.6 Ecuador2 1995 47.6 ...... Guatemala6 1989 53.5 ...... Honduras2 1995 49.0 ...... Jamaica2 1996 23.5 26.2 20.6 Mexico12 1996 27.4 28.1 26.2 Mexico2 1995 54.0 ...... Netherlands Antilles 1997 11.0 14.0 08.0 Panama2 1995 33.7 ...... Paraguay1 1996 46.4 47.0 46.0 Peru1 1997 51.9 47.7 57.5 Uruguay 1997 30.1 32.8 26.8 Venezuela2 1997 42.4 44.2 39.5

Notes: 1 Agriculture excluded. 2 Urban and rural, agriculture excluded. 3 Yaounde only. 4 Abidjan only. 5 Dar-es- Salaam only . 6 Urban and rural. 7 Manufacturing and selected services. 8 Urban and rural, manufacturing only. 9 Agriculture, trade, hotels and restaurants excluded. 10 Capital region only. 11 Ten metropolitan areas. 12 Large cities, agriculture excluded. Source: ILO, 2000a, Statistical Annex, table 7.

In various countries of Latin America, almost all new jobs are being created in the informal economy. Other parts of the developing world have been affected as much, or in some cases even more: not only are most new jobs being created in the informal economy, but the formal economy has been recording large job losses. For example, in the case of Kenya, informal employment accounted for almost two-thirds of total employment in 1996, compared with just 10 per cent in 1972 (ILO, 1999a). In the case of India, if agriculture is included, more than 90 per cent of workers are now to be found in the informal economy.2 Of course, the informal economy is not really a “sector” as such. It is in fact a phenomenon to be found in almost all sectors. And it includes workers of all categories: employees, the self-employed, homeworkers, unpaid family

2 The precise figure is 91.7 per cent (source: Central Statistical Office of India). 132 International Labour Review workers, etc. Informalization is not restricted to small-scale enterprises: in many countries it includes unregulated wage labour throughout the economy, e.g. in Argentina and Brazil approximately 40 per cent of wage earners are in informal employment. In many countries a higher proportion of women work in the informal economy, to some extent because there they can more easily combine work with family responsibilities, and to some extent for other reasons related, for example, to discrimination encountered in the formal economy (Lund and Srinivas, 1999). Table 1 shows that in two-thirds of the countries for which separate figures are available, the percentage of women working in the urban informal economy is higher than the percentage of men. There is a widespread tendency for women to remain trapped in the informal economy for much of their working lives, whereas for many men it is merely a temporary stop-gap. This difference has important implications for long-term income security (e.g. in old age). Informal economy workers have little or no security of employment. Their earnings tend to be very low and to fluctuate more than those of other workers. Whenever they are unable to work — for whatever reason — they have no income security. A brief period of incapacity can leave the worker and her or his family without enough income to live on. The sickness of a family member can result in costs which destroy the delicate balance of the household budget. Work in the informal economy is often intrinsically hazardous and the fact that it takes place in a wholly unregulated environment makes it still more so. Women face additional disadvantages owing to discrimination related to their repro- ductive role, e.g. dismissal when pregnant, or upon marriage. Women in the informal economy do not benefit from the safeguards and benefits related to child-rearing that commonly apply to women in formal wage employment (e.g. family allowances, paid maternity leave, nursing breaks, assistance with the cost of childcare). It is now widely recognized that there is a pressing need to find effective ways to extend social protection. In the past the alternative was a stagnation in the proportion of the labour force covered. Today, the alternative is very likely to be a reduction in the rate of coverage or even in the absolute numbers of workers protected, as has occurred in parts of sub-Saharan Africa. Historically, those sections of the labour force which enjoyed good social protection were frequently unconcerned about others less fortunate than themselves. Indeed, in some cases, their attitude to wider coverage was negative, as they feared that, if it were extended, the quality of protection would fall, for example because state subsidies might have to be spread more thinly over larger numbers of workers or beneficiaries. Nowadays, however, there appears to be a wider realization in the organized labour movement that lack of protection in the informal economy is bad not only for those directly concerned, but also for workers in general. There are two main reasons for this: more and more workers are at risk themselves of having to work in the informal economy some day, because of the informalization of their jobs or of unemployment; and lack of social protection in the informal economy makes production costs lower than Social protection for all: But how? 133 they would otherwise be, placing weaker firms in the formal economy at a com- petitive disadvantage and thereby putting the jobs of their employees at risk. In order to prevent unfair competition, some employers in the formal economy are also no doubt concerned that social protection should be extended to those who are not covered. However, for many firms the informal economy is not so much a source of competition as another link in the production and distribution chain. If, for example, firms can cut costs by substituting contract labour for regular employees, they will do so. And, it must be admitted, if employees with regular jobs can get their home repairs done more cheaply by workers paying no tax or social security contributions, they too will do so. The widely felt concern about the growing numbers in society who are deprived of social protection will have some effect only if it is translated into political action. The next part of this article will stress the importance of taking due account of the wider economic, social and political context when defining the scope of the problem. The various options for extending social protection will then be evaluated according to a number of fundamental criteria: affordability; capacity to cater for those in greatest need; and capacity to promote gender equality.

Taking account of the wider context Policy-makers have so far been unable to come up with any very promis- ing remedies to the lack of social protection. This may be because existing social protection policies are inappropriate. It may be because insufficient efforts have been made to implement these policies. Or it may be because the lack of social protection is related to much wider economic, social and political problems. If policy-makers define the problem too narrowly, their chances of finding feasible solutions may be greatly reduced. It is therefore advisable to consider the wider economic, social and political context. The political situation of a country is the first and most crucial factor. As Amartya Sen recalled in his address to the International Labour Con- ference in 1999, there has never been a famine in a democratic country. And, to take another, more specific example, the introduction of health services covering all residents in southern Europe occurred shortly after three of the countries concerned — Greece, Portugal and Spain — emerged from decades of dicta- torship. Moreover, the linkage between democracy and social protection oper- ates in both directions. For people tend to have a far greater attachment to a political system if it provides them with social protection. So, not only does democracy favour the development of social protection, but the extension of social protection is of vital importance in promoting social stability and democratic participation by all groups in society. For countries where democracy has recently been established and remains fragile, this consideration is of para- mount importance. Other external factors which must be considered are the macroeconomic situation and the state of the labour market, and the policies relevant to these. The prospects for extending social protection (by any of the methods consid- 134 International Labour Review ered below) will depend to a very large extent on the demand for labour. So long as demand remains weak, many people will have no access to decent jobs and will be forced to depend on ill-paid and unprotected work in the informal economy. However, if the demand for labour increases, far fewer workers will have to resort to the informal economy and to accept the poor conditions that characterize it. Many commentators consider that the informal economy will not disappear naturally as part of the development process. But neither its size nor its character is predetermined and there is much that governments can do to affect both. Foremost among the relevant policy tools is a macroeconomic policy designed to achieve a better balance on the labour market. If governments are really going to achieve success in this respect, they will find it necessary — given the global pressures constraining most national economies — to pursue this objective in the relevant international forums far more purposefully than in the past. And, what is more, it is likely that new forums for international governance will have to be created in order to make these efforts really effective. Excessive demands should not be made of social protection systems — they are clearly no substitute for an adequate macroeconomic policy. Nor can they alone achieve a fair distribution of earnings and other incomes. Other policies must play their part, for example, a decent minimum wage (supple- mented by family allowances for workers with children to support), a progres- sive income tax and a wealth tax. Some social protection schemes redistribute from the rich to the poor, but this cannot (and indeed should not) be the main objective of all schemes if the interests of people are to be properly safeguarded when they are sick, disabled, unemployed, retired, etc. Regional economic policy is also of importance, since rapid structural change is tending to leave certain regions in a relatively weak economic position — a nation’s social protection system is not an effective instrument for solving this problem, even if it may play a crucial role in alleviating and limiting the adverse consequences that may occur. Whether or not people will be able to achieve an adequate income from work will depend not only on the demand for their labour and on measures to ensure that they are fairly rewarded, but also, of course, on the skills they have to offer and on their living in — or reasonably near — a place where jobs are available. Education and housing therefore profoundly affect people’s chances of earning a decent living. For various reasons, the market has often failed to ensure adequate provision of these services, and governments in most countries, especially those which have been successful in achieving high incomes and good social protection, have found it necessary to take responsibility for providing services in these areas. Efforts to provide gainful employment and social protection cannot succeed if the population does not have access to these basic services. Social protection for all: But how? 135

Options for extending social protection This article will now examine the various options for extending social protection. Each of these is assessed according to three criteria: affordability, capacity to cater for those in greatest need, and capacity to promote gender equality. It is unlikely that any single option will be the right solution. In practice, social protection is almost always provided in a combination of different ways (often referred to in the industrialized countries as the “welfare mix”). A better understanding of the actual and potential linkages between different forms of provision is needed, and particularly of their dynamic linkages and transforma- tions over time — bearing in mind that the extension of social protection to all the world’s population is a process that, even on the most optimistic assump- tions, is going to take a considerable time. Basically, there are four options for extending social protection: —extending the compulsory coverage of contributory schemes; —promoting voluntary coverage by contributory schemes, inter alia through the provision of state subsidies; —introducing universal benefits or services financed from general state revenues; —establishing or extending means-tested benefits or services (social assistance), also financed from general state revenues. None of these options should be excluded a priori. All are likely to have some part to play in a fully developed system of social protection. But careful thought has to be given to their respective roles and to the linkages between them. Achieving a better understanding of these is central to achieving progress and is a key element in current ILO work on the subject.

Extending the compulsory coverage of contributory schemes Whenever contributory schemes have been made compulsory for a limited section of the labour force in the formal economy, legislators have usually envisaged extending their coverage at a later stage. The initial restriction of coverage has almost invariably been justified by invoking practical constraints, e.g., the administrative infrastructure did not exist which would permit the collection of contributions from workers in small firms or from the self-employed, or health care facilities did not exist in rural areas, so workers there could not be required to contribute. These reasons were — and in many cases remain — perfectly valid. However, the question that should always be asked is what is being done to remove these constraints. The answer in many cases is “very little”. The reasons are: —lack of effective political pressure from those who are not protected; —the unwillingness of the State to assume new and potentially costly com- mitments; and —administrative inertia. 136 International Labour Review

Initial social security legislation was often adopted under pressure from, or at any rate to win favour with, the organized workforce in the public sector and in large firms. Not only is the rest of the workforce usually much less well organized, but in many countries the strength of workers’ organizations has declined markedly in recent decades, with the rise in unemployment. This factor helps to explain why in numerous developing countries not only have social security schemes not been expanded, but existing schemes have often been sorely neglected, e.g. by failure to adjust contributions ceilings and benefit amounts to take account of rising prices and earnings. Existing social security schemes may make calls upon government revenue, e.g. to support some or all of the administrative costs, to pay the employer contributions for insured workers employed (directly or indirectly) by the State, to cover the costs of minimum benefits, to cover deficits, or — more rarely — to subsidize the contributions of some or all of those covered. To extend coverage may greatly increase the aggregate costs to the State, particularly as workers newly covered may be expected to have lower incomes (which will adversely affect the average costs of administration and of minimum benefits). Some governments have thus been reluctant to extend social protection, particularly when public finances were already under strain. (It should not be thought that social security is always a drain on the public purse: in some cases it is entirely self-financing, and in other cases social security funds have been used — often wrongfully — to finance government expenditure.) Finally, the role played by administrative inertia should not be underesti- mated. The institutions which prepare legislative proposals to extend social protection are usually those responsible for administering the existing system. In many cases, they are trying to discharge these responsibilities in difficult conditions, particularly when civil service rules restrict the number of staff they can hire and the pay that they can offer in order to attract people with the specialist qualifications required (e.g. in information technology). Compliance rates are very commonly well below 80 per cent and they would no doubt be much lower still if coverage were extended to smaller firms and/or rural areas. In the absence of strong encouragement from the government, social security administrators thus have little incentive to propose extensions of coverage, since it would make it still more difficult for them to discharge their existing responsibilities. None of these problems is easy to address. Lack of organization among working people is not something which the State can remedy, though it can certainly help to create the necessary preconditions by removing all constraints on freedom of association. The financial implications for the state budget are more amenable to change: for example, regular government subsidies which were feasible only for a scheme with limited coverage may be gradually phased out as the scheme is extended. As for administrative inertia, this may be at least partially remedied by government action to facilitate the work of the social security administration, e.g. by releasing it from civil service rules on staffing and pay, and by giving it a clear instruction to formulate, within a certain time frame, legislative proposals to extend coverage. Social protection for all: But how? 137

Much has been written about the unwillingness of workers and employers to pay social security contributions. This is a real problem, but it is by no means unique to countries where there are large gaps in social security coverage. All countries have their share of rogue employers who would try to cut costs by any means and of workers who — through shortsightedness or distrust — would prefer cash-in-hand to social security entitlements. What varies enor- mously is the capacity and determination of the social security administration to tackle the problem. The first thing is to produce credible estimates of non- compliance, in order to demonstrate that action needs to be taken (and that it can pay for itself, typically many times over). Secondly, more inspectors — with specialized training and conditions of employment designed to minimize the likelihood of corruption — can monitor the activities of economic agents to find those who are failing to pay their contributions, e.g. by making surprise visits to workplaces, and by scanning vacancy notices and advertisements by producers of goods and services. Thirdly, compliance can be greatly improved by education and persuasion of employers, and by more streamlined administrative methods which make it easy for them to pay their contributions. Finally, for the occasional case where an example has to be made, the sanctions for non- compliance must be meaningful, in order to have a deterrent effect, e.g. fines should not be subject to any flat-rate maximum (as this may be quickly over- taken by inflation), but should be some multiple of the contributions wrongfully unpaid.

Affordability Compulsory contributory schemes are normally financed by a contribution which is a percentage of earnings, half or more of which is paid by the employer (where there is an employer). 3 In the case of health insurance, in particular, this makes them much more affordable than insurance which people purchase in the market: the latter is as expensive for the low-income earner as for the high-income earner, it costs considerably more for a family than for a single person, and the employer is under no obligation to pay part of it. Affordability is to a large extent a subjective concept, depending not simply on the amount of the contribution in relation to a person’s budget but also on the value of the benefits which he or she expects to derive from it. With contributory schemes there is a strong presumption that people who have contributed will in due course receive benefit and that the amount of their benefit will be positively related to the amount of their contribution. (Typically, neither of these conditions holds in the case of schemes financed from general government revenue.) As a result, people tend to regard the contributions to such schemes as more affordable than a similar amount of taxation. This is no

3 Admittedly, many economists judge that the cost of the employer contribution tends to be borne by the workers, at any rate in the long term. Employers may also pass the cost of their contribution on in higher prices, depending among other things on the degree of competition from foreign producers. However, regardless of its ultimate incidence, the existence of an employer contribution undoubtedly helps workers to regard social security as more affordable. 138 International Labour Review doubt one of the reasons why countries with predominantly contributory systems usually provide more generous benefits than countries where benefits are mainly tax financed. Affordability is however an objective problem for low-income groups and for many of the self-employed, particularly as the latter have no employer to share the contribution. Measures can be taken to mitigate these problems, for example: —a minimum wage may be established at a level which takes account of the social security contribution a worker is required to pay; —a lower rate of contribution may be levied on an initial (low) band of earnings; —the total contribution for the self-employed may be reduced by granting them a more limited benefit package (e.g. excluding employment injury and short-term sickness benefits, which are in any case very difficult to administer in the case of the self-employed); or —the contributions of self-employed persons may be subsidized, either from general revenue or from the proceeds of a levy on the goods they produce or the inputs they purchase. When new social security schemes have been established in the past, they have almost invariably started out with a much lower contribution rate than that now in force. Thus, for employers and workers who were covered from the outset, it was relatively easy to absorb the cost of the new contributions. Over the years, as the entitlements of the entry generation have matured, contribution rates have had to rise. If, when the coverage of a scheme is extended to new groups, these higher rates are to apply immediately to those newly covered, many workers and their employers will find it difficult to afford them. It is therefore important to find ways of ensuring that a low rate is charged ini- tially and that it rises gradually, if necessary over a relatively long period. From an actuarial point of view, this is perfectly feasible as the newly covered persons will take quite some time to build up significant entitlements to long- term benefits and will therefore cost the scheme relatively little during the early years that they are covered. This financial flexibility can be provided under partial funding or pay-as-you-go methods of financing without adversely affecting benefits. (The same cannot be said for mandatory savings systems which are used in some countries to finance retirement income and health care costs: if such systems are to fulfil their objectives, then contribution rates must be set at the required level from the very outset.) It must be emphasized that although contributions may be set at a low level in the early stages, it is the duty of the authorities to ensure that long-run actuarial projections are carried out (and published) and that benefits are set at levels which may realistically be financed in the long term.

Capacity to cater for those in greatest need Unlike social assistance, contributory schemes do not of course subject the award of benefits to a test of need. However, when they are compulsory, such Social protection for all: But how? 139 schemes can and usually do tend to incorporate a number of features which favour workers likely to be particularly in need, such as the low paid or those whose adult life has been subject to chronic sickness or recurrent unemployment, e.g. by means of pension credits for periods of sickness and unemployment, minimum benefits, weighted benefit formulae, etc. These elements of solidarity, though often little known, can add up to quite significant support for the less well off, provided that they are members of the scheme. There is evi- dence to suggest that redistribution of this type is more acceptable to the public — both to the recipients and to those who finance it — than the more explicit form of redistribution exemplified by tax-financed social assistance. It should be noted, however, that mandatory savings systems do not permit solidarity or risk pooling as they are based on individual accounts. Any solidarity must then be provided through separate arrangements, such as social assistance, normally financed from general government revenue.

Capacity to promote gender equality Under contributory schemes, women are often at a disadvantage, as many of them are low paid and have to spend substantial periods of their adult life outside the labour force, taking care of young children or other family members. For both these reasons, the cash benefits which they receive (particularly their pensions) tend to be lower than those of men. However, in compulsory schemes, measures can be and often are taken to mitigate these problems, e.g. credits can be awarded to workers who temporarily withdraw from the labour force to look after young children, while other measures may be taken to help low-paid workers, as mentioned above. (Here again, such measures are not to be found in mandatory savings systems.) For women workers, the biggest drawback of contributory schemes is that so many women are excluded from coverage. Of course, many men are similarly affected, but research suggests that a higher proportion of the women who work do so in the informal economy and that women are more likely than men to remain in such work for long periods of their life, given the discrimination often practised against women in the formal economy and the fact that work in the informal economy is often more compatible with their role in the household.

Promoting voluntary coverage There are various ways in which the State can promote voluntary coverage: —subsidization of individual contributions, through tax concessions or match- ing contributions; —support for voluntary schemes, e.g. provision of training for administrators, help with set-up costs, etc.; —creation of a legislative and regulatory framework within which such schemes may operate. 140 International Labour Review

Social insurance coverage in many countries has for long been available on a voluntary basis to persons who are not subject to compulsory coverage. However, few people exercise this option, as they are unwilling — and indeed frequently unable — to pay the combined worker and employer contribution. Only in some cases do people have a strong incentive to contribute voluntarily, e.g. in order to preserve their pension entitlements or to complete the minimum period required to qualify for a pension. Most of the financial support currently given to voluntary coverage tends to go to supplementary pension and health insurance schemes and to favour the higher-income groups. The workers concerned are usually also covered by the statutory social security scheme, so this type of voluntary coverage must be viewed as a way to improve social protection rather than to extend it. It is, however, of some importance to quantify the support that the State gives to such schemes. This information can help lower-income groups who have no protection at all to argue their own case for receiving some financial support. If they are successful, then in future state support for voluntary coverage could be much better targeted than it is now. In recent years, voluntary social protection has started to develop in the very different form of micro-insurance schemes (Dror and Jacquier, 1999). The term micro-insurance refers to the limited size of the benefit package, not to the size of the scheme, though very often such schemes are in fact of a local character and have a very small membership. The primary aim of most of these schemes is to help compensate for the decrease in government financing of health services and, in particular, to help their members pay the user charges that were introduced (or increased) following the implementation of structural adjustment programmes. They do not usually aspire to provide comprehensive health insurance, still less to pay income-replacement benefits. It is estimated that, where they exist, these schemes usually attract about 25 per cent or less of the target population (ILO, 1999b). The only schemes which manage to achieve high penetration rates of between 50 and 100 per cent are those in very close- knit communities or those that all members of the target group (e.g. trade union or professional association) are required to join (Atim, 1998). This percentage, though far from satisfactory, is much higher than that achieved by social insurance schemes open on a voluntary basis to all the self-employed, no doubt because micro-insurance contributions are very much lower and because the schemes focus on providing only those benefits which are perceived by people as most urgently necessary. Micro-insurance schemes almost invariably provide no long-term benefits, such as old-age or invalidity pensions, though some do offer life insurance.

Affordability In one sense, voluntary coverage poses no problems in terms of affordability, since people are not obliged to contribute. When voluntary insurance supple- ments statutory social security, it is typically the more prosperous sectors of the economy which choose to provide it or the higher-income groups which opt to subscribe to it. Affordability may however be a problem where people have no Social protection for all: But how? 141 other form of social protection, as is typically the case of the populations targeted by micro-insurance schemes. The contributions, though low, are usually of a flat-rate amount, so that it is relatively more difficult for the lower-income groups to afford them — particularly when the workers concerned have lost their jobs in the formal labour force and are having to survive on the much lower incomes to be earned in the informal economy.

Capacity to cater for those in greatest need When a scheme is voluntary, it is not usually feasible for it to incorporate very significant elements of solidarity. For if it does so, the people who are financing this solidarity will tend to seek a better deal elsewhere, while the scheme will particularly attract those expecting to get more from the scheme than they put in. It should be noted that this problem of adverse selection affects schemes where individual affiliation is voluntary, such as micro-insurance schemes. It does not affect those which are voluntarily provided by a company as an integral part of the workers’ conditions of employment. (This is not to say that company schemes cater better for those in greatest need: in some cases this may be so, but in final-salary pension schemes, for example, there is typically a perverse redistribution in favour of employees whose earnings have risen most.) The nature of the benefit package must also be taken into account. For example, benefits provided by micro-insurance schemes often cover only medical costs, are subject to many restrictions, and no benefits are usually payable to members in respect of other contingencies, such as old age or invalidity, etc. The subject of this article is the extension of social protection, but it must be borne in mind that social protection is far from homogeneous. It is not just a question of whether people are covered or not; the range of contingencies covered and the level of protection provided must also be considered.

Capacity to promote gender equality The drawbacks of contributory schemes for women have already been commented upon when compulsory schemes were considered. In that context, certain measures can be taken to mitigate these drawbacks, but voluntary contributory schemes are much less able to take such measures, given their vulner- ability to the problem of adverse selection. Cultural factors may also be of some importance here. Voluntary schemes are often to be found within relatively homogeneous groups of the population, which may be characterized by less diversity in lifestyle, by lower levels of education and by more traditional views on gender roles than those to be found within the wider population covered by a national scheme. Indeed, one might go further to note the important influence which international organizations have exerted in promoting gender equality and which has been reflected in changes in national social security schemes, for example, in the European Union. Micro-insurance schemes may be the only chance that informal economy workers have to obtain a modicum of social protection. Given the large propor- 142 International Labour Review tion of women working in such jobs, micro-insurance may thus be viewed as an avenue to greater gender equality, even though within such schemes there is little or no redistribution from men to women. As mothers, women often show greater concern about family health problems than men. In some cases, their participation in the decision to join a micro-insurance scheme, and possibly also in running it, can help to empower them and to lay the foundation for greater gender equality in the long term. A tendency has been observed for the coverage of company schemes to be higher among male employees than among female employees, as the latter may not have been with the company long enough to build up their contributions or may be in categories excluded from the schemes. Women who are covered by such schemes tend to benefit less than men, as their periods of service with the company tend to be shorter and their salary progression less pronounced.

Introducing universal benefits or services financed from general state revenues Universal cash benefits are to be found in a number of industrialized countries, but only rarely in developing countries, e.g. Mauritius. Universal services, particularly health care, are more common, especially in the developing world. However, in recent years the universal character of these health services has been greatly eroded by the imposition of user charges, from which only the destitute are usually exempt.

Affordability Affordability is usually thought to be the Achilles’ heel of universal schemes. By definition, such schemes provide benefits to more people than does any other type of scheme (unless eligibility is more restricted, for example, by setting a higher pension age) and, other things being equal, may be expected to cost more. However, other things are frequently not equal. For example, a universal health care system is able to achieve much more effective cost control than other types of health care system and does not need to spend money on administering systems of insurance and patient billing. Another difference between contributory schemes and universal schemes is that the latter do not provide higher cash benefits to higher earners, but a single flat-rate amount to all who qualify. This, too, helps to hold down the cost of universal schemes. The real problem with universal schemes is not their aggregate cost (which is usually less than that of contributory schemes), but the fact that — unlike contributory schemes — they have to be financed from general government revenue and therefore have to compete every year with all the other expenditure priorities of the government. What may be deemed affordable one year, may not be the following year, if policies or ministers have changed. No country appears to be exempt from such changes, even the most democratic and the most socially aware. Social protection for all: But how? 143

Governments in many developing countries have particular problems in raising sufficient revenue, even for existing programmes, and still more for expensive new programmes. These problems have been exacerbated by the trend towards globalization, which has: —deprived governments of revenue from tariffs when these have been reduced or eliminated; —made it increasingly difficult to tax capital, as it has become more and more internationally mobile.

Capacity to cater for those in greatest need If benefits or services are truly universal, then those in greatest need will have access to them like the rest of the population. However this presupposes that an adequate network is established by the government to provide the benefits or services in question. All too often, such networks have been adequate only in urban areas, while many of those in greatest need live in rural areas and encounter insuperable problems in obtaining the benefits or services to which they are in principle entitled. It is the responsibility of the authorities to ensure that people receive what is due to them: this means not just waiting for them to apply, but going out to inform them of their rights and finding those who, for whatever reason, are not receiving their entitlements under the legislation. If universal schemes are administered in this way, then they are a very powerful instrument for reaching those in greatest need.

Capacity to promote gender equality By definition, universal schemes are not conditional upon employment or earnings. They are therefore an ideal way to provide benefits or services to the large percentage of women who work either in the home or in the informal economy; and they provide the same benefits to men and women, regardless of what the women earned while working. Child benefits which, along with old-age pensions, are one of the most common universal benefits, can be of immense importance in promoting gender equality: —they are normally payable to the parent directly caring for the child, who in most cases is the mother; this helps to improve the distribution of cash income within the family and thus to empower women; —many families are too poor to send all their children to school and choose to send only their sons, as daughters are often (no doubt wrongly) thought to have less need of formal education and to be more useful in the home: child benefits help families to afford to send all their children to school and indeed school attendance may be made a condition of payment. Old-age pensions are of particular importance to women, since in virtually all countries life expectancy is significantly greater for women than for men. This greater life expectancy means that, without a guaranteed income in their old age, women are much more likely to exhaust any savings and property 144 International Labour Review they may have accumulated during their working lives. It also means that women are far more likely to be widowed than men, a fact which subjects them to higher costs in many respects (for example, those associated with living alone) and renders them more vulnerable from an economic point of view. Even if, for reasons of economy, a universal old-age pension scheme has to be limited to persons of an advanced age (for example, 65 or even 70 years), it may still greatly benefit women.

Establishing or extending means-tested benefits or services (social assistance) Social assistance is to be found in virtually all industrialized countries, where it serves to plug (at least some of) the gaps in provision left by other social protection schemes, for example, for the long-term unemployed who have exhausted all unemployment benefit entitlements; for those who cannot work and whose other benefits are too low to ensure a minimum standard of living for themselves and their families; and for those who require expensive medical or personal care but do not have adequate insurance. In developing countries, social assistance is much less widespread. Where it exists, it is usually restricted to just one or two categories of the population, such as the elderly.

Affordability The relative paucity of social assistance in the developing world testifies to the problems which many governments have in devoting adequate resources to it. This should not be seen purely as a reflection of the low absolute level of national income or of government revenue. Naturally these factors are important, but so also are the government’s political priorities. It is all too clear, for example, that most governments deem military spending to be much more important than social assistance. The situation is particularly flagrant in military dictatorships, but even in thoroughly democratic countries social assistance is usually very low on the list of government priorities. It is easy to see why: the potential beneficiaries are only a minority of the population and, what is more, have little opportunity to articulate their needs and little power with which to back up their demands. In the majority of countries, expenditure on social assistance is very much lower than that on other types of social protection, although in very few cases would anyone suggest that existing social assistance expenditure was adequate to cover all of a society’s needs. This implies that, in determining what it can afford to spend on social assistance, society does not use the same criteria as, for example, in determining what it can afford to spend on social insurance. People’s apparently greater willingness to pay social security contributions than taxes has already been commented upon: contributions confer a firm expecta- tion of receiving benefit in future. In the case of social assistance, however, relatively few people expect or hope to receive it themselves, while many sus- pect that those who do receive it are doing so wrongfully. Little wonder, there- Social protection for all: But how? 145 fore, that its affordability poses some problems, though clearly most societies could afford to provide more social assistance if they really wanted to. While governments find it difficult to devote enough resources to social assistance, they often take the view that it is more affordable than providing universal (i.e. non means-tested) benefits. Restricting benefits to the poor does indeed help to reduce aggregate expenditure — though probably less than one might think, as the administration of an effective means test, particularly in the context of a developing country, is extremely costly. Furthermore, to think merely in terms of aggregate expenditure ignores the fact that universal schemes are usually far more popular than social assistance and, at least in a democracy, may be expected to be given a much higher budgetary priority.

Capacity to cater for those in greatest need In theory, social assistance is targeted only at those in need and the means test can be made rigorous enough to exclude all but those whose needs are greatest. In practice, things tend to be different, even in the most sophisticated social assistance systems. On the one hand, no means test is foolproof, so some people who are not eligible nevertheless succeed in obtaining benefits. This is particularly true in countries where there is a thriving informal economy, as is the case in the vast majority of developing countries. Such errors are serious not only because they cost money, but above all because they undermine public confidence in the system. On the other hand, social assistance benefits fail to reach many of those in greatest need for one or more of the following reasons: —persons in greatest need are unwilling to apply, as to do so may stigmatize them in the eyes of their neighbours and friends (even in social assistance systems which have tried long and hard to eliminate stigmatizing prac- tices, there are many people who are entitled to benefits but who do not claim them); —they would find it demeaning and upsetting to have to reveal details of their financial and personal circumstances to a third party, especially another member of their own community; —they may be unaware of their rights under the legislation (this is very often the case even in countries where literacy rates are close to 100 per cent and is likely to be still more of a problem in much of the developing world); —they find it difficult to submit an application for benefit, either because the administrative procedures are complicated (e.g. providing the required documents and filling in forms) or because the process is costly and/or time-consuming (e.g. if the office is far from home and there is a long queue); it should be borne in mind that many of those in greatest need will be totally unfamiliar with administrative procedures, will find travel difficult, and may well be as time poor as they are financially poor; —social assistance is often subject to considerable administrative discretion, so that people who for religious, ethnic, political or other reasons are not favoured by the official responsible may wrongly be denied benefit. 146 International Labour Review

The more rigorous the means test, the greater the likelihood that people will be put off from applying and that those in real need will fail to get benefit. Even disregarding these two sets of problems, social assistance has another major drawback: it can discourage saving (or encourage dissaving), if people think that any savings they have will simply be deducted from the social assistance that they would otherwise receive. Similarly, it may discourage them from contributing to other forms of social protection. Thus, it can help to create situations of need because of the perverse incentives inherent to means testing.

Capacity to promote gender equality Social assistance, like universal benefits, is in no way conditional upon previous earnings or employment, so it does not penalize those who have been unable to secure work in the formal economy, be they women or men. Further- more, as women tend in general to have lower incomes than men, benefits reserved for the poor will in principle help to redistribute income in favour of women. To the extent that social assistance schemes provide benefits for the elderly and for families with children, they may also help to promote gender equality in the ways outlined above in the case of universal benefits. However, in terms of dignity and empowerment, social assistance systems seem likely to have a less positive effect. Decisions on the award of benefit are likely to be taken by men and, particularly where discretion is exercised at the local level, this may mean that women applying for social assistance are sub- jected to a high degree of social control.

Linkages between different components of social protection The different options for extending social protection have each been assessed individually. However, it is necessary to bear in mind that most social protection systems are mixed and that there are linkages between their different components. One obvious linkage is that certain benefits are designed to supplement others. Compulsory contributory benefits may supplement universal benefits. Voluntary contributory benefits may be intended to supplement one or both of these. The linkage between social assistance benefits and the other components of social protection is of an entirely different nature. If a social assistance beneficiary is eligible for other social benefits, then the latter will be deducted from what would otherwise have been paid by social assistance. If these other benefits are contributory, the result is that the person has contributed for noth- ing. This may simply cause disappointment. However, if it is predictable, as in the case of old age, then it may well create perverse incentives, e.g. by encour- aging people to avoid, where possible, paying social insurance contributions. In a country where most people are wage earners and where there is a decent minimum wage, this problem is unlikely to be of any significance. However, in many developing countries, an increasingly large section of the workforce is Social protection for all: But how? 147 earning very low incomes, often in the informal economy. These people are likely to realize that any contributions they pay will make no difference to their income in old age. Logically, they will do all they can to avoid paying. This suggests that the relationship between means-tested schemes and contributory schemes has to be carefully thought through. Among the issues which deserve attention are: the sequence in which social assistance and contributory schemes should be established; the relative levels of benefits provided by each; and whether eligibility conditions (e.g. pension age) should be different. These issues give rise to real dilemmas. As policy-makers become more aware of them, they may be more prepared to give universal schemes serious consideration. Social protection is constantly changing and the direction in which it is likely to change is often highly dependent on what has gone before. Policy- makers should be conscious of these dynamic linkages, since otherwise the final result of their decisions may diverge significantly from their intentions. For example, they may be very keen to encourage the establishment of contributory schemes, in view of the many advantages which such schemes obvi- ously have. However, if these schemes fail — and with non-statutory schemes in an unregulated environment this is quite likely to happen — then people’s trust in such ventures may by destroyed for a long time to come. Or to take another example, tax policies may result in the establishment of voluntary contributory schemes for some workers, creating vested interests (notably among the financial institutions involved in managing them) which would stand in the way of establishing a national social security scheme covering all workers.

Conclusions Most people with no social protection belong to the economically weaker sections of society. The aim in the long term should be to bring them into a national scheme covering the whole population (or the entire labour force, as the case may be) where they can benefit from risk pooling and solidarity. It is illusory to think that all workers will be covered by contributory schemes in the short or even in the medium term. Compulsory schemes are difficult to enforce, especially for some sections of the self-employed, but plans should be drawn up (and included in legislation) to extend coverage in a step- by-step manner, at least to all employees. The State can facilitate and support voluntary schemes for those whom compulsory schemes are currently unable to reach, though it is clear that many of those in greatest need will never choose or be able to contribute to such schemes and will thus never benefit from any support which the State provides to them. Voluntary schemes should be encour- aged to develop in a way that will facilitate their ultimate integration into the national scheme and eventually the generalization of compulsory coverage. The main alternative to contributory schemes is social protection financed from general government revenue, which may take the form of means-tested or universal benefits. Governments in developing countries have been slow to develop either of these, being already under intense pressure in many cases to 148 International Labour Review cut existing public expenditure, within the framework of structural adjustment programmes. However such benefits need not be very costly: the category of persons eligible can be quite narrowly defined, at least at the initial stage, in order to limit the impact on the state budget. Over time, as the benefits prove their worth and gain political support, it should be possible to devote greater resources to them and to provide them on a less restrictive basis. Both types of benefit provided by the State can help those who are in greatest need. Universal benefits have the immense advantages that they are simple to administer and that they are a foundation on which individuals can build better income security for themselves and their families, as such benefits are payable both to the poor and to those with other benefits or savings. They can be a powerful tool to promote gender equality and, more generally, to enhance individual autonomy. Means-tested benefits are more complicated, especially where there is a large informal economy, and they tend to discourage people from saving and from contributing to social protection schemes. Some form of social assistance should always be available as a last resort, but as this type of provision is popular neither with taxpayers nor with beneficiaries, it is not desirable that a large section of the population should have to rely on it. Solidarity with many of the less fortunate can be quite effectively provided through universal schemes or compulsory contributory schemes. The goal of social protection is not mere survival, but social inclusion and the preservation of human dignity. As governments seek to extend coverage, they would do well to study the experience of countries where social security is popular and enjoys a high degree of public support. The difficult task of extending social protection is one for which they will need all the public support they can get.

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